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https://www.courtlistener.com/api/rest/v3/opinions/1819908/ | 450 F. Supp. 955 (1978)
Frank MAXEY and Mary Amanda Maxey, Individually and as next friends of Mary Kathryn Maxey and Carroll Kaylene Maxey, minors
v.
FRIEGHTLINER CORPORATION.
Civ. A. No. CA-3-76-1204-G.
United States District Court, N. D. Texas, Dallas Division.
April 21, 1978.
*956 *957 Foster Reese, III and Windle Turley, Dallas, Tex., for plaintiff.
Thomas G. Nash, Jr., Elliott, Churchill, Hensen, Dyess & Maxfield, and Royal H. Brin, Jr., Strasburger & Price, Dallas, Tex., for defendant.
OPINION AND ORDER
PATRICK E. HIGGINBOTHAM, District Judge.
On November 21, 1974, in Comanche, Texas, Billy Carroll Maxey and Mary Delia Maxey were burned alive in the cab of a truck manufactured by defendant Freightliner Corporation. The large diesel powered truck tilted on its side and slid approximately 288 feet to a stop, without forcefully colliding with any objects. The fatal fire erupted after the truck came to a stop. Bill's and Mary's death orphaned Mary Kathryn Maxey, age 12, and Carroll Kaylene Maxey, age 9.
This suit against Freightliner on behalf of the children and Billy's parents, Frank and Mary Maxey, followed. Trial to a jury resulted in no award to Billy's parents, awards totalling $150,000 to the two surviving daughters for the loss of their parents, and an award of $10,000,000 punitive damages. Not surprisingly the verdict has generated post verdict motions and extensive briefs.
Jurisdiction and Parties
This is a diversity case concededly controlled by Texas law. All plaintiffs are citizens of Texas. Freightliner is a financially successful company organized under the laws of the State of Delaware with its principal offices in Portland, Oregon. Having manufactured over 140,000 trucks of design similar to the death vehicle, Freightliner supplied approximately one-third ($280,000,000) of last year's gross receipts of its parent company, Consolidated Freightways ($870,627,000).
The Vehicle
Freightliner designed the fuel system on the truck-tractor so that the diesel fuel containers, commonly called saddle tanks, were located near the frame rails. The design placed the fuel tanks in proximity to occupants and close to ignition sources. These aluminum tanks lacked a flexible bladder to absorb impact and fuel line fittings which would separate in a crash, devices designed to reduce the fire hazard of a crash. In the crash, the truck turned over on its right side. The plaintiffs urge that the absence of these safety features permitted the fuel in the left tank to pour through the fuel lines and spill on the ground through the rupture in the right tank. When the Maxeys bought the truck, it had a fuel tank on the left side only, but the fuel system design contemplated the addition of a right tank and Billy Maxey added a tank manufactured by Freightliner for that purpose.
The Verdict
The jury answered Rule 49 interrogatories as follows:
Question No. 1: Did plaintiffs prove by a preponderance of the evidence that defendant's fuel system design contemplated and permitted the addition of the fuel tank on the right side at the option of the truck's owner?
Answer: Plaintiffs did prove.
Question No. 2: Did plaintiffs prove by a preponderance of the evidence that the design of the fuel system was unreasonably dangerous?
Answer: Plaintiffs did prove.
*958 Question No. 3: Did plaintiffs prove by a preponderance of the evidence that the unreasonably dangerous design found in question number 2 was a producing cause of the death of (a) Billy Carroll Maxey and (b) Dee Maxey?
Answer: Plaintiffs did prove for both (a) and (b).
Question No. 4: Did plaintiffs prove by a preponderance of the evidence that the design of the right tank was unreasonably dangerous?
Answer: Plaintiffs did prove.
Question No. 5: Did the plaintiffs prove by a preponderance of the evidence that the unreasonably dangerous design found in question number 4 was a producing cause of the deaths of (a) Billy Carroll Maxey and (b) Dee Maxey?
Answer: Plaintiffs did prove for both (a) and (b).
Question No. 6: Did plaintiffs prove by a preponderance of the evidence that the fuel system design was unreasonably dangerous for lack of adequate warning?
Answer: Plaintiffs did not prove.
Question No. 7: Did plaintiffs prove by a preponderance of the evidence that the lack of an adequate warning found by you in question number 6 was a producing cause of the deaths of (a) Billy Carroll Maxey and (b) Dee Maxey?
Answer: Not answered for either (a) or (b).
Question No. 8: Did plaintiffs prove by a preponderance of the evidence that the right tank was unreasonably dangerous because it lacked an adequate warning?
Answer: Plaintiffs did not prove.
Question No. 9: Did plaintiffs prove by a preponderance of the evidence that the lack of an adequate warning found by you in question number 8 was a producing cause of the deaths of (a) Billy Carroll Maxey and (b) Dee Maxey?
Answer: Not answered for either (a) or (b).
Question No. 10: What amount of money, if any, if now paid in cash, do you find from a preponderance of the evidence would fairly and reasonably compensate Kalley Maxey and Carroll Kaylene Maxey for their pecuniary loss resulting from the death of Billy Carroll Maxey?
Answer as to Kalley Maxey:
(a) care, maintenance, and support $32,142.86
(b) household services $ 4,285.71
(c) education, advice, and counsel $ 6,428.57
Answer as to Carroll Kaylene Maxey:
(a) care, maintenance, and support $42,857.16
(b) household services $ 5,714.28
(c) education, advice, and counsel $ 8,571.42
Question No. 11: What amount of money, if any, if now paid in cash, do you find from a preponderance of the evidence would fairly and reasonably compensate Kalley Maxey and Carroll Kaylene Maxey for their pecuniary loss resulting from the death of Dee Maxey?
Answer as to Kalley Maxey:
(a) care, maintenance, and support $16,071.43
(b) household services $ 2,142.86
(c) education, advice, and counsel $ 3,214.28
Answer as to Carroll Kaylene Maxey:
(a) care, maintenance, and support $21,428.57
(b) household services $ 2,857.14
(c) education, advice, and counsel $ 4,285.72
Question No. 12: What amount of money, if any, if now paid in cash, do you find from a preponderance of the evidence would fairly and reasonably compensate Frank Maxey and Mary Amanda Maxey for their pecuniary loss resulting from the death of Billy Carroll Maxey?
Answer as to Frank Maxey: -0-
Answer as to Mary Amanda Maxey: -0-
Question No. 13: In addition to actual damages, under Texas law you are also permitted to award the plaintiffs exemplary damages. "Exemplary damages" means an amount which you may in your discretion award as an example to others and as a penalty or by way of punishment, in addition to any amount which may have been found by you as actual damages. Exemplary damages may be awarded when death is caused by the willful act or omission or gross indifference of the defendant.
*959 If you should find that it was gross indifference for the defendant to sell the truck, fuel container and fuel system as they were designed, or to sell the truck, fuel container and fuel system without adequate warnings of the dangers inherent in such design, then you may award such exemplary damages which in your discretion will deter the defendant and other manufacturers from such conduct.
Answer as to Kalley Maxey: $5,000,000.00
Answer as to Carroll Kaylene
Maxey: $5,000,000.00
Question No. 14: Did defendant prove by a preponderance of the evidence that at the time and on the occasion in question, Billy Carroll Maxey voluntarily assumed the risk of his injuries?
Answer: Defendant did prove.
The Present Dispute
Defendant urges entry of judgment denying any recovery because the jury found "an assumption of risk"; that punitive damages are not recoverable in a strict liability case; and that there is insufficient evidence to sustain a jury finding that Freightliner acted with an intent which approximates a fixed purpose to injure.
This opinion and order decides those questions necessary to a disposition of post-trial motions.
I. Assumption of Risk
The first motion urged by Freightliner Corporation is that the jury's finding of assumption of risk on question number 14 bars all recovery. The finding of assumption of risk is not a bar for several reasons, the first being that it is not supported by the evidence.
The standard for reviewing the sufficiency of the evidence in this circuit is that:
"On motions for directed verdict and for judgment notwithstanding the verdict the Court should consider all of the evidence not just that evidence which supports the non-mover's case but in the light and with all reasonable inferences most favorable to the party opposed to the motion. If the facts and inferences point so strongly and overwhelmingly in favor of one party that the Court believes that reasonable men could not arrive at a contrary verdict, granting of the motion is proper. On the other hand, if there is substantial evidence opposed to the motions, that is, evidence of such quality and weight that reasonable and fair-minded men in the exercise of impartial judgment might reach different conclusions, the motions should be denied, and the case submitted to the jury. * * *" Boeing Co. v. Shipman, 411 F.2d 365, 374 (5th Cir. 1969) cited in Trawick v. Manhattan Life Insurance Co. of N. Y., N. Y., 447 F.2d 1293, 1295 (5th Cir. 1971).
The jury found two different design characteristics to be defects and each to be a producing cause of the accident. Freightliner's evidence was insufficient to show that Billy Carroll Maxey knew or could "be charged in law with knowledge or appreciation" of the risk created by either defect. Halepeska v. Callahan Industries, Inc., 371 S.W.2d 368, 381 (Tex.1963).
The jury found in answer to question number 2 that the design of the fuel system as a whole was defective. This design included the placement of the tanks behind the cab and dangerously close to the rails of the truck. The area behind the cab was shown to be a high impact zone, and placing the tanks near the rails of the truck unreasonably increased their exposure in the event of a collision.
The jury found in answer to question number 4 that the design of the right tank, the one which ruptured during the accident, was defective. Evidence showed that the tank was not reasonably crashworthy in that it lacked safety features such as a rubber bladder inside the tank to absorb any blows and fuel line fittings which would separate in a crash, minimizing the loss of fuel. Failure to add these safety precautions unreasonably increased the hazard of a post-crash fire.
In Henderson v. Ford Motor Company, 519 S.W.2d 87, 91 (Tex.1975), the Supreme *960 Court of Texas explained that under the Texas cases "the inquiry is whether [Maxey] voluntarily exposed [himself] to the risk with knowledge and appreciation of the danger." "[T]he test of the plaintiff's actual knowledge and appreciation of a dangerous condition is measured subjectively; i. e., by the plaintiff's actual, conscious knowledge." Massman-Johnson v. Gundolf, 484 S.W.2d 555, 557 (Tex.1972). Of course objective evidence that a plaintiff knew facts can support an inference of knowledge and appreciation of the danger. Rourke v. Garza, 530 S.W.2d 794, 800 (Tex. 1975).
Assumption of risk in products cases requires knowledge of both the specific defect and the risk of danger created by that defect. In Ellis v. Moore, 401 S.W.2d 789, 793 (Tex.1966), the court stated:
"It was the clear holding of this Court . . . that the knowledge of the defect is not enough. There must be knowledge of the danger involved and the appreciation of the danger. This court pointed out . . . that there must be knowledge and appreciation of the particular danger involved so that the plaintiff proceeds to encounter the risk as the result of an intelligent choice." (citations omitted)
The plaintiff must be aware of the type and the extent of danger presented by the particular defect.
"The intelligent choice to expose oneself to a danger presupposes an awareness of that particular danger. The success of the Volenti defense in Texas has turned on whether or not it was established that the plaintiff knew he was exposing himself to the danger which in fact caused him harm." Rabb v. Coleman, 469 S.W.2d 384, 387 (Tex.1971).[1]
Under this test Maxey must have known and appreciated the risk that if his truck turned over, the fuel system was designed such that the tanks would contact the ground and that those tanks were not designed to sustain a reasonable impact, and if punctured, had no safety mechanisms to reduce fuel spillage. Otherwise stated, Maxey had to be aware of the danger of unreasonable risk of fire created by both defective designs.
There was no testimony as to Maxey's actual knowledge, but the tank's position relative to the rails of the truck was readily apparent. From this the jury could have reasonably inferred that Maxey knew that in the event of a turnover the tanks would probably contact the ground. However, even if this constitutes knowledge of this design characteristic, Freightliner understandably made no attempt to show that Maxey was aware of the extent of the fire hazard, nor was there evidence from which such knowledge could reasonably be inferred.
Regarding the second defect, Freightliner Corporation offered no evidence that Maxey was aware that the right tank lacked a safety bladder and cutoff valves, much less any proof that Maxey knew and appreciated the scope and risk of the danger created by this defect.
*961 Finally, any attempt to deny the jury's award of exemplary damages because of Billy Carroll Maxey's assumption of risk ignores the fact that the injuries to Mrs. Maxey can sustain the finding of punitive damages. The court of civil appeals stated in Rourke v. Garza, 511 S.W.2d 331, 338 (Tex.Civ.App. Houston 1974) aff'd 530 S.W.2d 794 (Tex.1975):
"We find no cases in this annotation, nor in our research, nor have any cases been cited to us, in which the knowledge of one other than the user has been imputed to the user as a basis for a finding of voluntary assumption of risk. It cannot be said that one voluntarily and unreasonably proceeds to encounter a known danger when the knowledge of the danger has been imputed to him by reason of the knowledge of a fellow employee."
The Texas Supreme Court in Wilkinson v. Stevison, 514 S.W.2d 895 (Tex.1975) did not hold to the contrary. In Wilkinson the court imputed contributory negligence from a husband to his wife engaged in a commercial or business joint enterprise. Contributory negligence is an objective standard, but the test for voluntary assumption of a known risk is a subjective one. Furthermore, negligence is now a comparative fault system, and strict products liability is a no-fault doctrine designed to protect consumers. With the added idea that assumption of risk is at best a narrow defense to this extension of liability, the logic in Wilkinson is inapplicable here. See footnote 1 at page 7.
The jury's finding to question number 14 is set aside.
II. Exemplary Damages
Freightliner Corporation urges that the doctrine of strict liability and the remedy of exemplary damages are conceptually incompatible. Texas courts have not, however, barred the simultaneous presentation of both theories. At the least, the availability of exemplary damages in strict liability cases is an open question. Engaging in the Erie mandated guessing game as to the future course of Texas decisions, we have only one helpful opinion and its language is dicta. In Heil Co. v. Grant, 534 S.W. 916, 926 (Tex.Civ.App. Tyler 1976), writ ref'd, n. r. e.:
"Exemplary damages may be recovered for wrongful death resulting from a willful act or omission or gross negligence. Tex.Const. art. XVI section 26.
* * * * * *
"We believe that exemplary damages may be recovered under that provision of the Texas Constitution in a strict liability action for the death of the user of a defective product."
Heil's dicta provides guidance but is not controlling on the Texas courts, nor is it in turn binding on this court. Yet the federal court's role is not to decide the question afresh but to attempt to predict the course of Texas decisions.
The meaning of the argument that strict liability and recovery of punitive damages are conceptually incompatible is not clear. Certainly one is said to be a no fault and the other a fault concept. Equally certain is the absence of the type of inconsistency internal to a single concept such as that presented by recognition of assumption of risk as a defense to a design defect case. The bases of recovery for strict liability and exemplary damages are different. They are independent concepts. The purpose of one is compensation and the purpose of the other is deterrence. The focus of one is redistribution of loss and the focus of the other is punishment. They are related to the extent that actual injury must support an exemplary award and to the extent that some cases suggest that there must be a relationship between the amounts of actual and exemplary damages. Because they are different concepts, their differences in premises and purposes are beside the point. The question is whether these two theories of recovery ought to be joined in a single suit. Restating the question provides much of its answer. Certainly the federal rules are not hostile indeed they may be said to be friendly to simultaneous presentation of single claims upon different theories. If *962 the risk of jury confusion is too great, separate trials are possible. Observation of actual trials of products cases suggests strongly that the academic concept of no fault has been slow to achieve full and absolute application by juries (or judges) drawn from Judeo-Christian disciplines. Moreover, the language of strict liability such as "unreasonably dangerous" is redolent with fault connotations. The point is that the risk of infecting a no-fault concept by simultaneous presentation of a fault based claim is exaggerated in a mind that fails to perceive that present formulation of strict liability grandly tosses fault out the front door but quietly brings much of it through the back door with language drawn from fault-riddled syntax.
In sum, simultaneous pursuit of actual damages bottomed on principles of strict liability and exemplary damages bottomed on fault concepts are essentially matters of trial efficiency and presents no true substantive issues. This court concludes that the Texas courts when squarely presented with the question will so hold.
Freightliner Corporation also urges that exemplary damage awards present its potential destruction. Product cases present a procedural anomaly at least in design default cases. The proof of liability is usually made by a single plaintiff, but that proof is an indictment of all products of that design. Defendants do not, of course, urge that an adjudication binds it in other suits by different plaintiffs challenging the same design.[2] Discrete and seriatim defenses are in this sense advantageous to a manufacturer. But when a plaintiff attempts to recover punitive damages urging willful conduct, a defendant feels the pinch of multiple exposure. The pinch is that the amount of an exemplary award is not wholly controlled by the extent of injury suffered by the immediate plaintiff so that multiple cases can indeed be devastating. See Roginsky v. Richardson-Merrell, Inc., 378 F.2d 832 (2d Cir. 1967). Arguably, substantive right has here outstripped its procedural brother because there is no available device for distribution of an exemplary damage award among all injured. But because exemplary damages do not have a compensatory function, difficulty in equitably distributing awards is not the prime problem. In other contexts, the windfall nature of exemplary awards is tolerated as a price of private achievement of a public goal of deterrence. But pointedly those cases are in procedural contexts which have available devices for preventing deterrence from becoming destruction. This is not to denigrate the decision of the jury. Each jury has before it only one case it is the aggregate effect of several juries' faithful adherence to the law that poses risk of ultimate destruction. This is true although each award of exemplary damages was by an accurately instructed and wholly fair jury. The hazards presented by separate awards of exemplary damages for design defects common to thousands of products are real and apparent. Understandably, each plaintiff's counsel dons the robes of the public interest. And the premise of the private attorney general's role is that private interests of a plaintiff and the public are parallel. The rub, however, is that after the first award of exemplary damages, that parallelism is lost. Present tort law accepts the idea that manufacturers ought to be checked by deterrent based remedies. Yet we ought not in our quest for public safety lose sight of the obvious with no products, there are no consumers.
Strict liability is in no small part a creature of state courts responding to present and forceful demands of consumers. Presumably these creating courts can fashion any limitation now necessary. With its Erie eyes focused upon the Texas Constitution Article XVI § 26, this court is not certain how any such refashioning could take the form urged by Freightliner. Stated directly, it is not clear how the Texas courts could hold, if they wished to, that *963 punitive damages are not recoverable at all when the undergirding actual damages are supported by a strict liability theory.
Apart from its feasibility, this court is not persuaded that such a judicial fallback is necessary. The potentialities of the exemplary damage awards make clear that Texas requirements of proof ought to be strictly applied. Demanding strict proof will reduce the hazard of deterrence slipping into destruction to those cases of conduct so egregious as to have little equitable appeal. If a manufacturer's conduct has indeed been so callous, its plight warrants no sympathy and such cases will not implicate the concerns that spring from a more lax application of the Texas requirement of proof.
It is against this background that the Texas measure is applied to proof here made.
The Texas Standard
The inquiry is whether there is that complete absence of care as required by the Texas Supreme Court in Sheffield Division Armco Steel Corporation v. Jones, 376 S.W.2d 825, 828 (Tex.1964), on motion for rehearing:
"In order that a recovery of exemplary damages may be sustained, the plaintiff must show, not merely that the defendant could have or ought to have foreseen and prevented the loss or injury of which the plaintiff complains, but that he acted intentionally or willfully, or with a degree of `gross negligence' which approximates a fixed purpose to bring about the injury of which the plaintiff complains. The mental factor is also described in the report by the terms `malice,' `fraud,' `oppression,' `recklessness,' and the like. Regardless of the expression which is used to describe it, the purpose or intention of the defendant is determinative of his liability for exemplary damages."
The Fifth Circuit has interpreted this Texas standard in the Woolard v. Mobil Pipe Line Co., 479 F.2d 557, 565 (5th Cir. 1973).
"As these cases indicate, the Texas view of gross negligence contemplates something just short of intentional wrongdoing. . . . The Texas standard demands both advertence to reasonable risk of harm to the plaintiff and an entire want of care (not merely a failure to take reasonable precautions) to avoid harm to the plaintiff."
Plaintiffs claim to have produced sufficient evidence to support a jury finding of a complete absence of care, urging that the facts supporting this finding include the following:
1. The defendant did not protect the fuel tanks either by shielding on the outside or bladder on the inside to eliminate or reduce fuel spillage;
2. The defendant never tested this fuel system in a crash environment before marketing it;
3. The defendant had not, to the date of trial, ever crashed-tested one of its trucks nor had it considered doing so;
4. The defendant does not keep product performance records indicating how its vehicles are behaving in accidents;
5. As of the date of trial, the defendant had not kept records indicating the incidents of fire or the incidents of injury or death from post-crash fires in its trucks; and
6. The defendant did not obtain copies of governmental studies indicating statistical evidence of how tractor-trucks in general behave in accidents.
The argument is that from this the jury could have concluded that the defendant exhibited a conscious indifference to the rights and welfare of those using its products.
This enumeration overlooks one critical circumstance that overhangs all claims of Freightliner's intent. The design of its tanks, including both location and the absence of bladders or cut-off devices, is common to the entire trucking industry. Virtually every large freight truck in the United States employs a substantially similar design. Moreover, fuel bladders, as appealing *964 as their usage may be given their apparent simplicity of manufacture, have not been used in tanks in any of the millions of automobiles now on the road. Finally, no government regulator has moved against any of these designs despite their pervasive usage.
Although industry standards may not provide a defense to the strict liability claim, exemplary damages are bottomed upon fault. Yet conformity to industry practice is not necessarily a defense to fault. An entire industry may be negligent or inattentive. The critical circumstance is that to sustain this award one must be prepared to hold that the entire automotive and trucking industry in the United States has ". . . acted intentionally or willfully or with that degree of `gross negligence' which approximates a fixed purpose to bringing about . . . injury . .". Woolard v. Mobil Pipe Line Company, 479 F.2d 557, 565 (1973). Refusing to do so on this record is not simply an expression of a more sanguine view of business and industry than was held by the jury. Nor is the refusal an expression of blind faith that the entire trucking and automotive industry cannot be at fault. It is to say that adopting a design common to all manufacturers and millions of vehicles for over thirty years is a sufficient effort at safety to preclude a finding that Freightliner acted with an intent which approximates a fixed purpose to bring about this injury.
The Amount of the Award
Because the Court of Appeals may disagree with the court's conclusion that no award of exemplary damage can be sustained, the court will deal with the amount of the award.
Where exemplary damages are allowed, the amount should be reasonably proportional to the evidence of purposeful conduct and not a product of passion or prejudice. The primary purposes of exemplary damages are punishment and deterrence. It is proper for the jury to conclude that the amount of punitive damages should be sufficient to assure that manufacturers ought not profit from producing defective products in a grossly indifferent fashion. The larger the company, the larger the award of punitive damages must be in order to bring this message home.
In arguing that the exemplary damages awarded are wholly excessive, the defendants have cited numerous Texas cases which require that a reasonable ratio be maintained between the award of actual and exemplary damages. Here the jury's award for punitive damages was approximately 60 times its award for actual damages. The plaintiffs argue that federal law, not state law, determines the reasonableness of a jury's award and that in any event, the jury's finding of exemplary damages should be reasonably proportional not to the amount of actual damages awarded, but to the evidence and the purpose of the award.
Plaintiffs cite Brown v. Louisiana & Arkansas R.R. Co., 429 F.2d 1265, 1267 (5th Cir. 1970) for the proposition that federal juries are not bound by Texas law in awarding damages.
"We are not materially aided in the consideration of the problems presented to us by Railway's citation of numerous somewhat similar Texas cases in which a remittitur had been ordered by Texas appellate courts. Federal juries are not bound by the amounts Texas juries have awarded or Texas courts have approved or disapproved in similar cases. It is for each federal jury to weigh the facts presented to it and award appropriate damages."
The Brown case was a F.E.L.A. case and concerned allegedly excessive actual damages. For authority for the proposition stated, however, the Fifth Circuit cited Silverman v. Traveler's Ins. Co., 277 F.2d 257 (5th Cir. 1960). There the facts involved a car collision between students and evidently the basis for jurisdiction was diversity. The court stated:
"To show an abuse of discretion by the trial judge, appellants cite Louisiana cases in which the appellate court affirmed *965 a larger verdict than the jury awarded in the instant case. But federal juries are not bound by the amounts Louisiana juries and Louisiana courts have awarded for wrongful death. Each federal jury determines the facts in the case before it and, under the Seventh Amendment, the jury's verdict cannot be re-examined; although the district court, in its discretion, may set aside the verdict and grant a new trial. . . . However, the right of recovery for wrongful death and the elements of damages to be considered by the jury in its verdict and by the district court in the exercise of its discretion to grant a new trial are determined by Louisiana law." Id. at 260.
Although not bound by what Texas courts would do, it is helpful to look at some of the principles followed by Texas courts in dealing with exemplary damages in tort cases. One carefully stated test is found in Skillern & Sons, Inc. v. Stewart, 379 S.W.2d 687, 692 (Tex.Civ.App. 1964, writ ref'd n. r. e.):
"The question of the measure of exemplary damages comes under the general rule that, where the law furnishes no legal measure of damages and they are unliquidated, the amount to be awarded rests largely in the discretion of the jury; and unless the award is so large as to indicate that it is a result of passion, prejudice or corruption, or that the evidence has been disregarded, the verdict of a jury is conclusive and will not be set aside as excessive, either by the trial court or on appeal."
Texas juries have never been required to adhere to a strict ratio in finding exemplary damages. See Tynberg v. Cohen, 76 Tex. 409, 13 S.W. 315, 316-317 (Tex. 1890):
"It has been said in some cases that exemplary damages should not be disproportioned to actual damages, but it was not meant by this that the one should be an exact or proximate ratio to the other. All that was meant was that the imposition of heavy exemplary damages, when the actual damages recoverable were small, was a fact which ought to be looked to, to determine whether passion rather than reason dictated the verdict. Whenever this appears, or is rendered highly probable, by contrasting the actual injury with the extent of punishment awarded, looking to all the circumstances of aggravation, new trials should be granted."
Rather than look to any precise ratio, a jury should look at the factors set out in Mayer v. Duke, 72 Tex. 445, 10 S.W. 565 (Tex.1889) which include such matters as (1) the degree of outrage produced by the evil, (2) the frequency of the evil, and (3) the size of the award needed to deter similar wrongs in the future.[3] That court also emphasized deference to jury findings:
"The amount of exemplary damages is largely in the discretion of the jury, and this court can only set aside their verdict for excess an amount in such cases where the damages are so large as to show passion, prejudice or partiality." Id. at 569.
The defendants contend that the Texas Supreme Court in Southwestern Investment Co. v. Neeley, 452 S.W.2d 705 (Tex. 1970) established some sort of ratio of proportionality for exemplary damages to actual damages. In that case the court of civil appeals had reduced the jury's award of actual damages while leaving undisturbed the award for exemplary damages. The Supreme Court remanded holding:
*966 "We now hold that when a court of civil appeals suggests a remittitur of a substantial portion of the actual damages found by a jury, the court of civil appeals is under an obligation to give consideration to the ratio between exemplary and actual damages as established by the jury in passing on the further question of excessiveness of exemplary damages." Id. at 708.
This suggests not an adoption of a rigid ratio or proportion of exemplary damages to actual damages, but rather that the court of civil appeals in reducing one award but not the other cannot ignore the ratio established by the jury. The emphasis was on the ratio found by the jury based on the facts in a particular case, and not on any absolute proportion of exemplary to actual damages.
The jury's award here was within the range allowed by the substantive law. This court will not substitute its judgment for the jury's. Had the threshold to the jury been reached, this award would have been sustained. There is a temptation to avoid a direct confrontation with the sufficiency of evidence of defendant's intent by reducing the award. Such an approach misapprehends the court's and jury's role. That is, if we assume that the jury could have properly found Freightliner's conduct met the requirements for an award of punitive damages, then this sum ought to be sustained. This jury's award of actual damages was, on the facts, modest. Indeed the jury refused to award any sum to Billy's parents although a substantial sum would have been supportable. There is no suggestion that the award of exemplary damages was the product of passion or prejudice or the result of other than strongly held beliefs about the adequacy of the truck design.
Conclusion
Under a strict application of the Texas standard, Freightliner's adoption of a design common to the country is sufficient to prevent an award of exemplary damages. Whether in later cases such adherence will be sufficient will depend on Freightliner and the industry's response to any accumulation of evidence of defects. At least with the passage of time the inference of intent under a strict standard may become reasonable and Freightliner, or others, may fall into that category of companies whose exposure to multiple exemplary damage awards need give us little pause; that is, a defendant whose conduct demonstrably ". . . approximates a fixed purpose to bring about the injury of which the plaintiff complains . . .".
Order
The parties will submit a proposed form of judgment. Although these motions were filed before entry of judgment, this order will be the ruling of the court upon the usual motions which follow entry of judgment under Rule 58, Fed.R.Civ.P. See Rule 50(b).
NOTES
[1] Requiring that an injured person be aware both of the "defect" in design and the dangerous condition is at the least dissembling. The defect is that some element of the design renders the product unreasonably dangerous. That is, defect is not an independent element of the claim but is a different label for that characteristic which renders the product unreasonably dangerous. The decision whether or not a product is unreasonably dangerous is the result of the trier of fact striking the balance between the utility and hazard of the design a judgment more social than mechanical. Knowledge by a product user of all facts pertinent to this balancing would indeed be rare. If knowledge of "defect" requires this knowledge, the "defense" is virtually nonexistent. On the other hand, if knowledge by a consumer of a product's hazards apparent from its usage is sufficient to trigger the defense, then there is liability only for latent defects. Tolerance of an assumption of risk defense in products cases, at least in design defect cases, is an apparent antimony.
"No decision has been made by this Court to rule the case where the defendant manufacturer should have anticipated that the dangerous design would cause physical harm to one in the course of use similar to that which caused plaintiff's injury and notwithstanding the plaintiff user's knowledge of the danger." Henderson v. Ford Motor Co., 519 S.W.2d 87, 91 (Tex. 1974).
[2] Yet mutuality of parties as a condition to application of collateral estoppel is under fire. See Blonder-Tongue v. University Foundation, 402 U.S. 313, 91 S. Ct. 1434, 28 L. Ed. 2d 788 (1971).
[3] Curiously, there is a line of cases [see Texas Public Utilities Corp. v. Edwards, 99 S.W.2d 420, 427 (Tex.Civ.App. Austin 1936, writ dism'd)] which hold that the defendant's profits may not be considered in assessing exemplary damages. Such a rule would leave the jury wholly without guidance in determining the amount of damages necessary to deter. The practical result of this rule would be to deny deterrence as a purpose of exemplary damages contrary to Mayer v. Duke, supra. Here the jury was allowed to consider defendant's earnings for the limited purpose of assessing exemplary damages. Although no party has so contended, if this was error and if plaintiffs otherwise had sufficient evidence to go to the jury, defendant is entitled to a new trial on the issue of the amount of exemplary damages. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2585325/ | 13 P.3d 1044 (2000)
170 Or. App. 702
Daniel FEITLER, Appellant,
v.
The ANIMATION CELECTION, INC., Respondent.
(97-CV-0342-AB; CA A107262)
Court of Appeals of Oregon.
Argued and Submitted June 22, 2000.
Decided November 8, 2000.
*1045 Greg O'Neill argued the cause and filed the briefs, for appellant.
Greg Hendrix, Bend, argued the cause, for respondent. With him on the brief was Hendrix & Brinich, LLP.
Before De MUNIZ, Presiding Judge, and HASELTON and WOLLHEIM, Judges.
HASELTON, J.
Plaintiff Daniel Feitler appeals from a judgment for defendant, The Animation Celection, Inc., in an action under the Oregon Unlawful Trade Practices Act (UTPA), ORS 646.605 et seq. Plaintiff advances two distinct grounds for recovery under the UTPA based on defendant's alleged misrepresentations concerning: (1) defendant's cost for the goods sold to plaintiff; and (2) the exclusivity of those goods. After a trial to the court, the court rejected both grounds, concluding that plaintiff had failed to prove any actionable misrepresentation and, in all events, had failed to prove any "ascertainable loss" from the alleged misrepresentations. ORS 646.638(1). We conclude that the trial court correctly rejected plaintiff's "cost for goods" ground. However, the court erred in concluding that, as a matter of law, defendant's misrepresentations of the "exclusivity" of the goods were not misrepresentations of a "characteristic" of the goods, ORS 646.608(1)(e), and that those misrepresentations could not result in "ascertainable loss." Our disposition on the "exclusivity of goods"based ground necessitates further findings of fact by the trial court. Accordingly, we reverse and remand for further proceedings.
Except as noted, the following facts are undisputed for purposes of this appeal: Plaintiff is a private collector of animation art, i.e., drawings used in creating film cartoons. Defendant is a vendor of animation art, with a gallery in La Jolla, California. In April 1997, Larry Hagstrom, a salesman at defendant's gallery, contacted plaintiff and asked if he was interested in purchasing drawings from the 1928 Mickey Mouse cartoon, Plane Crazy.[1] Plaintiff expressed interest, and, in response, Earl Kisluk, one of defendant's owners, contacted one of his suppliers and obtained 51 drawings from the socalled "telephone pole" scene in Plane Crazy.[2]*1046 On April 17, 1997, Hagstrom sent plaintiff a letter in which he included photocopies of 47 of the drawings obtained by Kisluk, without disclosing that Kisluk had, in fact, acquired four additional drawings.[3] The letter indicated: "Hear [sic ] is the very last of all plane crazy!" Plaintiff and defendant both understood that to mean that defendant was selling plaintiff all of the Plane Crazy drawings it had obtained from its supplier. However, defendant knew that that representation was false: Kisluk and his partner had determined to hold back the other four drawings because, in Kisluk's words, the drawings
"were an important piece of history and I wanted one or two for myself, those were the only ones I had ever seen on the market, and probably will ever be on the market."
Subsequently, plaintiff and Hagstrom negotiated a price for the drawings. At some point during the parties' interactions, Hagstrom indicated that defendant's cost for the drawings was $30,000. Plaintiff ultimately agreed to pay $30,000 for the 47 drawings. On April 24, 1997, Hagstrom mailed the 47 drawings to plaintiff. In the cover letter accompanying the drawings, Hagstrom reiterated the previous representation of exclusivity:
"Hear [sic ] is the very last of all plane crazy! Congratulations, you have cleaned me out of all of my plane crazy drawings!!!"
There is no evidence that the 47 drawings are worth less than the $30,000 that plaintiff paid.[4]
In July 1997, plaintiff filed his original complaint, pleading claims of fraud, misrepresentation, and violation of the UTPA. The gravamen of each of these claims was that defendant had misrepresented that it had paid its suppliers $30,000 for the drawings; that defendant had paid less; and that, consequently, defendant had falsely represented to plaintiff that it was selling the drawings "at cost."
In August 1997, plaintiff learned of the drawings withheld by defendant when he received a copy of the receipt from defendant's supplier showing 51 drawings. At about the same time, defendant issued an auction catalog in which it listed one of the withheld Plane Crazy drawings at a price of $1,600.
Ultimately, plaintiff filed a Third Amended Complaint, which is the operative complaint for purposes of this appeal. That complaint alleged a single claim for violation of the UTPA, based on two grounds. First, plaintiff reiterated his allegations that defendant had misrepresented the terms on which it had acquired the drawings from its supplier:
"Defendant had not, by the time it offered and sold the drawings to Plaintiff, made an agreement with its source to pay the source $30,000.00 in 30 days. No agreement had been made with the source. Defendant did not turn over to its source the $30,000.00 collected from Plaintiff in 30 days, but instead Defendant gave its source $6,000.00 and some other animation art work which it had originally obtained from that source in the first place."
Plaintiff asserted that those representations constituted a "false or misleading representation of fact concerning the * * * [seller's] cost for * * * goods" in violation of ORS 646.608(1)(s).[5]
*1047 Second, plaintiff alleged that defendant had misrepresented the exclusivity of the drawings it sold to plaintiff:
"Defendant had obtained 51 Plane Crazy drawings from its source, not just the 47 that it sold to Plaintiff. Defendant held out or `skimmed' the other four drawings. Thus, Defendant's representations to Plaintiff that Plaintiff was being offered and sold the `very last of all Plane Crazy' and that Plaintiff was cleaning Defendant out of all its Plane Crazy drawings were false."
Plaintiff asserted that those statements were representations that "goods * * * have * * * characteristics, * * * quantities or qualities that they do not have," in violation of ORS 646.608(1)(e).
Plaintiff further contended that he had incurred "ascertainable loss" as a result of either or both of those alleged violations. ORS 646.638(1). He sought various and alternative forms of relief, including damages of $2,352.72, representing the asserted value of the withheld drawings, restitution of the $30,000 purchase price, or nominal damages.
The case was tried to the court. As described more fully below, the court rejected both of plaintiff's grounds, concluding that: (1) on the "cost for goods" ground, plaintiff had failed to prove an actionable misrepresentation under ORS 646.608(1)(s); and (2) on the "exclusivity of goods" grounds, plaintiff had failed to prove either an actionable misrepresentation or, in all events, "ascertainable loss." Plaintiff appeals, challenging those determinations.
ORS 646.608(1) provides, in part:
"A person engages in an unlawful practice when in the course of the person's business, vocation or occupation the person does any of the following:
" * * * * *
"(e) Represents that real estate, goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, quantities or qualities that they do not have or that a person has a sponsorship, approval, status, qualification, affiliation, or connection that the person does not have.
" * * * * *
"(s) Makes false or misleading representations of fact concerning the offering price of, or the person's cost for real estate, goods or services."
ORS 646.638(1) provides:
"[A]ny person who suffers any ascertainable loss of money or property, real or personal, as a result of willful use or employment by another person of a method, act or practice declared unlawful by ORS 646.608, may bring an individual action in an appropriate court to recover actual damages or $200, whichever is greater. The court or the jury, as the case may be, may award punitive damages and the court may provide such equitable relief as it deems necessary or proper."
To prevail under ORS 646.638(1) a plaintiff must prove: (1) a violation of ORS 646.608(1); (2) causation ("as a result of"); and (3) damage ("ascertainable loss"). Where, as here, the alleged violations are affirmative misrepresentations, the causal/"as a result of" element requires proof of reliance-in-fact by the consumer. See Sanders v. Francis, 277 Or. 593, 598, 561 P.2d 1003 (1977) (although reliance is not always required to satisfy the "result of" language in ORS 646.638(1), "when plaintiff claims to have acted on a seller's express representations" factual reliance is indeed essential). Finally, as amplified below, "ascertainable loss" for purposes of ORS 646.638(1) can encompass loss that would not be cognizable injury under the common law. See Weigel v. Ron Tonkin Chevrolet Co., 298 Or. 127, 135-36, 690 P.2d 488 (1984) (indicating that the ascertainable loss requirement should be "viewed broadly" and that losses too small to be cognizable under the common law nevertheless suffice for purposes of the UTPA).
Within that framework, we turn to the trial court's rejection of plaintiff's two grounds for recovery under the UTPA. For clarity, we first address plaintiff's "cost for goods" ground and then the "exclusivity of goods" ground.
A. "Cost for Goods"
In its letter opinion, the trial court explained its rejection of plaintiff's allegations *1048 that defendant had misrepresented its cost for the drawings:
"Defendant, through its sales agent, told plaintiff that its cost was $30,000. The court finds that $30,000 was a good faith estimate by defendant of its cost for the drawings and therefore this was not a wilful misrepresentation.
"[Defendant] ultimately paid approximately $30,000 to its supplier in a combination of money and drawings. Plaintiff complains that he understood defendant would pay in cash, not kind. It is doubtful that this constitutes a misrepresentation prohibited by ORS 646.608. If so, a reasonable person would not rely upon it in determining whether to purchase goods. It is of no consequence how or when a seller pays his supplier. Therefore, if plaintiff suffered any damages, they were not the result of this statement by defendant."
On appeal, plaintiff asserts that the trial court erred in concluding that the representation was merely a "good faith estimate"; that representations as to "how or when a seller pays his supplier" are immaterial under ORS 646.608(1)(s); and that plaintiff has not suffered any "ascertainable loss." We reject those contentions.
The trial court found that defendant did, in fact, "ultimately [pay] approximately $30,000 to its supplier in a combination of money and drawings." That finding is amply supported by the recordand to the extent that plaintiff's alternative prayer for restitutionary damages, see 170 Or.App. at 707, 13 P.3d at 1047 might arguably require us to engage in a de novo determination of that fact, we agree with the trial court. Given that defendant did, in fact, pay its supplier $30,000, the trial court's reference to "good faith estimate" was, at most, surplusage.[6]
The issue thus reduces to whether a seller's alleged misrepresentations of the nature of consideration paid for goods or the timing of such payment constitute an actionable misrepresentation of the "cost for goods" under subsection (1)(s). "Cost" means:
"[T]he amount or equivalent paid or given or charged or engaged to be paid or given for anything bought or taken in barter or for services rendered[.]
" * * * * *
"[A]n item of outlay incurred in the operation of a business enterprise (as for the purchase of raw materials, labor, services, supplies) including depreciation and amortization of capital assets[ .]"
Webster's Third New Int'l Dictionary, 515 (unabridged ed 1993). Nothing in the statutory context clouds or contradicts that plain "amount or equivalent paid" meaning. Given that unambiguous "text-in-context" statutory meaning,see PGE v. Bureau of Labor and Industries, 317 Or. 606, 611, 859 P.2d 1143 (1993), and given that defendant paid consideration worth $30,000 for the drawings, defendant's "cost" was, in fact, $30,000. In those circumstances, "how or when" defendant-seller paid his supplier was legally immaterial, and there was no actionable misrepresentation under ORS 646.608(1)(s).
B. "Exclusivity" of Goods
The trial court rejected plaintiff's "exclusivity" of goods ground for recovery on two alternative grounds. First, there was no actionable misrepresentation of a "characteristic" of the goods:
"In order to be a representation as to a `characteristic', the representation that these are all of the Plane Crazy drawings that defendant's dealer was offering must say something about the nature of the 47 [drawings] purchased. There was no representation and plaintiff knew that he was not buying all existing drawings from the cartoon or even the telephone pole scene. He only understood he was buying what was being offered to the defendant by this source at this time. In the context of the large number of unaccounted for original drawings, this hardly seems like a representation as to a material characteristic that these 47 [drawings] possess." *1049 Second, plaintiff had incurred no "ascertainable loss" from the misrepresentation of exclusivity:
"Plaintiff testified that he has not suffered a financial loss by defendant holding 3 drawings from the telephone pole scene. Ultimately, plaintiff also testified that he has been harmed because the value of his collection is diminished by not having all of the drawings and that if he decides to sell the drawings he will not be able to say he has the only known drawings from the Plane Crazy telephone pole scene. As to the first contention, defendant did not represent these were all of the Plane Crazy drawings in existence and plaintiff knew that. As to the second contention, he would not have been able to represent that he had all existing Plane Crazy telephone pole drawings, even if he had purchased 51, instead of 47, from defendants.
"Because plaintiff received the very same goods he contracted to purchase * * * and because there are so many unaccounted for [drawings] which plaintiff does not own that it is impossible to determine that the value of these 47 cells would be greater by the addition of 3 more [drawings] to his collection, the court concludes that plaintiff has not met his burden of proving by a preponderance of evidence that he has suffered an ascertainable loss."
Significantly, for purposes of our ultimate disposition, the trial court did not make any findings of fact as to whether plaintiff did, in fact, rely on plaintiff's misrepresentations of exclusivity in purchasing the 47 drawings. Rather, after addressing the "characteristics" issue, the court expressly assumed arguendo that plaintiff had relied and then proceeded to address "ascertainable loss."[7]
We conclude that the trial court erred in both of its reasons for rejecting the "exclusivity of goods" ground for recovery. The court erred first in its conclusion that plaintiff's statements, "the very last of all Plane Crazy" and "you have cleaned me out of all my Plane Crazy drawings," were not misrepresentations of the "characteristics" of the drawings. In the context of collectible items, the existence or nonexistence of other items within the same finite set is a fact of significance to any reasonable collector.
Here, as the trial court found, there were originally 150 to 200 drawings of the "telephone pole" scene, and plaintiff did not know how many of those original drawings still existed. Those are significant findings-but they are incomplete in that, at least in this record, there is no evidence of any known "telephone pole" scene drawings other than those defendant acquired from its supplier.[8] As Kisluk acknowledged: "[T]hose were the only ones I had ever seen on the market, and probably will ever be on the market." Thus, if defendant had, in fact, conveyed "all" of its Plane Crazy drawings, plaintiff would have acquired a complete set of all known "telephone pole" scene drawings. In these circumstances, exclusivity was a "characteristic" of the drawings for purposes of ORS 646.608(1)(e).[9]
With respect to "ascertainable loss," plaintiff argues:
"If the aim of the collector is to collect as many drawings as exist from the same film, it should indeed be obvious that 47 *1050 drawings are worth less than the same 47 drawings plus four.
" * * * * *
"The value of collections is derived not only from the inherent value of each piece in the collection, but also from the fact that each piece is linked to each other piece in the collection by some characteristic. Each piece which is outside the collection has value not just for its inherent value as art, but sometimes more importantly because of the need to add that piece to the collection or to bring the collection nearer to completion."
We agree.
"Ascertainable loss" under the UTPA is amorphous. Any loss will satisfy that requirement so long as it is "capable of being discovered, observed, or established." Scott v. Western Int. Sales, Inc., 267 Or. 512, 515, 517 P.2d 661 (1973). Whatever the extreme contours of that concept, the loss here fell well within its limits. At the very least, to obtain the promised feature of exclusivity, plaintiff would have to purchase the drawings that defendant withheld. As noted, defendant listed one of those drawings for a price of $1,600. Thus, if plaintiff did, in fact, rely on defendant's misrepresentations of exclusivity, plaintiff incurred "ascertainable loss" within the meaning of ORS 646.638(1).
A remand is required. As noted, the trial court, as finder of fact, rendered no finding as to the "as a result of" causation element. Consequently, we remand for the trial court to determine whether plaintiff relied in fact on the misrepresentation of exclusivity. If the court finds reliance in fact, it must determine the extent of plaintiff's "ascertainable loss" as a result of that reliance.
Reversed and remanded for trial court to determine whether plaintiff relied in fact on defendant's representation of exclusivity and, if so, to determine plaintiff's "ascertainable loss" from such reliance and to enter judgment accordingly.
NOTES
[1] Mickey Mouse in Plane Crazy, the first Mickey Mouse cartoon, premiered as a silent animated film in April 1928. Because of a lack of public interest, the film was not generally released. However, following the success of Steamboat Willie, the first "all-talking" animated movie, Walt Disney added sound to the original film and re-titled it simply Plane Crazy. See Lauren Vanpelt, Mickey MouseA Truly Public Character, Student Paper in Advanced Copyright (1999), at http://www.public.asu.edu/ dkarjala/publicdomain/Vanpelt-s99.html.
[2] The parties understood that Disney used approximately 10,000 drawings to create the entire Plane Crazy cartoon and that the telephone pole scene itself required roughly 150 to 200 drawings. Neither party knows how many of those original drawings remain in existence today.
[3] Apparently, Kisluk subsequently threw out one of the 51 drawings because it was blank.
[4] During the colloquy at trial, the trial judge asked the attorneys: "[W]as there any evidence that the drawings weren't worth the thirty thousand dollars paid for them?" Plaintiff's attorney, in response, acknowledged that there was not.
[5] Before the trial court, as now on appeal, plaintiff referred in passing to ORS 646.608(1)(j), which proscribes "misrepresentations of fact concerning the reasons for, existence of, or amounts of price reductions." From our review of the record, we do not understand plaintiff to have made an argument under subsection (1)(j) that is substantively distinct from its overarching argument under subsection (1)(s). Nor, apparently, did the trial court, whose disposition of plaintiff's "cost"-related allegations referred only to subsection (1)(s). Accordingly, in our analysis, we refer solely to subsection (1)(s).
[6] The gist of plaintiff's fourth assignment of error, challenging that aspect of the court's analysis, was that, under the UTPA, defendant's good faith is immaterial. Because there was no misrepresentation, we need not resolve that matter.
[7] The trial court stated:
"Assuming that [plaintiff] * * * would not have purchased the 47 drawings had he known defendant was keeping several, the court will consider whether plaintiff has been damaged."
[8] To illustrate, in 1909, roughly 60 Honus Wagner baseball/tobacco cards were created. Today, all of them might still exist, but no more than 50 are actually known to exist, and only a handful of those are in good condition. Earlier this year, a collector paid $1.265 million for the only known card in top condition. See Collector Steps Up to the Plate: $1.265M Honus Wagner Card Buyer Makes His Name Public (July 18, 2000), at http:///www.absnews.go.com/sections/sports/Daily News/Wagner000718 .htm. If a dealer acquired all 50 known cards and then somehow secretly acquired two more unknown Wagners, and then sold the original 50 saying, "you've cleaned me out of all my Honus Wagners," that misrepresentation of exclusivity would be an actionable misrepresentation of a "characteristic" of the baseball cards.
[9] Given that conclusion, we need not address plaintiff's further argument that defendant's exclusivity statements were misrepresentations of "quality" for purposes of ORS 646.608(1)(e). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1877769/ | 210 S.W.3d 643 (2006)
The STATE of Texas
v.
Teaundra Lasha OAGES, Appellee.
No. PD-0957-05.
Court of Criminal Appeals of Texas.
December 20, 2006.
*644 Patricia K. Dyer, Asst. District Atty., Abilene, for Appellant.
Stan Brown, Abilene, Matthew Paul, State's Atty., Austin, for Appellee.
HOLCOMB, J., delivered the opinion of the unanimous Court.
Appellee Teaundra Lasha Oages was charged by information with possession of less than two ounces of marijuana. Appellee filed a pretrial motion to suppress, and the trial court granted the motion. The trial court did not issue findings of fact and conclusions of law, although they were requested by the State. The State appealed the trial court's order to suppress to the evidence. In a published opinion, the Eastland Court of Appeals reversed the trial court's ruling. State v. Oages, 162 S.W.3d 445 (Tex.App.-Eastland 2005).
At the hearing on the motion to suppress, the State called a single fact witness, Sergeant Mike Baird of the Abilene Police Department, who had arrested appellee.[1] Baird testified that he stopped appellee's car after he observed her make a turn, which, in his opinion, violated section 545.104 of the Texas Transportation Code. Baird testified that he was traveling behind appellee's car and pulled up behind it at a stop sign. Appellee remained at the stop sign for a few seconds, and then she activated her turn indicator and turned right. Baird then initiated a traffic stop, claiming that appellee had failed to signal within 100 feet of the turn.
Baird discovered that appellee had outstanding warrants, arrested her, did a pat-down search, and placed her in his vehicle. Baird then searched the interior of appellee's car and found a small amount of marijuana in the console.
In State v. Cullen, we modified our holding in State v. Ross[2] and concluded that when the losing party on a motion to suppress requests findings of fact and conclusions of law,[3] the trial court must issue them, so that the court of appeals may properly review the trial court's ruling. 195 S.W.3d 696, 698-99 (Tex.Crim.App. 2006). We vacate the judgment of the court of appeals and remand this cause to that court for further proceedings consistent with our holding in Cullen.
NOTES
[1] Appellee did not testify, nor did she call any witnesses.
[2] State v. Ross, 32 S.W.3d 853, 856 (Tex.Crim. App.2000).
[3] Such a request is best accomplished by a formal motion for findings of fact and conclusions of law, made either on the record in open court or by written motion and timely presentation to the trial court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2609710/ | 526 P.2d 1036 (1974)
IN THE MATTER OF DEE, Lisa, Minor Child.
STATE ex rel. Juvenile Department of Multnomah County, Respondent,
v.
Donald C. DEE, Appellant.
Court of Appeals of Oregon.
Argued and Submitted September 20, 1974.
Decided October 7, 1974.
Ira L. Gottlieb, Portland, argued the cause and filed the brief for appellant.
Betsy Welch, Senior Deputy Dist. Atty., Portland, argued the cause for respondent. With her on the brief was Harl Haas, Dist. Atty., Portland.
Before LANGTRY, P.J., and FOLEY and FORT, JJ.
LANGTRY, Presiding Judge.
This appeal is by the father of a child from an adverse judgment in a termination of parental rights and permanent commitment proceeding. ORS 419.523 and 419.525. ORS 419.523(2) provides that a parent's rights may be terminated if he is found to be "unfit by reason of conduct or condition seriously detrimental to the child and integration of the child into the home of the parent * * * is improbable in the forseeable [sic] future due to conduct or conditions not likely to change * * *." The court's finding was within this provision, which was the statutory basis for the dependency petition upon which the proceeding was predicated. The court also found that "there was a willful, deliberate, volitional abandonment * * *" of the child by the father.
*1037 The detailed finding of the court in this case falls under ORS 419.523(2)(e) in which it is directed that "the court shall consider but is not limited to * * *" an appraisal of the parent's "[l]ack of effort * * * to adjust his circumstances, conduct, or conditions to make the return of the child possible or failure of the parent to effect a lasting adjustment after reasonable efforts by available social agencies for such extended duration of time that it appears reasonable that no lasting adjustment can be effected." (Emphasis supplied.) The father is serving a long sentence in the Oregon State Penitentiary, although he is eligible for parole at the present time and the prospects appear good for him to obtain some kind of work release parole in the near future. He is now 40 years of age, has been convicted of 14 offenses and has spent 11 of the past 22 years in prison. He has been addicted to the use of heroin and was described by a psychologist witness as having an addictive type of personality.
The child is 10 years old and the father has not seen her since 1967. The mother's parental rights were terminated in 1973 after she had failed to care for the child who have been in foster homes since 1967. The child is described as still adoptable. The father contends that juvenile and welfare caseworkers have not advised him of his right to visitation and related rights, and that he is entitled to such notice before his neglect of his parental duties can form the basis for termination of parental rights.
The father appears to blame the social workers for much of his inattention to parental duties. However, we note that the prison records indicate he requested visitation with older children by a previous wife but made no request for visitation with the child subject of this petition. Under these circumstances we find it difficult to believe that he did not know he could make request to the welfare department concerning visitation and also for information about the welfare of his child. From his testimony it appears that he was aware the child was under welfare care much of the time. No such request was made over a period of six or seven years. Through much of that time the record indicates the welfare and juvenile court caseworkers had no idea of the father's location, which had actually been in a number of different places including prisons, a drug rehabilitative center, and two or three periods when he was out of detention and living in Multnomah County, the same place where the child was.
The first alternative under ORS 419.523(2)(e), quoted supra, that is, "[l]ack of effort [by the father] * * * to adjust his circumstances, conduct, or conditions to make the return of the child possible * * *," is sufficient upon which to base the court's judgment here. However, the father is contending, apparently, that both alternatives must be considered. We do not agree, but even if that were so, it would not improve the father's position in this case. "* * * [R]easonable efforts by available social agencies * * *" "to effect a lasting adjustment * * *" in the parent (ORS 419.523(2)(e)) cannot be attempted where the parent is not to be found, or if by his conduct he places himself in prison, beyond the reach of reasonable efforts. In State ex rel. Juv. Dept. v. Mack, 12 Or. App. 570, 573, 507 P.2d 1161, 1163 (1973), we said, "* * * [S]ignificant is whether the parents have attempted to maintain contact with the children and have concerned themselves over their welfare * * *." In State ex rel. Juv. Dept. v. Draper, 7 Or. App. 497, 508, 491 P.2d 215, 220 (1971), Sup.Ct. review denied (1972), we said, "* * * [T]he father knowing only that his child was in the custody of the Welfare Commission, and nothing more, deliberately chose to ignore her, totally and completely, until if and when it suited his convenience and desires to do otherwise." This was considered cause for termination of parental rights.
At bar, the father is not offering planning now which appears likely to repair the damage of the past and to assure the *1038 possibility for future secure plans for the child. Dr. Rex M. Newton, a psychologist who has worked with the father in the penitentiary, when asked about the possibility of the father's providing the child "with parenting within the foreseeable future" testified:
"Well, I wouldn't speculate about the future. I don't know how long into the future you are talking about, but my observations of Mr. Dee in regards to this child, No. 1, I don't question his love for his child or his commitment to his child. I think it is very sincere, and very deep.
"The question I think you are asking is the ability to maintain that day-to-day household that is necessary for a child that is growing and developing; and as I said earlier, he is going to have to have some help in developing those skills.
In the meantime I am not sure that he has those skills, but that is not saying that he is not going to be able to develop them.
"When you speculate in talking about the future, it becomes very, very fuzzy very vague."
We must question "sincere" and "deep" love, and "commitment" to the child where the father last saw her at the age of three and then let six years go by with no attempt at contact. But we agree that we would be speculating on a "fuzzy" and "vague" future to save this child for the uncertainties of this father's custody of her.
Under the state of the record and evidence before us, we consider State ex rel. Juv. Dept. v. Archuletta, 12 Or. App. 596, 506 P.2d 540 (1973), where the facts were similar, to be persuasive, if not controlling. There, we approved termination of parental rights.
We note from the father's testimony that at least one of his older children has displayed violent and unlawful conduct. We think it remarkable that the 10-year-old child who is the subject of this proceeding has been able to find the kind of security which leads the caseworkers to say she is still able to adjust to an adoptive home. We think it is high time that she be given that opportunity. See State v. Blum, 1 Or. App. 409, 463 P.2d 367 (1970).
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1240940/ | 522 F.3d 182 (2008)
ARBOR HILL CONCERNED CITIZENS NEIGHBORHOOD ASSOCIATION, Albany County Branch of the National Association for the Advancement of Colored People, Aaron Mair, Maryam Mair, and Mildred Chang, Plaintiffs-Appellants,
v.
COUNTY OF ALBANY AND ALBANY COUNTY BOARD OF ELECTIONS, Defendants-Appellees, and
The Republican Caucus of the Albany County Legislature, Intervenors.
Docket No. 06-0086-cv.
United States Court of Appeals, Second Circuit.
Argued: October 11, 2006.
Decided: April 24, 2007.
Amended: April 10, 2008.
*183 Mitchell A. Karlan (Mark E. Bini and Michelle Craven, on the brief), Gibson, Dunn & Crutcher, LLP, New York, NY, for Plaintiffs-Appellants.
Thomas J. O'Connor, Napierski, Vandenburgh & Napierski, LLP, Albany, NY, for Defendants-Appellees.
Before: JACOBS, Chief Judge, WALKER, Circuit Judge, O'CONNOR, Associate Justice Retired.[*]
AMENDED OPINION[1]
JOHN M. WALKER, JR., Circuit Judge:
In this appeal from the district court's disposition of their motion for an award of attorney's fees, plaintiffs-appellants ("plaintiffs"), who prevailed in a suit brought under the Voting Rights Act of 1965 ("VRA"), seek a recalculation of the amount that they may recoup. The fee-historically known as the "lodestar" to which their attorneys are presumptively entitled is the product of hours worked and an hourly rate. Plaintiffs argue that the district court applied an unnecessarily strict "forum rule": The district court, they contend, required them to show extraordinary special circumstances before it would use in its "lodestar" calculation an hourly rate greater than the hourly rate charged by attorneys in the district where the district court sits.
We agree that the district court may have applied the forum rule in too unyielding a fashion. We therefore clarify its proper application in this circuit: While the district court should generally use the prevailing hourly rate in the district where it sits to calculate what has been called the "lodestar" what we think is more aptly termed the "presumptively reasonable fee" the district court may adjust this base hourly rate to account for a plaintiffs reasonable decision to retain out-of-district *184 counsel, just as it may adjust the base hourly rate to account for other case-specific variables.
Moreover, this dispute concerning the "forum rule" is but a symptom of a more serious illness: Our fee-setting jurisprudence has become needlessly confused it has come untethered from the free market it is meant to approximate. We therefore suggest that the district court consider, in setting the reasonable hourly rate it uses to calculate the "lodestar," what a reasonable, paying client would be willing to pay, not just in deciding whether to use an out-of-district hourly rate in its fee calculation. A plaintiff bringing suit under the Voting Rights Act, pursuant to which fees can be recovered from the other side, has little incentive to negotiate a rate structure with his attorney prior to the litigation; the district court must act later to ensure that the attorney does not recoup fees that the market would not otherwise bear. Indeed, the district court (unfortunately) bears the burden of disciplining the market, stepping into the shoes of the reasonable, paying client, who wishes to pay the least amount necessary to litigate the case effectively.
Bearing these background principles in mind, the district court should, in determining what a reasonable, paying client would be willing to pay, consider factors including, but not limited to, the complexity and difficulty of the case, the available expertise and capacity of the client's other counsel (if any), the resources required to prosecute the case effectively (taking account of the resources being marshaled on the other side but not endorsing scorched earth tactics), the timing demands of the case, whether an attorney might have an interest (independent of that of his client) in achieving the ends of the litigation or might initiate the representation himself, whether an attorney might have initially acted pro bono (such that a client might be aware that the attorney expected low or non-existent remuneration), and other returns (such as reputation, etc.) that an attorney might expect from the representation.[2]
*185 Although we clarify the application of the forum rule, we affirm the judgment of the district court in this case. It is clear that the district court would adhere to its fee award were we to vacate the district court's judgment and remand for reconsideration. Indeed, we believe that a reasonable, paying resident of Albany would have made a greater effort to retain an attorney practicing in the Northern District of New York, whether in Syracuse, Binghamton, Utica, or Kingston, than did plaintiffs. The rates charged by attorneys practicing in the Southern District of New York would simply have been too high for a thrifty, hypothetical client-at least in comparison to the rates charged by local attorneys, with which he would have been familiar.
BACKGROUND
On April 22, 2003, plaintiffs filed a complaint against Albany County and its Board of Elections ("Albany defendants") alleging that Albany County's 2002 legislative redistricting plan violated § 2 of the Voting Rights Act of 1965. See 42 U.S.C. § 1973. On August 22, 2003, the District Court for the Northern District of New York (Mordue, Judge) enjoined Albany County from conducting its scheduled November 2003 election pending adoption by the Albany County Legislature of a revised redistricting plan.
Further proceedings below culminated in the district court's rejection of plaintiffs' request that it order Albany County to hold a special election to take the place of the enjoined November 2003 election; plaintiffs then appealed to this court. On January 28, 2004, we vacated the district court's judgment and ordered the County to hold the special election on March 2, 2004. See Arbor Hill Concerned Citizens Neighborhood Ass'n v. County of Albany, 357 F.3d 260 (2d Cir.2004) ("Arbor Hill I").
Plaintiffs then moved in this court for an award of attorney's fees under 42 U.S.C. § 19731(e). While we acknowledged the merit of the motion in principle, we remanded for a determination of the appropriate fee. See Arbor Hill Concerned Citizens Neighborhood Ass'n v. County of Albany, 369 F.3d 91 (2d Cir. 2004) ("Arbor Hill II"). We noted that plaintiffs had not demonstrated that "special circumstances existed" that would justify the use of higher rates than those prevailing in the Northern District of New York in calculating that fee. Arbor Hill II, 369 F.3d at 96 (quoting In re "Agent Orange" Prods. Liab. Litig., 818 F.2d 226, 232 (2d Cir.1987)).
During the course of this litigation, three entities have rendered legal services to the plaintiffs: (1) the Albany law firm of DerOhannesian & DerOhannesian ("D & D"), as local counsel; (2) the Washington, D.C.-based non-profit Lawyer's Committee for Civil Rights Under Law ("LCCRUL"), selected for its voting rights expertise; and (3) the Manhattan law firm of Gibson, Dunn & Crutcher ("Gibson Dunn"), chosen because of the firm's practice before the Second Circuit and the firm's "muscle," specifically, its ability to quickly prepare the appeal on an abbreviated briefing schedule.
Gibson Dunn sought in the district court to recoup attorney's fees calculated on the basis of the hourly rate charged by most attorneys in the Southern District of New York (and the hourly rate usually charged by Gibson Dunn). The district court denied *186 Gibson Dunn's request that it adjust the hourly rate it would use to calculate the fees due from that prevalent in the Northern District of New York. The district court explained, "[i]t is undisputed that plaintiffs did not even attempt to contact attorneys or law firms in the Northern District of New York outside of Albany County insofar as obtaining representation in this matter." Noting that "it was plaintiffs['] obligation to submit factual support for their claim that there were no [law firms in Syracuse, Binghamton, Utica or Kingston] ready, willing or able to take [their] case," the district court held that plaintiffs had not adequately justified their request for higher fees.
In addition, the district court reduced the fee award proposed by Gibson Dunn in various other respects not relevant to this appeal. Plaintiffs then timely appealed the fee award, challenging only the district court's decision to award Gibson Dunn a fee based on the hourly rate commonly charged in the Northern District.
ANALYSIS
I. A Brief History of Attorney's Fees Awards
Courts in the United States have historically applied the "American Rule," under which each party is to bear its own costs of litigation, unmitigated by any fee-shifting exceptions. See Alyeska Pipeline Servs. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 95 S. Ct. 1612, 44 L. Ed. 2d 141 (1975). In 1976, however, Congress enacted the Civil Rights Attorney's Fees Awards Act, which, like the provision of the VRA at issue in this appeal, provided that prevailing parties could recoup "reasonable attorney's fee[s]." See 42 U.S.C. § 1988(b); cf. 42 U.S.C. § 19731(e) ("In any action or proceeding to enforce the voting guarantees of the fourteenth or fifteenth amendment, the court, in its discretion, may allow the prevailing party.. a reasonable attorney's fee. . . . ").
In the accompanying Senate Report, Congress implicitly endorsed two existing methods of calculating the "reasonable fee" that were developed in the 1970s by the circuit courts. See Hensley v. Eckerhart, 461 U.S. 424, 429-30 & n. 3, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983). The first, developed by the Third Circuit, was the "lodestar" method. See Lindy Bros. Builder, Inc. v. Am. Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir.1973). The lodestar was the product of the attorney's usual hourly rate and the number of hours worked. See id. at 167 (directing district courts to calculate the lodestar using the attorney's "normal billing rate"); see also City of Burlington v. Dague, 505 U.S. 557, 559, 112 S. Ct. 2638, 120 L. Ed. 2d 449 (1992). After determining the lodestar, the district court could adjust it in setting the reasonable fee. See generally Hensley, 461 U.S. at 433, 103 S. Ct. 1933 ("The most useful starting point for determining the amount of a reasonable fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate. This calculation provides an objective basis on which to make an initial estimate. . . .") (emphasis added); Lindy, 487 F.2d at 168-69. Thus, the lodestar method involved two steps: (1) the lodestar calculation; and (2) adjustment of the lodestar based on case-specific considerations.
The second method, developed by the Fifth Circuit, was for district courts to consider twelve specified factors to establish a reasonable fee. See Johnson v. Ga. Highway Express, Inc., 488 F.2d 714 (5th Gir.1974),[3]abrogated on other grounds by *187 Blanchard v. Bergeron, 489 U.S. 87, 92-93, 96, 109 S. Ct. 939, 103 L. Ed. 2d 67 (1989) (declining to limit fee award to amount stipulated in attorney-client agreement). The Johnson method differed from the lodestar method in that it contemplated a one-step inquiry.
These two circuits had sought to channel the district court's discretion in different ways. The lodestar method was consistent with the law firm practice of accounting for each billable hour. See Lindy, 487 F.2d at 167 ("[T]he first inquiry of the court should be into the hours spent by the attorneys. . . ."); see also Gisbrecht v. Barnhart, 535 U.S. 789, 800-01, 122 S. Ct. 1817, 152 L. Ed. 2d 996 (2002) ("As it became standard accounting practice to record hours spent on a client's matter, attorneys increasingly realized that billing by hours devoted to a case was administratively convenient. . . ."). When the lodestar did not accurately reflect the market, the district court retained authority to adjust the lodestar to ensure that the fee ultimately awarded was reasonable. By contrast, under the Johnson method, the "hours claimed or spent on a case" were not "the sole basis for determining a fee." Johnson, 488 F.2d at 717. Rather than depending on market forces, the Johnson method relied on the district court's experience and judgment. See id. at 718 ("[T]he trial judge's expertise gained from past experience as a lawyer and his observation from the bench of lawyers at work become highly important"); id. at 720 (discussing the necessary "balancing process"). Compare id. ("By this discussion we do not attempt to reduce the calculation of a reasonable fee to mathematical precision."), with Lindy, 487 F.2d at 167.
In theory, therefore, a district court that adopted the lodestar method was expected to consider fewer variables than a district court utilizing the Johnson method. In practice, however, both considered substantially the same set of variables just at a different point in the fee-calculation process. A district court using the lodestar method would set the lodestar and then consider whether, in light of variables such as the difficulty of the case, it should adjust the lodestar before settling on the reasonable fee it was ultimately inclined to award. See, e.g., Silberman v. Bogle, 683 F.2d 62, 64 (3d Cir.1982); Baughman v. Wilson Freight Forwarding Co., 583 F.2d 1208, 1217-18 (3d Cir.1978) (permitting the district court to multiply the lodestar by a "contingency factor" and accepting, in theory, that obtaining an exceptional result might justify a further upward departure from the lodestar). By contrast, a district court employing the Johnson method would consider factors, such as the difficulty of the case, earlier in the fee-calculation process by weighing them in setting its tentative reasonable fee, from which there would seldom be a need to depart. See, e.g., In re First Colonial Corp. of Am., 544 F.2d 1291, 1299-1300 (5th Cir.1977) (outlining a process whereby first, the attorney seeking fees would document the hours devoted to the case; second, the district court would consider the Johnson factors and set a reasonable hourly rate; and third, the district court would explain how it balanced the Johnson factors to arrive at the reasonable hourly rate).
*188 The Supreme Court adopted the lodestar method in principle, see Hensley, 461 U.S. at 433, 103 S. Ct. 1933; Blum v. Stenson, 465 U.S. 886, 104 S. Ct. 1541, 79 L. Ed. 2d 891 (1984), without, however, fully abandoning the Johnson method. Rather than using the attorney's own billing rate to calculate the lodestar and then examining the lodestar in light of case-specific variables to ensure that it was in fact a reasonable fee, as the Third Circuit had suggested, the Supreme Court instructed district courts to use a reasonable hourly rate which it directed that district courts set in light of the Johnson factors in calculating what it continued to refer to as the lodestar. See Hensley, 461 U.S. at 434 n. 9, 103 S. Ct. 1933 ("The district court also may consider other factors identified in [Johnson] though it should note that many of these factors usually are subsumed within the initial calculation of hours reasonably expended at a reasonable hourly rate.") (citation omitted) (emphasis added); Blum, 465 U.S. at 898-900, 104 S. Ct. 1541. The Supreme Court collapsed what had once been a two-step inquiry into a single-step inquiry; it shifted district courts' focus from the reasonableness of the lodestar to the reasonableness of the hourly rate used in calculating the lodestar, which in turn became the de facto reasonable fee.
But the Supreme Court's emphasis on the Third Circuit's economic model, see, e.g., Missouri v. Jenkins, 491 U.S. 274, 283, 109 S. Ct. 2463, 105 L. Ed. 2d 229 (1989) ("Our cases have repeatedly stressed that attorney's fees. . . . are to be based on market rates for the services rendered."), and its simultaneous invocation of the equitable Johnson factors at an early stage of the fee-calculation process, proved to be in tension, see Blum, 465 U.S. at 895 n. 11, 104 S. Ct. 1541 ("We recognize, of course, that determining an appropriate `market rate' for the services of a lawyer is inherently difficult. . . . [since m]arket prices . . . are determined by supply and demand."). While the Third Circuit had expected district courts to correct for market dysfunction, the Supreme Court now asked district, court judges to hypothesize that market on the basis of their experience as lawyers within their districts and on the basis of affidavits provided by the parties. Generally speaking, the rates an attorney routinely charges are those that the market will bear; yet the Supreme Court required that the district courts conjure a different, "reasonable" hourly rate.
After Hensley and Blum, circuit courts struggled with the nettlesome interplay between the lodestar method and the Johnson method. Compare Rutherford v. Harris County, Tex., 197 F.3d 173, 192 (5th Cir.1999) ("To decide an appropriate attorney's fee award, the district court was first required to calculate a lodestar fee depending on the circumstances of the case and the Johnson factors. The court was next obligated to consider whether the lodestar amount should be adjusted upward or downward, depending on the. . . . Johnson factors.") (emphasis added), with Murray v. Weinberger, 741 F.2d 1423, 1430 (D.C.Cir.1984)("[T]he reasonable hourly rate which is incorporated into the lodestar figure generally reflects the reputation and ability of the attorney, the attorney's experience, and the level of skill required for the particular case."), and Bebchick v. Wash. Area Metro. Transit Comm'n, 805 F.2d 396, 404 (D.C.Cir.1986) ("Of course, `the actual rate that applicant's counsel can command on the market is itself highly relevant proof of the prevailing community rate."').
And the Supreme Court has not yet fully resolved the relationship between the two methods. In cases decided after Hensley and Blum, it has both (1) suggested that district courts should use the Johnson *189 factors to adjust the lodestar, see, e.g., Blanchard, 489 U.S. at 94, 109 S. Ct. 939 (stating that the district court should arrive at an initial estimate and then "adjust this lodestar calculation by other factors"); see also id. ("The Johnson factors may be relevant in adjusting the lodestar amount. . . ."); Pierce v. Underwood, 487 U.S. 552, 582-83, 108 S. Ct. 2541, 101 L. Ed. 2d 490 (1988) (Brennan, J., concurring) (suggesting that factors might exist "that would justify an enhancement of the lodestar"), and (2) reiterated its holding in Hensley and Blum that "many of the Johnson factors `are subsumed within the initial calculation.'" Penn. v. Del. Valley Citizens' Council for Clean Air, 478 U.S. 546, 564, 106 S. Ct. 3088, 92 L. Ed. 2d 439 (1986).
Our court has done little to resolve this confusion. Compare Kassim v. City of Schenectady, 415 F.3d 246, 255-56 (2d Cir. 2005) (affirming the district court's authority to "reduce the fee awarded to a prevailing plaintiff below the lodestar by reason of the plaintiffs `partial or limited success'") (emphasis added), with Luciano v. Olsten Corp., 109 F.3d 111, 116 (2d Cir.1997) ("The product of the number of reasonable hours times a reasonable hourly rate, however, does not end the inquiry. There remain other considerations, based on the facts of the particular case, that may lead the district court to ultimately make an adjustment to the hourly structure.") (internal citations omitted), and McDonald v. Pension Plan of the NYSA-ILA Pension Trust Fund, 450 F.3d 91, 97 (2d Cir.2006) (lodestar calculated on the basis of "prevailing rate [specifically] for ERISA practitioners in this Circuit") (emphasis added), and Chambless v. Masters, Mates & Pilots Pension Plan, 885 F.2d 1053, 1058 (2d Cir.1989) (suggesting, in determining the lodestar, that "smaller firms may be subject to their own prevailing market rate").
The net result of the fee-setting jurisprudence here and in the Supreme Court is that the district courts must engage in an equitable inquiry of varying methodology while making a pretense of mathematical precision. See Report of the Third Circuit Task Force, Court Awarded Attorney Fees, 108 F.R.D. 237, 247 (1985) ("The Lindy process creates a sense of mathematical precision that is unwarranted. . . ."). The "lodestar" is no longer a lodestar in the true sense of the word "a star that leads," Webster's Third International Dictionary 1329 (1981). Nor do courts use it in the way the term was first used by the Third Circuit as a base amount that is susceptible of ready adjustment; rather, circuit court deference to the district court's estimate of a "reasonable" hourly rate is a "lodestar" only in the sense that it is a guiding jurisprudential principle, see Dague, 505 U.S. at 562, 112 S. Ct. 2638 ("The `lodestar' figure has, as its name suggests, become the guiding light of our fee-shifting jurisprudence."). What the district courts in this circuit produce is in effect not a lodestar as originally conceived, but rather a "presumptively reasonable fee." See id. (holding that the fee applicant bears the "burden of showing that' . . . an adjustment is necessary to the determination of a reasonable fee'"). The focus of the district courts is no longer on calculating a reasonable fee, but rather on setting a reasonable hourly rate, taking account of all case-specific variables.
The district court's opinion, including the report and recommendation of Magistrate Judge David R. Homer, with which the district court agreed after de novo review, reflects the general confusion surrounding the lodestar calculation. In places, the district court appears to envision a two-step lodestar calculation process; yet elsewhere it seems to contemplate undertaking the calculation in one step. Likewise, at times, the district court *190 emphasizes its role in approximating the workings of the market, but it also suggests some difference between "rates. . . . paid by private retained clients. . . . [and rates] ordered by courts."
The meaning of the term "lodestar" has shifted over time, and its value as a metaphor has deteriorated to the point of unhelpfulness. This opinion abandons its use.[4] We think the better course and the one most consistent with attorney's fees jurisprudence is for the district court, in exercising its considerable discretion, to bear in mind all of the case-specific variables that we and other courts have identified as relevant to the reasonableness of attorney's fees in setting a reasonable hourly rate. The reasonable hourly rate is the rate a paying client would be willing to pay. In determining what rate a paying client would be willing to pay, the district court should consider, among others, the Johnson factors;, it should also bear in mind that a reasonable, paying client wishes to spend the minimum necessary to litigate the case effectively. The district court should also consider that such an individual might be able to negotiate with his or her attorneys, using their desire to obtain the reputational benefits that might accrue from being associated with the case. The district court should then use that reasonable hourly rate to calculate what can properly be termed the "presumptively reasonable fee."
II. The Forum Rule
We turn now to the particular feecalculation rule at issue in this case. It was against the muddled legal landscape we have just described that the Second Circuit promulgated what we will call the "forum rule." The Supreme Court directed that district courts should use the "prevailing [hourly rate] in the community" in calculating the lodestar or what we are now calling the presumptively reasonable fee. After Blum, we explained that the "community" for purposes of this calculation is the district where the district court sits. See Polk v. N.Y. State Dep't of Corr. Servs., 722 F.2d 23, 25 (2d Cir.1983).
However, district courts and indeed our court quickly succumbed to the general confusion surrounding the difference between a "lodestar" and a reasonable hourly rate. Sometimes, they considered the variation between indistrict and out-of-district rates in setting the hourly rate (which they then used to calculate the presumptively reasonable fee); but sometimes, they considered that variation only in deciding whether to adjust the presumptively reasonable fee after they had arrived at it (on the basis of in-district rates). Compare Polk, 722 F.2d at 25 ("[T]he rate prevailing in the appropriate community is only one of many factors bearing on determination of a fee award."), with Arbor Hill II, 369 F.3d at 96-97 (intimating that a district court should permit plaintiffs to recover more than a fee calculated on the basis of the hourly rate usually charged by attorneys in the forum district only if plaintiffs could "show[]. . . . that the case required special expertise beyond the competence of [forum district] law firms").[5]
*191 We now clarify that a district court may use an out-of-district hourly rate or some rate in between the out-of-district rate sought and the rates charged by local attorneys in calculating the presumptively reasonable fee if it is clear that a reasonable, paying client would have paid those higher rates. We presume, however, that a reasonable, paying client would in most cases hire counsel from within his district, or at least counsel whose rates are consistent with those charged locally. This presumption may be rebutted albeit only in the unusual case if the party wishing the district court to use a higher rate demonstrates that his or her retention of an out-of-district attorney was reasonable under the circumstances as they would be reckoned by a client paying the attorney's bill. We believe that the district court's assessment of the reasonableness of a prevailing party's decision to retain out-of-district counsel is best considered in setting the hourly rate rather than in deciding whether to adjust a presumptively reasonable fee for three reasons. First, our holding comports with the holdings of several sister circuits and with the Supreme Court's focus on reasonable hourly rates rather than reasonable fees. See, e.g., Blum, 465 U.S. at 895, 104 S. Ct. 1541 (emphasizing the importance of using the "market rate" in calculating attorney's fees); Rum Creek Coal Sales, Inc. v. Caperton, 31 F.3d 169, 175 (4th Cir.1994) ("In circumstances where it is reasonable to retain attorneys from other communities. . . . the rates in those communities may also be considered."); Maceira v. Pagan, 698 F.2d 38, 40 (1st Cir.1983) ("If a local attorney could perform the service, a well-informed private client, paying his own fees, would probably hire local counsel at the local, average rate."); Chrapliwy v. Uniroyal, Inc., 670 F.2d 760, 769 (7th Cir.1982) (querying whether "the choice of counsel was improvident").
Second, in Pierce v. Underwood, a case interpreting the attorney's fees provision *192 of the Equal Access to Justice Act ("EAJA"), the Supreme Court hinted that in the "broad spectrum of litigation," the difficulty of obtaining local counsel competent to prosecute a particular case is "little more than [a] routine reason[] why market rates are what they are," 487 U.S. 552, 573, 108 S. Ct. 2541, 101 L. Ed. 2d 490 (1988) (emphasis added). The Supreme Court distinguished that "broad spectrum of litigation" from the attorney's fees provision of the EAJA, which stipulates that fees "shall be based upon prevailing market rates" but "shall not be awarded in excess of $125 per hour unless the court determines that. . . . the limited availability of qualified attorneys for the proceedings involved justifies a higher fee." 28 U.S.C. § 2412(d)(2)(A)(ii); see Pierce, 487 U.S. at 571-72, 108 S. Ct. 2541; see generally Healey v. Leavitt, 485 F.3d 63, 68 (2d Cir. 2007).
Third and finally, our holding honors the Supreme Court's emphasis on the need to use the approximate market rate for an attorney's services in calculating the presumptively reasonable fee. See Jenkins, 491 U.S. at 283, 109 S. Ct. 2463. The legal communities of today are increasingly interconnected. To define markets simply by geography is too simplistic. Sometimes, legal markets may be defined by practice area. See A.R. ex rel. R.V. v. New York City" Dep't of Educ., 407 F.3d 65, 80 (2d Cir.2005) ("So long as the law provides for or permits fee awards based on geographic markets for services, a lawyer may be paid at different rates for otherwise indistinguishable services."). On the other hand, many cases (including many voting rights cases) are intrinsically local, and the relevant legal market may be coextensive with or smaller than the district itself. By asking what a reasonable, paying client would do, a district court best approximates the workings of today's market for legal services. See Mathur v. Bd. of Trs. of S. Ill. Univ., 317 F.3d 738, 744 (7th Cir.2003) ("The realities of the legal community today mean that though some attorney probably could have represented [the plaintiff], one factor or another prevented them from taking the case when he needed a lawyer."). Not incidentally, a reasonable, paying client might consider whether a lawyer is willing to offer his services in whole or in part pro bono, or to promote the lawyer's own reputational or societal goals. Indeed, by focusing on the hourly rate at which a client who wished to pay no more than necessary would be willing to compensate his attorney, the district court can enforce market discipline, approximating the negotiation that might ensue were the client actually required to pay the attorney's fees.
In occasionally permitting a deviation from forum rates in setting the rate that will yield the presumptively reasonable fee, we have in mind no substantial change in circuit law; where circumstances have warranted it, we have not insisted on strict adherence to the forum rule. In Polk, we approved the use of an out-of-district hourly rate. 722 F.2d at 25 (considering whether "[c]ounsel might. . . . have expected plaintiffs claim to be adjudicated in the Southern District"). In Agent Orange, although we emphasized that district courts should generally use "the hourly rates employed in the district in which the reviewing court sits" in calculating the presumptively reasonable fee, 818 F.2d at 232, we again upheld a district court's decision to use different rates.[6] And since Polk and *193 Agent Orange, we have urged district courts where appropriate to employ out-of-district rates in calculating the fee due. See, e.g., New York City Dep't of Educ., 407 F.3d at 81 & n. 17 ("[T]here is good reason for a district court not be wed to the rates in its own community. If they are lower than those in another district, skilled lawyers from such other district will be dissuaded from taking meritorious cases in the district with lower rates.").
In both Polk and Agent Orange, the touchstone of our analysis was the belief that district courts should award fees just high enough "to attract competent counsel," Lewis v. Coughlin, 801 F.2d 570, 576. (2d Cir.1986). See, e.g., Agent Orange, 818 F.2d at 233 ("Undercompensation could deny counsel their right to fair and just fees; overcompensation would not be consistent with the need to prevent windfalls.");[7]cf. Crescent Publ'g Group, Inc. v. Playboy Enters., Inc., 246 F.3d 142, 151 (2d Cir.2001) (explaining that an attorney-client agreement may provide compelling evidence of the "prevailing "market rate").[8] We adhere to this touchstone, but we would not be true to it by insisting on an overly strict application of the forum rule. Rattier, to reiterate, a district court should consider the rate reasonable, paying client would pay, and use that rate to calculate the presumptively reasonable fee.
III. The District Court's Decision
For the foregoing reasons, we agree with plaintiffs that the district court may have applied the forum rule too strictly. They suggest that the district court calculated the presumptively reasonable fee (on the basis of in-district rates) and then queried whether the plaintiffs had shown sufficient cause to rebut the presumption that it was, in fact, the ultimate reasonable fee.
However, we find no error in the district court's fee award, even when evaluated under the analysis we use. We are confident that a reasonable, paying client would have known that law firms undertaking representation such as that of plaintiffs often obtain considerable non-monetary returns *194 in experience, reputation, or achievement of the attorneys' own interests and agendas that might cause them to accept such representation despite a prevailing hourly rate that is lower than the law firm's customary billing rates, and that the client would have insisted on paying his attorneys at a rate no higher than that charged by Albany attorneys (and there is no cross-appeal).
Moreover, the considerable deference that we owe to a district court's assessment of the Johnson and other factors, see Farbotko, 433 F.3d at 210 ("The district court is in closer proximity to and has greater experience with the relevant community whose prevailing market rate it is determining."), counsels against remanding this case to the district court for further, likely unnecessary, proceedings.
CONCLUSION
For the reasons set forth above, we AFFIRM the judgment of the district court.
NOTES
[*] The Honorable Sandra Day O'Connor, Associate Justice (Retired) of the United States Supreme Court, sitting by designation.
[1] After due consideration of Plaintiffs-Appellants' petition for rehearing, which is denied, we have sua sponte amended our opinion.
[2] Our decision today in no way suggests that attorneys from non-profit organizations or attorneys from private law firms engaged in pro bono work are excluded from the usual approach to determining attorneys' fees. The reasonableness of a fee award does not depend on whether the attorney works at a private law firm or a public interest organization, see Blum v. Stenson, 465 U.S. 886, 894, 104 S. Ct. 1541, 79 L. Ed. 2d 891 (1984) ("Congress did not intend the calculation of fee awards to vary depending on whether plaintiff was represented by private counsel or by a nonprofit legal services organization."), nor is the award necessarily limited because the attorney has agreed to undertake the case for a reduced fee compared to the customary market rate, see Reiter v. MTA N.Y. City Transit Auth., 457 F.3d 224, 233 (2d Cir.2006). Nevertheless, the nature of representation and type of work involved in a case are critical ingredients in determining the "reasonable" hourly rate. See, e.g., Blum, 465 U.S. at 895 n. 11, 104 S. Ct. 1541 ("[R]equested rates [must be] in line with those prevailing in the community for similar services. . . ." (emphasis added)); see also Cohen v. W. Haven Bd. of Police Comm'rs, 638 F.2d 496, 506 (2d Cir. 1980) ("The fees that would be charged for similar work by attorneys of like skill in the area [is] the starting point for determination of a reasonable fee award."); Pastre v. Weber, 800 F. Supp. 1120, 1125 (S.D.N.Y.1991) (finding force in the "argument that [defendant] should not be required to pay for legal services at the rate Hughes Hubbard would charge to [its corporate clients] . . . but should . . . compensate plaintiff only for what would have been charged by a competent attorney specializing in civil rights litigation"). These factors may justify compensating an attorney at a rate lower than his or her customary rate for a different type of practice, regardless of whether the attorney has agreed to take the case on a pro bono or reduced-fee basis. All we are holding is that in calculating the reasonable hourly rate for particular legal services, a district court should consider all relevant circumstances in concluding what a reasonable client would expect to pay. Thus, attorneys regardless of whether they are pursuing litigation on behalf of a paying client or a non-paying client should receive out-of-district fees only if a reasonable, paying client would have retained out-of-district counsel.
[3] The twelve Johnson factors are: (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the level of skill required to perform the legal service properly; (4) the preclusion of employment by the attorney due to acceptance of the case; (5) the attorney's customary hourly rate; (6) whether the fee is fixed or contingent; (7) the time limitations imposed by the client or the circumstances; (8) the amount involved in the case and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the "undesirability" of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases. Johnson, 488 F.2d at 717-19.
[4] While we do not purport to require future panels of this court to abandon the term it is too well entrenched this panel believes that it is a term whose time has come.
[5] Attorneys have had trouble understanding the strict forum rule. For instance, in this case, Michael C. Lynch, counsel to the Albany defendants, explained in an affidavit filed with this court in Arbor Hill II that the "`relevant community' for purposes of. . . . [setting the hourly rate] is the Albany, Capital District region in the Northern District of New York." See also Farbotko v. Clinton County of New York, 433 F.3d 204, 209 (2d Cir.2005) ("[T]he prevailing market rate for attorneys Syracuse and Albany. . . . may not accurately reflect the rate prevailing across the entire Northern District."). The district court, by contrast," considered the "relevant community" to be the entire Northern District of New York.
Confusion surrounding the forum rule is endemic, and not unique to our circuit. Other circuits, too, have debated whether to consider out-of-district rates in setting the reasonable hourly rate or in setting the reasonable fee (after arriving at a presumptively reasonable fee using in-district rates). Compare Shakopee Mdewakanton Sioux Cmty. v. City of Prior Lake, Minn., 771 F.2d 1153, 1160 (8th Cir.1985) (noting that the district court should first "compu[et] the base `lodestar' figure by multiply[ing] the number of hours reasonably expended times the lawyer's regular hourly rate" and only then "look also to the ordinary fee for similar work in the community") (internal quotation marks omitted), with Kan. Pub. Employees Ret. Sys. v. Reimer & Roger Assocs., 165 F.3d 627, 631 (8th Cir.1999) (readily upholding use of out-of-district rates in calculating the presumptively reasonable fee). And those that have adopted a comparatively strict forum rule have struggled to apply it. See, e.g. Gates v. Deukmejian, 987 F.2d 1392, 1405 n. 14 (9th Cir.1992) (discussing whether to use Sacramento or San Francisco hourly rates); McDonald v. Armontrout, 860 F.2d 1456, 1460 n. 6 (8th Cir.1988) ("We are not at all convinced that central Missouri is the relevant `community'. . . . [T]he argument for an expansive reading of `community' is particularly strong in a case such as this, since Jefferson City is the capitol of the state and lawyers from throughout the state have business there."). Compare Grendel's Den, Inc. v. Larkin, 749 F.2d 945, 955 (1st Cir. 1984) (using county-based version of the forum rule), with Cunningham v. City of McKeesport, 753 F.2d 262, 267 (3d Cir.1985) (location of attorney's home office is the relevant community), and Davis County Solid Waste Mgmt. & Energy Recovery Special Serv. Dist. v. E.P.A., 169 F.3d 755, 759 (D.C.Cir. 1999) (announcing an exception to the forum rule to govern cases where "the home market is substantially less costly and the site of the bulk of the legal work").
[6] Of the three cases cited in Agent Orange, two have since been called into question to the extent they purport to require strict application of the forum rule. Compare Chrapliwy, 670 F.2d at 768-69, with People Who Care v. Rockford Bd. of Educ, Sch. Dist. No. 205, 90 F.3d 1307, 1310 (7th Cir. 1996) ("The attorney's actual billing rate for comparable work is `presumptively appropriate' to use as the market rate."); compare Avalon Cinema Corp. v. Thompson, 689 F.2d 137, 139-40 (8th Cir. 1982) (en banc), with TCBY Sys., Inc. v. RSP Co., 33 F.3d 925, 931 (8th Cir.1994) ("[Defendants] argue they should be awarded the Minneapolis rate because they reasonably chose Minneapolis counsel after TCBY sued them. The [defendants] point put that they are Minnesota residents who were forced to litigate the case in Arkansas under the agreement's forum selection clause, and they were unfamiliar with Arkansas counsel. . . . [T]he district court could have properly based the fee award on the higher Minneapolis rates. . . . ").
[7] Indeed, Polk said that the panel was simply applying established law. And when we decided Polk, circuit precedent was clear that district courts had considerable flexibility in setting the relevant legal community for purposes of determining the hourly rate to be used in calculating the presumptively reasonable fee. See, e.g., Cohen v. West Haven Bd. of Police Comm'rs, 638 F.2d 496, 506 (2d Cir. 1980) (holding that the district court should have looked to prevailing rates "in the area").
[8] Were a strict forum rule the settled law of this circuit, we could not have used a lower hourly rate than the hourly rate prevailing in the district where the district court sat to calculate the presumptively reasonable fee in Crescent Publishing. See also Sands v. Runyon, 28 F.3d 1323, 1333-34 (2d Cir.1994) (permitting district court to consider retainer agreement in setting hourly rate below prevailing hourly rate in the district); cf. Pinkham v. Camex, Inc., 84 F.3d 292, 294 (8th Cir.1996). But see Reiter v. MTA New York City Transit Auth., 457 F.3d 224, 233 (2d Cir.2006) (vacating district court judgment because district court used hourly rate set forth in retainer agreement without considering prevailing Southern District rates). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1927041/ | 245 B.R. 768 (2000)
In re Patrick W. REILLY Betty-Ann D. Reilly, Debtors.
James W. Sherman, Appellant,
v.
Anthony S. Novak, Trustee, Appellee.
BAP No. 99-50064. Bankruptcy No. 96-20102.
United States Bankruptcy Appellate Panel of the Second Circuit.
Argued November 19, 1999.
Decided March 8, 2000.
*769 *770 Law Offices of Martin W. Hoffman, Martin W. Hoffman, West Hartford, CT, for Appellant.
Boatman, Boscarino, Grasso & Twachtman, Patrick W. Boatman, Glastonbury, CT, for Trustee, Anthony Novak.
Before Hon. JOHN C. NINFO, II, Hon. JEFFRY H. GALLET & Hon. ROBERT E. LITTLEFIELD, Jr., Bankruptcy Judges.
OPINION
LITTLEFIELD, Bankruptcy Judge.
This appeal is from the June 14, 1999 ruling of Judge Robert L. Krechevsky, United States Bankruptcy Judge, District of Connecticut on the Trustee's Objection To Proof of Claim Filed By James W. Sherman, Esq., a creditor. This ruling sustained the trustee's (hereinafter "Appellee") objection to the amended claim of James W. Sherman (hereinafter "Appellant") and denied said claim, concluding that the Appellant had not carried the burden of proof of the validity of his claim. For the reasons set forth below we AFFIRM the Bankruptcy Court's determination.
FACTS
The facts based upon the pleadings and found by the Bankruptcy Court in its decision of June 14, 1999, are as follows:
*771 In 1987, Patrick W. Riley (hereinafter "Debtor"), Thomas Tyler and Russell Tyler (hereinafter the "Tylers") and the Appellant entered into a loose arrangement whereby they would develop and sell various parcels of real estate. All of the parties except the Debtor were licensed attorneys, however, there was no written agreement with respect to this arrangement.
In 1991, a Roman Catholic religious order known as the Missionaries of Our Lady of LaSalette (hereinafter "the Order") formed a five person task force to study methods for utilizing a tract of land which the Order owned in Ipswich, Massachusetts. The Order's chief administrator between 1988 and 1997 was Father Thomas A. Reilly, the Debtor's brother.
On two occasions, in March 1991 and early 1993, the Tylers drafted proposed real estate purchase agreements for the property with potential buyers. However, neither of these agreements culminated in a sale of the subject property.
In June 1993, the Tylers, the Debtor, Father Reilly and Father Kuczynski (chairperson for the task force) met for a social dinner. Over dinner, the land was discussed. On July 3, 1993, Thomas Tyler wrote a letter to Father Reilly offering his assistance in marketing the property. On July 6, 1993, Father Reilly responded that the Order would be interested in proposals concerning the property's non-developed acreage. A meeting occurred between Father Reilly and Thomas Tyler but no agreement of any type resulted.
In late July 1993, the Debtor and the Tylers had a bitter disagreement with the Tylers accusing the Debtor of stealing money. On or about August 13, 1993, in an attempt to work out these differences, the Debtor executed a deed for a 30-acre parcel of land to the Appellant, as trustee, for the Tylers. The Debtor also executed a promissory note payable to the Tylers for $764,470.38. This note was assigned to the Appellant as trustee for the Tylers. In addition, the Tylers assigned to the Appellant, as trustee, a mortgage deed secured by the Debtor's summer home. On September 15, 1993, the Appellant, acting upon instructions from the Tylers, recorded the deed from the Debtor to himself.
On or about September 28, 1993, the Debtor advised the Appellant that he "would not be partners with Russ and Tom." In re Reilly, 235 B.R. 239, 241 (Bankr.D.Conn.1999) The Appellant then wrote two letters expressing his dismay at the termination of the relationship. On October 25, 1993, the Appellant conveyed the 30-acre parcel to a third person for the benefit of the Tylers.
Additionally, in the fall of 1993, the Appellant presented a proposal to the task force suggesting that the Order form a joint venture to develop the property. The task force's reaction was "unanimously negative." Id. The Appellant had no further contact with the task force after January 4, 1994, when he was notified by Father Kuczynski that the Order was not ready to consider selling or developing the property.
In early 1994, the Tylers started a proceeding to foreclose on the mortgage of the Debtor's Rhode Island property. On April 11, 1994, the Debtor initiated a Rhode Island state court action against the Tylers and the Appellant, as trustee, seeking to stop the foreclosure. The complaint alleged that the Tylers engaged in "fraud and deceit" and "fraudulent inducement" in causing the Debtor to sign the deeds and the promissory note.
On June 15, 1994, the Appellant filed an answer and counterclaim to the Debtor's state court complaint. Paragraph 11 of this answer acknowledged that the Debtor had terminated the joint venture. On June 17, 1994, the Debtor filed a complaint in Connecticut, alleging charges similar to those brought in the Rhode Island action.
In June 1994, the Order's task force decided to pursue a proposal to sell the *772 excess acreage of the property to Dr. Arcidi. Father Reilly contacted the Debtor and requested that he advise the Order with respect to the sale of the excess acreage. The Debtor agreed to act as an unpaid consultant. In April 1995, the Order and Dr. Arcidi jointly executed an "Offer to Purchase" agreement. Dr. Arcidi did not exercise his rights under this agreement.
When the agreement with Dr. Arcidi did not yield any results, the Order and the Debtor entered into an agreement entitled "Agreement To Purchase." In this agreement, the Debtor, doing business as Aequus Enterprises, was granted a one-year option to acquire the entire property, not just the excess acreage, for $3,200,000.00. The parties did not believe that the Debtor would exercise the option for his own benefit.
On January 16, 1996, the Debtor, with his wife, filed a joint Chapter 11 petition and listed the option as an executory contract on Schedule G. The Debtor did not exercise the option, however, he did locate an entity which purchased the property. On June 2, 1997, the Order sold the property to Turner Hill Preservation Associates, LLC for $4,511,000.00. The Order then paid the Debtor $1,311,000.00. Father Kuczynski testified that he paid the Debtor for services rendered to the Order, and the community, and for his assistance in preparing the property for sale. Father Kuczynski also acknowledged that the Debtor cured certain water and sewer problems on the property.
On June 5, 1996, the Appellant filed an original Proof of Claim, based upon the joint venture, for an undetermined amount. On December 1, 1998, the Appellant amended the claim to reflect the amount owed as $377,750.00
ISSUES
The Appellant alleges numerous deficiencies in the Bankruptcy Court's decision, however, the ultimate issue raised is: Whether the Bankruptcy Court erred in sustaining the Trustee's objection to James W. Sherman's claim and denying it. Since the Bankruptcy Court's determination that the burden of proof to establish the validity of the claim had shifted to the Appellant and its finding, based upon the evidence presented, that the Appellant did not meet this burden were not in error, this Panel affirms.
STANDARDS OF REVIEW
Pursuant to Bankruptcy Rule 8013 and the case law thereunder, questions of law are subject to de novo review. This standard affords no deference to a trial court's determination. "A de novo review allows us to decide the issue as if no decision had been previously rendered (citations omitted). No deference is given to the Bankruptcy Court's decision." In re Miner, 229 B.R. 561, 565 (2d Cir. BAP 1999).
In contrast, findings of fact are subject to a clearly erroneous standard. This standard affords great deference to a trial court's determination.
A finding of fact is clearly erroneous within the meaning of Rule 8013 . . . when "although there is evidence to support it, the reviewing court on the entire record is left with the definite and firm conviction that a mistake has been made." (citation omitted) While the trial court's findings of fact are not conclusive on appeal, the party that seeks to overturn them bears a heavy burden. (citation omitted). "To be clearly erroneous, a decision must strike [us] as more than just maybe or probably wrong; it must . . . strike [us] as wrong with the force of a five-week-old, unrefrigerated dead fish." (citation omitted). Id.
The issues raised by the Appellant include legal and factual components. When mixed questions are raised on appeal, they are presumptively subject to de novo review. In re Bammer, 131 F.3d 788 (9th Cir.1997). Due to the hybrid nature *773 of the issues presently raised each of these standards are implicated.
The Bankruptcy Court's determinations, that the burden of proof had shifted to the Appellant and finding that he did not meet his burden, thereby denying the claim were not in error.
In its decision, the Bankruptcy Court found that the burden of proof shifted to the Appellant to establish the validity of his claim and that he simply did not meet his burden. The Appellant contends that this finding is in error. This Panel disagrees.
A properly executed and filed proof of claim constitutes prima facie evidence of the validity of the claim. See Fed. R. Bankr.P. 3001(f). To overcome this prima facie evidence, the objecting party must come forth with evidence which, if believed, would refute at least one of the allegations essential to the claim. In re Allegheny Int'l, Inc., 954 F.2d 167 (3d Cir.1992). See also In re Giordano, 234 B.R. 645, 650 (Bankr.E.D.Pa.1999).
To refute the allegations of the Appellant that a joint venture existed and continued until the time the property was sold, the Appellee presented testimony of the Debtor, Father Kuczynski and Father Reilly. The Bankruptcy Court after trial, found as a matter of fact that the Appellee had overcome the presumption. It cannot be said that the Bankruptcy Court was clearly in error. The Bankruptcy Court, as the trier of fact, is in the best position to determine the credibility of witnesses and their testimony. The Bankruptcy Court found that the testimony of the Debtor, Father Reilly and Father Kuczynski, presented by the Appellee was of sufficient weight and reliability to shift the burden to the Appellant.
The Appellant offers absolutely no evidence to counter this determination. The Appellant faces formidable obstacles in attempting to contravene the factual determination of the trial court. In re Miner, 229 B.R. at 565. Yet the only evidence produced by the Appellant is his argument that because the Bankruptcy Court found that a loose joint venture had existed then the court must have found that the testimony offered by the Appellee lacked credibility. However, the Appellant's interpretations and speculations are not of sufficient magnitude to compel this Panel to disturb the determination of the Bankruptcy Court.
Once the Appellee offered the evidence refuting the allegations in the proof of claim, the burden shifted to the Appellant. The ultimate burden always rests with the claimant. "(O)nce the presumption is overcome, the ultimate burden to establish the validity of a claim is placed on the creditor." Fed. Bank. R.P. 3001(f) Adv. Comm. Notes. See also In re Barclay Bros. Inc., 1986 WL 15884, *1 (Bankr. E.D.Pa.1986) ("[U]pon the filing of objections, the trustee is then called upon to produce evidence that must be of a probative force equal to that of the allegations of the creditor's proof of claim. While the burden of ultimate persuasion is always on the claimant . . ." (citation omitted.)); In re Circle J Dairy, 92 B.R. 832, 833 (Bankr. W.D.Ark.1988) ("Under [Bankruptcy Rule 3001(f)] a party correctly filing a proof of claim is deemed to have established a prima facie case against the Debtor's assets. (citation omitted.) . . . If, however, evidence rebutting the claim is brought forth, then the claimant must produce additional evidence to `prove the validity of the claim by a preponderance of the evidence.' The ultimate burden of proof always rests upon the claimant . . ." (citations omitted)); In re Williams, 1994 WL 329328, *2 (Bankr. S.D.Ga.1994) ("The objecting party must produce evidence equal to the probative value of the proof of claim itself. (citation omitted). Although the burden of persuasion shifts, the burden of proof always rests upon the claimant."). Agreeing that the burden of proof had shifted to the Appellant, this Panel further determines the Bankruptcy Court's finding that the *774 Appellant had not met this burden was not in error.
A. The Appellant did not establish its claims for breach of the joint venture agreement, breach of fiduciary duty, fraud and deceit.
It was incumbent upon the Appellant to demonstrate that the joint venture existed until the time when the property was sold, because a breach of the fiduciary duty could only occur while the joint venture existed. Meinhard v. Salmon, 249 N.Y. 458, 462, 164 N.E. 545 (1928). There was no written agreement dictating the terms of the joint venture, therefore, the Bankruptcy Court had to look to the state of affairs as they existed and determine if and when the joint venture ceased. It is within the province of a court to determine if, and when, a joint venture has been terminated. Electronic Assoc., Inc. v. Automatic Equip. Dev. Corp., 185 Conn. 31, 440 A.2d 249 (1981) (citing Sime v. A.B. Malouf, et al., 95 Cal. App. 2d 82, 212 P.2d 946 (1949)). The Bankruptcy Court, acting within its authority, determined that the joint venture had ceased prior to the sale of the land at issue and this Panel does not disagree.
There is ample evidence in the record to support the Bankruptcy Court's determination that the joint venture had terminated several years prior to the sale of the land. The parties were embroiled in bitterly contested litigation involving allegations of fraud and deceit. The Debtor had also indicated his unwillingness to continue dealings with the Tylers. The trust among the parties had been destroyed as had the joint venture.
It must be noted that the Appellant failed to produce any evidence refuting this determination. The Appellant did not produce any witnesses, including the Tylers, to support his contention that the joint venture continued. In addition, the Appellant had conceded in his Answer in the Rhode Island state court action that the joint venture had been terminated in "late summer/early fall of 1993." (Appellant's Appendix p. 117.) Finally, the Appellant wrote a letter that the Bankruptcy Court found to be the Appellant's acceptance that the joint venture had ended. The letter written by the Appellant and analyzed by the Bankruptcy Court discusses the Debtor removing himself from a different project and the consequences of this withdrawal. In addition, the last paragraph of this letter states, "If there is anything that I can help you with in moving the Ipswich project forward, please call." (Appellant's Appendix p. 110.)
The Bankruptcy Court's determination that the Debtor specifically advised the Appellant of his withdrawal and that the letter can be construed as the Appellant's acceptance that the joint venture was at an end is not clearly erroneous. This letter may be subject to varying interpretations. Anderson v. City of Bessemer, 470 U.S. 564, 572, 105 S. Ct. 1504, 84 L. Ed. 2d 518 (1985) (The clearly erroneous standard "plainly does not entitle a reviewing court to reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently."), Oklahoma Nat. Gas Co. v. Mahan & Rowsey, 786 F.2d 1004, 1005 (10th Cir.1986) ("The Appellate Court is not to determine whether the trial court reached the correct decision, but rather is to determine whether it reached a permissible one in light of the evidence."). However, based upon the entire record this Panel is not left with the "firm and definite conviction that a mistake has been made." In re Miner, 229 B.R. at 565. This is especially true when, as discussed above, it has been established that the Appellant conceded the termination of the joint venture in a court pleading.
As will be discussed, the fact that the joint venture was terminated well before the sale of the land at issue undercuts the remainder of the Appellant's arguments.
*775 B. The Appellant failed to establish that a party to this joint venture could not unilaterally terminate it and deal with the subject matter or that the sale of the property came about as a result of the activities of the joint venture.
The rights and responsibilities of a party with respect to withdrawing from a joint venture depend upon the nature of the joint venture. "Whether a party has the right to withdraw from it, and what the effect of such withdrawal will be, depends upon the terms of the agreement and upon the circumstances. (citation omitted)." 46 Am.Jur.2d Joint Ventures § 31 (1994). If the agreement does not establish a defined period of time or a particular undertaking then any party to the joint venture can terminate the agreement at any time. Lind v. Webber, 36 Nev. 623, 134 P. 461 (1913).
The Bankruptcy Court found a "loose joint venture" had been established. In re Reilly, 235 B.R. at 243. However, there was no writing to memorialize the agreement. Therefore, it was incumbent upon the Appellant to establish that the agreement was for a fixed time or specific undertaking. He did not. Therefore, this venture must be viewed as an at-will arrangement that any party could withdraw from at any time. This is precisely what the Debtor did.
The Appellant is correct in contending that after withdrawal from the joint venture the Debtor was not at liberty to usurp an opportunity that had come to him through the joint venture. Lind v. Webber, 134 P. at 461. However, the Bankruptcy Court specifically found that the sale of the land "did not come about as a result of the activities of the joint venture during its existence." In re Reilly, 235 B.R. at 244, and listed several valid reasons for this determination. These include: (1) the credible testimony by representatives of the Order that the Order did not decide to sell the entire parcel of property until two years after the Appellant had offered his proposal; (2) the lack of involvement between the Appellant and the Order's task force since October 1993; and (3) the sale of the land did not occur until 1997, some three years after the termination of the joint venture. Id.
The Bankruptcy Court's determination is supported by the record. The evidence indicates that the last time the Appellant had any direct contact with the task force was in January 1994. In September 1993, he presented the task force with a proposal to sell the entire property. This proposal was soundly rejected. In January 1994, the task force advised the Appellant that it was not going to consider selling the property. Id. at 241. The property was sold in June 1997, three and one-half years after the Order rejected the Appellant's proposal. In addition, during this three plus years the parties were engaged in rancorous litigation and the Order had attempted to sell the property to a third party stranger.
This Panel finds that the determination by the Bankruptcy Court that the sale of the property did not come about because of activities of the joint venture is supported by the record. The joint venture had ended and the Debtor did not usurp an opportunity that was derived from the activities of the joint venture. Therefore, the Debtor, alone, could negotiate with the Order with respect to the subject property. Electronic Assoc., Inc. v. Automatic Equipment Development Corp., 185 Conn. at 35, 440 A.2d 249.
In addition, there is a body of law indicating that the rejection of a bid terminates a joint venture and allows the parties to the venture to negotiate with respect to the subject of the joint venture. Electrical Contractors, Inc. v. Goldberg & O'Brien Elec. Co., 29 Ill.App.3d 819, 823, 331 N.E.2d 238 (1st Dist.1975) (Two electrical contractors entered into a joint venture for bidding a job. Where bid was rejected, the rejection terminated the joint venture and parties were free to negotiate for the *776 subcontract.); Marmis v. Solot Co., 117 Ariz. 499, 503, 573 P.2d 899 (App.2d Div. 1977)(Once a prospective purchaser's initial offer was rejected, the joint venture also terminated and all fiduciary obligations between the parties ended.).
Here there is an undisputed finding that the Appellant had offered a proposal to the religious Order and the Order's reaction to the proposal was "unanimously negative." In re Reilly, 235 B.R. at 241. Therefore, under several theories, the Debtor was free to terminate the joint venture and assist the Order in finding a purchaser for the property.
C. The Appellant failed to establish that the Debtor committed tortious interference in the business relationship between the Appellant and the Order.
Once again reviewing the limited evidence presented by the Appellant to support his claims, the only evidence of tortious interference presented was his testimony that the Debtor separated the Tylers and the Appellant from the Order, in general, and Father Reilly, in particular. The Appellant's testimony alleged that the Debtor accomplished this schism by discussing the tension and bickering between the parties with his brother, Father Reilly. His testimony follows:
Q. All right. Directing your attention again to page 9. You have a third counterclaim based on tortious interference?
A. Yes.
Q. Can you tell me what you believe no. Strike that. Tell me what you know Pat Reilly did between September 24, 1993 and June 15, 1994 to interfere with any relationship between you and your or the joint venture in La Salettes?
A. Just what I've stated on the earlier. That he separated us from the person who had absolute control over the furtherance of the development and the sale that we've been working on for a number of years.
Q. So your testimony is that what you understand Pat Reilly to have done constitutes a tortious interference with whatever relationship you had with the La Salettes was some time between September of 1993 and June 15th 1994, he let his brother, Father Tom Reilly, know that there was tension between Pat Reilly and the Tylers?
A. No. It's more than that. We were cut out. We were supposed to have the matter completed by June of June of 1994, as of the chapter meeting, I believe it was called, and the steps followed right along our plan. I think the last mass was held in June 1995, I believe, and Pat Reilly was given a contract at that time . . . (Appellant's Appendix pp. 241 242.)
This uncorroborated testimony was the only evidence provided to support the claim of tortious interference. The Bankruptcy Court determined that this evidence was insufficient to support the claim. This Panel agrees.
Conclusion
Therefore, this Panel affirms the Bankruptcy Court's determination sustaining the trustee's objection and denying the Appellant's claim.
It is so ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2373590/ | 260 N.J. Super. 1 (1992)
614 A.2d 1355
CELESTE D'ALIA, PLAINTIFF-APPELLANT,
v.
ALLIED-SIGNAL CORPORATION, DEFENDANT-RESPONDENT.
Superior Court of New Jersey, Appellate Division.
Argued October 1, 1992.
Decided October 20, 1992.
*3 Before Judges BILDER, BAIME and WALLACE.
Michael K. Fielo argued the cause for appellant (Roberts, Pedicini & Fielo, attorneys; Stephen M. Higgins on the brief).
Theresa Donahue Egler argued the cause for respondent (Pitney, Hardin, Kipp & Szuch, attorneys; Ms. Egler on the brief).
The opinion of the court was delivered by BAIME, J.A.D.
This appeal presents novel questions under the Family Leave Act (N.J.S.A. 34:11B-1 through -16). The Act guarantees the right of an employee to take a period of leave upon the birth of a child or other family emergency without incurring the risk of losing his or her employment. Upon the expiration of the leave, the employee is entitled to be restored to his or her former job or to an equivalent position.
Pregnant with her second child, plaintiff Celeste D'Alia apprised her employer Allied-Signal Corporation of her intent to take disability and maternity leave under the company's health insurance plan. She claims that she was demoted when she attempted to return to her position following her recuperation from a cesarean section. Plaintiff instituted this action to recover compensatory and punitive damages as well as attorney's fees under the Act. Although discovery had not yet been completed, the Law Division granted defendant's motion for *4 summary judgment. The court determined that plaintiff's request for disability entitlements and maternity leave did not constitute adequate notice of an intention to invoke her rights under the Act. Alternatively, the court found as a matter of law that plaintiff was offered an equivalent position. We reverse.
I.
Because this case was decided in summary fashion, the record before us is somewhat meager. Plaintiff commenced her employment with defendant on a temporary basis while attending college. After her graduation in 1981, she was hired as a full-time employee. Plaintiff initially held the position of Coordinator of the Personnel Resource Data Center at a salary of $14,500. In 1984, she obtained a lateral transfer to the position of Specialist Stock Options at a grade 6 compensation level. Plaintiff continued in that position until 1986, when she was promoted to the position of Supervisor Stock Options. Her compensation increased commensurately to a grade 8 level. After plaintiff's first pregnancy, she returned to her position and shortly thereafter was promoted to a salary grade 10 position based upon her assumption of additional duties involving defendant's Section 401(K) savings plan. At that point, her job title became Supervisor Special Compensation and her salary increased to $43,600.
Effective February 1, 1990, plaintiff formally assumed supervisory responsibility for administering executive compensation. The former supervisor had been promoted and was about to be reassigned to another office. This organizational change was discussed with plaintiff in late December 1989 and was formally announced in two directives issued on January 9, 1990. In her new role, plaintiff had supervisory responsibility over two additional employees. According to plaintiff's deposition testimony, she was promised that she would be promoted to a salary grade 11 as soon as her predecessor assumed her new assignment. *5 Although the evidence is conflicting, plaintiff claims she was told that her salary would be increased and that it "was just a matter of paperwork."
At that point, plaintiff suffered complications in her pregnancy and requested a maternity leave of absence on May 16, 1990. Based on a disability certification by plaintiff's doctor, defendant anticipated that this leave would continue through September 1990. In addition to signing the company's health insurance disability form, plaintiff engaged in several conversations with her immediate supervisor. These discussions apparently concerned the manner in which other employees would assume plaintiff's responsibilities in her absence. In particular, it was agreed that administrative responsibility for executive compensation would be temporarily assigned to an employee then under plaintiff's supervision. Plaintiff fully expected that this "highly visible" and important function would be returned to her following expiration of her leave.
On July 12, 1990, however, plaintiff, who was still convalescing, was told that her former male subordinate would retain the responsibility for executive compensation upon her return. Plaintiff objected to the reassignment of her supervisory responsibilities and alleged that she was the victim of discrimination. In a series of letters, defendant's Director of Human Resources asserted that the staffing change was made out of business necessity and had nothing to do with plaintiff's pregnancy. He further noted that the company intended to reinstate plaintiff to a position having the same grade and salary as her former job. Defendant later offered plaintiff a choice of two positions: Supervisor Corporate Payroll or Supervisor Special Compensation. Both positions carried the same salary grade level 10, but did not include executive compensation duties and supervisory responsibilities over the same number of employees as plaintiff's former position. Plaintiff continued to object, claiming that the positions offered by defendant involved only "half of [her former] job," and no opportunity for advancement. Moreover, under the staffing change, plaintiff *6 was to report to an employee who had previously been under her supervision. The employee was later promoted to a salary grade 11 level. When defendant refused to correct these problems, plaintiff resigned and commenced this action.
It is against this factual backdrop that we consider plaintiff's arguments. Plaintiff contends that her request for disability benefits emanating from her pregnancy and for maternity leave was sufficient to place defendant on notice of its obligations under the Act. She also claims that genuine issues of material fact exist concerning whether she was offered an equivalent position following expiration of her family leave.
II.
A brief description of the Act and its legislative history is necessary for a complete understanding of the questions presented. The Act was adopted in 1989 and represents the culmination of a comprehensive legislative effort to maintain the integrity of the family unit and promote flexibility and productivity in the work place. The purpose of the legislation is to adjust public and private policy to accommodate the changing needs of the modern family.
This objective is clearly articulated in the legislative findings and declarations. Citing the well-documented increase in the number of families in which all adults are employed outside of the home, the Legislature observed that "many individuals are forced to choose between job security and parenting or providing care for ill family members." N.J.S.A. 34:11B-2. The Legislature found it necessary "to promote the economic security of families by guaranteeing jobs to wage earners who choose to take a period of leave upon the birth ... of a child or serious health condition of a family member." Ibid. The purpose was to permit employees to contend with problems common to all family members "without risk of termination of employment or retaliation by employers and without loss of certain benefits." Ibid.
*7 In furtherance of this objective, the Act provides that employees with a newly born, adopted or ill child or a sick parent or spouse may take family leave from employment for a period not to exceed 12 weeks during any 24 month period. N.J.S.A. 34:11B-3i; N.J.S.A. 34:11B-4. In the case of a newly born or adopted child, leave may be commenced at any time within one year of the date of birth or placement by adoption. N.J.S.A. 34:11B-4c. As to an ill family member, leave may be taken intermittently when medically necessary. N.J.S.A. 34:11B-4a(1), (2) and (3). With respect to a newly born or adopted child, leave may be taken intermittently only if agreed to by the employer and employee. N.J.S.A. 34:11B-4b. Family leave required by the Act may be paid, unpaid or a combination of the two. N.J.S.A. 34:11B-4d. If an employer provides paid leave for fewer than 12 work weeks, the additional period required by the Act may be unpaid. Ibid. Leave may be denied only where (1) the employee falls into a narrow category of highly salaried individuals, N.J.S.A. 34:11B-4h(1), (2) denial is necessary to prevent "substantial and grievous economic injury" to the employer's operation, N.J.S.A. 34:11B-4h(2), and (3) timely notice is given to the employee, N.J.S.A. 34:11B-4h(3).
In addition to the 12 week period, the Act provides job security for employees by requiring that they be "restored by the employer ... to the position [they] held when the leave commenced or to an equivalent position of like seniority, status, employment benefits, pay, and other terms and conditions of employment." N.J.S.A. 34:11B-7. The only exception granted by the Act is where during the leave period a reduction in force has occurred and the employee would have lost his or her job in any event. Ibid. However, even in the case of a reduction in force, the employee retains all rights to a recall that he or she would have had if he or she had not taken the leave. Ibid. The Act also requires the employer to continue group health insurance coverage to the employee and his or her dependents as if leave had not been taken. N.J.S.A. 34:11B-8. The Act makes it clear that the right to family leave is in addition to those *8 granted under the Temporary Disability Benefits Law (N.J.S.A. 43:21-25 through -55). Under the Law, pregnancy is treated like any other medically justifiable condition that prevents an employee from performing her job. As a result, a pregnant employee is entitled to receive partial wage replacement. N.J.S.A. 43:21-29. Family leave provided under the Act has a different purpose. While New Jersey has long been "generous in granting paid disability leave to virtually all working women who are physically unable to work after pregnancy," the Act is intended to "fill the gap" and "expand job protection to men and women who want to take time off ... to care for their young child" after the physical toll of pregnancy dissipates. Thomas H. Kean, "The State's Role in the Implementation of Infant Care Leave," in The Parental Leave Crisis, 233, 236 (Edward Zigler and Frank Meryl, eds.) (1988).
In order to invoke the rights granted by the Act, an employee must give "advance notice" to the employer. N.J.S.A. 34:11B-4. The Act further provides that "[i]n any case in which the necessity for leave ... is foreseeable, based upon an expected birth or placement of the child for adoption, the employee shall provide the employer with prior notice in a manner which is reasonable and practicable." N.J.S.A. 34:11B-4f. Employers must display "conspicuous notice" of the rights accorded by the Act, "and use other appropriate means to keep its employees so informed." N.J.S.A. 34:11B-6. The Act is otherwise silent with regard to the subject of notice.
Among the enforcement mechanisms provided in the Act is the assessment of a penalty not to exceed $2,000 for a first violation or $5,000 for each subsequent offense. N.J.S.A. 34:11B-10. An aggrieved employee may additionally institute suit for compensatory and limited punitive damages, as well as attorney's fees. N.J.S.A. 34:11B-11. To avoid disruptions, the Act provides a four year phase-in period depending upon the number of individuals employed. N.J.S.A. 34:11B-3f; see also Governor's Reconsideration and Recommendation Statement, Senate No. 2035, L. 1989, c. 261.
*9 III.
We now turn to plaintiff's contention that she gave adequate "advance notice" to invoke the rights granted by the Act. In reaching the opposite conclusion, the Law Division judge emphasized that plaintiff "took leave based on the disability entitlements ... in place at defendant's place of business" and "had no intention of exercising the rights granted to her by the Family Leave Act."
In our view, the judge focused too narrowly on the question of plaintiff's intention in determining whether the notice she provided to defendant was sufficient to invoke her rights under the Act. Instead, the appropriate inquiry was whether the information given was sufficient to alert defendant of plaintiff's plan to take time off for a purpose delineated by the Act. We deem the notice provision satisfied where the employee requests a leave of absence for any of the reasons identified in N.J.S.A. 34:11B-3i. In other words, an employer must grant an employee all of the rights accorded by the statute once the employee apprises it of his or her desire to take a family leave because of (1) the birth or adoption of a child, or (2) the serious health condition of a family member. The function of notice is to enable the employer to plan for the employee's absence and ultimate return. The precise form in which this information is conveyed is not dispositive and there are no magic words that must be used. Rather, the critical question is whether the information imparted to the employer is sufficient to reasonably apprise it of the employee's request to take time off for a reason specified in N.J.S.A. 34:11B-3.
Our interpretation of the notice provision comports with the plainly expressed statutory design. As we noted previously, the principal objective of the Act is to enable employees to avoid the dilemma of having to choose between job security and important family obligations. The Act does not require employees to have an encyclopedic knowledge of their legal rights in order to invoke the benefits of family leave and job protection. *10 Rather, the focus is upon the employer and its obligations. We regard it as highly significant that employers must not only display notice of its employees' rights and obligations, but also must "use other appropriate means to keep its employees so informed." N.J.S.A. 34:11B-6. The rights and benefits granted by the Act should not depend on the sophistication of the employee. It is incumbent upon the employer to apprise the employee of his or her rights and to effectuate them once the employee requests a leave of absence for any of the reasons provided by the Act.
Applying these principles, we find that plaintiff's request for disability benefits and maternity leave constituted sufficient notice to alert defendant of its responsibilities under the Act. The disability forms completed by plaintiff as well as her job-related discussions with her superior were enough to apprise defendant of the employee's intention to take time off from work for the birth and care of her child. We do not quarrel with the Law Division judge's finding that plaintiff was apparently ignorant of her rights under the Act and did not specifically intend to invoke them. The overriding fact remains that plaintiff told defendant in a variety of ways that she needed time off from work to perform a family-related duty protected by the Act. If defendant harbored doubts concerning the situation or had any questions, the employer should have asked. It did not have the right to sit idly by without further inquiry.
The result we reach is mandated by the public policy considerations identified in the Act, N.J.S.A. 34:11B-2, and the express statutory language, N.J.S.A. 34:11B-4f; N.J.S.A. 34:11B-6. Although this legislation has been characterized as "revolutionary" and as "anathema to many employers," Thomas H. Kean, "The State's Role in the Implementation of Infant Care Leave," in The Parental Leave Crises, at 338, its wisdom is not for us to decide. By enacting the statutory scheme, the New Jersey Legislature has embarked upon an experiment having *11 national ramifications. We are obliged to apply the Act consonant with its expressed purpose and language. In that context, we are thoroughly convinced that plaintiff's request for leave provided defendant with "advance notice" and that the employer was duty-bound to fully comply with its statutory obligations.
IV.
We also conclude that the documentary submissions and deposition testimony raised genuine issues of material fact concerning whether defendant complied with its obligation to restore plaintiff to the position she held when the leave commenced or to an equivalent position "of the same seniority, status, employment benefits, pay, and other terms and conditions of employment." N.J.S.A. 34:11B-7. Viewing the evidence in a light most favorable to plaintiff, a reasonable trier of fact could conclude that she had already been granted a promotion by reason of the addition of executive compensation duties to her other responsibilities and all that was left to be done was the "paperwork" for a salary raise corresponding to her position. It is undisputed that the jobs plaintiff was offered following expiration of her leave involved lesser functions and fewer employees subject to her supervision. In the context of the paltry record, it is at least arguable that plaintiff was not offered an "equivalent position," as required by N.J.S.A. 34:11B-7. Stated another way, defendant did not satisfy its burden of "exclud[ing] any reasonable doubt" as to the legal efficacy of plaintiff's claim. Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 74, 110 A.2d 24 (1954).
Our Supreme Court has cautioned trial judges against granting summary judgment motions on a sketchy record where the ruling sought would have a far-reaching social and legal effect. See Jackson v. Muhlenberg Hospital, 53 N.J. 138, 142, 249 A.2d 65 (1969); see also Pressler, Current N.J. Rules, Comment R. 4:46 (1993). That principle is applicable here, *12 because the issue presented "is a very important one involving highly significant policy considerations." Jackson v. Muhlenberg Hospital, 53 N.J. at 142, 249 A.2d 65. Beyond this, the legal issues were not ripe for resolution since discovery had not been completed. See Salomon v. Eli Lilly and Co., 98 N.J. 58, 61, 484 A.2d 320 (1984). It is inappropriate to grant summary judgment where the suit is in an early stage and the evidence has not been fully developed. Velantzas v. Colgate-Palmolive Co., 109 N.J. 189, 193, 536 A.2d 237 (1988). In short, the interests of justice militate in favor of affording plaintiff the opportunity for full exposure of her case.
The summary judgment order is reversed and the matter is remanded to the Law Division. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1534765/ | 247 Md. 297 (1967)
231 A.2d 32
LEWIS
v.
HAMMOND
[No. 381, September Term, 1966.]
Court of Appeals of Maryland.
Decided June 30, 1967.
*298 The cause was argued before HAMMOND, C.J., and HORNEY, MARBURY, BARNES, McWILLIAMS and FINAN, JJ.
Kenneth J. Mackley and Howard W. Gilbert, Jr., for appellant.
Elwood E. Hauver, with whom were Charles F. Wagaman, John S. Hollyday and Wagaman, Wagaman, Meyers & Hauver on the brief, for appellee.
FINAN, J., delivered the opinion of the Court.
Appellant, Alice G. Lewis, individually, as mother and next friend of David L. Lewis and as administratrix of the estate of Edgar J. Lewis, instituted an action against appellee, Frank L. Hammond, for damages arising from the death of Edgar J. Lewis, who, while a pedestrian on a street within the corporate limits of Sharpsburg, Maryland, was struck and killed by an automobile driven by the appellee. Following the jury's rendering a verdict in favor of appellant, appellee filed a motion for judgment notwithstanding the verdict, or in the alternative for a new trial. The lower court granted the motion and entered a judgment n.o.v., from which this appeal and cross-appeal have been taken.
The essential facts are these: On the evening of January 9, 1965, the appellee and his friend, Gilbert N. (Butch) Milburn, were riding about the Sharpsburg, Maryland, area in appellee's 1959 Thunderbird automobile, making stops at a tavern on the road between Shepherdstown and Martinsburg, West Virginia, and the appellee's home. The accident occurred at about 9:45 p.m. while the appellee was driving his automobile in an easterly direction on Main Street, a 37-foot wide thoroughfare, and the deceased, Edgar J. Lewis, was attempting to cross the street. Neither appellee nor Milburn were sure whether the deceased was crossing the street from north to south or south to north. The point of impact occurred directly across from the decedent's *299 home (north side of Main Street) near his car parked at the south curb. At the place of the accident, Main Street traverses a residential section of Sharpsburg with shade trees flanking both sides of the street. The contour of Main Street is such that at the point of impact it is slightly downgrade going eastward and there is clear visibility from the point of impact westward for at least 400 feet. At the scene of the accident the posted speed limit on Main Street was 30 miles per hour.
Appellee testified that at the time of the accident a light rain was falling and the road was wet; however, he didn't think he had his windshield wipers on at the time and according to him the street was well lighted. A witness for the appellant testified that the street was dry, while Milburn, the passenger, testified that it was raining at the time. Appellee further testified that he was traveling at 20 to 25 miles per hour and in his statement to the state police, which was admitted into evidence, stated that he first observed the deceased when he was about seven feet in front of his car, at which time he applied his brakes as hard as he could and swerved his car to the left. Appellee's car was in good mechanical condition in all respects and all four tires had a good tread on them.
Following the impact the decedent was thrown upon the hood of appellee's car, partially through the windshield. While carrying the body of the deceased, the appellee's car skidded into a parked car 146 1/2 feet away, whereupon the decedent's body fell off the appellee's automobile and became wedged under the rear wheel of the parked vehicle. The force of the impact with the parked automobile shoved the latter into a second parked car. After impact with the first parked car, the appellee's vehicle skidded sideways 18 feet, coming to rest at a 90 degree angle facing the south curb some 164 1/2 feet from the point of impact with the deceased.
Trooper Stickler of the Maryland State Police testified that he arrived at the scene at approximately 10:40 p.m. and found the street blocked to traffic. It was his opinion that none of the vehicles involved had been moved since the happening of the accident at the time he arrived. He described the illumination at the scene as "poor." Trooper Stickler testified that going westward from the ultimate resting place of the appellee's *300 vehicle he traced "four distinct tire marks indicating that the vehicle had skidded sideways for eighteen feet" after it had struck the first parked car. He then stated that continuing westward from the impact with the first parked car "there were four distinct black slide marks for approximately nine, ten or eleven feet * * *." He further testified that: "Then, there were tire marks, wheel marks, just two of them in a straight line back to a point opposite the Lewis [decedent] vehicle." According to the diagram prepared by the trooper the sum total of these skid and tire marks was 164 1/2 feet. Based on analysis of the tire marks, appellant's expert, W. Roy Ostrum, was allowed to testify, over objection, that appellee's car was traveling at a minimum speed of 51 miles per hour at the time of impact and, in view of its crashing into the first parked car and then skidding sideways 18 feet, it was his opinion that appellee's vehicle must have been going at a considerably greater speed than 51 miles per hour. There is testimony in the record which contradicts Ostrum's opinion. Milburn testified that the car was traveling, at the most, 25 miles per hour at the time of the accident and further corroborated appellee's testimony stating that the appellee had decreased his speed when he started down the grade on Main Street. A witness, Harriet Reel, called on behalf of the appellee, testified that she was driving her car down Main Street in front of appellee's vehicle immediately before the accident occurred at a speed of 30-35 miles per hour and that she was traveling faster than the appellee.
After the jury brought in a verdict for the appellants, the court granted a judgment n.o.v. for the appellee on the ground that the deceased as a matter of law had been contributorily negligent, stating:
"But the real heart of this case is whether or not under the uncontradicted evidence, Mr. Lewis was guilty of negligence as a matter of law. After a very careful review of all the cases cited by Defendant, my conclusion is in the affirmative.
* * *
"It seems conclusive that Mr. Lewis left a place of safety for a position of danger without looking for approaching *301 traffic. He either failed to look at all, or he looked and saw the Defendant coming and tried to beat him across. The Hammond car was traveling in its proper east bound lane of traffic. There is no evidence other than the headlights were burning. Presuming Mr. Lewis alighted from his car and started across the street toward his home, he could not have taken more than three steps before being struck. If he had looked, he must have seen a car only a few feet to the west of him, as there were no obstructions or reasons that existed to prevent him from seeing. The other theory that he was walking from his home to his car would necessitate a travel distance of about twenty-five feet. Again, if Mr. Lewis had looked, he must have seen lights. An attempt to cross in the face of approaching headlights was contributory negligence. The Plaintiff argues that it could be presumed that Lewis looked and felt he had sufficient time to get across, but the speed of the car was accelerated and he was trapped. It is very hard to judge the speed of a car on a misty dark night, almost five hundred feet distant. The law does not deal in preciseness of calculations and niceties of timing. A pedestrian must conform himself to vehicular traffic and he must first look and then after looking, not rashly venture into obvious peril."
The issue presented to this Court is whether, in view of the facts, the deceased was guilty of contributory negligence as a matter of law.
Article 66 1/2, § 236, Code (1957) provides:
"(a) In general. All pedestrians shall have the right-of-way at street crossings in the towns and cities of this State, except where traffic is controlled at such crossings by traffic officers, or traffic-control devices. Between street crossings in such towns and cities, vehicles shall have the right-of-way." (Emphasis supplied.)
Appellant contends that § 236(a) is not applicable to this case because "there is no intersecting street west of the accident site *302 on Main Street, either inside or outside the corporate boundary." Trooper Stickler testified that the collision occurred approximately 300 feet west of the intersection of Potomac and Main Streets and approximately 400 to 500 feet east of a school crossing. There is also testimony that west of the accident scene Main Street is intersected by an alley; the distance between the two is not found in the record.
Section 2(a)(9) of Art. 66 1/2 defines a crosswalk in the following terms:
"Crosswalk. Any portion of a roadway distinctly indicated for pedestrian crossing by lines or other marking on the surface or that portion of a roadway ordinarily included within the prolongation or connection of the lateral lines of sidewalks at intersections."
Arguendo, if the school crossing be construed as a crosswalk, then the accident occurred "between crossings" thus making § 236 (a) applicable and the appellee's vehicle would have had the right-of-way. A pedestrian who crosses a thoroughfare in violation of § 236(a) is not prima facie guilty of negligence, nor does it make the pedestrian presumptively negligent; it is but a circumstance to be considered along with all other relevant facts in the case on the question of the pedestrian's negligence, or in this case, contributory negligence. Boyd, Adm'r v. Simpler, 222 Md. 126, 158 A.2d 666 (1960).
However, it is not incumbent upon the Court to determine the status of the school crossing in this case for the reason that if we adopt the theory that § 236(a) is not applicable and that, as was stated by this Court in Heffner v. Admiral Taxi Service, 196 Md. 465, 77 A.2d 127 (1950), at p. 470: "In the absence of statutory regulation, the rights of motorists and pedestrians on public highways are reciprocal;" Flohr v. Coleman, 245 Md. 254, 264-65, 225 A.2d 868, 873-74 (1967); Cocco v. Lissau, 202 Md. 196, 200, 95 A.2d 857, 859 (1953); we must still find for the appellee.
We say this, because assuming the primary negligence of the defendant to have been established, we find that the decedent in exercising his reciprocal rights on the highway as a pedestrian, in relation to an on-coming vehicle, failed to act as a *303 reasonable and prudent man would have acted under like and similar circumstances. Jackson v. Yellow Cab Company, 222 Md. 367, 160 A.2d 612 (1960) and Domeski v. Atlantic Refining Co., 202 Md. 562, 97 A.2d 313 (1953). Cf. Henry Witriol v. Max Pfueller and Aaron C. Cassell, 247 Md. 177, 230 A.2d 346 (1967).
We think the law as stated in Domeski v. Atlantic Refining Co., supra, is apposite to the case at bar. In Domeski the Court was presented with a factual situation wherein the pedestrian was struck by a truck while pushing a motorcycle across Old Annapolis Road, crossing about 8 feet south of an intersection, although this was not a case of a pedestrian crossing between intersections. Also, although the pedestrian was pushing a motorcycle this did not alter his status as a pedestrian, the court stating at p. 567: "Actually the plaintiff in this case was a pedestrian after he got off his motorcycle and decided to cross from the west to the east side of the highway." The Court, in discussing the question of liability, said at p. 567:
"It was stipulated that the distance on Old Annapolis Road from Arbutus Avenue to the top of the hill south of Arbutus Avenue is about 694 feet. On top of the hill the road is level for about 160 feet. Thus the range of vision from Arbutus Avenue to the south is about 845 feet. The plaintiff attempted to cross the road about 7 or 8 feet south of the intersection. Hence his range of vision was nearly 850 feet. It is evident that the plaintiff, by the use of ordinary care, could have avoided the accident. The unavoidable conclusion, therefore, is that he was guilty of contributory negligence as a matter of law." (Emphasis supplied.)
In the case at bar it is uncontroverted that looking westward from the point of impact there is unhampered visibility along Main Street for at least 400 feet and, as pointed out by Chief Judge McLaughlin in his memorandum opinion, there was no evidence but that the headlights on the appellee's car were illuminated, it was dark and a light rain was falling. Thus had the decedent looked westward before crossing Main Street he would have seen appellee's car approaching, the record revealing *304 nothing that would have obscured his vision. Under these facts reasonable minds could reach but one result that the decedent failed to exercise the care and judgment of a reasonable and prudent man in regard to his own safety.
Appellant argued that the case at bar, "as regards the nature of the street," is apposite to the facts presented in Boyd Adm'r v. Simpler, supra, where this Court held that a pedestrian, who was struck by an automobile between crosswalks, was not guilty of contributory negligence as a matter of law. It is true that in Boyd, supra, we said at p. 131: "It will be immediately noted that we are not dealing with the usual `pedestrian crossing between intersections' case." However, the statement was made in the following context. The pedestrian was talking to a friend, while standing in the thoroughfare next to a parked car, when a car driven at excessive speed by an intoxicated driver having no operator's permit suddenly rounded a bend and bore down upon her. The evidence showed, that faced with the emergency, she ran toward the opposite (east) side of the road a place of apparent safety. She had reached a point on the east side of the roadway where, according to a witness, "if she had made another step she would have been off the hard-surface part of the road," when the driver "struck a puddle of water at high speed and skidded or swerved to his left," fatally injuring the pedestrian. We think that the distinction between Boyd and the instant case is self-evident, as was said in Boyd, supra, at p. 132:
"The above does not describe a situation where the pedestrian was disputing a motorist's right of way; Mrs. Boyd was unquestionably using every means at her command to accord the motorist the right of way, irrespective of whether she or the defendant had it at the point of collision."
In the case at bar, counsel for the appellant made a very able argument to the effect that an inference could be drawn from the evidence that the appellee had substantially accelerated the speed of his vehicle from the time that the deceased would normally have seen the approaching vehicle and the time of impact; that it could be presumed that the decedent thought that *305 he had sufficient time to cross the street, but because of the acceleration of the speed of the appellee's car, he was trapped. Unfortunately, this argument projects us into the realm of speculation, particularly with regard to the actions and intent of the decedent.
Having found the decedent contributorily negligent as a matter of law there is no need to discuss the issues raised by the appellee in his cross-appeal.
Judgment affirmed with costs. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1544864/ | 168 F.2d 361 (1948)
230 BOXES, MORE OR LESS, OF FISH et al.
v.
UNITED STATES.
No. 10624.
Circuit Court of Appeals, Sixth Circuit.
May 24, 1948.
*362 John C. Ray, of Detroit, Mich. (John C. Ray, of Detroit, Mich., on the brief), for appellants.
Leonard D. Hardy, of Washington, D. C., and Joseph L. Bannigan, of Detroit, Mich. (Leonard D. Hardy, and T. Vincent Quinn, both of Washington, D. C., Thomas P. Thornton, Joseph L. Bannigan and Kenneth W. Smith, all of Detroit, Mich., on the brief), for appellee.
Before MARTIN, McALLISTER and MILLER, Circuit Judges.
MARTIN, Circuit Judge.
The claimant, J. Kozloff Fish Distributors, has appealed from a decree of condemnation of fish, admittedly infested with parasitic worms, seized under libels of information filed in the United States District Court for the Eastern District of Michigan pursuant to section 334(a), Title 21 U.S.C.A., of the Federal Food, Drug, and Cosmetic Act, June 25, 1938, c. 675, § 304, 52 Stat. 1044.
The articles of food seized were transported in four separate shipments from Winnipeg, Manitoba, Canada, to Detroit, Michigan; and before the libels were filed, had been admitted into this country and delivered to the consignee at Detroit by the Bureau of Customs of the Treasury Department, after having been released by the Food and Drug Administration acting in accordance with section 381, Title 21 U.S.C.A., and the regulations promulgated thereunder.
After the articles of food had been admitted into the United States and while in possession of the consignee or its agent at a warehouse in Detroit, the United States Customs Service rechecked the importations to ascertain whether the Tariff Laws of the United States had been complied with; and, after rechecking, took no proceedings in the matter to disturb the original entry. Simultaneously, however, the Food and Drug Administration, through inspectors, reexamined the fish and found them to be adulterated within the meaning of section 342(a)(3), Title 21 U.S.C.A., in that the the articles of food consisted wholly or partly of a filthy substance by reason of the presence therein of parasitic worms.
Concededly, the infestation of the fish was not due to decomposition, or to any act of negligence of the claimant, but was caused by the presence of parasites in the Canadian Lakes from which the fish were taken. It follows, therefore, that the fish were infested prior to their shipment from Winnipeg, Canada, to Detroit, Michigan. Parasital infestation in fish, not being visible externally, can be determined only by internal examination of the fish. The adulterated articles of food are now in the custody of the United States Marshal in their original unbroken packages.
The foregoing findings of fact of the district court are in conformity with an agreed statement of the parties submitted in lieu of a record. The question which we must answer is whether, in the circumstances of the case, section 304(a) of the Federal *363 Food, Drug and Cosmetic Act,[1] sec. 334(a), Title 21 U.S.C.A. authorizes the seizure and condemnation of the articles of food.
The appellant contends that (1) the shipments of fish from Winnipeg, Manitoba, Canada, to Detroit, Michigan, were shipments in foreign and not in interstate commerce; (2) the fish were not adulterated in interstate commerce; (3) Customs entry of the fish with the approval of the Food and Drug administration did not make the shipment interstate commerce within the meaning of Title 21, U.S.C.A. § 334(a); and (4) the shipments, at the time of seizure, being still at the port of entry in the original containers continued to be "imports" within the meaning of section 381, Title 21 U.S.C.A.
The plain words of the statute reject the first contention of appellant. Section 201(b) of the Act thus defines interstate commerce: "The term `interstate commerce' means (1) commerce between any State or Territory and any place outside thereof, and (2) commerce within the District of Columbia or within any other Territory not organized with a legislative body." Section 321(b), Title 21 U.S.C.A. [Italics supplied.]
No force is found in the argument that despite the words of the statute the definition should be restricted, as asserted by appellant, to the "traditional meaning of `interstate commerce,' i. e., commerce among the several states." If Congress intended to limit the coverage of "interstate commerce" exclusively to "commerce between the several states," why were the words "commerce between any State or Territory and any place outside thereof" written into the statute? No definition of any type of commerce other than interstate commerce is embraced in the Act. The term "foreign commerce" is not defined or used.
In some Acts of Congress, "interstate commerce" has been given a narrow definition: in others, a broad one. No uniform pattern is discernable, but each Act has been so drafted by the Congress as to accomplish the particular purpose desired. For examples of divergency, see National Fire Arms Act of June 26, 1934, U.S.C.A., Title 26, U.S.C.A.Int.Rev.Code, § 2733(g), for narrow definition; and for broad definitions, see Securities Act of 1933, Title 15, U.S.C.A., § 77b(7); Securities Exchange Act of 1934, Title 15, U.S.C.A., § 78c(17); Commodity Exchange Act, as amended in 1936, Title 7, U.S.C.A., § 2. The definition of "interstate commerce" in the last cited Act bears close similarity to that given in the Federal Food, Drug, and Cosmetic Act, in that the following language is employed: "Commerce between any State, Territory, or possession, or the District of Columbia, and any place outside thereof; * * *."
The argument of appellant receives no added weight by reference to the Federal Caustic Poison Act of 1927, Title 15, U.S.C.A., §§ 401, 402(3)(c); The Filled Milk Act of 1923, Title 21, U.S.C.A., §§ 61, 62. The Meat Inspection Act of 1907, Title 21, U.S.C.A., § 71 et seq.; The Horse Meat Act of 1919, Title 21, U.S.C.A. § 96; The Virus, Serum, Toxin Act of July 1, 1902, Title 21, U.S.C.A., §§ 151-158; The Federal Insecticide, Fungicide and Rodenticide Act of June 25, 1947, Title 7, U.S.C.A., § 121 et seq. None of these statutes is inconsistent with an interpretation of the Federal Food, Drug and Cosmetic Act as meaning that commerce between a State and "any place outside thereof" includes imported articles of food. The many different definitions of "interstate commerce" in Acts of Congress impel the conclusion that each definition must be received and applied in compliance with the language of the particular Act. See Kirschbaum Co. v. Walling, 316 U.S. 517, 520, 521, 62 S. Ct. 1116, 86 L. Ed. 1638; Walling v. Jacksonville Paper Co., 317 U.S. 564, 569, 63 S. Ct. 332, 87 L. Ed. 460.
We need scarcely pause to comment that there is no merit in the second contention of appellant that the infested fish shipped from Winnipeg to Detroit were not adulterated in "interstate commerce," as *364 alleged in the libels. Indisputably, the fish were adulterated by parasitic worm infestation when they were captured in the Canadian Lakes; they were so adulterated "when introduced into" interstate commerce; and were, of course, infested "while in interstate commerce." They were, therefore, within the plain coverage of the Act. Cf. Seven Cases of Eckman's Alterative v. United States of America, 239 U.S. 510, 518, 36 S. Ct. 190, 60 L. Ed. 411, L.R.A.1916D, 164.
The last two contentions of appellant intertwine and are appropriately discussed together. The basis of the argument seems to rest upon insistence that the provisions of sub-chapter VIII Imports and Exports Title 21, U.S.C.A., § 381, are "superior" to the first seven sub-chapters of the Act in relation to foreign commerce; and that the background of the existing Act of 1938 revealed in the Food and Drugs Act of 1906, 21 U.S.C.A. § 1 et seq., taken with the legislative history of the existing enactment, supports an inference that Congress intended to provide special preference for "citizen importers" and "foreign exporters" by "excluding their commerce from the harshness of procedures provided against interstate commerce." It is urged that, while not entitled to possession of the articles of food for sale in the United States, claimant does have the right to export the fish to Canada, pursuant to the provisions of section 381.[2]
We perceive no logical reason, either from the provisions of the Act itself or from its legislative history, for the assumption that sub-chapter VIII possesses superiority over the first seven sub-chapters of the Act. Nor does there seem to be any inconsistency between the seizure provisions of section 334(a) of Title 21 U.S.C.A., and the import-export provisions of section 801, 21 U.S.C.A. § 381, such as to preclude seizure of the shipments of fish in the lawful manner pursued in the instant case.
The Government concedes that section 801, 21 U.S.C.A. § 381, provides a special remedy, restricted to imports and exclusive for such time as the imported article remains in Customs' custody; but it is insisted here, and the district court so concluded, that the articles of food had been released from Customs' custody and were, thereupon, subject immediately to condemnation on libel of information pursuant to the provisions of Title 21 U.S.C.A. § 334. The Secretary of the Treasury, with the approval of the Federal Security Administrator, had unconditionally admitted the shipments into the United States. The reasonable interpretation would seem to be that section 801 is designed to test the right to admission before an article may be brought into the United States; and that section 334(a) of Title 21 U.S.C.A., is operative after the article is released from Customs and admitted into this country. Cf. United States v. Nine Barrels of Olives, D.C.Pa., 179 F. 983.
From a study of the legislative history of the Federal Food, Drug and Cosmetic Act, we find no justification for *365 the argument that imports were not intended to be considered as shipments in interstate commerce. The Act of 1906, in Title 21, U.S.C.A. § 14, provided for seizure of an adulterated or misbranded article "if it be imported from a foreign country for sale." The present law does not contain this specific language; but provides, as heretofor stated, that the term "interstate commerce" means, inter alia, "commerce between any State or Territory and any place outside thereof" and, therefore, subjects an imported article to the condemnation procedure of Title 21 U.S.C.A. § 334(a), as effectually as did the original Act. Obviously the Congress considered that no substantial change with respect to interstate commerce coverage was being wrought by the subsequent enactment of 1938. See S.Rep. No. 493, 73rd Cong., 2d Sess., page 19, accompanying S. 2800; S.Rep. No. 361, 74th Cong. 1st Sess., accompanying S. 5; H.Rep. No. 2139, 75th Cong., 3d Sess., p. 4 [referring to the present section 334(a) of Title 21 U.S.C.A.]. It should be observed that H. R. Rep. 2139, 75th Cong., 3d Sess., p. 13, expressly states that section 801 relates to imports and contains no substantial change from the provisions of the then existing law.
The legislative history does not support the insistence that citizen importers and foreign exporters were to be afforded any special privilege through restriction upon the seizure provisions of the Federal Food, Drug and Cosmetic Act. Indeed, it is manifest that one of the main purposes in the repeal of the Act of 1906 and the substitution therefor of the Act of 1938 was to enlarge the protection of the public from adulterated foods. In the report of the Senate Committee on Commerce upon S. 5, a draft very similar to the bill as enacted, it was stated: "This bill has been prepared with three basic principles in mind: First, it must not weaken the existing law; second, it must strengthen and extend that law's protection of the consumer; and third, it must impose on honest industrial enterprise no hardship which is unnecessary or unjustified in the public interest." S.Rep. No. 91, 75th Cong., 1st Sess.
The Supreme Court of the United States has said: "The Food and Drugs Act of 1906 was an exertion by Congress of its power to keep impure and adulterated food and drugs out of the channels of commerce. By the Act of 1938, Congress extended the range of its control over illicit and noxious articles and stiffened the penalties for disobedience. The purposes of this legislation thus touch phases of the lives and health of people which, in the circumstances of modern industrialism, are largely beyond self-protection. Regard for these purposes should infuse construction of the legislation if it is to be treated as a working instrument of government and not merely as a collection of English words." United States v. Dotterweich, 320 U.S. 277, 280, 64 S. Ct. 134, 136, 88 L. Ed. 48.
An opinion of the United States Court of Customs and Patent Appeals announced January 7, 1947, while relating only to the recovery of customs' duties upon a shipment of fish from Canada to the United States, is of some interpretative significance here. Presiding Judge Garrett stated: "We think section 558 of the Tariff Act of 1930, as amended by the Customs Administrative Act of 1938 [19 U.S.C.A. § 1558], and section 381(a) and (b) [Sec. 801(a) and (b) Federal Food, Drug and Cosmetic Act] must, in cases such as this, be construed pari passu and that both must be given force and effect in determining whether there has been a release of merchandise from the `custody of the government.'" United States v. W. F. Mackay, 34 C.C.P.A., Customs, 127, 133, 134.
After an imported article has passed from the control of the Customs officials and has been released and delivered to the consignee, no authority under federal law or customs' regulations is found to authorize the Secretary of the Treasury to seize such imports except in cases where fraud was involved in their entry, as for instance in Origet v. United States, 125 U.S. 240, 8 S. Ct. 846, 31 L. Ed. 743. Cf. United States v. One Diamond Ring, D.C., 2 F.2d 732. The instant case involves no issue of fraud in the importation of the adulterated food articles. The Secretary of *366 the Treasury and the Federal Security Administrator had completed the performance of the duties imposed upon them by section 801 of the Act. When this point had been reached, the Food and Drug Administration took action by filing libels of information upon which the shipments of infested fish were seized where warehoused by the claimant. We conclude, as the district court did, that the articles of food so seized were subject to lawful condemnation in the manner pursued by due processes in conformity with the statute.
The decree of condemnation entered in the district court, is, therefore, affirmed.
NOTES
[1] "Any article of food * * * that is adulterated or misbranded when introduced into or while in interstate commerce * * * shall be liable to be proceeded against while in interstate commerce, or at any time thereafter, on libel of information and condemned in any district court of the United States within the jurisdiction of which the article is found. * * *"
[2] "The Secretary of the Treasury shall deliver to the Federal Security Administrator, upon his request, samples of food, * * * which are being imported or offered for import into the United States, giving notice thereof to the owner or consignee, who may appear before the Federal Security Administrator and have the right to introduce testimony. If it appears from the examination of such samples or otherwise that * * * (3) such article is adulterated, misbranded, or in violation of section 355, then such article shall be refused admission. * * *" [21 U.S.C.A. § 381(a)].
"The Secretary of the Treasury shall refuse delivery to the consignee and shall cause the destruction of any such article refused admission, unless such article is exported by the consignee within three months from the date of notice of such refusal, under such regulations as the Secretary of the Treasury may prescribe: Provided, That the Secretary of the Treasury may deliver to the consignee any such article pending examination and decision in the matter on execution of a bond as liquidated damages for the amount of the full invoice value thereof together with the duty thereon and on refusing for any cause to return such article or any part thereof to the custody of the Secretary of the Treasury when demanded for the purpose of excluding it from the country or for any other purpose, such consignee shall forfeit the full amount of the bond as liquidated damages." [21 U.S.C.A. § 381 (b)]. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1673857/ | 612 So. 2d 1092 (1992)
C & C TRUCKING COMPANY and Bill Lambert
v.
Fred SMITH.
No. 90-CA-0366.
Supreme Court of Mississippi.
December 17, 1992.
*1095 John A. Ferrell, Booneville, for appellant.
R.K. Houston, Bay Springs, for appellee.
Before the court en banc.
SULLIVAN, Justice, for the Court:
This appeal arises from a malicious prosecution case in the Circuit Court of the Second Judicial District of Jasper County, Mississippi. The jury returned a verdict in the amount of $25,000 actual or compensatory damages and $50,000 punitive damages in favor of Fred Smith (Smith) against C & C Trucking Company (C & C) and Bill Lambert (Lambert).[1] C & C and Lambert filed their motion for remittitur, or in the alternative, motion for new trial on the issue of damages only. They also filed their motion for judgment notwithstanding the verdict of the jury, or in the alternative, a motion for a new trial.[2] The trial court sustained the motion for JNOV in favor of Lambert on the ground that the jury was not informed of Lambert's net worth. The remaining motions of C & C and Lambert were overruled. Feeling aggrieved, C & C and Lambert appeal to this Court and assign the following as error:
1. Was the evidence of malice and want of probable cause legally insufficient to sustain a verdict against the defendants;
2. Was it contrary to law for the trial court to submit the issue of punitive damages to the jury when the proof showed C & C's worth to be zero; and
3. Was the verdict of $25,000 actual damages and $50,000 punitive damages against the overwhelming weight of the evidence and so grossly excessive as to be shocking, evincing bias, passion and prejudice?
Smith cross-appeals and assigns one error:
1. That the trial court erred in granting Lambert a JNOV on punitive damages.
FACTS
C & C is a Mississippi corporation, domiciled in Prentiss County. Prior to 1986 and early 1987, the corporation was engaged in the business of trucking various commodities from place to place intrastate and interstate. C & C corporate stock was owned equally by Thomas H. Comer, Jr., a practicing attorney, and Phillip Cole, then Chancery Clerk of Prentiss County. Lambert was an employee of and dispatcher for the corporation who, together with Johnny *1096 Duncan, discharged the responsibilities of day-to-day business operations.
In 1986, Smith owned a 1976 model Kenworth tractor with 44-foot refrigerated trailer used to transport commodities. Smith entered into a verbal lease agreement with Lambert who acted for and on behalf of C & C. Under the agreement, Smith leased his tractor and trailer to C & C and agreed to haul for them with C & C providing the contract and hauling permits. C & C also agreed to obtain insurance for Smith's tractor and trailer and deduct the premiums from Smith's accumulating income. Latrell Smith (Latrell), son of Smith, drove and operated the vehicle. On the night of October 5, 1986, Smith's truck was parked on the C & C parking lot. Sometime during the night, it was vandalized. According to Lambert:
Someone had broken into it and had used a screwdriver to attempt to turn the ignition switch on and in doing so had destroyed the ignition switch itself and was unable to put the key into it. They had also opened the flap on it and had attempted to hot wire it and, in fact, there was wire there and, in fact, they had accomplished they were able to crank it, and why didn't steal it, I don't know... .
Latrell discovered the entry and ensuing damage to the truck when he arrived at the C & C parking lot preparatory to departing with a load of processed imported Plum Rose hams scheduled for delivery in Alabama and Florida. Lambert and Latrell were able to get the truck running by hot wiring it and putting the truck on manual pump. Latrell left the C & C parking lot at approximately 1:00 o'clock on the morning of October 6 for the purpose of making the contractual deliveries. The testimony of the parties concerning subsequent events are for the most part irreconcilable. Smith testified that about 2:30 or 3:00 o'clock a.m. on Monday morning, October 6, 1986, he received a call from Latrell relating that he was in Hamilton, Alabama, and the rig loaded with hams had become inoperable. Latrell also stated that immediately prior to his departure from the C & C parking lot, Lambert had informed him no insurance of any kind existed on the tractor and trailer. Smith and his wife left their home in the town of Louin and drove to Hamilton, Alabama. Smith testified as follows:
Q How many hours did it take you to go up there?
A It took me about an hour and a half or two hours to get up there.
Q Okay. How long did it take to get the truck so that it would run?
A Oh, probably about forty-five minutes.
Q And then what did you do?
A And then we limped back into the house there with the truck missing and running rough and and I got the finally got the truck home and when we turned the switch off or tried to turn the truck off, we discovered the truck had been put on manual pump, which means we couldn't shut it off; but when we did get the engine killed, it could not be started again.
* * * * * *
Q Well, what does the manual pump have to do with all that?
A Well, the manual pump is supposed to operate in the event that the electrical system does not work. It will keep the engine running.
Q Did you make an effort to get your engine back to where it would run?
A Yes, sir, I did.
Q What time did you arrive back home with the vehicle?
A At 8:00 o'clock in the morning on the morning of the 6th of October.
After eating breakfast, Smith called Lambert and told him the truck was "broke down," inoperable, and Lambert needed to come and get his load. Smith further testified:
A He wanted me to deliver the load. He told me that I needed to deliver the load; in fact, that I had to deliver the load, and I told him I couldn't.
Q What kind of language was the man using to you, sir?
*1097 A He was using profane language. I told him that I was a Christian man, that I did not want to hear that kind of language and that if it didn't stop, I'd hang up on him.
Q Did he stop?
A Yes, sir, but he did tell me before that that he didn't operate around God, so he wasn't required to honor that.
Smith said that Lambert had about 25 telephone conversations with him that day. In all, Lambert insisted that Smith deliver the load. On October 7, C & C dispatched a truck and driver to Smith's home in Louin where the contents of Smith's trailer were off loaded into the C & C trailer. At that time, Smith states that he was not aware of the institution by Thomas H. Comer, Jr., attorney for C & C, of criminal proceedings for embezzlement in the Justice Court in Prentiss County. These proceedings were begun against Smith by affidavit executed by attorney Comer on October 6, 1986. The affidavit charged that Smith "did embezzle or fraudulently secrete, conceal and convert to his own use the goods, rights in action, effects, valuable security of C & C Trucking Company." The affidavit was made as a result of representations made to Attorney Comer by Lambert. A felony warrant was issued for the arrest of Smith. On Wednesday afternoon, October 8, 1986, Smith was arrested and incarcerated in the Jasper County Jail where he remained for approximately three to three and one-half hours prior to making bond in the sum of $10,000 returnable before the Justice Court judge in Prentiss County where the charges were filed.
Jasper County Sheriff Tom Green testified that during the interim between the morning of October 6 and the evening of October 7, he talked to Lambert. His recounting of that conversation follows:
Q All right, sir, relate to the Jury what the tenor of that conversation was?
A He said he was going to have criminal papers made out on the man if he didn't move the load.
* * * * * *
Q Okay. Did he say anything further about his wishes about serving the papers?
A Well, I told him if he issued the papers, of course, we would serve them, that was our job.
Q Okay, sir. Now, what I'm asking you to relate to the Jury is what the gentleman you talked with had to say about serving the warrant?
A Well, he said he wasn't really interested in the warrant being served, he was interested in his load getting moved.
Q All right, sir. Now
A That he what I got from it, that he was going to make out papers to get the load moved. Well, that was what he said.
Q You've been Sheriff for how long, sir?
A Twenty-one years, two months and two days.
Smith's witnesses vowed that he is a religious person and before his arrest, he frequently sang in the church and led in prayer and had a lovely relationship with his wife of 34 years; that the arrest completely devastated Smith causing his whole life to change. His relationship with former friends and acquaintances deteriorated. These witnesses testified that Smith had become withdrawn, that he and his wife had serious domestic problems and he had lost a lot of sleep and weight. Smith testified that subsequent to his arrest and incarceration, he could not get employment and failing to meet his monetary obligations, he was forced into bankruptcy. Smith stated:
I have always tried to live a clean, Christian, devoted life. I never had been trouble in my life and didn't even know what the inside of a jail looked like. I could not believe that anyone would go to such length, especially when I had not done anything.
The deputy sheriff who arrested Smith stated:
A He was he was very nervous and very upset over the whole thing. He *1098 just kept repeating telling me about what had happened as far as the ordeal and was very upset over it, kindly embarrassed about being arrested, you know.
Q Did he relate to you that he had asked them to come get that stuff on truck?
A Yes, sir.
On October 18, 1986, a Prentiss County Justice Court judge bound Smith over to await the action of the Prentiss County Grand Jury on the felonious charge of embezzlement. No action was taken by the subsequent Prentiss County Grand Jury and none had been taken through the date of the trial of the cause on February 28, 1989.
Attorney Comer admitted that he did not attend Smith's preliminary hearing and did not make an effort to go before the Grand Jury. Comer testified as follows:
Q Well, let's talk about the next Grand Jury. The first Grand Jury was in February, wasn't it?
A Yes, sir.
Q That would have been '87 February of '87?
A Yes, sir, I think you're correct. I don't know.
Q The next Grand Jury would've been when?
A Probably October of '87.
Q Did you make an effort to go before the Grand Jury in October of '87?
A No, sir.
Q Did any person did Mr. Bill Lambert go before the Grand Jury?
A No, sir. Like I said, they left it up to me.
Q Did any other person of C & C go before the Grand Jury in October of '87?
A No, sir.
Q And the same would be true, then, in February of '88, wouldn't it?
A Yes, sir.
THE LAW
I.
WAS THE EVIDENCE OF MALICE AND WANT OF PROBABLE CAUSE LEGALLY INSUFFICIENT TO SUSTAIN A VERDICT AGAINST THE DEFENDANTS?
Consideration of the issue implicates our limited scope of review of jury verdicts. Where, as here, the trial judge has refused to grant a motion for JNOV, we examine all of the evidence not just evidence which supports the non-movant's case in the light most favorable to the party opposed to the motion. All credible evidence tending to support the non-movant's case and all favorable inferences reasonably drawn therefrom are accepted as true and redound to the benefit of the non-mover. If the facts and inferences so considered point so overwhelmingly in favor of the movant that reasonable men could not have arrived at a contrary verdict, the motion should be granted. On the other hand, if there is substantial evidence opposed to the motion, that is, evidence of such quality and weight that reasonable and fairminded men in the exercise of impartial judgment might reach different conclusions, the jury verdict should be allowed to stand and the motion denied, and, if it has been so denied, we have no authority to reverse. Royal Oil Co., Inc. v. Wells, 500 So. 2d 439, 442 (Miss. 1986); Stubblefield v. Jesco, Inc., 464 So. 2d 47, 54 (Miss. 1984); City of Jackson v. Locklar, 431 So. 2d 475, 478 (Miss. 1983); Paymaster Oil Mill Co. v. Mitchell, 319 So. 2d 652, 657 (Miss. 1975). The principles are as applicable in malicious prosecution cases as any other. Royal Oil Co., Inc., 500 So.2d at 443; Owens v. Kroger Co., 430 So. 2d 843, 848 (Miss. 1983); Torabi v. J.C. Penney, Inc., 438 So. 2d 1354, 1355-56 (Miss. 1983); Gaylord's of Meridian, Inc. v. Sicard, 384 So. 2d 1042, 1044 (Miss. 1980).
It is only when a directed verdict at the close of the plaintiff's case and again at the close of the defendant's case, would have been proper that a judgment notwithstanding the verdict is proper. Such is not the standard where the trial court is required *1099 to use its discretion in granting a motion for a new trial. The variance in proof needed to support these motions is easily explained when one recognizes that a JNOV terminates the case, whereas a new trial simply gives both parties the opportunity to relitigate the controversy. Stubblefield, 464 So.2d at 55.
Motions for JNOV are made pursuant to Rule 50(b) of the Mississippi Rules of Civil Procedure. Motions for a new trial are made pursuant to Rule 59. The concurring opinion in Jesco, Inc. v. Whitehead, 451 So. 2d 706, 714-17 (Miss. 1984), points out the differences between the motions:
A greater quantum of evidence favoring the party against whom the motion is made is necessary for that party to withstand a motion for a new trial as distinguished from a motion for j.n.o.v. Under our established case law, the trial judge should set aside a jury's verdict when, in the exercise of his sound discretion, he is convinced that the verdict is contrary to the substantial weight of the evidence. Mobile and Ohio Railroad Co. v. Bennett, 127 Miss. 413, 415, 90 So. 113 (1921); Columbus and Greenville Railway Co. v. Buford, 150 Miss. 832, 840, 116 So. 817 (1928); Odier v. Sumrall, 353 So. 2d 1370, 1374 (Miss. 1978);
* * * * * *
A new trial does not deprive a litigant of his right to trial by jury. It merely requires that he submit to trial before a second jury.
Without going into an extended historical analysis, we regard it as accepted law that our trial courts have the authority to set aside a jury verdict, where, in the exercise of their sound discretion, they regard such a verdict as being contrary to the substantial weight of the evidence. See Rule 59(a)(1), M.R.C.P.
* * * * * *
The motion for a new trial has long been an element of our procedural system. We regard it as a necessary component of procedural justice in civil actions. It is employed in those rare cases when there would be injustice either in allowing the verdict to stand or in granting a j.n.o.v.
* * * * * *
[W]hile the rules regarding the trial judge's discretion and authority are well-established, the point on appeal is a bit trickier. We sit as an appellate court, not as a trial court. We do not consider these matters de novo. Rather, our review is limited to an inquiry whether the ruling of the trial judge may be fairly characterized as an abuse of discretion. See Dorris v. Carr, 330 So. 2d 872, 873-74 (Miss. 1976); Taylor v. Washington Terminal Co., 409 F.2d 145, 147-48 (D.C. Cir.1969); Dupont v. Southern Pacific Co., 366 F.2d 193, 198 (5th Cir. 1966); Morinville v. Morinville, 116 R.I. 507, 359 A.2d 48, 52-54 (1976).
Our review of a trial judge's exercise of discretion necessarily involves a substantial amount of discretion and deference on our part. In matters such as these we must always recognize that it is the trial judge who is on the scene. There is no way we could ever become as familiar with the proceedings at trial as the trial judge. Cf. Culbreath v. Johnson, 427 So. 2d 705, 708 (Miss. 1983). We should give substantial weight, deference and respect to the decision of the trial judge in matters such as this.
We proceed with application of our scope of review to the appellate issues.
A. Malice
We have, on several occasions, articulated the elements of malicious criminal prosecution as:
(1) The institution or continuation of original judicial proceedings, either criminal or civil;
(2) By, or at the insistence of the defendants;
(3) The termination of such proceeding in plaintiff's favor;
(4) Malice in instituting the proceedings;
(5) Want of probable cause for the proceedings; and
*1100 (6) The suffering of damages as a result of the action or prosecution complained of.
Strong v. Nicholson, 580 So. 2d 1288, 1293 (Miss. 1991); Miss. Road Supply v. Zurich-American Ins. Co., 501 So. 2d 412 (Miss. 1987); Royal Oil Co., Inc. v. Wells, 500 So. 2d 439, 442 (Miss. 1986); Pugh v. Easterling, 367 So. 2d 935, 937 (Miss. 1979).
C & C and Lambert focus their attention on elements (4) and (5) conceding establishment of the remaining elements. In determining whether malice existed in the institution of the criminal proceedings, we note that the term "malice" in the law of malicious prosecution is used in an artificial and legal sense and is applied to prosecutions instituted primarily for a purpose other than that of bringing an offender to justice. Benjamin v. Hooper Electronic Supply Co., 568 So. 2d 1182, 1191 (Miss. 1990). It may be proved by circumstantial evidence or the jury may infer malice from the facts of the case. Moreover, absence of probable cause for the prosecution is circumstantial evidence of malice. Further, malice may be inferred from a finding that the defendant acted in reckless disregard of another person's rights. In Strong v. Nicholson, 580 So. 2d 1288 (Miss. 1991), malice existed where the defendants freely conceded that their lone purpose in instituting criminal proceedings was to "get their stuff back" and that they really didn't care what happened to plaintiffs. We have emphasized that since the question of malice is a question of fact, it is to be determined by the jury unless only one conclusion may reasonably be drawn from the evidence. Benjamin, 568 So.2d at 1191; Owens v. Kroger Co., 430 So. 2d 843, 848 (Miss. 1983), [quoting Brown v. Watkins, 213 Miss. 365, 373, 56 So. 2d 888, 891 (1952)]. In this case, the testimony of Sheriff Green established that C & C and Lambert weren't "really interested in the warrant being served, they were interested in the load getting moved." The testimony was sufficient to undergird the jury's finding as a matter of fact that malice existed. This portion of the assigned error is without merit.
B. Probable Cause
Probable cause requires the concurrence of an honest belief in the guilt of the person accused and reasonable grounds for such belief. Strong, 580 So.2d at 1294; Royal Oil Co., Inc. v. Wells, 500 So. 2d 439, 443 (Miss. 1986); Harvill v. Tabor, 240 Miss. 750, 755, 128 So. 2d 863, 865 (1961). While a malicious prosecution plaintiff has the burden of production and persuasion of showing lack of probable cause, proof of lack of probable cause on any one element of the crime charged and which forms the basis of the action is sufficient to establish this element of the tort. Strong, 580 So.2d at 1294-95.
Lambert testified that he thought Smith was going to sell and dispose of the load as follows:
My experience in the trucking business and with this load is that this stuff is packaged, processed and in the package and can go straight from that truck to any supermarket or store in the country. It's packaged and ready to go. He could've easily sold any amount of that load that he wanted to. And that's what I thought he was going to do. That's what he indicated that he was going to do. And it was at that point that I just simply gave up and I said, "I believe the man is going to do what he is threatening to do." And that's what it was, a threat. And I had no other cause to believe that he wasn't going to do it because I had went through every possibility and offered to do everything that we could to keep him from doing that. But our conversation, when it moved from the point past insurance, past the truck broke down and couldn't be fixed, past the business about insurance, then for the critical point, you know, I didn't want to send a truck down there. It cost us, it cost us double to do that, but at that point I believed that he was going to keep the load. In fact, that's what he said he was going to do. I believed he was going to sell it because that's what he indicated he was going to do. At that point I called the Sheriff and asked the *1101 Sheriff if he knew Mr. Smith and told him what he was doing... .
* * * * * *
[I] talked to the Sheriff and the Sheriff said I asked the Sheriff that I believed I can't remember exactly our conversation but I believed he was going to do something with the load and asked him if he would help us with it. He said he would but he couldn't do anything unless we wanted to charge the man with something. At that point, I talked to Mr. Comer and we believed he asked my opinion. I said, "I believe the man is going to sell it or sell part of it if not all of it." ...
On cross-examination, Lambert admitted Smith never said that he was converting the load to his own use.
Smith testified that from day one he requested Lambert to send someone to get the load.
It is apparent that neither Lambert nor Attorney Comer were in possession of facts from which it could be reasonably inferred that Smith had converted the load, a fact essential to the charge of embezzlement. Lack of probable cause on this one element of embezzlement is sufficient to establish this requisite of the tort. Strong, 580 So.2d at 1295. Moreover, the question is not whether Lambert thought probable cause existed, but whether the fact finders thought he did. Strong, 580 So.2d at 1294.
The evidence is sufficient to sustain the finding by the jury of lack of probable cause for the criminal proceedings instituted against Smith. This portion of the assigned error is also without merit.
II.
WAS IT CONTRARY TO LAW FOR THE TRIAL COURT TO SUBMIT THE ISSUE OF PUNITIVE DAMAGES TO THE JURY WHEN THE PROOF SHOWED C & C's WORTH TO BE ZERO?
C & C contends on appeal that the trial court erred in submitting the issue of punitive damages to the jury when the uncontradicted proof showed C & C's net worth to be zero. Smith asserts on cross-appeal that the trial court erred in granting Lambert a JNOV nullifying the award of punitive damages because the jury was not informed of his net worth.
While the record is not clear pertaining to C & C's net worth it does disclose that after Lambert testified, the parties stipulated into the record that "if Bill Lambert were to take the witness stand his testimony would be that his personal net worth is zero." The record shows that Lambert terminated his employment with C & C in 1986 and at the time of trial was employed by Attorney Comer as a paralegal with earnings of $120.00 per week. C & C discontinued their hauling operation in 1986 subsequent to the filing of the tort action. The corporation was dissolved in 1987. Phillip Cole, major stockholder of C & C, obtained the corporate ICC authority as well as the three trailers of the entity and began operating a trucking company in his own name.
C & C and Lambert argue that Smith's failure to prove some net worth on their part precludes an award of punitive damages. They rely on Whittington v. Whittington, 535 So. 2d 573 (Miss. 1988); T.C.L., Inc. v. Lacoste, 431 So. 2d 918 (Miss. 1983); Gaylord's of Meridian, Inc. v. Sicard, 384 So. 2d 1042 (Miss. 1980); First National Bank of Iuka v. Mitchell, 359 So. 2d 1376 (Miss. 1978); and Snowden v. Osborne, 269 So. 2d 858 (Miss. 1972). An examination of these cases indicates at first blush that we have applied this standard at least since Snowden. We again consider the rationale undergirding approval of awards of punitive damages.
In Redden, Punitive Damages, § 5.2(A)(24), p. 356 (1980), we are told that in Mississippi:
Punitive damages are assessed by way of punishment against a defendant for unlawful, malicious, wanton and reckless acts, and they are allowed by reason of undertaking to prevent its recurring in the future. .. . Exemplary or punitive damages are those, of course, which are in addition to the actual or compensatory *1102 settlement. They are granted in the nature of punishment for the wrongdoing of the defendant and as an example so that others may be deterred from the commission of similar offense thereby in theory protecting the public... . Punitive damages may also be awarded if the damage was done by gross negligence that is equivalent to wilful and wanton mischief. Neal v. Newburger Co., 154 Miss. 691, 123 So. 861 (1929)... .
These precepts have been followed in Wirtz v. Switzer, 586 So. 2d 775, 783 (Miss. 1991), T.C.L. v. Lacoste, 431 So.2d at 923 and Standard Life Ins. Co. of Indiana v. Veal, 354 So. 2d 239 (Miss. 1977).
Punitive damages are properly allowed where the tort complained of was malicious, wanton, wilful, or capricious. Royal Oil Co., Inc., 500 So.2d at 450; Yazoo & M.V.R. Co. v. Williams, 87 Miss. 344, 355, 39 So. 489, 491 (1905); see also Newsom v. Henry, 443 So. 2d 817, 824 (Miss. 1983); T.G. Blackwell Chevrolet Co. v. Eshee, 261 So. 2d 481, 485 (Miss. 1972); Friendly Finance Co. of Biloxi, Inc. v. Mallett, 243 So. 2d 403, 406 (Miss. 1971). Further, a finding of malice will give rise to an assessment of punitive damages. Aetna Casualty & Surety Co. v. Day, 487 So. 2d 830 (Miss. 1986); Weems v. American Security Insurance Co., 486 So. 2d 1222, 1226 (Miss. 1986).
In determining the propriety of submitting the issue of punitive damages to the jury, the trial court decides whether, under the totality of the circumstances and viewing the defendant's conduct in the aggregate, a reasonable, hypothetical trier of fact could find either malice or gross neglect/reckless disregard. Colonial Mortgage Co., Inc. v. Lee, 525 So. 2d 804, 808 (Miss. 1988).
According to 22 Am.Jur.2d 986 § 953 (1988), the following rules apply where punitive damages are recoverable:
As a general rule, evidence of the wealth or financial condition of the defendant is admissible upon the issue of the amount of punitive damages that may be awarded against him, generally on the theory that the allowance of a given sum would be a greater punishment to a man of small means than to one possessing larger wealth, although there are a few contrary holdings. Thus, it has been recognized that a defendant may introduce evidence of his impecunity on the question of exemplary or punitive damages....
As a predicate on a claim for punitive damages, plaintiff is not required to introduce evidence of defendant's financial worth and ability to pay an award for punitive damages. But where evidence of financial worth is admissible for consideration by the jury on the plaintiff's behalf to increase the damages, evidence as to defendant's lack of financial resources is similarly admissible on defendant's behalf to diminish the damages... .
There is authority to the effect that evidence of financial worth is not admissible until the trier of fact determines the defendant's liability for punitive damages, or at least until there has been prima facie proof of plaintiff's right to recover punitive damages. [Emphasis Added].
The rules articulated in Am.Jur.2d do not require proof of net worth prerequisite to an award of punitive damages. Snowden v. Osborne is the first case of recent vintage suggesting the effect of failure to prove a defendant's worth when the amount of an award for punitive damages is challenged. In Snowden, we stated:
[W]e are nevertheless constrained to the opinion that there was insufficient evidence adduced to affirm a punitive award in the sum of $30,000. The record is silent as to the worth of the defendant although it does reveal that he had prior to this suit disposed of his real property without mentioning the consideration received.
Snowden, 269 So.2d at 861.
In First American Nat. Bank of Iuka, we used Snowden as a reference point, reversed because punitive damages were grossly excessive and stated:
Absent some proper showing of the net worth or financial condition of FANB, we *1103 have no way to measure the correctness of the punitive damage award.
First American, 359 So.2d at 1381.
In Gaylord's of Meridian, we again reversed an award of punitive damages and embellished on our prior pronouncements by enunciating:
There was no evidence relating to the financial worth of Gaylord's and there was no guide whereby the jury could determine punitive damages. In First American National Bank of Iuka v. Mitchell, 359 So. 2d 1376 (Miss. 1978), the Court held that without a showing of the net worth or financial condition of the defendant, there was no way to measure the punitive damage award.
Gaylord's, 384 So.2d at 1045.
Finally in Whittington v. Whittington, we reversed an appeal awarding $40,000 punitive damages on a defendant's cross-claim and stated:
The defendant's proof failed to adequately establish her net worth-assets minus liabilities-so as to serve as a measure for the Court to consider in arriving at a sum to award as punishment in this case.
Whittington, 535 So.2d at 584.
T.C.L., Inc., Employers Mutual Casualty Co. v. Tompkins, 490 So. 2d 897 (Miss. 1986), Bankers Life & Casualty Co., First American National Bank of Iuka, and Snowden were cited as authorities for the pronouncement.
For whatever reason, we have failed to follow traditional rules from Snowden to Whittington. Literal adherence to a requirement of proof of net worth prerequisite to an award of punitive damages results in a defendant with zero net worth being ipso facto excluded and absolved from payment of such damages. We fail to see the reason underlying such a rule. Moreover, in Collins v. Black, 380 So. 2d 241 (Miss. 1980), we stated, "The pecuniary ability to respond to a verdict for punitive damages may be considered by a jury, but it is not the sole factor to be considered by them."[3]
In Aaron v. Rinaldi, 296 So. 2d 632 (Fla. App. 1974), the following issue was certified to the District Court of Appeals, Third District:
QUESTION
WHETHER OR NOT THE PLAINTIFF MUST AS A PREDICATE FOR HIS CLAIM FOR PUNITIVE DAMAGES INTRODUCE EVIDENCE OF THE DEFENDANT'S FINANCIAL WORTH AND ABILITY TO PAY ANY AWARD OF PUNITIVE DAMAGES IN ORDER FOR THE ISSUE TO BE CONSIDERED BY THE JURY?
The Florida Court of Appeals held that evidence of the defendant's financial worth is not a predicate for award of punitive damages and opined:
In determining the amount of punitive damages, a jury properly may consider the nature, extent, and enormity of the wrong, the intent of the party committing it, and generally all the circumstances attending the particular transaction involved, as well as any mitigating circumstances which may operate to reduce without wholly defeating such damages, including the financial and social condition and standing of the party. 22 Am.Jur.2d, Damages § 264 (1965); 9A Fla.Jur. Damages § 118 (1972). However, evidence of the defendant's financial position may not be considered in passing upon the question of law as to whether the case is one in which punitive damages may be allowed. 22 Am.Jur.2d, Damages § 322 (1965).
In light of the foregoing principles, it is apparent that the financial worth of the defendant is one of many elements, which properly may be considered by a jury in its determination of the amount to be awarded as punitive damages, but evidence of worth is not a requisite to such award. See Charles v. Texas Co., 199 S.C. 156, 18 S.E.2d 719 (1942); Rogers *1104 v. Florence Printing Company, 233 S.C. 567, 106 S.E.2d 258 (1958).
Further, although the defendant's financial worth is admissible for consideration by the jury of the amount of punitive damages to be awarded, the burden of proof of worth is not exclusively upon the complainant as in absence of introduction of such proof by the complainant, defendant may introduce his financial ability to pay an award of punitive damages for the purpose of mitigation thereof. See, e.g. Holmes v. Hollingsworth, 234 Ark. 347, 352 S.W.2d 96 at 99 (1961).
296 So.2d at 633-34.
The cause was reviewed by the Florida Supreme Court on writ of certiorari in Rinaldi v. Aaron, 314 So. 2d 762 (Fla. 1975). On review, the Florida Supreme Court affirmed the decision of the Court of Appeals and articulated:
[W]e agree with the District Court of Appeal, Third District, sub judice in answering the certified question posited by the trial court in the negative and we hold that evidence of financial worth is admissible and may be considered by the jury in its determination of the amount to be awarded as punitive damages, but evidence of worth is not a requisite to such award. If defendant's financial worth is meager, it would be to his advantage to introduce such evidence in order to mitigate the damage award. As was stated by Sutherland in his Treatise on Damages, § 404 at 1315, "In cases where it is competent for the plaintiff to prove the wealth of the defendant to increase the damages, it is equally competent for the defendant to show a want of it to diminish them."
314 So.2d at 765.
In Evans v. Thompson, 762 P.2d 754 (Colo.Ct. of App., Div. II, 1988), the Colorado Appeal Court considered the necessity of evidence regarding the defendant's economic status as an essential element of proof for exemplary damages. In reversing the action of the trial court granting a JNOV, and holding that such proof was not a prerequisite to an award the court opined:
The trial court erroneously interpreted Leidholt v. District Court, 619 P.2d 768 (Colo. 1980) and Palmer v. A.H. Robins Co., 684 P.2d 187 (Colo. 1984), to require evidence of the financial condition of the defendant as a prerequisite to an award of exemplary damages. Neither of these cases hold that such evidence is mandatory, but rather, that evidence of the defendant's financial condition is a proper factor to be considered by the jury in fixing the amount of exemplary damages. The extent of the defendant's assets may be considered to insure that the award will punish the defendant, for what may be punishment to one defendant may not be sufficient punishment for another. Leidholt, supra; Mailloux v. Bradley, 643 P.2d 797 (Colo. App. 1982).
* * * * * *
If a defendant has a few assets, he might introduce such evidence to demonstrate that a minimal award of exemplary damages would serve the punishment and deterrence functions. Similarly, a plaintiff could introduce evidence of the defendant's wealth to demonstrate the need for a large award of exemplary damages. However, failure of either party to take advantage of the opportunity to present such evidence would not vitiate the claim for exemplary damages. See Rinaldi v. Aaron, 314 So. 2d 762 (Fla. 1975), discussed in Annot. 79 A.L.R. 3d 1132 (1972). Finally, we note that in Palmer, supra, upon which the trial court relied, the financial status of the defendant was not considered by the jury in awarding punitive damages. Our supreme court indicated that it found no reversible error on these grounds. Palmer v. A.H. Robins, Co., supra, at 220.
762 P.2d at 755.
In Papcun v. Piggy Bag Discount Souvenirs, Food & Gas Corporation, 472 So. 2d 880 (Fla.App. 5th Dist. 1985), the Florida Appeals Court addressed the issue of the necessity of defendant's net worth as a prerequisite to a punitive damage award. In holding that net worth proof, while admissible, is not a requisite to an award, the court stated:
*1105 The remaining question is whether the trial court erred in granting a new trial on the punitive damages issue because there was insufficient evidence of the net worth of appellees. Proof of net worth of a defendant, while admissible, is not a prerequisite to an award of punitive damages. Bould v. Touchette, 349 So. 2d 1181 (Fla. 1977); Rinaldi v. Aaron, 314 So. 2d 762 (Fla. 1975). In Rinaldi, the court succinctly set down the principle:
[E]vidence of financial worth is admissible and may be considered by the jury in its determination of the amount to be awarded as punitive damages, but evidence of worth is not a requisite to such award. If defendant's financial worth is meager, it would be to his advantage to introduce such evidence in order to mitigate the damage award.
314 So.2d at 765.
To preserve his right to contend on appeal that an award of punitive damages is excessive, it is incumbent on the defendant to introduce evidence of his net worth, if evidence has not been introduced by plaintiff, and in the absence of such evidence an appellate court cannot say that an award of punitive damages is excessive in that it would bankrupt the defendant. Bould v. Touchette, 349 So.2d at 1187; Louisville & Nashville R. Co. v. Hickman, 445 So. 2d 1023, 1028 (Fla. 1st DCA 1983).
472 So.2d at 882.
The Rinaldi and Papcun decisions were followed in Rety v. Green, 546 So. 2d 410 (Fla.App. 3 Dist. 1989). In Rety, the appeal court also intoned:
[T]he defendants had the burden of establishing what their net worth was in order to later make an "economic castigation" claim as to the punitive damages awarded; the plaintiff had no burden to establish that the defendants had the financial ability to pay a punitive damage award.
In Woods-Drake v. Lundy, 667 F.2d 1198, 1203 (N. 9) (5th Cir.1980), the federal court placed the burden on the defendant to produce financial evidence which might be considered in mitigation of punitive damages.
We hold that it is not legally necessary for either plaintiff or defendant to introduce evidence of the net worth of the defendant during the trial to support an award of punitive damages. If, however, no such evidence is presented, neither party may challenge on appeal either the inadequacy or the excessiveness of a punitive damages award. If a party wishes to preserve the question for appeal, evidence of net worth must be presented at trial, or error in the amount of punitive damages is waived.
In Whittington, we set out the various considerations approved by the Court in assessing punitive damages:
(1) Such an amount as is necessary for the punishment of the wrongdoing of the defendant and deterring the defendant from similar conduct in the future, Standard Life Ins. Co. of Indiana v. Veal, 354 So. 2d 239, 249 (Miss. 1977);
(2) Such amount as is reasonably necessary to make an example of the defendant so that others may be deterred from the commission of similar offenses. Reserve Life Insurance Co. v. McGee, 444 So. 2d 803, 808 (Miss. 1983); T.C.L., Inc. v. Lacoste, 431 So. 2d 918, 923 (Miss. 1983); Tideway Oil Programs, Inc. v. Serio, 431 So. 2d 454, 460 (Miss. 1983); Snowden v. Osborne, 269 So. 2d 858, 860 (Miss. 1972); and
(3) The pecuniary ability or the financial worth of the defendant. Collins v. Black, 380 So. 2d 241, 244 (Miss. 1980); Allen v. Ritter, 235 So. 2d 253, 256 (Miss. 1970); Standard Life Insurance Co. of Indiana v. Veal, 354 So. 2d 239, 249 (Miss. 1978); Jones v. Carter, 192 Miss. 603, 610, 7 So. 2d 519 (1942).
Whittington, 535 So.2d at 583-84.
We reaffirm these accepted considerations in making punitive assessment but reject the expressions in the cases of Snowden, First Nat. Bank of Iuka, T.C.L., Inc., Gaylord's of Meridian, Inc. and Whittington that proof of net worth is prerequisite to an award of punitive damages. To the *1106 extent that any of the cases hold otherwise, they are overruled.
Neither the stipulation of the parties to the effect that Lambert had a zero net worth nor failure of the record to clearly show C & C's net worth changes the result, because a jury may properly assess punitive damages to a party having no net worth. To hold otherwise would license those meeting this criterion to contravene legal standards without corresponding liability. Moreover, the financial worth of a defendant is only one of the various considerations in assessing punitive damages.
The trial court did not err in submitting the issue of punitive damages to the jury. On the other hand Smith's assertion via cross appeal of trial court error in granting Lambert a J.N.O.V. on the ground that the jury was not informed of his net worth bears merit.
III.
WAS THE VERDICT OF $25,000 ACTUAL DAMAGES AND $50,000 PUNITIVE DAMAGES AGAINST THE OVERWHELMING WEIGHT OF THE EVIDENCE AND SO GROSSLY EXCESSIVE AS TO BE SHOCKING, EVINCING BIAS, PASSION AND PREJUDICE?
C & C and Lambert's argument pertaining to the damages awarded by the jury is subject to our oft stated scope of review:
Our general rule is that a damage award may be altered or amended only when it is so excessive that it evinces passion, bias and prejudice on the part of the jury so as to shock the conscience. Bankers Life & Casualty Co. v. Crenshaw, 483 So. 2d 254, 278 (Miss. 1985); Jesco, Inc. v. Shannon, 451 So. 2d 694, 705 (Miss. 1984); City of Jackson v. Locklar, 431 So. 2d 475, 481 (Miss. 1983). We are not authorized to disturb a jury verdict regarding amount of damages because it "seems too high" or "seems too low". Bankers Life & Casualty Co. v. Crenshaw, 483 So. 2d 254, 278 (Miss. 1985); Toyota Motor Co., Ltd. v. Sanford, 375 So. 2d 1036, 1037 (Miss. 1979).
Motions challenging the quantum of damages and seeking a remittitur are by their very nature committed to the sound discretion of the trial judge. Where the trial judge acts upon these matters, we reverse only if he has abused or exceeded his discretion. Dorris v. Carr, 330 So. 2d 872, 874 (Miss. 1976).
Royal Oil Co., Inc., 500 So.2d at 449.
Prior to his arrest for embezzlement, a crime involving moral turpitude, Smith possessed an excellent reputation for honesty and community service. He was known for his church work and was often requested to pray and sing solos, taking an active part in congregation activities. Smith was known for his outgoing personality. He was talkative and bursting with energy, being a healthy individual with a happy marriage of more than thirty-four years. His arrest and incarceration for the crime of embezzlement started rumors in the small community where he resided. As a result, he ceased to participate in church affairs. He became withdrawn, having little to do with former friends and neighbors. He lost weight. Marital problems escalated between Smith and his wife. He became depressed and no longer found any joy in living. His attitude and feelings were shown in the following statement:
Q Tell the jury how it affected you.
A Because I feel like some of the people, not all of them, of course, but some of the people actually believed the allegations that I was guilty of something... . It affected my character, and I felt real ashamed that my friends would think be forced to think that of me, even though it wasn't true.
It would be difficult to visualize or describe the mental anguish and emotional distress suffered by Smith. Smith was entitled to recover damages for harm to his reputation resulting from the criminal proceedings brought against him. He was also entitled to recover for mental anguish and distress causally resulting from the proceedings. Royal Oil Co., Inc., 500 So.2d at 448; Gandy v. Palmer, 251 Miss. 398, 169 So. 2d 819 (1964); State Life Ins. *1107 Co. of Indianapolis v. Hardy, 189 Miss. 266, 195 So. 708 (1940). The very nature of damages often sustained in malicious prosecution actions makes such damages difficult to quantify in monetary terms.
We have carefully reviewed the evidence of damages suffered by Smith and, keeping in mind the nature of damages in malicious prosecution actions as well as the difficulty in quantifying such damages in monetary terms, we find the jury verdict of $25,000 for actual damages is supported by the evidence.
In considering the assertion of an excessive punitive damage award, we remain mindful of our former expressions that we are not authorized to disturb a jury verdict regarding punitive damages because it "seems too high" or "seems too low." Only where the verdict is so excessive that it evinces passion, bias and prejudice on the part of the jury so as to shock the judicial conscience may we interfere. Life Insurance Co. of Mississippi v. Allen, 518 So. 2d 1189, 1194 (Miss. 1987); Bankers Life & Casualty Co. v. Crenshaw, 483 So. 2d 254, 277-79 (Miss. 1985). We also observe that the factors related in Whittington, Mutual Life Ins. v. Estate of Wesson, 517 So. 2d 521, 532 (Miss. 1987), and Bankers Life and Casualty Co. for consideration by a jury in determining the quantum of punitive damages are inclusive and not exclusive. In 22 Am.Jur.2d Damages § 807, p. 854, (1988) the following rule is stated: "In assessing exemplary damages, the trier of fact should consider the nature, extent, and enormity of the wrong, the intent of the party committing it, and, generally, all the circumstances attending the particular occurrence." Other factors have been approved. In Ford Motor Co. v. Durrill, 714 S.W.2d 329 (Texas Civ.App. 1986), the Texas Appeals Court considered the following factors in arriving at the award: (1) nature of the wrong; (2) character of the conduct involved; (3) degree of culpability of wrongdoer; (4) situation and sensibilities of parties concerned; (5) extent to which such conduct offends a public sense of justice and propriety; and (6) the proportion that the punitive award bears to the compensatory damages. The exigency of each case determines the parameters of appropriate factors for jury consideration. No formulation of precise rules of law have been made to determine whether an award of punitive damages is excessive. No fixed legal ratio between actual and punitive damage exists. No bright line of demarcation tells us when exemplary damages are excessive. It would be difficult, if not impossible, to state a rule with absolute precision.
Redden, Punitive Damages, § 2.1(C), p. 23 (2d ed. 1989) tells us:
Punitive damages are accepted or rejected on policy grounds... . In most jurisdictions, the court will award punitive damages because of the positive public policy to punish the defendant and to serve as a warning or example to others who may commit similar outrageous acts in the future. These public policy grounds are also found to be in the interest of society and for the public benefit.
After careful consideration of the record, we cannot say that the verdict is so excessive that it evinces such passion, bias, and prejudice on the part of the jury that our judicial conscience is shocked.
We find the errors assigned by C & C and Lambert on appeal to be without merit and affirm on direct appeal. However, we find merit in Smith's cross-appeal. Because the trial court erred in granting Lambert a JNOV, this action by the trial court is reversed and the jury verdict is reinstated.
AFFIRMED ON DIRECT APPEAL; REVERSED AND RENDERED ON CROSS-APPEAL.
ROY NOBLE LEE, C.J., HAWKINS and DAN M. LEE, P.JJ. and PRATHER, PITTMAN, BANKS and McRAE, JJ., concur.
ROBERTS, J., not participating.
NOTES
[1] Smith recovered $1,753.59 in the same action for breach of contract. The issues involved in this appeal do not relate to or concern this portion of the trial court judgment.
[2] The grounds for the motion were (a) failure of Smith to prove elements of malicious prosecution; (b) Smith failed to prove the net worth of defendants; and (c) the jury verdict was contrary to and against the overwhelming weight of the evidence and evinced bias, passion and prejudice on the part of the jury.
[3] For a list of the states and cases holding the defendant's financial circumstances is a relevant factor for consideration in assessing the amount of punitive damages, but such evidence is not prerequisite to an award, see 87 A.L.R. 4th 166, Punitive Damages: Wealth Factor, § 4 (1991). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1748007/ | 714 S.W.2d 40 (1986)
Morris SANDEL, III, Appellant,
v.
Frank B. BURNEY, Trustee Loper Mortgage Company, Appellees.
No. 04-85-00166-CV.
Court of Appeals of Texas, San Antonio.
May 28, 1986.
Rehearing Denied June 23, 1986.
*41 Earle Cobb, Jr., San Antonio, for appellant.
Frank Burney, Martin & Drought, North O. West, San Antonio, for appellees.
Before CADENA, C.J., and BUTTS and DIAL, JJ.
OPINION
CADENA, Chief Justice.
Plaintiff, Morris Sandel, III, complains of the action of the trial court in overruling his motion for summary judgment and granting the motion for summary judgment filed by defendants, Loper Mortgage Company and Frank B. Burney, in a suit in which plaintiff sought damages for breach of a warranty of title contained in a trustee's deed executed by Burney following foreclosure of a deed of trust lien in favor of Loper Mortgage.
The deed of trust was executed by John J. Bolinger and his wife to secure payment of money advanced by the mortgage company to the Bolingers to finance their purchase of the land in question. The original trustee was Joe Loper but, in conformity with the provisions of the deed of trust, Burney was named as substitute trustee and he conducted the foreclosure sale and executed the deed conveying the land to plaintiff.
In the trustee's deed Burney represented that he did "bind the [Bolingers], their successors and assigns forever, to warrant and defend the said premises against all persons claiming to or to claim the same or any part thereof." At the time of the foreclosure sale, the property was subject to a tax lien in favor of the United States and plaintiff, in order to protect his title, discharged the lien by payment of $10,933.34.
Although the warranty in the deed from the trustee to plaintiff does not purport to bind defendants, plaintiff claims that Loper Mortgage Company is liable on the warranty as the successor or assign of the Bolingers, and that Burney is liable as the agent of Loper Mortgage Company. This contention lacks merit.
In all cases where a debt and a promise to repay are the foundations of the transfer, the transferee takes only a security interest in the property. Stated differently, the deed of trust creates only a lien and does not operate as a transfer of title. This has been the law in Texas for more than 100 years. McLane v. Paschal, 47 Tex. 365, 369 (1877). See also Johnson v. Snell, 504 S.W.2d 397, 399 (Tex.1973). Since the deed of trust creates only a lien and there is no conveyance in praesenti or in futuro, neither the grantee in the deed of trust nor the beneficiary is a successor or assign of the debtor who executed the instrument.
In conformity with the lien theory, a foreclosure sale transfers legal title from the owner of the mortgaged property to the purchaser at the foreclosure sale. Slay v. Gose, 233 S.W. 348, 349 (Tex.Civ. App.-Fort Worth 1921, no writ). The title never vests in the creditor, and the foreclosure deed is not a conveyance from the trustee or the creditor to the purchaser. In executing the foreclosure deed, the trustee does no more than effect the transfer of title from the debtor to the foreclosure purchaser. It follows that the warranty contained in the trustee's deed in this case does not bind the defendants but binds only the Bolingers.
Since the undisputed facts establish as a matter of law that defendants are not liable on the warranty of title, the trial court correctly denied plaintiff's motion for summary judgment and did not err in granting summary judgment in favor of defendants. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1930094/ | 31 B.R. 18 (1983)
In The Matter of Gilbert E. STUART, Diane M. Stuart, Debtors.
Bankruptcy No. 2-82-00114.
United States Bankruptcy Court, D. Connecticut.
April 18, 1983.
Martin W. Hoffman, Hartford, Conn., for debtors.
Patrick W. Boatman, Alcorn, Bakewell & Smith, Hartford, Conn., for applicant, Connecticut Student Loan Foundation.
MEMORANDUM AND DECISION
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
I.
The issue to be resolved in this matter arises from an application filed by the Connecticut Student Loan Foundation (CSLF) entitled "Application For Leave To File An Amended Proof Of Claim." While no evidentiary hearing was held, the following background is not in dispute.
Gilbert E. and Diane M. Stuart, admittedly solvent debtors, on February 9, 1982, commenced a joint chapter 13 case by filing a single petition, and the court set September 8, 1982, as the last day for creditors to *19 file claims.[1] The debtors' modified joint plan, confirmed on April 2, 1982, provides for full payment plus interest at 8% for all allowed unsecured claims over a period of 54 months. The debtors listed CSLF as a creditor in a single schedule of debts. The debt schedule did not indicate whether the CSLF debt was owed by Gilbert or Diane or both.
On April 7, 1982, CSLF filed a proof of claim entitled "In re Debtor Diane M. Stuart" in the amount of $5,012.04 with supporting documents evidencing a debt from Diane. On January 21, 1983, CSLF filed the present application which seeks, by way of amendment of the claim against Diane, to add the sum of $786.94 as due from Gilbert. The debtors object to the application on the ground that the bar date set by the court has passed for the filing of claims, and there is no claim in Gilbert's separate estate to be amended. CSLF concedes that its failure to file a claim against Gilbert was the result of inadvertence and oversight on its part. It contends, however, that leave to amend proofs of claim is liberally granted and that its additional claim against Gilbert relates back to the claim filed on April 7, 1982 against Diane in this alleged single estate.
II.
CSLF's argument ignores the fact that the debtors' case is a joint one only in the sense that 11 U.S.C. § 302 allows a joint case to be commenced with a single petition where the petitioners are husband and wife.[2] Section 302 was designed for ease of administration and to permit the payment of only one filing fee. See In re Hulk, 8 B.R. 444, 7 B.C.D. 339 (Bkrtcy.D.Conn. 1981); In re Coles, 14 B.R. 5 (Bkrtcy.E.D. Pa.1981). Legislative history indicates that its use is posited on the assumption that in most consumer cases, married debtors are jointly liable on their debts and jointly hold most of their property. H.Rep. No. 595, 95th Cong., 1st Sess. 321 (1977); S.Rep. No. 989, 95th Cong., 2nd Sess. 32 (1978), U.S. Code Cong. & Admin.News 1978, p. 5787. But separate estates will exist for each debtor unless and until the court orders substantive consolidation of the estates. A local standing order requires that each debtor in a joint petition in liquidation cases separately set forth assets, liabilities and claimed exemptions.[3] It follows that claims against each debtor's estate must be separately filed within the bar date set by the court. As no claim was timely filed by CSLF against Gilbert, no claim in his estate exists to which an amendment may be made. If CSLF's claim for $786.94 cannot be treated as an amendment to a prior claim, it is untimely and consequently barred. In re DiDomizio, No. 2-80-01027 (Bankr.Ct., D.Conn.1982); In re Pennetta, 19 B.R. 794, 8 B.C.D. 1286 (Bkrtcy.D.Colo. 1982).
III.
CSLF argues that if the claim is not paid, it will receive less on its claim than it would *20 have under a chapter 7 liquidation because Gilbert's estate is solvent, and CSLF would participate in a chapter 7 case as a tardily-filed claimant pursuant to 11 U.S.C. § 726(a)(3).[4] Before a chapter 13 plan may be confirmed, the court must make a determination that each allowed unsecured claim will receive no less than it would have if the estate were liquidated. 11 U.S.C. § 1325(a)(4). Such a finding, however, governs only the confirmation of the plan. Whether a claimant actually gets paid is dependent upon the filing of a proof of claim. CSLF has failed to file a claim timely against Gilbert's estate. Whereas § 726(a)(3) would allow payment of CSLF's claim if the debtors had filed a chapter 7 case, that section does not apply to a chapter 13 case. 11 U.S.C. § 103(b).
IV.
CSLF's application for leave to file an amended claim must be, and hereby is, denied.
NOTES
[1] The date of September 8, 1982 conformed to the six-month bar date set by Fed.R.Bankr.P. 13-302(e)(2).
[2] 11 U.S.C. § 302. Joint Cases.
(a) A joint case under a chapter of this title is commenced by the filing with the bankruptcy court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual's spouse. The commencement of a joint case under a chapter of this title constitutes an order for relief under such chapter.
(b) After the commencement of a joint case, the court shall determine the extend, if any, to which the debtors' estates shall be consolidated.
[3] Standing Order # 8 reads as follows:
It having come to the Court's attention that when petitions are filed pursuant to 11 U.S.C. § 302 for the commencement of a joint case such petitions are not properly delineating in separate schedules assets, liabilities and claimed exemptions of the two separate estates of the joint case, it is hereby
ORDERED that whenever debtors file a joint petition under 11 U.S.C. § 302 for a joint case under Chapter 7, a separate Form No. 6 as set forth in the Interim Bankruptcy Rules (Statement of All Liabilities of Debtor and Statement of All Property of Debtor with Summary of Debts and Property), and a separate Form No. 7 (Statement of Financial Affairs for Debtor Not Engaged in Business) or No. 8 (Statement of Financial Affairs for Debtor Engaged in Business) shall be filed for each of the debtors.
[4] Section 726(a)(3) provides that tardily-filed claims may be paid from an estate after timely-filed claims have been paid in full. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3098157/ | Opinion filed April 15, 2010
In The
Eleventh Court of Appeals
__________
No. 11-10-00046-CV
__________
DONALD R. LYBRAND, Appellant
V.
DONNA JOHNSON WILLIAMS, INDIVIDUALLY AND AS EXECUTRIX
OF THE LARUE JOHNSON ESTATE, PEGGY KLINE AND LINDA
NELSON, INDIVIDUALLY, Appellees
On Appeal from the 106th District Court
Dawson County, Texas
Trial Court Cause No. 05-02-17147
MEMORANDUM OPINION
Appellees have filed an amended motion to dismiss appeal and for sanctions. On
December 9, 2009, the trial court entered a corrected order. The order does not dispose of
appellees’ claim for attorney’s fees. In addition, the record does not show that the claims
covered by the order have been severed from appellees’ other claims for affirmative relief.
Because the order does not dispose of all claims, it is not a final, appealable judgment. Therefore,
we have no jurisdiction to consider this appeal.
Accordingly, appellees’ amended motion to dismiss appeal is granted, and the appeal is
dismissed. Appellees’ amended motion for sanctions is overruled.
PER CURIAM
April 15, 2010
Panel consists of: Wright, C.J.,
McCall, J., and Strange, J.
2 | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1187678/ | 977 P.2d 160 (1999)
90 Hawai`i 152
Michael AMANTIAD, Plaintiff-Appellant, and
Oahu Transit Services, Inc., Plaintiff-Intervenor-Appellee,
v.
Christopher ODUM, John Doe 1-10, Doe Partnerships, Corporations, and/or Other Entities 1-10, Defendants-Appellees.
No. 21269.
Supreme Court of Hawai`i.
May 20, 1999.
*162 R. Steven Geshell, Honolulu, for Plaintiff-Appellant Michael Amantiad.
Roy F. Epstein and Kathy M. Sarria, of Reid, Richards & Miyagi, Honolulu, for Plaintiff-Intervenor-Appellee Oahu Transit Services, Inc.
MOON, C.J., and KLEIN, LEVINSON, NAKAYAMA, and RAMIL, JJ.
Opinion of the Court by RAMIL, J.
The instant appeal arises from the circuit court's denial of plaintiff-appellant Michael Amantiad's Hawai`i Rules of Civil Procedure (HRCP) Rule 60(b)[1] motion to vacate the circuit court's August 26, 1997 order granting plaintiff-intervenor-appellee Oahu Transit Services, Inc.'s (hereinafter referred to as "OTS") motion to enforce settlement, after all parties, including defendant-appellee Christopher Odum, stipulated to dismiss the matter with prejudice.
On appeal, Amantiad essentially contends that the circuit court abused its discretion in denying his motion to vacate the order enforcing the settlement, because: (1) the circuit court lacked jurisdiction, insofar as the parties stipulated to dismiss the matter with prejudice and the matter was dismissed on July 1, 1996; (2) the circuit court lacked jurisdiction, insofar as the Director of Labor and Industrial Relations (hereinafter referred to as the "Director of Labor") retains original jurisdiction, pursuant to Hawai`i Revised Statutes (HRS) § 386-73 (1993), over a compromise, waiver, or "wash" of future workers' compensation benefits; (3) a proper evidentiary hearing on the settlement's validity was not conducted; and (4) Amantiad's due process rights, under the fourteenth amendment to the United States Constitution and article I, section 5 of the Hawai`i Constitution (1978), were violated, insofar as he lacked the advice and benefit of his workers' compensation counsel.
Because the dispositive issue on appeal is whether the circuit court lacked subject matter jurisdiction to hear OTS's motion to enforce settlement after all parties and claims were dismissed with prejudice, and because we hold that the circuit court lacked jurisdiction in this regard,[2] we reverse (1) the *163 circuit court's December 16, 1997 order denying Amantiad's motion to vacate and (2) the circuit court's August 26, 1997 order granting OTS's motion to enforce settlement.
I. BACKGROUND
On February 3, 1993, at approximately 9:45 a.m., Amantiad, a bus driver for OTS, was servicing a bus stop on Kūhiō Avenue. Traveling in the same direction as Amantiad, Defendant Odum attempted to turn right onto Lewers Street in front of Amantiad's bus, from a lane immediately to the left of Amantiad. The right rear of Odum's vehicle struck Amantiad's bus. Based upon, inter alia, medical expenses and wage loss stemming from the February 3, 1993 accident, Amantiad filed a tort action against Odum on March 22, 1995, in the first circuit court.
Pursuant to HRS § 386-8 (1993) and Hawai`i Rules of Civil Procedure (HRCP) Rule 24, providing for intervention as of right, OTS moved to intervene as Amantiad's employer, on March 30, 1995. Amantiad filed a statement of no position on April 11, 1995, and the circuit court granted OTS's motion to intervene on April 25, 1995. OTS thereafter filed a complaint in intervention against Odum on April 27, 1995. Apparently, the matter was assigned to the Court Annexed Arbitration Program (CAAP); a CAAP arbitrator was appointed, and the arbitration was set for May 8, 1996. However, due to an ostensibly strong potential for settlement, the parties agreed to and engaged in a compressed settlement time line. With the aid of the circuit court, the parties engaged in settlement negotiations. An early settlement conference was set for and held on April 17, 1996; however, no settlement agreement was reached at that time. A second settlement conference was set for and held on May 2, 1996.
At the time of the May 2, 1996 settlement conference, OTS's workers' compensation lien totaled $52,540.40, representing $27,667.80 in medical and indemnity payments and $24,873.60 in permanent partial disability benefits. At the May 2, 1996 settlement conference, Amantiad was represented by his "tort action" attorney, Melvin Agena; however, Stephen Hioki, his workers' compensation attorney, was not present.[3] The following exchange occurred at the May 2, 1996 hearing:
THE COURT: The purpose of this conference is
to put a settlement on the record.
Who will state the terms of the
settlement?
MR. SAKAI: As the defendant in this case, I
have agreed and believe the other
parties have also agreed that my
client will fund a settlement payable
to Mr. Agena and his client in
the amount of $25,000, and in addition
pay an additional sum of $13,000
[to] Mr. Epstein's's [sic] client
by separate draft, and a workman's
[sic] compensation 386-8 which
have a separate indemnification
paragraph to be signed by Mr.
Amantiad, which will indemnify
Mr. Odum for any and all claims
brought by Mr. Amantiad, and separate
paragraph by Mr. Epstein's's
[sic] client to sign, which will indemnify
any claims brought by or
through OTS against my client,
Mr. Odum, and that will be the end
of this case on this global settlement.
THE COURT: Mr. Epstein?
MR. EPSTEIN: As to OTS and Michael Amantiad,
it is agreed that in return for full
releases of all claims OTS has to
workers['] compensation benefits,
the amounts of monies Mr. Amantiad
receives will behe agrees
that he will wash or waive his
right to any future workman's
[sic] compensation benefits, be it
medical or indemnity for any
claims as relates to the February
3, 1993 work-related accident, and
that will be by separate document
submitted to the Department of
Labor.
THE COURT: Mr. Agena, on behalf of plaintiff?
MR. AGENA: Mr. Epstein's last representation is
in return for the consent to settle
this case by the workman's compensation
carrier.
One last thing on the indemnification
agreement, it's properly stated
by Mr. Sakai, but we will not indemnify
Mr. Epstein's's [sic] worker's
compensation.
*164
MR. SAKAI: You are making a complete wash
of Mr. Amantiad's claim, including
reopening. So, in other words,
he can never reopen this particular
workers['] compensation claim.
MR. EPSTEIN: Foreclosed from any workers[']
compensation claims as relates to
the February 3, 1993 work-related
accident.
THE COURT: Mr. Agena?
MR. AGENA: That is correct.
MR. SAKAI: That he cannot reopen any of the
credit he'sthat you are owed under
386-8 is also waived.
MR. AGENA: That is correct.
MR. EPSTEIN: I guess waived or irrelevant actually.
THE COURT: Anything else we need to put on
the record?
MR. SAKAI: I will not be a signator on the
worker's [sic] compensation Department
of Labor's separate release.
MR. EPSTEIN: That is correct.
THE COURT: Thank you very much, counsel.
(Emphases and brackets added.)
On May 24, 1996, Amantiad executed a "Release and Settlement Agreement" (hereinafter referred to as the "May 24, 1996 Agreement"), which provided:
KNOW ALL MEN BY THESE PRESENTS
That the undersigned MICHAEL S. AMANTIAD, for and in consideration of the sum of TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($25,000.00) to him paid by CHRISTOPHER ODUM, ALAMO RENT-A-CAR, INC. and THE CONTINENTAL INSURANCE COMPANY (hereinafter referred to as the "Releasees") and receipt of which is hereby acknowledged, has released, acquitted and discharged, and by these presents does for himself, his heirs, executors, administrators, and assigns, release, acquit and forever discharges the said Releasees, their respective heirs, executors, administrators, successors, and assigns, from and on account of any and all claims, liens, controversies, actions, causes of action, liability and liabilities, demands or damages of whatsoever name or nature, whether at law or in equity, in any manner arisen, including any and all claims or liens by other parties, including but not limited to any Workers' Compensation lien of OAHU TRANSIT SERVICES, INC., under the provisions of Chapter 386, Hawaii Revised Statutes, arising or to grow out of an and all incidents or matters from the beginning of the world to the date of these presents and thereafter relating in any way to an accident occurring on or about February 3, 1993 in the County of Honolulu, State of Hawaii, all as more specifically set forth in that certain lawsuit filed by Plaintiff MICHAEL S. AMANTIAD in the First Circuit [Court], State of Hawaii, designated as Civil No. 95-1011-03 on or about March 22, 1995.
IT IS DEFINITELY UNDERSTOOD AND AGREED that the foregoing payment is by way of compromise and to terminate any and all claims, liens, actions or suits for injuries, damages or expenses of whatsoever nature, known or unknown, in any way growing out of or which may hereafter in any way grow out of or be connected with said incident, including any and all claims or liens by other parties, including but not limited to the Workers' Compensation lien of OAHU TRANSIT SERVICES, INC., and is not an admission by the said Releasees of any liability whatsoever for injuries sustained by the undersigned or for any resulting damages to the undersigned. The undersigned understands that in accepting the foregoing consideration and executing this Release, it is specifically agreed that this release shall be a complete bar to all claims or liens, including but not limited to the Workers' Compensation lien of OAHU TRANSIT SERVICES, INC., for injury to the person of the undersigned of whatsoever name or nature resulting or to result from the said incident.
IT IS FURTHER UNDERSTOOD AND AGREED that this release shall operate as a joint tortfeasor release within the meaning of Sections 663-11 through 663-17 of the Hawaii Revised Statutes, and shall within the meaning of Section 663-14 of the Hawaii Revised Statutes, operate to reduce by the extent of the pro rata share *165 of any liability of Defendant CHRISTOPHER ODUM, ALAMO RENT-A-CAR, INC. and THE CONTINENTAL INSURANCE COMPANY or by the amount of the consideration paid for this Release, whichever shall be greater, any damages, judgment, or award hereafter recovered or recoverable by Plaintiff MICHAEL S. AMANTIAD against any other tortfeasor by reason of the aforementioned incident, all as more particularly set forth in Civil No. 95-1011-03.
THE UNDERSIGNED DOES HEREBY STIPULATE AND AGREE, for the foregoing consideration, to indemnify, defend, and forever hold harmless the said Releasees, their respective heirs, executors, administrators, successors, and assigns, against loss or liability from any and all claims, liens, demands or actions that have been or may be hereafter at any time made or brought against the said Releasees, their respective heirs, executors, administrators, successors, and assigns, by the undersigned or by anyone acting on his behalf or holding by or through him or by anyone else, including any and all claims or liens by other parties, including but not limited to the Workers' Compensation lien of OAHU TRANSIT SERVICES, INC., for damages on account of or in connection with any injuries sustained or which may be sustained by the undersigned in consequence of the aforesaid incident; and the undersigned expressly agrees to defend the said Releasees, their respective heirs, executors, administrators, successors, and assigns, against any and all claims, liens, demands or actions that have been or may be instituted against the said Releasees, their respective heirs, executors, administrators, successors, and assigns, including but not limited to any Workers' Compensation lien of OAHU TRANSIT SERVICES, INC., on account of or in connection with any injury sustained or which may be sustained by the undersigned in consequence of the aforesaid incident.
Apparently, in conjunction with Amantiad's release, OTS executed a "Consent to Settlement Agreement and Release" (hereinafter referred to as the "Consent Agreement"),[4] providing:
WHEREAS, OAHU TRANSIT SERVICES, INC. (hereinafter "Employer/Carrier") have paid workers' compensation benefits to or on behalf of MICHAEL S. AMANTIAD and in consideration of a reimbursement of $13,000.00 pursuant to Section 386-8, Liability of Third Person, Hawaii Revised Statutes, Employer/Carrier consent to and approve the tort settlement of $25,000.00 payable to Michael S. Amantiad and do hereby release, indemnify, defend, and forever hold harmless CHRISTOPHER ODUM, ALAMO RENT-A-CAR, INC. and THE CONTINENTAL INSURANCE COMPANY and their respective successors, administrators, insurers and assignees from all claims, demands, damages, actions, causes of action or suits at law or in equity of whatsoever kind or nature that have been or may be hereafter at any time made or brought against Christopher Odum, Alamo Rent-A-Car, Inc. and The Continental Insurance Company, their respective heirs, executors, administrators, successors, and assigns, by the Employer/Carrier or by anyone acting on their behalf or holding by or through the Employer/Carrier arisen or arising out of an accident involving Michael S. Amantiad which occurred on or about February 3, 1993 on the Island of Oahu, as more specifically described in the Complaint filed March 22, 1995.
On July 1, 1996, pursuant to HRCP Rule 41(a)(1)(B), Amantiad, OTS, and Odum stipulated to dismiss with prejudice all claims and parties. Inasmuch as the parties filed a stipulation to dismiss, there was no judgment providing for the circuit court to retain jurisdiction for any reason.[5]
On April 8, 1997, however, OTS moved to enforce the "settlement agreement." In support, OTS attached several documents, including inter alia: (1) the May 24, 1996 Agreement and (2) an Amended Stipulated Compromise and Release Agreement (hereinafter *166 referred to as the "Amended Release Agreement"), which was not signed. The Amended Release Agreement provided for Amantiad's release, waiver, and/or "wash" of all future workers' compensation benefits and provided a signature line for Gary S. Hamada, who was designated on the Amended Release Agreement as an Administrator of the Disability Compensation Division of the Department of Labor and Industrial Relations (DLIR). The attached copy of the Amended Release Agreement was not signed by Hamada. OTS's ultimate request for relief in its motion to enforce settlement was
that an order be issued requiring MR. AMANTIAD and his attorney, either Stephen Hioki or Melvin Agena, [to] sign the Amended Stipulated Compromise and Release Agreement in which MR. AMANTIAD agrees to waive his right to future worker's [sic] compensation benefits from the February 3, 1993 accident. Alternatively, OTS requests that this court issue an order invalidating the settlement agreement in that OTS' consent was improperly obtained.
On July 22, 1997, in opposition to the motion to enforce settlement, Amantiad filed a declaration of counsel, Frank M. Fernandez (who was newly hired), and an affidavit by Amantiad. Fernandez's declaration averred that Amantiad did not have his workers' compensation attorney present at the settlement conference, that Amantiad would not have settled his future workers' compensation benefits had Mr. Hioki been present, and that "Amantiad was confused and was at a loss" without Mr. Hioki. Amantiad averred essentially the same.
The circuit court granted OTS's motion to enforce the settlement on August 26, 1997. On September 16, 1997, Amantiad moved pursuant to HRCP Rule 60(b) to vacate the circuit court's order granting OTS's motion to enforce settlement.[6] In his written pleadings, Amantiad argued in support of his Rule 60(b) motion that the circuit court lacked jurisdiction, because: (1) the Director of Labor retains original jurisdiction, pursuant HRS § 386-73 (1993), over a waiver or wash of future workers' compensation benefits; and (2) the matter was dismissed with prejudice and no appeal was taken. On December 16, 1997, the circuit court denied Amantiad's motion to vacate the August 26, 1997 order. Amantiad timely appealed.[7]
II. DISCUSSION
A. The Circuit Court Lacked Subject Matter Jurisdiction to Hear OTS's Motion to Enforce Settlement After all Parties Stipulated to Dismiss all Claims and Parties with Prejudice.
1. Standard of Review
An appellate court reviews a circuit court's determination of an HRCP Rule 60 motion for an abuse of discretion. See Island Ins. Co., Inc. v. Santos, 86 Hawai`i 363, 366, 949 P.2d 203, 206 (App.1997) (citing Richardson v. Lane, 6 Haw.App. 614, 622, 736 P.2d 63, 69, cert. denied, 484 U.S. 953, 108 S. Ct. 345, 98 L. Ed. 2d 371 (1987), reh'g denied, 484 U.S. 1037, 108 S. Ct. 764, 98 L. Ed. 2d 781 (1988)).
"The existence of jurisdiction is a question of law that we review de novo under the right/wrong standard." Lester v. Rapp, 85 Hawai`i 238, 241, 942 P.2d 502, 505 (1997) *167 (quoting State ex. rel. Bronster v. Yoshina, 84 Hawai`i 179, 183, 932 P.2d 316, 320 (1997)); see also State v. Ontiveros, 82 Hawai`i 446, 448, 923 P.2d 388, 390 (1996) (citation omitted). Questions regarding subject matter jurisdiction may be raised at any stage of a cause of action. See Waikiki Marketplace Inv. Co. v. Chair of Zoning Bd. of Appeals of the City and County of Honolulu, 86 Hawai`i 343, 348, 949 P.2d 183, 188 (App.1997) (citing Wong v. Wong, 79 Hawai`i 26, 29, 897 P.2d 953, 956 (1995)). When reviewing a case where the circuit court lacked subject matter jurisdiction, the appellate court retains jurisdiction, not on the merits, but for the purpose of correcting the error in jurisdiction. See id. A judgment rendered by a circuit court without subject matter jurisdiction is void. See id.
2. When OTS Filed Its Motion to Enforce Settlement, the Circuit Court Lacked Subject Matter Jurisdiction.
The dispositive issue in the instant appeal is whether the circuit court lacked jurisdiction to enforce an oral settlement, entered on the record before the circuit court, after all parties stipulated to dismiss with prejudice all claims and parties. Based upon the following, we hold that the circuit court lacked jurisdiction.
In Gilmartin v. Abastillas, 10 Haw.App. 283, 869 P.2d 1346 (1994), the Intermediate Court of Appeals (ICA) addressed a substantially similar issue. Gilmartin involved an action for specific performance on an option to purchase a condominium unit. Just before trial, the parties negotiated a settlement agreement and read its terms into the record. Approximately one month later, they executed a release and settlement agreement that was neither approved by the circuit court nor incorporated into their stipulated dismissal. The parties stipulated to dismiss the matter with prejudice. A disagreement thereafter arose with respect to unpaid lease rent, interest, and maintenance fees; however, in order to complete the closing on the condominium unit, the parties agreed to settle the issue at a later date and to set aside a sum of money in escrow to cover the disputed sum. After further disagreement, Gilmartin moved the circuit court to enforce the specific terms of the settlement agreement and to award her the remaining escrow funds, plus attorneys' fees and costs. The circuit court summarily granted the motion. See id. at 285-86, 869 P.2d at 1348-49.
Upon review, the ICA reversed the circuit court, stating that
[a] dismissal of a lawsuit with prejudice is generally regarded as an adjudication on the merits of all issues that were raised or could have been raised in the pleadings, thus barring, on res judicata grounds, any subsequent litigation involving the same claims, Land v. Highway Constr. Co., 64 Haw. 545, 551, 645 P.2d 295, 299, recon. denied, 64 Haw. 688 (1982), and terminating the trial court's jurisdiction over the lawsuit. Hinsdale v. Farmers Nat'l Bank & Trust Co., 823 F.2d 993, 995 (6th Cir. 1987); McCall-Bey v. Franzen, 777 F.2d 1178, 1185 (7th Cir.1985).
When an action is dismissed with prejudice as part of a settlement agreement which is subsequently breached, the trial court thereafter has no jurisdiction to enforce the settlement agreement unless a party to the agreement takes one of two courses of action.
First, an independent action may be brought for specific performance of the settlement agreement. Hinsdale, 823 F.2d at 996; Musifilm, B.V. v. Spector, 568 F. Supp. 578, 581 (S.D.N.Y.1983); Brigando v. Republic Steel Corp., 180 Ill.App.3d 1016, 1021-22, 129 Ill. Dec. 728, 536 N.E.2d 778, 782, n. 1, cert. denied, 127 Ill. 2d 612, 136 Ill. Dec. 581, 545 N.E.2d 105 (1989).
Second, a motion to vacate the dismissal order and reopen the original proceedings may be filed. Unless the vacatur is first granted, however, no jurisdiction would exist in the court to enter any remedial orders in the case. Hinsdale, 823 F.2d at 996; McCall-Bey, 777 F.2d at 1186; Harman v. Pauley, 678 F.2d 479, 481 (4th Cir.1982); Kelly v. Greer, 334 F.2d 434, 436-37 (3d Cir.1964).
Id. at 289-91, 869 P.2d at 1349-50 (emphasis added); accord Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377, 381, 114 S. Ct. 1673, 128 L. Ed. 2d 391 (1994) (holding *168 that a district court lacked jurisdiction and did not have "inherent authority" to enforce settlement where parties stipulated to dismiss the matter with prejudice). We agree with and hereby adopt the ICA's reasoning.
Because the parties in the instant case entered into a stipulation to dismiss with prejudice as to all parties and claims, which was filed on July 1, 1996, but no party either (1) moved to vacate the dismissal or (2) instituted a separate action for specific performance of the settlement, the circuit court lacked jurisdiction to enforce the oral settlement entered on the record. Consequently, the circuit court's August 26, 1997 order enforcing settlement is void. Therefore, the circuit court abused its discretion in denying Amantiad's September 16, 1997 HRCP Rule 60(b) motion to vacate the order granting OTS's motion to enforce settlement.
On this basis alone, we reverse (1) the circuit court's December 16, 1997 order denying Amantiad's motion to vacate and (2) the circuit court's August 26, 1997 order enforcing settlementi.e., forcing Amantiad to sign the Amended Release Agreement or, in the alternative, invalidating the May 24, 1996 Agreement. However, inasmuch as Amantiad also properly raised the issue of the circuit court's subject matter jurisdiction over a "wash" of future workers' compensation benefits and the circuit apparently concluded that it retained said jurisdiction, we are compelled to address this issue.
B. The Director of Labor Retains Original Jurisdiction over all Controversies and Disputes arising under HRS Chapter 386.
On May 2, 1996, through aid of counsel, Amantiad agreed, on the record before the circuit court, to "wash" his future workers' compensation benefits in return for $25,000, in a global settlement with Defendant Odum and OTS. Relying upon that promise, Odum paid $25,000 to Amantiad and $13,000 to OTS, extinguishing OTS's existing workers' compensation lien rights under HRS § 386-8. All parties thereafter stipulated to dismiss the action with prejudice.
Amantiad's promise or agreement to "wash" his future workers' compensation benefits in exchange for the global settlement of his civil tort action implicates a dangerous commingling of and glaring conflict between the Director of Labor's original jurisdiction under HRS § 386-73 (1993) and this court's well-established support and fostering of settlement. We therefore must turn to HRS Chapter 386 to determine whether a compromise or "wash" of future workers' compensation benefits falls within the Director of Labor's original jurisdiction under HRS § 386-73 and, consequently, assuming that the circuit court otherwise has jurisdiction, to determine whether the circuit court can enforce a settlement regarding such benefits, absent the Director's prior consent or approval.
1. Statutory Interpretation
"The interpretation of a statute is a question of law reviewable de novo.["] Franks v. City & County of Honolulu, 74 Haw. 328, 334, 843 P.2d 668, 671 (1993).
When construing a statute, our foremost obligation is to ascertain and give effect to the intention of the legislature, which is to be obtained primarily from the language contained in the statute itself. And we must read statutory language in the context of the entire statute and construe it in a manner consistent with its purpose.
When there is doubt, doubleness of meaning, or indistinctiveness or uncertainty of an expression used in a statute, an ambiguity exists.
In construing an ambiguous statute, the meaning of the ambiguous words may be sought by examining the context, with which the ambiguous words, phrases, and sentences may be compared, in order to ascertain their true meaning. HRS § 1-15(1)(1993). Moreover, the courts may resort to extrinsic aids in determining the legislative intent. One avenue is the use of legislative history as an interpretive tool.
Gray v. Administrative Dir. of the Court, 84 Hawai`i 138, 148, 931 P.2d 580, 590 *169 (1997) (internal citations, quotation marks, brackets, ellipses, and footnote omitted).
This court may also consider "the reason and spirit of the law, and the cause which induced the legislature to enact it[] ... to discover its true meaning." Id. at 148 n. 15, 931 P.2d at 590 n. 15; HRS § 1-15(2) (1993).
Also, this court is bound to construe statutes so as to avoid absurd results. Keliipuleole v. Wilson, 85 Hawai`i 217, 222, 941 P.2d 300, 305 (1997). "A rational, sensible and practicable interpretation of a statute is preferred to one which is unreasonable[,] impracticable ... inconsisten[t], contradict[ory], and illogical[]." Id. at 221-22, 941 P.2d at 304-05 (original brackets and citation omitted) (brackets added).
Frank v. Hawaii Planing Mill Found., 88 Hawai`i 140, 144, 963 P.2d 349, 353 (1998) (some brackets added and some in original).
We must further note that
[o]ur reporters are replete with cases holding that Hawai`i's workers' compensation statute is remedial in nature. See, e.g., Locations, Inc. v. Hawai`i Dept. of Labor & Indus. Relations, 79 Hawai`i 208, 210, 900 P.2d 784, 786 (1995); Treloar v. Swinerton & Walberg Co., 65 Haw. 415, 425, 653 P.2d 420, 427 (1982); Evanson v. University of Hawaii, 52 Haw. 595, 483 P.2d 187 (1971). An equal number of cases have recognized that our workers' compensation statute has a beneficent purpose and should be afforded "liberal construction in favor of the employee, to fulfill the humanitarian purposes for which it was enacted." Respicio v. Waialua Sugar Co., 67 Haw. 16, 18, 675 P.2d 770, 772 (1984). Indeed, since the supreme court's first look at Hawai`i's then new workers' compensation statute in 1916, analyses in these kinds of cases have been grounded on the humanitarian purposes premise. See, e.g., Lawhead v. United Air Lines, 59 Haw. 551, 559-60, 584 P.2d 119, 124-25 (1978); DeFries v. Association of Owners, 57 Haw. 296, 303-04, 555 P.2d 855, 860 (1976); Ichijiro Ikoma v. Oahu Sugar Co., 23 Haw. 291, 295-96 (1916).
Nevertheless, we acknowledge that the rule of liberal construction in workers' compensation cases has boundaries. In a caveat on this point, the supreme court explained that "`[t]he rule of liberal construction cannot be strained to the point of extending it to employments [or employment benefits] not within its scope or intent.'" Locations, Inc., 79 Hawai`i at 211, 900 P.2d at 787 (quoting Florida Indus. Comm'n v. Schoenberg, 117 So. 2d 538, 541 (Fla.Dist.Ct.App.1960)).
Survivors of Iida v. Oriental Imports, Inc., 84 Hawai`i 390, 397, 935 P.2d 105, 112 (App. 1997) (footnote omitted). Finally, this court has also stated "that `statutes abrogating common law rights must be strictly construed[.]'" Hough v. Pacific Ins. Co., Ltd., 83 Hawai`i 457, 463, 927 P.2d 858, 864 (1996) (citing Fonseca v. Pacific Constr., 54 Haw. 578, 585, 513 P.2d 156, 160 (1973); Burns Int'l Sec. Services v. Department of Transp., 66 Haw. 607, 611, 671 P.2d 446, 449 (1983) (explaining that "[w]here it does not appear there was a legislative purpose in superseding the common law, the common law will be followed").
2. Compromise and Settlement
We particularly note our long-standing support of compromise and settlement. As a general rule, a properly executed settlement precludes future litigation for its parties. See AIG Hawaii Ins. Co. v. Bateman, 82 Hawai`i 453, 458-59, 923 P.2d 395, 400-01, amended in part, 83 Hawai`i 203, 925 P.2d 373 (1996). Indeed, a settlement agreement
"is an agreement to terminate, by means of mutual concessions, a claim which is disputed in good faith or unliquidated. It is an amicable method of settling or resolving bona fide differences or uncertainties and is designed to prevent or put an end to litigation." 15A Am.Jur.2d Compromise and Settlement § 1 (1976).
We acknowledge the well-settled rule that the law favors the resolution of controversies through compromise or settlement rather than by litigation. Dowsett v. Cashman, 2 Haw.App. 77, 82-83, 625 P.2d 1064, 1068 (1981). Such alternative to court litigation not only brings finality to the uncertainties of the parties, but is consistent *170 with this court's policy to foster amicable, efficient, and inexpensive resolutions of disputes. In turn, it is advantageous to judicial administration and thus to government and its citizens as a whole. We agree with the policy and law of settlements which the Supreme Court of Arkansas succinctly sets forth in Ragland v. Davis, 301 Ark. 102, 106-107, 782 S.W.2d 560, 562 (1990) (citation omitted, emphasis added):
Courts should, and do, so far as they can do so legally and properly, support agreements which have for their object the amicable settlement of doubtful rights by parties; the consideration for such agreements is not only valuable, but highly meritorious. Because they promote peace, voluntary settlements... must stand and be enforced if intended by the parties to be final, notwithstanding the settlement made might not be that which the court would have decreed if the controversy had been brought before it for decision. Such agreements are binding without regard to which party gets the best of the bargain or whether all the gain is in fact on one side and all the sacrifice on the other.
....
A compromise or settlement agreement disposes of all issues the parties intended to settle. In re Estate of Engels, 10 Kan. App. 2d 103, 692 P.2d 400 (1984)....
....
Having found the settlement to be valid and enforceable, the terms of the settlement would control....
Sylvester v. Animal Emergency Clinic of Oahu, 72 Haw. 560, 565-71, 825 P.2d 1053, 1056-59 (1992) (emphases added); see also Gossinger v. Association of Apartment Owners of the Regency of Ala Wai, 73 Haw. 412, 423-24, 835 P.2d 627, 633-34 (1992); Han v. Yang, 84 Hawai`i 162, 167-68, 931 P.2d 604, 609-10 (App.1997).
With respect to a judgment by consent or an oral settlement entered on the record, the ICA has explained that
courts have the general power of entering judgment by consent of the parties for the purpose of executing a compromise and settlement of the action. 47 Am.Jur.2d Judgments § 1080 (1969).
Although there is no case on point in Hawaii, the law of compromise and settlement and of judgment by consent is well-settled in other jurisdictions. For example, the Kansas Supreme Court has stated: "It is an elemental rule that the law favors compromise and settlement of disputes and generally, in the absence of bad faith or fraud, when parties enter into an agreement settling and adjusting a dispute, neither party is permitted to repudiate it." Matter of Estates of Thompson, 226 Kan. 437, 440, 601 P.2d 1105, 1108 (1979). The Washington Supreme Court said it even more tersely: "The law favors settlements and consequently it must favor their finality." Haller v. Wallis, 89 Wash.2d 539, 544, 573 P.2d 1302, 1305 (1978).
A compromise agreement, like other contracts, requires an offer and acceptance, consideration, and parties who have the capacity and authority to agree as they do. 15A Am.Jur.2d Compromise and Settlement § 7 (1976). A judgment or decree entered by consent of the parties is in the nature of a contract, approved by the court, and cannot be set aside except on grounds adequate to justify the rescission of a contract. Nieminen v. Pitzer, 281 Or. 53, 57, 573 P.2d 1227, 1228 (1978).
....
The Supreme Court of Colorado, quoting with approval from the case of Hansen v. Ryan, 186 S.W.2d 595 (Mo.1945), held:
"In the administration of justice and the prompt dispatch of business, courts must and do act upon the statements of counsel and upon the stipulations of parties to pending causes. Where the parties have voluntarily entered into a stipulation which appears fair and reasonable for the compromise and settlement of the issues of a pending cause and where the stipulation is spread upon the record with the consent and approval of the court, as here, the parties are bound thereby and the court may, thereafter, properly proceed to dispose *171 of the case on the basis of the pleadings, the stipulations and the admitted facts."
Goltl v. Cummings, 152 Colo. 57, 380 P.2d 556, 559 (1963).
Dowsett v. Cashman, 2 Haw.App. 77, 82-83, 625 P.2d 1064, 1068 (1981) (emphases added); accord Sylvester, 72 Haw. at 566, 825 P.2d at 1056.
3. A Compromise of Future Workers' Compensation Benefits Constitutes a Controversy or Dispute within the Director of Labor's Original Jurisdiction, under HRS §§ 386-8 and 386-73.
HRS Chapter 386 endows the Director of Labor with original jurisdiction over all controversies and disputes arising thereunder. In particular, HRS § 386-73 (1993) provides:
Unless otherwise provided, the director of labor and industrial relations shall have original jurisdiction over all controversies and disputes arising under this chapter. The decisions of the director shall be enforceable by the circuit court as provided in section 386-91. There shall be a right of appeal from the decisions of the director to the appellate board and thence to the supreme court subject to chapter 602 as provided in sections 386-87 and 386-88, but in no case shall an appeal operate as a supersedeas or stay unless the appellate board or the supreme court so orders.
When interpreting HRS § 386-73, this court has stated that, "[t]aken at face value, the foregoing would preclude original court action to settle controversies involving the workers' compensation law. It relegates the circuit court to a secondary role where workers' compensation is concernedthe enforcement of the Director's decisions." Travelers Ins. Co. v. Hawaii Roofing, Inc., 64 Haw. 380, 384, 641 P.2d 1333, 1336 (1982). Furthermore, "[a] statute which provides for a thing to be done in a particular manner or by a prescribed person or tribunal implies that it shall not be done otherwise or by a different person or tribunal...." Id. at 387, 641 P.2d at 1338 (citing State ex rel. Battle v. Hereford, 148 W.Va. 97, 103, 133 S.E.2d 86, 90 (1963)).
In contrast to the Director of Labor's jurisdiction under HRS § 386-73, Hawai`i circuit courts retain jurisdiction over an employee's claims against third-party tortfeasors,[8] pursuant to HRS § 386-8 (1993), which provides in pertinent part:
Liability of third person. When a work injury for which compensation is payable under this chapter has been sustained under circumstances creating in some person other than the employer or another employee of the employer acting in the course of his employment a legal liability to pay damages on account thereof, the injured employee or his dependents (hereinafter referred to collectively as the employee) may claim compensation under this chapter and recover damages from such third person.
If the employee commences an action against such third person he shall without delay give the employer written notice of the action and the name and location of the court in which the action is brought by personal service or registered mail. The employer may, at any time before trial on the facts, join as party plaintiff.
If within nine months after the date of the personal injury the employee has not commenced an action against such third person, the employer, having paid or being liable for compensation under this chapter, shall be subrogated to the rights of the injured employee. Except as limited by chapter 657, the employee may at any time commence an action or join in any action commenced by the employer against such third person.
No release or settlement of any claim or action under this section is valid without the written consent of both employer and employee. The entire amount of the settlement *172 after deductions for attorney's fees and costs as hereinafter provided, is subject to the employer's right of reimbursement for his compensation payments under this chapter and his expenses and costs of action.
If the action is prosecuted by the employer alone, the employer shall be entitled to be paid from the proceeds received as a result of any judgment for damages, or settlement in case the action is compromised before judgment, the reasonable litigation expenses incurred in preparation and prosecution of such action, together with a reasonable attorney's fee which shall be based solely upon the services rendered by the employer's attorney in effecting recovery both for the benefit of the employer and the employee. After the payment of such expenses and attorney's fee, the employer shall apply out of the amount of the judgment or settlement proceeds an amount sufficient to reimburse the employer for the amount of his expenditure for compensation and shall pay any excess to the injured employee or other person entitled thereto.
If the action is prosecuted by the employee alone, the employee shall be entitled to apply out of the amount of the judgment for damages, or settlement in case the action is compromised before judgment, the reasonable litigation expenses incurred in preparation and prosecution of such action, together with a reasonable attorney's fee which shall be based solely upon the services rendered by the employee's attorney in effecting recovery both for the benefit of the employee and the employer. After the payment of such expenses and attorney's fee there shall be applied out of the amount of the judgment or settlement proceeds, the amount of the employer's expenditure for compensation, less his share of such expenses and attorney's fee. On application of the employer, the court shall allow as a first lien against the amount of the judgment for damages or settlement proceeds, the amount of the employer's expenditure for compensation, less his share of such expenses and attorney's fee.
If the action is prosecuted both by the employee and the employer, in a single action or in consolidated actions, and they are represented by the same agreed attorney or by separate attorneys, there shall first be paid from any judgment for damages recovered, or settlement proceeds in case the action or actions be settled before judgment, the reasonable litigation expenses incurred in preparation and prosecution of such action or actions, together with reasonable attorney's fees based solely on the services rendered for the benefit of both parties where they are represented by the same attorney, and where they are represented by separate attorneys, based solely upon the service rendered in each instance by the attorney in effecting recovery for the benefit of the party represented. After the payment of such expenses and attorneys' fees there shall be applied out of the amount of the judgment for damages, or settlement proceeds an amount sufficient to reimburse the employer for the amount of his expenditure for compensation and any excess shall be paid to the injured employee or other person entitled thereto.
In the event that the parties are unable to agree upon the amount of reasonable litigation expenses and the amount of attorneys' fees under this section then the same shall be fixed by the court.
After reimbursement for his compensation payments the employer shall be relieved from the obligation to make further compensation payments to the employee under this chapter up to the entire amount of the balance of the settlement or the judgment, if satisfied, as the case may be, after deducting the cost and expenses, including attorneys' fees.
....
If the special compensation fund has paid or is liable for any compensation under this chapter, the fund shall be entitled to all the rights and remedies granted an employer under this section; provided that the employer' right to reimbursement for *173 compensation payments and expenses under this chapter shall have priority.
(Emphases added.)
First, the plain language of HRS § 386-73 places all controversies or disputes arising under HRS Chapter 386 within the original jurisdiction of the Director of Labor. A claim for workers' compensation benefits, whether present or future,[9] arises under HRS Chapter 386 and is, therefore, within the original jurisdiction of the Director of Labor. Second, all references to an employer's right to payment under HRS § 386-8 are explained as "reimbursement" or payment for "expenditure for compensation." Therefore, HRS § 386-8 provides an employer with the right of intervention for existing lien rightsnot future or potential lien rights.[10]
Further, in order to implement HRS Chapter 386, the Director of Labor has adopted administrative rules, pursuant to HRS § 386-72 (1993).[11] The rule corresponding to HRS § 386-8 is Hawai`i Administrative Rule (HAR) § 12-10-31 (1995), which provides:
Liability of third person. (a) Should any action be filed, arbitration commenced, or claim be made to recover damages pursuant to section 386-8, HRS, the party or parties in interest shall within ten calendar days notify the director in writing and all other parties of interest with pertinent details as the action, arbitration, or claim continues.
(b) The party or parties of interest shall obtain written consent of both employer and employee and file with the director within thirty calendar days of execution a final copy of the claim-dispositive document, release, settlement, court order, waiver, dismissal, arbitration award, or judgment.
(c) The director may hold a hearing at the director's discretion or on application of a party of interest to determine whether or not the employer has an obligation to make further compensation payments including reimbursements and credits against sums recovered from any third party.
(Emphasis added.)
Pursuant to HAR § 12-10-31, the Director of Labor retains the discretion, and necessarily the jurisdiction, to determine whether or not the employer has an obligation to make further or future compensation payments to the employee. In light of this provision, it necessarily follows that a compromise or settlement of "further" or future workers' compensation benefits may be nullified or voided by the Director of Labor, irrespective of what the parties have agreed. Therefore, in construing HRS §§ 386-8 and 386-73 with HAR § 12-10-31, we hold that it would be illogical and absurd to permit parties to compromise such future obligations, without the Director of Labor's prior consent or approval.
Our conclusion today finds further support in HRS § 386-151 (1993),[12] which bestows upon the Director of Labor the fiduciary *174 obligation of administering and maintaining the special compensation fund.[13] For example, the instant record reveals that Amantiad's injury has been deemed a permanent partial disability (in light of OTS's payment of $24,873.60 in permanent partial disability benefits), implicating a potential need for future reliance upon the special compensation fund under HRS § 386-33.
In light of the Director of Labor's original jurisdiction under HRS § 386-73, the Director's discretion under HAR § 12-10-31, and the Director's fiduciary obligations under various provisions of Chapter 386, we hold that a settlement or compromise of future workers' compensation benefits constitutes a controversy or dispute within the original jurisdiction of the Director of Labor, under section 386-73. Furthermore, we hold that a settlement or compromise of future workers' compensation benefits cannot be valid or binding without the consent or approval of the Director of Labor. Therefore, assuming that the circuit court otherwise has jurisdiction to enforce the terms of a settlement agreement, the circuit court lacks jurisdiction to enforce a compromise or settlement of future workers' compensation benefits, absent the prior consent or approval of the Director of Labor.[14]
III. CONCLUSION
Because the circuit court lacked subject matter jurisdiction to hear OTS's motion to *175 enforce settlement, we reverse (1) the circuit court's December 16, 1997 order denying Amantiad's motion to vacate the order enforcing settlement and (2) the circuit court's August 26, 1997 order granting OTS's motion to enforce settlement. We also hold that a settlement or compromise of future workers' compensation benefits constitutes a controversy or dispute within the original jurisdiction of the Director of Labor, pursuant to HRS §§ 386-73 and 386-8 and HAR § 12-10-31, and that the circuit court lacks subject matter jurisdiction to enforce such a compromise or settlement, absent the prior consent or approval of the Director of Labor.
NOTES
[1] HRCP Rule 60, entitled "Relief from Judgment or Order," provides in pertinent part:
(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud, etc. On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment....
[2] Regarding Amantiad's second point of error on appeal, see infra, discussion section II.B. With respect to Amantiad's third point of error on appeal, because we hold infra that the circuit court lacked jurisdiction to hear OTS's motion to enforce settlement, we hold that the circuit court also lacked jurisdiction to conduct an evidentiary hearing on the validity of the settlement. Therefore, we need not address the merits of this issue.
Amantiad's fourth point or error on appeal, that he has a constitutional due process right to have a workers' compensation attorney (not just any attorney) present during settlement negotiations, lacks merit. Finally, he appears to argue in his opening brief that the circuit court violated certain Canons of Judicial Conduct by failing to disqualify itself from the motion to enforce settlement, because it was the same court to aid in settlement negotiations. Inasmuch as Amantiad failed properly to allege this claim in a point of error on appeal, we need not address the merits of this issue.
[3] The record reveals that Hioki was notified about the second settlement conference but did not attend. Hioki explained, by way of letter and affidavit, that he believed there was no reason for him to attend the settlement conference because he believed that the parties would not be discussing Amantiad's future workers' compensation benefits.
[4] OTS's Consent Agreement was signed but not dated.
[5] See infra note 7.
[6] The motion came on for hearing on October 8, 1997. Although Amantiad apparently designated the transcript from the October 8, 1997 hearing with the circuit court, the hearing transcript was not transferred to the supreme court. Therefore, we are unable to review the transcript.
[7] On April 14, 1998, we dismissed Amantiad's appeal for a lack of jurisdiction, because the stipulation to dismiss with prejudice as to all claims and parties, filed July 1, 1996, was not reduced to a final judgment in accordance with HRCP Rule 58 and Jenkins v. Cades Schutte Fleming & Wright, 76 Hawai`i 115, 119-120, 869 P.2d 1334, 1338-39 (1994), rendering the appeal of the December 16, 1997 order premature. On April 29, 1998, upon considering Amantiad's motion for reconsideration, filed April 24, 1998, we reinstated the appeal and reserved the jurisdictional issue for later determination. We now address this issue. We agree with Amantiad and hold that a separate judgment is neither required nor authorized, inasmuch as a plaintiff's dismissal of an action, by filing a stipulation of dismissal signed by all parties, is effective "without order of [the] court." See HRCP Rule 41(a). Therefore, we have jurisdiction to review the instant appeal.
[8] See Hough v. Pacific Ins. Co., Ltd., 83 Hawai`i 457, 465-68, 927 P.2d 858, 866-69 (1996); Sato v. Tawata, 79 Hawai`i 14, 17, 897 P.2d 941, 944 (1995); Shimabuku v. Montgomery Elev. Co., 79 Hawai`i 352, 357-58, 903 P.2d 48, 52-53 (1995); cf. Iddings v. Mee-Lee, 82 Hawai`i 1, 6, 919 P.2d 263, 268 (1996); Travelers Ins. Co. v. Hawaii Roofing, Inc., 64 Haw. 380, 641 P.2d 1333 (1982).
[9] Cf. HRS § 386-78(a) (Supp.1998) which provides that "[n]o compromise in regard to a claim for compensation pending before the director shall be valid unless it is approved by decision of the director as conforming to this chapter and made a part of the decision."
[10] This section's reference to an employer's protection from future payments is only limited to the amount of the settlement. If the employee has future need for compensation, beyond the settlement amount, the employer may be liable for payment.
[11] HRS § 386-72, entitled "Rule making powers" provides: "In conformity with and subject to chapter 91, the director of labor ... shall make rules, not inconsistent with this chapter, which the director deems necessary for or conducive to its proper application and enforcement."
[12] HRS § 386-151 provides in pertinent part that:
(a) There is hereby created a fund to be known as the special compensation fund which shall consist of payments made to it as provided by law. The director of finance of the State shall be custodian of the fund, and all disbursements therefrom shall be paid by the director of finance upon orders by the director of labor and industrial relations.
....
(c) The director shall appoint annually a certified public accountant to examine and audit all the books and records relating to the special compensation fund and shall advise the director as to the fund's solvency, including recommendations as to levies and charges provided for in section 386-152 and the required level of funding....
(Emphasis added.)
[13] For example, HRS § 386-3 (1993) provides that "[i]f an employee suffers personal injury either by accident arising out of and in the course of the employment or by disease proximately caused by or resulting from the nature of the employment, the employee's employer or the special compensation fund shall pay compensation to the employee or the employee's dependents[.]" (Emphasis added.) HRS § 386-33 (1993), entitled "Subsequent injuries that would increase disability," also provides in part:
(a) Where prior to any injury an employee suffers from a previous permanent partial disability already existing prior to the injury for which compensation is claimed, and the disability resulting from the injury combines with the previous disability, whether the previous permanent partial disability was incurred during past or present periods of employment, to result in a greater permanent partial disability or in permanent total disability or in death then weekly benefits shall be paid as follows:
(1) In cases where the disability resulting from the injury combines with the previous disability to result in greater permanent partial disability the employer shall pay the employee compensation for the employee's actual permanent partial disability but for not more than one hundred four weeks; the balance if any of compensation payable to the employee for the employee's actual permanent partial disability shall thereafter be paid out of the special compensation fund; provided that in successive injury cases where the claimant's entire permanent partial disability is due to more than one compensable injury, the amount of the award for the subsequent injury shall be offset by the amount awarded for the prior compensable injury;
(2) In cases where the disability resulting from the injury combines with the previous disability to result in permanent total disability, the employer shall pay the employee for one hundred four weeks and thereafter compensation for permanent total disability shall be paid out of the special compensation fund; and
(3) In cases where the disability resulting from the injury combines with the previous disability to result in death the employer shall pay weekly benefits in accordance with sections 386-41 and 386-43 but for not more than one hundred four weeks; the balance of compensation payable under those sections shall thereafter be paid out of the special compensation fund ....
(Emphases added.)
Similarly, HRS § 386-56 (1993), which provides for payment from the special compensation fund in the case of default, states in part: "Where an injured employee or the employee's dependents fail to receive prompt and proper compensation and this default is caused through no fault of the employee, the director shall pay the full amount of all compensation awards and benefits from the special compensation fund to the employee or dependent." (Emphasis added.)
[14] This is in accord with the current practice of attorneys working in the area of workers' compensation law. The record reveals that OTS intended to submit the Amended Release Agreement to the DLIR for signature. OTS could have avoided the instant quandary by simply obtaining the Director's consent or approval prior to entering into settlement negotiations before the circuit court. Pursuant to HRS §§ 386-73 and 386-91 (1993), the circuit court would have had the authority to enforce the Director's decision in this regard. That being said, we decline to address whether the Release and Settlement Agreement and the Consent Agreement are valid and binding in the instant case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1834742/ | 574 So.2d 521 (1991)
Amber J. HAMMOND, Plaintiff-Appellant,
v.
MEDICAL ARTS GROUP, INC. & Dr. Michael A. Traub, Defendants-Appellees.
No. 89-881.
Court of Appeal of Louisiana, Third Circuit.
February 6, 1991.
*522 Edwards, Stefanski, Barousse, Cunningham, Stefanski & Zaunbrecher, E. Byrne Edwards, Lafayette, for plaintiff/appellant.
McLeod & Little, William L. McLeod and Billie C. Woodard, Lake Charles, for defendants/appellees.
Before FORET, KNOLL and KING, JJ.
FORET, Judge.
This is an action for sexual harassment, sexual discrimination, and intentional infliction of emotional distress brought by plaintiff-appellant, Amber J. Hammond, against defendants-appellees, Dr. Michael A. Traub and Medical Arts Group, Hammond's former supervisor and employer, respectively.
Hammond appeals from two judgments, one granting summary judgment in favor of Dr. Traub and the other granting an exception of no cause of action in favor of Medical Arts Group, resulting in the dismissal of Hammond's petition. We find no error on the part of the trial court and as such, we affirm.
The sole issue before this Court as to the grant of summary judgment is whether the trial court erred in finding that the pleadings, depositions, and affidavits submitted disclosed no genuine issue as to a material fact and that Dr. Traub was entitled to judgment as a matter of law.
On the exception of no cause of action, we must determine whether the law affords Hammond a remedy for the particular grievances alleged, either under a cause of action for sexual discrimination or harassment or for the intentional infliction of emotional distress.
I. SUMMARY JUDGMENT
La.R.S. 23:1006 B provides a cause of action for employees against employers for intentional discrimination based upon race, color, religion, sex, and national origin. We initially note that, pursuant to the affidavit of Charles Boyd Woodard, the Medical Director of Medical Arts Group, presented at the motion for summary judgment, it is undisputed that Dr. Traub is not *523 plaintiff's employer under La.R.S. 23:1006 A(1), which defines "employer" as follows:
"A. (1) For the purpose of this Part, `employer' means and includes a person, association, legal or commercial entity, labor union, employment agency, the state, its agencies, boards, commissions, or political subdivisions receiving services from an individual and in return giving compensation of any kind to said individual and who employs more than fifteen employees."
Therefore, on this basis alone, the trial court properly granted summary judgment in favor of Dr. Traub as to plaintiff's cause of action for sexual harassment under La. R.S. 23:1006 B.
Nevertheless, insofar as the liability of plaintiff's employer, Medical Arts Group, a partnership, is dependent upon whether its partner, Dr. Traub, acting as plaintiff's supervisor, subjected plaintiff to sexual harassment, we will examine the evidence presented in support of and in opposition to the motion for summary judgment.
A. FACTS
The following facts are undisputed: Hammond was employed by Medical Arts Group as a nurse in 1980. Dr. Traub was Hammond's direct supervisor. During Hammond's period of employment, Traub and Hammond participated in a consensual sexual relationship. After the sexual relationship terminated in approximately October of 1986, Dr. Traub made no further welcome or unwelcome sexual advances toward Hammond. Due to increasing problems and tensions, it became impossible for Traub and Hammond to continue working together, leaving a transfer out of Traub's department or Hammond's resignation/termination as the only viable alternatives. The administration of Medical Arts Group made a position available to Hammond in another department and requested her transfer. Hammond was unhappy with the transfer request and ultimately separated, or was separated, from her employment of Medical Arts Group. Hammond then filed a petition for damages for sexual discrimination and harassment under La.R.S. 23:1006, and for the intentional infliction of mental distress under La.C.C. 2315.
B. SEXUAL HARASSMENT
"R.S. 23:1006 is similar in scope to the federal statutes prohibiting sex discrimination embodied in Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. 2000e, et seq. Thus, it is appropriate, when interpreting our own law, to consider interpretations of the federal statutes. Bennett v. Corroon and Black Corp., 517 So.2d 1245 (La.App. 4th Cir.1987), writ den. 520 So.2d 425 (La. 1988).
"As explained in Meritor Savings Bank v. Vinson, 477 U.S. 57, 106 S.Ct. 2399, 91 L.Ed.2d 49 (1986), there are two types of sexual harassment in the work place. They are commonly referred to as `quid pro quo' and `hostile work environment'. The first is employment or economic advantage given in exchange for granting or receiving sexual favors. The second refers to verbal or physical acts that create a hostile or offensive environment.
". . . .
"The court in DeCintio v. Westchester County Medical Center, 807 F.2d 304 (2nd Cir. 1986), cert. den. [484 U.S. 825] 108 S.Ct. 89, 98 L.Ed.2d 50 (1987), defined "sex" in the context of Title VII:
`"Sex," when read in this context, logically could only refer to membership in a class delineated by gender, rather than sexual activity regardless of gender.'
"The case of Rabidue v. Osceola Refining Co., 805 F.2d 611 (6th Cir.1986), cert. denied 481 U.S. 1041, 107 S.Ct. 1983, 95 L.Ed.2d 823 (1987), sets forth a list of factors that must be asserted and proved in order to prevail in a sex discrimination case:
'(1) the employee was a member of a protected class; (2) the employee was subjected to unwelcomed sexual harassment in the form of sexual advances, requests for sexual favors, or other verbal or physical conduct of a sexual nature; (3) the harassment complained of was based upon sex; (4) the charged *524 sexual harassment had the effect of unreasonably interfering with the plaintiff's work performance and creating an intimidating, hostile, or offensive working environment that affected seriously the psycho logical well-being of the plaintiff; and (5) the existence of respondeat superior liability.'"
Polk v. Pollard, 539 So.2d 675, at 676, 677 (La.App. 3 Cir.1989).
Hammond does not allege that her sexual favors were given in exchange for her employment. Therefore, it does not appear that she is attempting to prove a "quid pro quo" type of harassment. Hammond does allege that Dr. Traub "took steps to separate the plaintiff from her employment...." We do not find that this allegation, together with any of the documents filed in opposition to Traub's motion for summary judgment, alleges facts which amount to a claim of sexual harassment or discrimination. Hammond was an "at will" employee and steps taken by a supervisor to separate her from her employment are not actionable, either as sexual harassment or otherwise, without supporting factual allegations or evidence to the contrary.
Next, Hammond alleges that Traub "took steps ... to make the conditions of plaintiff's continued employment with MEDICAL ARTS GROUP intolerable." Evidence submitted in support of this allegation and in opposition to Traub's motion for summary judgment includes claims that Traub would give Hammond the "silent treatment" such as failing to say hello or goodbye. Also, Traub would sometimes fail to tell her what type of shot to give a patient or fail to tell her to which hospital he wanted a patient sent. Again, even if such conditions could rise to the level of harassment, we fail to see how such behavior could be coined as "sexual harassment."
Hammond, in her allegation that Traub made the conditions of her employment intolerable, resulting in her termination "because she would not continue the affair," infers that Traub wanted to continue the affair. Conversely, she unequivocally stated in her deposition that Dr. Traub made no sexual advances whatsoever, welcome or unwelcome, after the affair ended. Traub, by affidavit, confirms this fact. Therefore, no genuine issue of material fact remains as to whether or not Dr. Traub subjected Hammond to "unwelcome sexual harassment in the form of sexual advances, requests for sexual favors, or other verbal or physical contact of a sexual nature." See Polk v. Pollard, supra. As such, the trial court properly granted Dr. Traub summary judgment in his favor as a matter of law.
II. EXCEPTION OF NO CAUSE OF ACTION
Insofar as the liability of Medical Arts Group is based upon the alleged sexual harassment of Hammond by Dr. Traub, we find no error on the part of the trial court in granting Medical Arts Group's exception of no cause of action.
Essentially, the petition alleges that Hammond and Traub engaged in a consensual sexual relationship and that she terminated this relationship. She continues by alleging that because she terminated the affair with Dr. Traub, the partnership cooperated with Traub in making her working conditions intolerable, and finally, in terminating her employment. She does not allege that after the termination of the affair Traub made any sexual advances, welcome or unwelcome, toward her. Neither does she allege that any other member of the defendant partnership made any unwelcome sexual advances toward her. The allegations set forth in Hammond's petition do not allege facts, other than conclusory statements, upon which to base a cause of action. Plaintiff's deposition, submitted in connection with Dr. Traub's motion for summary judgment, makes it evident that plaintiff would not be able, with any veracity, to amend her petition, if remanded, to allege sufficient facts upon which to base a cause of action for sexual harassment. Therefore, we accept the allegations of the petition as true for purposes of the exception and find that the relationship with Dr. Traub was consensual rather than constituting *525 unwelcome sexual advances or sexual harassment. For the reasons set forth above, we will not remand for amendment but instead, affirm the trial court's dismissal of plaintiff's petition.
III. INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS
In her petition, Hammond contends that both Traub and Medical Arts Group are liable under La.C.C. art. 2315 for the intentional infliction of mental distress. The general rule as to this cause of action is that "[r]ecovery for mental anguish caused by intentional torts has generally been limited to instances of outrageous conduct." Steadman v. South Cent. Bell Telephone Co., 362 So.2d 1144, 1146 (La. App. 2 Cir. 1978). Outrageous conduct is not alleged; neither is there any allegation that either Medical Arts Group or Traub actively desired to bring about Hammond's emotional suffering or realized to a virtual certainty that it would occur. See Matherne v. Response Instrument Service, 533 So.2d 1011 (La.App. 1 Cir.1988), writ denied, 537 So.2d 1166 (La.1989). We find it questionable whether Hammond believed that Traub intentionally hurt her. When asked, by deposition, whether she felt, at any time that Traub's intent was to hurt her, she answered, "I thought he did it because he had feelings for me." She also explained that much of the emotional pressure or mental distress she felt was due to being involved in an affair when she was married, rather than solely due to the emotional pressure she felt due to Dr. Traub's "silent treatment." Therefore, we find that the trial court was correct in granting defendants' motion and exception insofar as the petition does not allege nor is there any documentation submitted which evidences that the conduct complained of was either atrocious or outrageous, or intended to cause emotional distress. We also note that Hammond was an "at will" employee under La.C.C. art. 2747, whose employment could be terminated, without reason, at any time. No evidence or allegation was presented to rebut her "at will" status. See Roberts v. Louisiana Bank & Trust Co., Inc., 550 So.2d 809 (La.App. 2 Cir. 1989), writ denied, 552 So.2d 398 (La.1989); Brannan v. Wyeth Laboratories, Inc., 526 So.2d 1101 (La.1988). Therefore, any cause of action for intentional infliction of emotional distress for wrongful termination of employment or otherwise will not lie.
CONCLUSION
Based upon the foregoing, we affirm the judgments of the trial court granting summary judgment in favor of Dr. Traub and granting Medical Arts Group's exception of no cause of action. Costs of this appeal are to be paid by Amber J. Hammond, plaintiff-appellant herein.
AFFIRMED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2227978/ | 904 N.E.2d 1242 (2005)
359 Ill. App. 3d 1199
AMERICAN STATES INS. CO.
v.
CFM CONST. CO.
No. 2-05-0077.
Appellate Court of Illinois, Second District.
September 14, 2005.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1788246/ | 568 S.W.2d 139 (1978)
Jack I. GRONBERG et al., Appellants,
v.
Philip H. YORK, Appellee.
No. 1118.
Court of Civil Appeals of Texas, Tyler.
May 4, 1978.
Rehearing Denied June 22, 1978.
*141 Joe B. Burnett, Arlen D. Bynum, Bradshaw & Bynum, Dallas, for appellants.
Ron W. Kessler, Feather, Kessler & Douglas, Dallas, for appellee.
MOORE, Justice.
This is a suit for commissions alleged to be due under an employment contract and for certain benefits alleged to be due under terms of a pension and retirement plan. The suit was instituted by appellee, Philip H. York, against his former employer, Dynamic Component Sales, Inc. (DCS); Jack I. Gronberg, its president, and Harry R. Aschan, Harold S. Hilton and Jack I. Gronberg, trustees of the Retirement Plan and Trust established by DCS, Inc. Appellee York sought recovery of commissions alleged to have been earned by him prior to termination of his employment. He also sought a recovery of his interest in the pension trust fund which had vested at the time of his termination. York further sought repayment from DCS for the amount of the contributions paid into the retirement fund, alleging that, under the retirement plan trust agreement, the plan was to have been funded solely by contributions from DCS. DCS, together with the other defendants, answered with a general denial. In response to special issues, the jury found that York was entitled to $6,983.67 in unpaid commissions; that DCS agreed with York to make all contributions to the pension plan; that DCS made contributions to the pension plan by deducting from York's monthly commissions; that as a result York was entitled to damages in the amount of $21,786, the amount he contributed to the fund; that the DCS Retirement Plan and Trust was indebted to York in the sum of $14,808 for his vested interest in the pension fund; that York did not waive his right to complain of the funding of the pension plan with funds withheld from his commissions; and that Jack I. Gronberg was the alter ego of DCS. After appellants' motion for judgment n. o. v. had been overruled, the trial court entered judgment on the verdict in favor of appellee York, from which appellants perfected this appeal.
We affirm in part and reverse and render in part.
The evidence shows that appellee was employed by DCS on August 1, 1967, as a manufacturer's representative. Appellant DCS, a Texas Corporation, with appellant Jack I. Gronberg as its president, were engaged in the business of representing various manufacturers in the sale of manufactured products on a commission basis. Although no formal contract of employment was made, it was mutually agreed that appellee's territory was the northern and western sections of the state, including Dallas and Fort Worth. It was also mutually agreed that appellee was to be paid on the basis of 70% of the commissions generated by him in his territory, out of which he was to pay his own expenses. The billing and collecting of all commissions were handled by DCS. After collecting the commissions, DCS issued a check to appellee for his 70% *142 and retained 30% of the commissions for corporate purposes. Other sales representatives employed by DCS in other areas were compensated on the same basis.
In August 1969 DCS adopted a pension and retirement plan. In implementing the plan DCS entered into a trust agreement with Jack I. Gronberg, Harry R. Aschan and appellee Philip H. York, as trustees, who agreed to administer the plan for the benefit of the employees. The employees consisted only of Mr. Gronberg; Harry R. Aschan, a sales representative in the Tulsa, Oklahoma area; a secretary who worked with Mr. Gronberg in the home office in Houston; and appellee, Philip H. York. Harold Hilton was later employed as a sales representative. The plan and trust indenture recited that the employer, DCS, was to fund the plan by making payments to the trustees for the purchase of life insurance policies on the employees who elected to become members and for deposits of cash to the auxiliary investment account from which certain stipulated amounts were to be paid on retirement. The indenture further provided that no contributions would be required of any member. For reasons hereinafter explained, DCS made no contributions to the trust fund. Instead, with the knowledge of the employees, DCS deducted each month from the commissions due the appellee and the other employees an amount sufficient to properly fund the plan, and paid such amount over to the trust fund. Each month, commencing in August 1969, DCS mailed appellee and the other salesmen a statement along with their monthly checks showing an amount withheld from their commissions which was used for payment to the pension trust fund.
On November 6, 1973, appellee addressed a letter to Gronberg, President of DCS, expressing dissatisfaction with certain changes in his sales territory and stating that he was terminating his employment as of November 30, 1973. In reply, Mr. Gronberg notified him on November 13, 1973, that his employment was terminated effective November 12, 1973.
After termination appellee made a demand on DCS for a commission on all invoices billed to customers in his territory for a period of ninety days after termination. He also demanded the vested portion of the pension trust fund due him under the terms of the plan. In addition to his having sought his unpaid commissions and his vested portion under the pension plan, appellee in his petition also sought damages in the amount of the contributions he made to the plan which he alleged were wrongfully deducted by DCS from his monthly commissions.
Upon trial, appellants admitted that appellee was entitled to $2,536.05 in unpaid commissions due for the period of November 1 to November 12. Appellants further admitted that he was entitled to the sum of $10,300 as his vested interest in the pension trust fund plus interest in the amount of $515.
Appellants contend by their sixth point that there is no evidence to support the jury finding on Special Issue No. 1 that appellee was entitled to $6,983.67 in unpaid commissions. In their seventh point appellants contend that even if there were some evidence to support the finding, the finding is nevertheless against the great weight and preponderance of the evidence. We find no merit in either contention.
As stated, appellants admitted that appellee was entitled to unpaid commissions from November 1 until November 12, 1973, in the amount of $2,536.05. Under the terms of the working agreement between appellee and DCS which existed prior to November 13, 1973, the evidence shows that the parties agreed that, in the event of termination, appellee was to be paid for all commissions thereafter booked in his territory for a period of 90 days. In the termination letter addressed to appellee on November 13, 1973, Mr. Gronberg stated: "You will be credited for invoices for 30 days past 12 November 1973 and payment on these will be made to you six months after 12 November 1973...." The evidence shows that DCS supplied appellee with a copy of the invoices for the 30-day *143 period as promised and that his commissions for the thirty days after November 12 amounted to $4,483.67. It thus becomes apparent that the jury's verdict finding appellee was entitled to $6,983.67 was the result of the jury's having combined the commissions due for the 30-day period with the undisputed sum of $2,536.05 due for the period of November 1 to November 12, with a miscalculation of $36.05. Although appellee offered evidence and contended he was entitled to commissions for ninety days after termination, the jury awarded him commissions for only a thirty-day period, about which he makes no complaint. We believe there is ample evidence to support the finding and have further concluded that such finding is not against the overwhelming weight and preponderance of the evidence. Accordingly, appellants' sixth and seventh points are overruled.
By their twelfth point appellants contend that the trial court erred in overruling their motion for new trial because there is no evidence or insufficient evidence to support the jury's finding to Special Issue No. 6A in which the jury found that the sum of $14,808 would fairly and reasonably compensate appellee for his vested portion of the pension fund.
Appellants admitted both in their pleadings and on trial that, under the plan and trust agreement, appellee was entitled to a vested interest in the pension fund. The only question before the jury was the amount. The evidence shows without dispute that shortly after appellee's termination the trustees delivered appellee the insurance policy held by the trust. It is also undisputed that the policy had a cash value of $4,544.77. Appellee admitted that he had received the policy and was not seeking a recovery of this portion of his vested interest. During the trial appellants admitted that his vested interest exclusive of the cash value of the policy amounted to the sum of $10,300 plus $515 accrued interest. The figure relied on by appellants was the vested interest set forth in the 1975 Annual Plan Review prepared by the fund's professional advisors. According to witness H. L. Wendorf, an expert in the field of pensions trusts called by appellee, appellee's vested interest at the time of his termination amounted to the sum of $12,651.43 after excluding the $4,544.77 cash value of the insurance policy which had previously been delivered to appellee. He further testified that the interest from the date of termination on such amount was $2,156.68 and appellee was therefore entitled to the sum of $14,808.11. The jury found that appellee's vested portion of the trust fund, together with interest, was $14,808. Thus, it is apparent that the jury chose to follow the testimony of appellee's expert witness as to the present value of the vested portion of the fund rather than the evidence of the lesser value offered by appellants. Where the evidence is conflicting, as here, it is within the jury's province to weigh all of the evidence and to decide what credence should be given to the testimony of each witness. Muro v. Houston Fire and Casualty Insurance Company, 329 S.W.2d 326 (Tex.Civ.App.San Antonio 1959, writ ref'd n. r. e.); Martin v. Johnson, 365 S.W.2d 429 (Tex.Civ.App.Eastland 1963, no writ history). Viewing the evidence in a light most favorable to the jury's finding, we have concluded that there is ample evidence of probative force to support the finding and judgment based thereon. Accordingly, appellants' twelfth point is overruled.
Under their thirteenth point appellants seek a reversal on the ground that the court erred in admitting into evidence, over their objection, the testimony of appellee showing that for two years the percentage of the business done by him in his territory was greater than that of all the other business done by DCS combined. Appellants argue that such testimony was immaterial and prejudicial in that it was calculated to cause the jury to sympathize with appellee's position. We do not agree.
Appellee was permitted to testify that his percentage of commissions produced for DCS was more than 50% of all the commissions earned by DCS during the years 1970-1972. In our view this evidence was material *144 for two reasons. First, one of the issues in the court below was whether appellant Gronberg had breached an agreement with appellee whereby appellee would participate in the ownership of the company. Gronberg denied the existence of such agreement. Consequently, appellee's testimony showing he was responsible for a major portion of the commissions earned by DCS was material in that it lends credence to his position that Mr. Gronberg agreed to allow him to participate in the ownership of the corporation due to his outstanding ability. Further, the evidence was material to rebut appellants' testimony implying that appellee had not properly performed his work due to a drinking problem and a reluctance to travel. We think the testimony was clearly relevant, material and therefore admissible since it tended to rebut testimony relating to material facts relied on by appellants. Lone Star Gas Co. v. State, 137 Tex. 279, 153 S.W.2d 681 (1941); Martin v. Johnson, supra. Appellants' thirteenth point is overruled.
In points 8 through 11 appellants, DCS and Jack I. Gronberg, contend that there is no evidence to support the jury's findings on Special Issues Nos. 3 and 4, or in the alternative that such findings are against the overwhelming weight and preponderance of the evidence. Further, they contend that such findings will not support a judgment in favor of the appellee based on the theory of conversion.
In response to Special Issues Nos. 3 and 4, the jury found that DCS made contributions to the pension plan for the benefit of York by making deductions from his portion of the commissions and that the sum of $21,786 would reasonably compensate him for the deductions made therefrom by DCS. Appellee's theory of recovery on this phase of the case, as alleged in his petition, was that DCS had converted the funds to its own use and benefit by paying the same into the pension trust fund. He alleged that DCS was therefore liable to him for conversion of the funds. Contrary to appellants' contention, the undisputed proof shows that DCS withheld approximately $380 per month out of appellee's monthly commissions for a period of over four years and paid the same into the pension trust fund. Even so, we do not believe the proof was sufficient to establish a cause of action for conversion.
In this instance, the chattel alleged to have been converted is money. It is the rule in this state that money is subject to conversion only when it can be described or identified as a specific chattel. Story v. Palmer, 284 S.W. 331 (Tex.Civ.App.El Paso 1926, no writ history); Hull v. Freedman, 383 S.W.2d 236 (Tex.Civ.App.Fort Worth 1964, writ ref'd n. r. e.).
In 14 Tex.Jur.2d Conversion sec. 11, the rule is stated as follows:
"Money may be the subject of conversion if it can be described or identified as a specific chattel; that is, there may be a conversion where there is an obligation to return specific money, but not where an indebtedness may be discharged by the payment of money generally."
Obviously, appellee does not seek the return of specific money but is only seeking repayment of money generally which he alleged was wrongfully withheld from his commissions. Consequently, the judgment on this phase of the case cannot be sustained on the theory of conversion.
Further, we are of the opinion that conversion was not established for yet another reason. Appellee does not dispute the fact that he knew from the date the pension plan was adopted that funds were withheld from his monthly commission each month for a period of over four years. It is undisputed that DCS never elected to fund the plan with corporate funds. According to the testimony of Harry Aschan, one of the trustees, the reason why DCS never commenced funding the plan was because it would have been impossible for DCS to have made the necessary contributions to the fund out of the thirty percent income it received from the monthly commissions. The evidence shows that after the plan had been in operation for approximately one year it was discovered that, because of a mistake on the part of the actuary, the employees had not made sufficient contributions to properly fund the plan during *145 the first year. Upon being notified that his share of the deficit was approximately $800, appellee directed DCS to take such amount from his next monthly commission check and pay it over to the fund. Appellee admitted that he knew the monthly payroll deductions were turned over to the fund and testified that he understood that the amount of his contributions thereto amounted to deferred income and that he knew he was not paying any income tax thereon. Although this procedure was followed for more than four years prior to the date of his termination, he admitted that he never registered any complaint until he filed the present suit in November 1975. His only explanation as to why he never made any complaint was that he never fully understood the terms of the pension plan indenture until after his termination when his accountant advised him that the pension plan indenture required DCS to fund the plan wholly out of corporate funds. According to the testimony of experts in the field of funding pension plans, there is nothing wrong with the employees funding the plan out of their earnings even though the plan may stipulate that it is to be funded by the employer, so long as each employee consents that his funds be used for that purpose.
Where a person has knowledge that funds are being deducted from his weekly earnings for the purpose of establishing a pension fund for his benefit and he does not object or forbid the same to be done, he certainly acquiesces in such taking and cannot base an action of conversion on such circumstances. Gulf, C. & S. F. R. Co. v. Pratt, 183 S.W. 103 (Tex.Civ.App.Beaumont 1916, writ ref'd). In our view the evidence in the instant case conclusively establishes that the appellee knew his funds were being withheld and paid into the pension trust fund for his benefit. Moreover, he asserted a claim for the benefits due under the plan and has been awarded recovery for such amount. Thus, we think appellee must be held to have consented to the action of DCS in withholding such amount. Consequently, for this additional reason we hold that appellee failed to establish a cause of action for conversion.
Under the fourth and fifth points appellants, DCS and Jack Gronberg, challenge the jury's finding to Special Issue No. 2, wherein the jury found that DCS agreed with appellee York to make all contributions to the pension plan from corporate funds. Appellants contend that there is no evidence to support such finding, or in the alternative that the finding and the judgment based thereon are against the overwhelming weight and preponderance of the evidence.
While the jury found that DCS agreed with York to fund the plan out of corporate funds, we fail to find any evidence to support such finding. On this appeal, appellee seems to argue that the pension plan indenture constituted an agreement between him and DCS that DCS would fund the plan solely out of corporate funds. Based on this premise he argues that since the evidence conclusively shows that DCS not only failed to fund the plan out of corporate funds but also used his funds to implement the plan, he suffered damages in the amount of $21,786, the amount withheld by DCS. Therefore he maintains that the judgment may be sustained on the theory of breach of contract. We cannot agree with this proposition.
The pension plan indenture was between DCS and the trustees of the plan. Appellee was not a party to the agreement. Under Article V, sec. 5.01, the plan provides as follows:
"Employer shall make due and timely payments to the Trustees for the purchase of ordinary life contracts and for deposits in the auxiliary investment account of such amounts as may be necessary from time to time, according to the certification of the Trustees, to provide the following benefits to members or their beneficiaries: (then follows the enumerated benefits)."
Sec. 5.02 provides:
"Employee contributions: No contributions shall be required of any member."
In Article XI, sec. 11.01, it is provided:
"Declaration of interest: It is the expectation of employer that it will continue *146 this plan and payment of its contributions hereunder indefinitely, but continuance of the plan is not assumed as a contractual obligation of the employer. The plan is entirely voluntary and the right is reserved by the employer at any time to suspend or discontinue its contributions hereunder and/or to terminate the plan."
Under Article XII, sec. 12.01, the plan provides:
"Not contract of employment: The adoption and maintenance of this plan shall not be deemed to constitute a contract between employer and any employee or to be considered for inducement or condition of the employment of any person."
The plan adopted in the instant case clearly shows that DCS was to pay the entire cost of the plan but that such payments were to be made on a voluntary basis. DCS was authorized to suspend the payment at any time it saw fit. The plan further shows that no contractual relationship was intended or created between DCS and its employees. Thus, the obligation to fund the plan on the part of DCS was purely a gratuitous undertaking.
The nature of the rights conferred upon an employee by a private pension or retirement fund depends on the provisions of the particular plan. Many plans embrace declarations that the employee shall acquire no enforceable rights under the plan which, at least in the case of noncontributory plans, the courts have frequently respected. 60 Am.Jur.2d Pension & Retirement Funds sec. 74; Hughes v. Encyclopedia Britannica, Inc., 1 Ill.App.2d 514, 117 N.E.2d 880, 42 A.L.R. 2d 456 (1954).
The facts of this case do not fall within the category of those situations in which the employee is attempting to collect pension benefits after he has served the required number of years so as to become eligible for a pension under the plan adopted by his employer. In effect, by contending that the indenture constitutes a contract between him and his employer and that the failure to fund the plan solely out of corporate funds constitutes a breach of contract, appellee seeks to impose a duty on his employer to abide by the provisions of the plan as to method of funding.
Because the plan by its terms expressly negatives a contractual obligation on the part of the employer to continue and maintain the plan and further states that the funding of the plan is entirely voluntary, we conclude that the pension plan indenture does not constitute a contractual agreement whose provisions as to funding can be enforced by an employee. Hughes v. Encyclopedia Britannica, supra. See also Webster v. Southwestern Bell Tel. Co., 153 S.W.2d 498 (Tex.Civ.App.El Paso 1941, writ ref'd); Shear v. Harrington, 266 S.W. 554 (Tex.Civ.App.Waco 1924, no writ history). It therefore follows that the judgment cannot be sustained on the theory that the failure by DCS to fund the plan solely out of corporate funds amounted to a breach of contract.
We do not reach appellants' fifth point challenging the jury's answer on the ground that it is against the overwhelming weight and preponderance of the evidence. However, if such point were reached, we would overrule it.
Accordingly, that portion of the judgment awarding appellee the sum of $21,786 is reversed and judgment is hereby rendered that appellee take nothing on his claim against DCS and Jack I. Gronberg for the recovery of his contributions to the pension plan. In all other respects the judgment of the trial court is affirmed.
Affirmed in part and reversed and rendered in part.
ON MOTION FOR REHEARING
On Motion for Rehearing appellee expresses concern because we addressed ourselves to the issue of conversion. He asserts that since appellants did not specifically raise the issue in their brief, we failed to follow the rules of appellate procedure by deciding an issue not raised in the brief.
Our reason for disposing of the issue of conversion was due to the fact that the only *147 theory upon which appellee sought a recovery in his pleadings was that DCS had wrongfully converted the funds withheld from appellee's monthly commission check. Furthermore, the jury found that DCS agreed with York to make all contributions to the fund and also that DCS made the contributions with funds deducted from his commissions. Thus, based on the pleadings and the foregoing findings, we concluded that the issue of wrongful conversion was raised. When appellants in their brief challenged the foregoing findings on the ground that the findings were not supported by the evidence, we concluded, and still believe, that the issue of conversion became a viable issue calling for some disposition even though appellants did not specifically discuss any of the elements of conversion in their brief.
Turning to the contract feature of the case, appellee points out that the breach of contract theory, although not specifically pled, was tried and submitted to the jury by consent. Further he points out that appellants admitted in their brief that "the ultimate issue as to the contributions to the pension plan is whether or not DCS breached any agreement with plaintiff as to funding of the plan and the manner in which it was funded." We recognize, as we did in our original opinion, that the breach of contract theory was tried by consent. However, as we attempted to point out in our original opinion, there is no evidence that DCS ever made any agreement with York individually, promising him that it would make all contributions to the pension plan out of corporate funds. York signed the pension plan agreement in his capacity as a trustee. Thus, the pension plan agreement cannot be construed as a private agreement between York and DCS. On Motion for Rehearing appellee contends that he was a third party beneficiary under the pension plan agreement. Based on such premise, he argues that since DCS contracted with the trustees to fund the plan and failed to do so, it breached its contract and therefore he had a right, as third-party beneficiary, to enforce the funding provisions of the plan and recover damages in the amount DCS deducted from his monthly commissions and paid into the trust fund. We are not in accord with this proposition. Had the pension plan agreement not been a gratuitous undertaking on the part of DCS, appellee might conceivably have been able as third-party beneficiary to sue and recover on the theory of breach of contract. However, since the agreement to fund the plan was purely voluntary, no duty on the part of DCS arose, and as a result appellee acquired no right to assert a cause of action for the breach thereof. Avinger v. Campbell, 499 S.W.2d 698, 704 (Tex.Civ.App. Dallas 1973) writ ref'd n. r. e., 505 S.W.2d 788 (Tex.1974). The fact that the jury found that appellee did not waive his right to complain of the funding of the plan with funds withheld from his commissions cannot serve to create a cause of action for breach of a gratuitous contract where no such cause of action existed in the first instance. The motion is overruled. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1794720/ | 893 F. Supp. 808 (1995)
Dr. Karol K. HOWARD, Plaintiff,
v.
BOARD OF EDUCATION OF SYCAMORE COMMUNITY UNIT SCHOOL DISTRICT NO. 427, et al. Defendants.
No. 94 C 50175.
United States District Court, N.D. Illinois, Western Division.
July 21, 1995.
*809 *810 *811 Marilyn F. Longwell, Law Offices of Marilyn F. Longwell, Chicago, IL, Karen K. Howard, Kansas City, MO, for plaintiff.
Frank B. Garrett, Robbins, Schwartz, Nicholas, Lifton & Taylor, Ltd., Gregory E. *812 Rogus, Segal, McCambridge, Singer & Mahoney, Ltd., Chicago, IL, for defendants.
MEMORANDUM OPINION AND ORDER
INTRODUCTION
REINHARD, District Judge.
Plaintiff, Karol K. Howard, filed a five-count, amended complaint[1] against defendants, Board of Education of Sycamore Community Unit School District No. 427 (the Board), Charles McCormick (individual capacity) and Jeffrey Welcker (individual capacity), seeking relief under 42 U.S.C. § 2000e et seq. (Title VII), 20 U.S.C. § 1681 et seq. (Title X) and 42 U.S.C. § 1983. Jurisdiction is premised on 28 U.S.C. § 1331, and venue is proper as all complained of conduct occurred in this division and district. All defendants have moved to dismiss the various counts against them, and the Board has also moved to strike Counts I-III from the amended complaint.
FACTS
The following facts are taken from plaintiff's amended complaint. The court will not repeat the background factual allegations of the amended complaint to the extent they are the same as contained in the original complaint and set forth in this court's prior order, See Howard v. Board of Educ. of Sycamore Community Unit Sch. Dist. No. 427, 876 F. Supp. 959 (N.D.Ill.1995).[2] Suffice it to say that plaintiff claims she was subject to sexually offensive comments, both written and oral, made by both fellow teachers and students. She further claims that Welcker was made aware of such conduct and, additionally, that because of Welcker's awareness the Board had knowledge.
Specifically, in Count IV (against the Board only), plaintiff alleges that she was sexually harassed in violation of Title IX, which affected a term, condition or privilege of her employment with the Board. In particular, she alleges that she complained to Welcker and Julie Wheeler (executive director for business and personnel) about the sexual harassment, "which included notes of a sexually offensive nature being posted about Howard." She also complained to Jeff Clapsaddle (junior high school principal) about sexually offensive comments by Dennis Durbin, a male teacher, about female students. She also observed offensive comments by a male teacher about a female teacher. It is further alleged in Count IV that the Board knew of the hostile environment and inappropriate conduct of Durbin and took no steps to correct the hostile environment or inappropriate conduct.[3] Additionally, plaintiff alleges that the hostile environment was an implied permanent condition of her employment because of the Board's and Welcker's refusal to eliminate the sexually hostile and harassing work environment, that she was constructively discharged because of her complaints and that the actions of the Board were "intentional, willful and calculated toward [plaintiff]."
In Count V (against the Board, Welcker and McCormick), plaintiff seeks redress under *813 equal protection, the First Amendment and procedural due process. More specifically, plaintiff alleges that she was intentionally discriminated against based on her being a female and as a result of the sexual harassment directed at her and the failure to eliminate that harassment after she complained. It is further alleged that the Board's widespread practice of ignoring sexual harassment in the schools was so permanent and well-settled as to constitute a custom or usage with the force of law within the Sycamore school district.[4] Furthermore, Welcker, it is alleged, knew of plaintiff's complaints and took no action against the students to stop the harassment, thereby intentionally permitting the harassment to continue.
As for McCormick, plaintiff alleges in Count V that he knew of plaintiff's complaints regarding his son's inappropriate conduct, including the posting of sexually explicit signs and engaged in a conspiracy with state actors, Welcker, Hammond and Wheeler to deprive plaintiff of her civil rights. The alleged conspiracy consisted of meetings between Welcker and McCormick, between Wheeler and McCormick, and between McCormick and Hammond, all of which discussed plaintiff and her complaints about McCormick's son. Plaintiff further alleges that "such meetings had as their purpose the removal of [plaintiff] from her position."
Plaintiff also claims in Count II that she was denied her procedural due process "rights to a hearing pursuant to [Board] and state regulations when they decided to terminate her services by" constructively discharging her. She further alleges that she engaged in constitutionally protected speech involving her complaints of sexual harassment[5] and that such speech was, for purposes of the First Amendment, an issue of public concern.
CONTENTIONS
McCormick contends that Count V should be dismissed as to him as the only theory alleged, conspiracy with state actors, is defective for failing to allege, expressly or implicitly, the existence of an agreement between McCormick and the state actors to deprive plaintiff of her civil rights.
As to the Title IX claim in Count IV, the Board argues it should be dismissed because plaintiff has no private cause of action under Title IX and, alternatively, because plaintiff has not stated a claim under Title IX.
The Board further contends that the equal protection claim in Count V should be dismissed because: (1) there are no allegations that it established a constitutionally infirm policy; (2) there are no allegations that it engaged in any wrongdoing that caused plaintiff injury; (3) there are no allegations that Welcker or any other school official with whom plaintiff interacted has final policy-making authority; (4) there are insufficient allegations of an official unconstitutional custom or practice of disparate treatment of women; and (5) the allegations pertaining to Welcker's knowledge of sexual harassment is limited to students, who are not state actors under section 1983. As for plaintiff's due process claim, the Board contends that plaintiff, who was not a tenured teacher, had no protectible property interest in her job under Illinois law. Additionally, the Board maintains that plaintiff's First Amendment claim is defective because her complaints were a personal grievance and not a matter of public concern. Lastly, the Board argues that plaintiff's conspiracy claim in Count V must fail because plaintiff's constitutional rights were not violated, because (adopting McCormick's argument) there are no allegations of an agreement concerning the conspiracy and because such a claim is barred by the intracorporate conspiracy doctrine.
Welcker contends that he should be dismissed in his individual capacity because, as a supervisor, he only knew of students' actions and the students were not state actors. Secondly, Welcker argues that because there are no allegations that he intended plaintiff *814 to be the victim of discrimination he cannot be held liable as a supervisor under section 1983. Lastly, he posits that he is qualifiedly immune because plaintiff has not shown that closely analogous cases clearly established that his actions or inactions were unlawful.
Finally, the Board and Welcker seek dismissal of any punitive damages claims against the Board or individuals acting in their official capacities.
Plaintiff responds to McCormick's argument by contending that the allegations in paragraph 62 of her amended complaint allow a jury to infer that an agreement between the alleged conspirators existed.
She further contends that under Supreme Court authority Title IX provides for a private right of action, is not duplicative of a Title VII cause of action and is not preempted in this context by Title VII. Furthermore, she points to paragraph 48 of her amended complaint as alleging knowledge of the sexual harassment on the part of the Board. She also argues that because she has incorporated the allegations of her Title VII claims into her Title IX count she has sufficiently alleged a claim under Title IX.
Regarding Count V, plaintiff responds that: (1) paragraphs 49 and 59 of the amended complaint sufficiently allege a policy or custom of ignoring sexual harassment; (2) the contention of the Board that no school official had final policymaking authority is premature as she need not allege that element under Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, ___ U.S. ___, 113 S. Ct. 1160, 122 L. Ed. 2d 517 (1993); (3) the Board's arguments concerning her equal protection and due process claims fail for the same reasons as argued in her response to the motion to dismiss her original complaint; (4) her First Amendment claim is based on a matter of public concern because she complained not only of sexually offensive conduct directed at her but also directed at other teachers and students; (5) she has sufficiently alleged in paragraph 62 that an agreement among the conspirators existed; (6) the intracorporate conspiracy doctrine does not apply as McCormick was not a Board employee; (7) Welcker was liable as a supervisor under section 1983 because, as alleged in paragraphs 31, 32, 38, 60 and 61 of the amended complaint, he acted with deliberate indifference in permitting section 1983 violations to occur; and (8) based on her arguments raised in her prior response to the original motion to dismiss, Welcker is not qualifiedly immune and plaintiff is entitled to punitive damages.
DISCUSSION
In deciding a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the court must accept as true all well-pleaded factual allegations and draw all reasonable inferences in favor of plaintiff. See Chaney v. Suburban Bus Div. of the Regional Trans. Auth., 52 F.3d 623, 626-27 (7th Cir.1995). Dismissal is permitted only where it appears beyond doubt that the plaintiff can prove no set of facts in support of her claim which would entitle her to relief. Id. at 627.
I. McCormick (Count V)
The focus of McCormick's motion to dismiss is whether plaintiff has adequately alleged the existence of an agreement between McCormick and the other conspirators. While the amended complaint does not expressly allege that an agreement existed, it need only give rise to a reasonable inference that such an agreement had been entered into. Reading paragraph 62 of the amended complaint liberally, as it must, the court finds it reasonable to infer the existence of an agreement, especially from that part of paragraph 62 which alleges that the various meetings "had as their purpose the removal of [plaintiff] from her position." To require plaintiff at this point to replead to add the word "agreement" to the amended complaint is unnecessary.
II. Title IX (Count IV)
The Board contends, citing Wedding v. University of Toledo, 862 F. Supp. 201 (N.D.Ohio 1994), that plaintiff's Title IX claim is preempted by Title VII. Plaintiff contends not, arguing that Congress intended to afford an employee a private cause of action for gender-based employment discrimination *815 under Title IX. This court's research has revealed only a handful of cases that directly address the issue of whether an employee of an educational institution may, under Title IX, prosecute a private cause of action based on gender-based employment where the remedies sought are those afforded by Title VII. In Wedding, 862 F. Supp. 201, and Storey v. Board of Regents of Univ. of Wisconsin, 604 F. Supp. 1200 (W.D.Wisc.1985), the district courts found that an employee of an educational institution cannot bring a private cause of action for gender discrimination under Title IX.
This court finds the reasoning of Wedding particularly persuasive. There, the court concluded that Title VII provides a comprehensive scheme for aggrieved individuals to enforce the prohibition against discrimination in employment. Wedding, 862 F.Supp. at 203. Further, the court expressed concern that by allowing a comparable cause of action under Title IX the "very comprehensive, detailed, and express provisions of Title VII could be completely avoided." Id. The court further found that the legislative history of Title VII indicates Congressional intent that Title VII preempt a similar cause of action under Title IX, Id. at 203-04; see also Storey, 604 F.Supp. at 1205 (concluding that Congress intended Title VII to preempt remedies other than those in existence prior to its enactment but recognizing that Congress remains free to provide victims of employment-related discrimination with additional remedies).
This court is not persuaded by the ruling in Henschke v. New York Hospital-Cornell Medical Ctr., 821 F. Supp. 166 (S.D.N.Y. 1993), wherein the court found that an employee may maintain a private cause of action for gender-based employment discrimination under Title IX.[6] In reaching that conclusion, the Henschke court expressly rejected the ruling in Storey and relied on Cannon v. University of Chicago, 441 U.S. 677, 99 S. Ct. 1946, 60 L. Ed. 2d 560 (1979), North Haven Bd. of Educ. v. Bell, 456 U.S. 512, 102 S. Ct. 1912, 72 L. Ed. 2d 299 (1982), and Franklin v. Gwinnett County Pub. Sch., 503 U.S. 60, 112 S. Ct. 1028, 117 L. Ed. 2d 208 (1992), to find that Title VII does not preempt such a claim. Id. at 172-73. This court does not read the Cannon, Bell and Franklin decisions as supporting the conclusion that the legislative history of Title IX demonstrates Congress' intent to have Title IX serve as an additional protection against gender-based discrimination regardless of the available remedies under Title VII. Accordingly, this court dismisses plaintiff's Title IX claim as being precluded by Title VII.
III. Count V
A. Board (Policy/Custom)
A local governmental entity, such as the Board here, may only be held liable under section 1983 if a plaintiff can show the existence of an official policy or custom of that governmental entity which resulted in the plaintiff's constitutional injury. See City of St. Louis v. Praprotnik, 485 U.S. 112, 122, 108 S. Ct. 915, 924, 99 L. Ed. 2d 107 (1988) (citing Monell v. New York City Dept. of Social Serv., 436 U.S. 658, 690, 98 S. Ct. 2018, 2035, 56 L. Ed. 2d 611 (1978)). Here, plaintiff has alleged, in an effort to meet the dictates of Monell, that the Board violated her civil rights "because of its widespread practice of ignoring sexual harassment in the schools," and that such practice, "although not authorized by written law or express municipal policy, was permanent and well settled so as to constitute a custom or usage with the force of law in the Sycamore School District." It is further alleged that the Board "knew of the hostile environment and inappropriate conduct of the male teacher (Dennis Durbin) and took no steps to correct the hostile environment or inappropriate conduct of the male teacher."
The court finds these allegations to sufficiently state an official policy or custom for a section 1983 claim against the Board. In alleging the existence of an official policy or custom, a plaintiff need only include a *816 "short and plain statement" of such official policy or custom. Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, ___ U.S. ___, ___, 113 S. Ct. 1160, 1163, 122 L. Ed. 2d 517 (1993) (quoting, in part, Fed.R.Civ.P. 8(a)(2)). This plaintiff has done. See Cornfield v. Consolidated High Sch. Dist. No. 230, 991 F.2d 1316, 1326 (7th Cir.1993) (allegations of widespread practice of unconstitutional conduct will support conclusion of municipal liability). Therefore, the court denies the Board's motion to dismiss Count V on this basis.[7]
B. Due Process
The only reference to a denial of due process in plaintiff's amended complaint is contained in paragraph 63 wherein it is alleged that "[plaintiff] has been deprived of her liberty and property interests under the due process clause of the Constitution; that is, [plaintiff] claims she was deprived of her rights to a hearing pursuant to [Board] and state regulations when they decided to terminate her services by forcing her to take a `constructive discharge', and by constructively discharging her." Such allegations are insufficient to state a procedural due process claim based on either a liberty or property interest.
A liberty interest under the Fourteenth Amendment is implicated when either the individual's good name, reputation, honor or integrity is at stake because of what the government is doing to him or the government has imposed upon him a stigma or other disability that forecloses his freedom to take advantage of other employment opportunities. Mitchell v. Glover, 996 F.2d 164, 167 (7th Cir.1993) (citing Board of Regents v. Roth, 408 U.S. 564, 573, 92 S. Ct. 2701, 2707, 33 L. Ed. 2d 548 (1972)). A government employee's dismissal infringes a liberty interest where the individual's good name, reputation, honor or integrity are at stake by such charges as immorality, dishonesty, alcoholism, disloyalty, Communism or subversive acts. 996 F.2d at 167. While some stigma which affects future employment opportunities attaches whenever an employee is involuntarily terminated, such harm does not infringe on an employee's liberty interests. Ratliff v. City of Milwaukee, 795 F.2d 612, 625 (7th Cir.1986). Rather, the critical statements must make it virtually impossible for the employee to find a new position in his chosen profession. Ratliff, 795 F.2d at 625-26; Munson v. Friske, 754 F.2d 683, 694 (7th Cir.1985). Lastly, a fired employee's liberty interest may only be infringed if it is the employer who disseminates publicly the allegedly damaging information. Mitchell, 996 F.2d at 167. In other words, even assuming that any information surrounding the dismissal was sufficiently damning to implicate a liberty interest, the government must have participated in the dissemination of this information to the public. Mitchell, 996 F.2d at 167.
The allegations of plaintiff's amended complaint here come nowhere close to alleging a liberty deprivation due process claim. For instance, there are no allegations of lost employment opportunities or public dissemination by defendants.
As for the property interest branch of procedural due process, a plaintiff must allege a legitimate claim of entitlement. Miller v. Crystal Lake Park Dist., 47 F.3d 865, 867 (7th Cir.1995). A legitimate claim of entitlement is one that is legally enforceable under state law. Id. A plaintiff must identify some state statute, regulation or an equivalent, legally enforceable expectancy as the source of her claimed property right in her continued employment. Id. In this case, plaintiff has no allegations setting forth a property interest in her employment. Consequently, she fails to set forth a claim for a denial of procedural due process. Therefore, because she has alleged neither a liberty nor a property interest, the court dismisses plaintiff's due process claim in Count V of the amended complaint.[8]
*817 C. First Amendment
Not all speech by public employees is protected by the First Amendment such that the Constitution is violated if a public employer retaliates in response to that speech. Cliff v. Board of Sch. Comm'r of the City of Indianapolis, 42 F.3d 403, 409 (7th Cir.1994). Before such speech will be protected, it must address a matter of public concern, and the speaker's interest in her expression must not be outweighed by any injury the speech could cause to the interest of government, as an employer, in promoting the efficiency of the public services it performs through its employees. Id. Furthermore, unless the plaintiff can first establish that her speech addressed a matter of public concern, the court need not balance the respective interests. Id. That threshold question is one of law for the court. Id.
To determine, in this case, whether plaintiff's complaints about the sexually offensive comments were a matter of public concern, the court must consider the content, form and context of her complaints, with content being the most important. Id. Relevant to, but not dispositive of, this issue is the motive which underlies the employee's statements. Id. Thus, the employee's motive is considered along with the other factors. Id. at 410. The fact that an employee speaks, at least in part, for personal reasons will not automatically deprive her statements of constitutional protection. Id. Conversely, the fact that an employee speaks up on a topic of public import does not necessarily render her remarks on that subject protected. Id. Put another way, the public concern element is lacking as a matter of law if the speech concerns a subject of public interest but the expression addresses only the personal effect upon the employee. Id.
In the present case, plaintiff generally alleges that her complaints of sexual harassment were on "an issue of public concern." This conclusion, however, is belied by the more specific allegations of the amended complaint. It is clear from the allegations in paragraph 57 concerning the complaints that it was plaintiff personally who was offended and that she was not speaking for other teachers at the school when she voiced her complaints. See Cliff, 42 F.3d at 411. Paragraph 30 of the amended complaint does not satisfy the pleading requirements for this type of First Amendment claim. Plaintiff has simply failed to allege, other than in a generalized and conclusionary fashion, that her complaints were driven by her motivation to remedy sexually offensive conduct at the school for the benefit of others or the public at large. Therefore, the court dismisses plaintiff's First Amendment claim in Count V.
D. Equal Protection
1. The Board
The Board contends that the equal protection claim against it in Count V should be dismissed because plaintiff has not alleged a policy, custom or practice which causes disparate treatment of female teachers. The court has previously ruled in this order that plaintiff's allegations of custom or policy are sufficient. Therefore, the court denies the Board's motion to dismiss the equal protection claim on that basis.
2. Welcker
Welcker contends that he is not individually liable under Count V because (1) he cannot be held liable as a supervisor under section 1983 because students are not state actors, (2) the amended complaint does not properly allege that he intended plaintiff to be the victim of discrimination through the actions of others, and (3) he is qualifiedly immune.
While an intent to harass is an essential element of an equal protection claim brought via section 1983 see Trautvetter v. Quick, 916 F.2d 1140, 1149 (7th Cir.1990), the court considers the amended complaint to adequately allege such intent. Specifically, it is alleged in paragraph 60 that Welcker knew *818 of plaintiff's complaints of sexual harassment and "intentionally took no action against the students to stop the harassment, thereby intentionally permitting the harassment to continue." These allegations adequately state an equal protection claim against Welcker.[9]
E. Qualified Immunity
Welcker contends he is entitled to qualified immunity as to plaintiff's section 1983 claim because there is no clearly established law that he had a duty to take action in response to the students' allegedly sexually offensive conduct. The qualified immunity doctrine provides that government officials performing discretionary functions are generally shielded from liability for civil damages to the extent their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known. McGrath v. Gillis, 44 F.3d 567, 569 (7th Cir.1995). The doctrine is designed in such a way as to permit the resolution of many insubstantial claims on summary judgment and to avoid subjecting government officials either to the costs of trial or to the burdens of discovery in cases where the legal norms the officials are alleged to have violated were not clearly established at the time. Id. Absent allegations stating a violation of clearly established law, a defendant pleading qualified immunity is entitled to dismissal before the commencement of discovery. Id.
To defeat a claim of qualified immunity, a plaintiff must allege a cognizable violation of a constitutional right clearly established at the time of the alleged misconduct. Id. at 570. Whether a right is clearly established is a question of law, the proof of which is the plaintiff's burden. Id. Clearly established rights are those which are sufficiently clear that a reasonable official would understand that what he is doing violates that right. Id. The law at the time of the conduct in question must have been clear in relation to the specific facts confronting the public official when he acted. Id. Until a particular constitutional right has been stated so that reasonably competent officials would agree on its application to a given set of facts, it has not been clearly established. Id.
The court, in assessing the efficacy of any qualified immunity defense, should look to whatever decisional law is available to ascertain whether the law has been clearly established. Id. A sufficient consensus based on all relevant case law, indicating that the official's conduct was unlawful, is required. Id. Even if the law is clearly established, an official is qualifiedly immune if at the time of his conduct he held an objectively reasonable belief that his actions were lawful. Id.
In this case, plaintiff alleges that Welcker is liable under section 1983 because he knew of her complaints, intentionally took no action to stop the student harassment and intentionally permitted the harassment to continue. It is further alleged that Welcker was part of a conspiracy which "had as [its] purpose the removal of [plaintiff] from her position." There can be no doubt that during the time of this alleged conduct (August 1991 to May 1993) sexual harassment in the workplace was constitutionally actionable as a denial of equal protection if such harassment was intentional. See Trautvetter, 916 F.2d at 1149. As such, in a typical workplace, Welcker could not claim qualified immunity if he had an intentional hand in plaintiff's sexual harassment, even if such harassment occurred through plaintiff's fellow employees. Of course, a school is not a typical work environment in the sense that an employee (teacher) is surrounded by, and interacts with, a number of non-employees (students) within the workplace. Thus, the precise question presented here is whether a principal of a public school would be objectively reasonable in believing that his intentionally permitting students to harass a teacher and conspiring to remove the teacher because of *819 her complaints did not violate the constitution.[10]
Given the clearly established law surrounding sexual harassment in the workplace, combined with the unique role a principal plays in the administration of a public school, the court considers it to be objectively unreasonable to believe that a principal who intentionally permits students to sexually harass a teacher after the teacher voices complaints does not violate equal protection. Based on the allegations as they now stand, it cannot be said that Welcker, who allegedly knew of the sexual harassment via plaintiff's complaints and intentionally did nothing to stop it, could have held an objectively reasonable belief that his action or inaction was constitutionally appropriate. He, as the principal, is in a unique position to attempt to control the behavior of the students. Conversely, he has a responsibility to the teachers as well in his role as chief administrator of the school. Welcker cannot hide behind the curtain of qualified immunity simply because it was students who were the primary harassers. The court, therefore, denies Welcker's motion to dismiss based on qualified immunity. In doing so, the court recognizes that as the facts are developed in this case it may become evident that such unique circumstances existed in this case that it would have been objectively reasonable on Welcker's part to believe he was not violating the constitution. That, of course, is a matter more appropriately addressed in a summary judgment proceeding.
F. Intracorporate Conspiracy Doctrine
The intracorporate immunity doctrine bars a constitutional conspiracy claim under 42 U.S.C. § 1985 against the managers of a corporation who are jointly pursuing lawful business even though the acts within their employment are said to be discriminatory or retaliatory. Wright v. Illinois Dept. of Children & Family Serv., 40 F.3d 1492, 1508 (7th Cir.1994); Hartman v. Board of Trustees of Community College Dist. No. 508, 4 F.3d 465, 469 (7th Cir.1993); Doe v. Board of Educ. of Hononegah Sch. Dist. 207, 833 F. Supp. 1366, 1381 (N.D.Ill. 1993) (citing Travis v. Gary Community Mental Health Ctr., Inc., 921 F.2d 108, 110 (7th Cir.1990)). The doctrine applies to conspiracy claims brought against school administrators and has been extended by this court to conspiracy claims under section 1983. Board of Educ. of Hononegah, 833 F.Supp. at 1381-82. It also applies even though the individuals were motivated, in part, by personal bias or animus. Hartman, 4 F.3d at 470. On the other hand, the doctrine would probably not apply where corporate employees are shown to have been motivated solely by personal bias. Id. Put another way, the doctrine bars conspiracy claims based on intracorporate discussions that result in discriminatory or retaliatory actions except in egregious circumstances. Wright, 40 F.3d at 1509.
Here, the conspiratorial allegations are that Welcker, other school officials and McCormick, a non-school official, conspired to deprive plaintiff of her civil rights. This conspiracy manifested itself, it is alleged, through meetings between Welcker and McCormick, Hammond and McCormick, and Wheeler and McCormick regarding plaintiff's complaints about McCormick's son and as to the removal of Howard from her job. To the extent plaintiff's conspiracy theory is premised upon McCormick's involvement, as a non-corporate player, it cannot be determined at this point whether such involvement defeats the intracorporate conspiracy defense. Moreover, it is impossible to discern, at this stage of the proceedings, whether the *820 individual conspirators were motivated partly, solely or at all by personal animus toward plaintiff. Therefore, the court denies the motion to dismiss the conspiracy claim based on the intracorporate conspiracy doctrine.
Finally, the court dismisses the punitive damages claims against the Board for the reasons stated in its previous order. The court does not read the amended complaint as seeking punitive damages against Welcker and McCormick in their official capacities and therefore denies the motion to dismiss in that regard.
CONCLUSION
For the foregoing reasons, the court dismisses Count IV of the amended complaint. The court also dismisses the First Amendment and due process claims in Count V, dismisses the punitive damages claims against the Board and denies the motion to dismiss the equal protection claim in Count V. Lastly, the court grants the motion to strike Counts I III to the extent those counts contain allegations different from plaintiff's original complaint.
NOTES
[1] While plaintiff has labelled her most recent complaint as a "first amended complaint," the court will refer to it as the amended complaint as it is the only amended complaint filed in this case so far.
[2] This court, on February 8, 1995, ruled on defendants' motions to dismiss plaintiff's original complaint. See Howard v. Board of Educ. of Sycamore Community Unit Sch. Dist. No. 427, 876 F. Supp. 959 (N.D.Ill.1995). In that order, the court, among other things, denied the Board's motion to dismiss plaintiff's Title VII claims in Counts I, II and III (sex discrimination, sexual harassment and retaliation, respectively). Consequently, plaintiff has not sought, nor had need to seek, leave to amend Counts I, II and III. Nonetheless, she has amended Counts I, II and III in her amended complaint. While the Board seeks to have Counts I, II and III stricken from the amended complaint because of this procedural indiscretion, the court will simply strike all amendments contained in Counts I, II and III, thereby leaving Counts I, II and III as pleaded in plaintiff's original complaint. Factually, the court will not further discuss Counts I, II and III in any detail as they are adequately set forth in this court's February 8 order.
[3] Plaintiff asserts in a footnote to paragraph 48 of her amended complaint that she makes her claim of knowledge on the part of the Board pursuant to Fed.R.Civ.P. 11(b)(2), which provides that the "claims ... are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law."
[4] Again, plaintiff refers to Fed.R.Civ.P. 11(b)(3) in a footnote, contending that paragraph 59 concerning custom or usage is "likely to have evidentiary support after a reasonable opportunity for further investigation or discovery."
[5] Plaintiff again refers to Fed.R.Civ.P. 11(b)(2) in alleging her First Amendment claim.
[6] The court also considers Yusuf v. Vassar College, 35 F.3d 709 (2d Cir.1994), a case relied on by plaintiff, to be distinguishable as the plaintiff there was a student, not an employee, who brought suit under Title IX claiming sex discrimination. A student bringing such a claim is, of course, a classic application of Title IX.
[7] The court notes, however, that Welcker, as the high school principal, does not, as alleged, constitute, under Illinois law, see Praprotnik, 485 U.S. at 124, 108 S.Ct. at 924, a policymaker of the Board. See Cornfield v. Consolidated High Sch. Dist. 230, 991 F.2d 1316, 1324-26 (7th Cir.1993); Landstrom v. Barrington Sch. Dist., 739 F. Supp. 441, 444-46 (N.D.Ill.1990).
[8] The Board and Welcker argue that plaintiff cannot, as a matter of law, state a claim for denial of due process based on a property interest because under Illinois law she was not tenured. Lack of tenure, however, does not, alone, defeat plaintiff's claim. Although unlikely in these circumstances, plaintiff could allege bases, other than tenure, under Illinois law that give rise to a property interest.
[9] The court does not agree with Welcker's characterization of his liability as "supervising." The court reads plaintiff's amended complaint as alleging that Welcker directly harassed her by allowing the allegedly sexually offensive conduct to continue. Plaintiff need not allege supervising liability to maintain her equal protection claim against Welcker.
[10] The court has found no cases directly addressing the responsibility of a principal or other school administrator for the sexually harassing conduct of students directed toward teachers. There are cases that deal with the issue in the context of students harassing other students, see, e.g., Doe v. Petaluma City Sch. Dist., 54 F.3d 1447 (9th Cir.1995) (holding that school counselor qualifiedly immune under law as of 1990 for failure to adequately address student sexual harassment of co-student); Mennone v. Gordon, 889 F. Supp. 53 (D.Conn.1995) (ruling that school superintendent qualifiedly immune from Fourteenth Amendment claim where he allegedly failed to take reasonable steps to prevent student sexual harassment of fellow student). The present case is different from these cases, however, as here the harassment is alleged, in part, to be by students directed at a teacher. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2376538/ | 530 S.W.2d 586 (1975)
Joe Lawrence DIAMOND, Appellant
v.
The STATE of Texas, Appellee.
No. 51162.
Court of Criminal Appeals of Texas.
December 19, 1975.
Neal Wheeler, Dallas (Court-appointed), for appellant.
Henry Wade, Dist. Atty., Gary Love, Jim Burnham, Robert Hinton, Asst. Dist. Attys., Dallas, Jim D. Vollers, State's Atty., and David S. McAngus, Asst. State's Atty., Austin, for the State.
OPINION
DAVIS, Commissioner.
Appellant was convicted under an indictment charging him with theft of property of the value of $20.00 or more but less than $200.00 and further alleging two prior convictions of theft of property of the value of $50.00 or more. Trial was before a jury upon a plea of guilty and punishment was assessed at ten years.
In his sole contention appellant urges that V.T.C.A. Penal Code, Section 31.03(d)(4)(C) is unconstitutional under the Fifth and Fourteenth Amendments of the Constitution of the United States and Art. 1, Sec. 9 of the Texas Constitution.
Section 31.03(d)(4)(C), supra, provides:
"(d) An offense under this section [theft] is:
"(4) a felony of the third degree if:
"(C) the value of the property is less than $200 and the defendant has been *587 previously convicted two or more times of any grade of theft."[1]
Appellant urges that Section 31.03(d)(4)(C), supra, is violative of due process and in addition allows an accused to be placed in double jeopardy. Appellant argues that he is charged with a felony, not because he is guilty of the present offense, a Class A misdemeanor,[2] but because he committed this offense along with past offenses. Appellant maintains that he is being tried for all three offenses.
The instant offense is similar to driving while intoxicated, second offense, as denounced by Art. 6701l-2, V.A.C.S. and previously by Art. 802b, V.A.P.C. See also Art. 567b(4), V.A.P.C. Art. 802b, supra, has been held not to be an enhancement of punishment statute, but rather a statute which creates a new offense of the grade of felony. Hill v. State, 158 Tex. Crim. 313, 256 S.W.2d 93; Broughton v. State, 148 Tex. Cr.R. 445, 188 S.W.2d 393; Clifton v. State, 156 Tex. Crim. 655, 246 S.W.2d 201. In Hill v. State, supra, it was held that where a misdemeanor conviction for driving while intoxicated was used a second time in alleging a felony offense under Art. 802b, supra, "that such subsequent re-use does not violate the constitutional prohibition against placing an accused twice in jeopardy." In Edwards v. State, 166 Tex. Crim. 301, 313 S.W.2d 618, it was held that the repetition of offenses statute was not applicable to Art. 802b, supra, not because of any constitutional prohibition, but because of the intent of the Legislature expressed in such statute.
The addition of the prior theft convictions in the instant case created a new offense of the grade of felony and vested the District Court with jurisdiction just as the allegation of the prior conviction for driving while intoxicated created a felony offense under 802b, V.A.P.C. Appellant urges that the creating of a new offense distinguishes this case from the many cases which have upheld the constitutionality of the enhancement statutes.[3] We perceive no difference between the instant case and Hill v. State, supra, where the contention of double jeopardy was expressly rejected when conviction was had under Art. 802b, supra.
The enhancement statutes have withstood attacks that they were invalid under the Fifth, Sixth, and Fourteenth Amendments of the United States Constitution. See Thrash v. State, 500 S.W.2d 834; Cherry v. State, 447 S.W.2d 154; Beasley v. State, 389 S.W.2d 299; Spencer v. State, 389 S.W.2d 304; 1 Branch's Ann.P.C., 2 ed., Sec. 698; Spencer v. Texas, 385 U.S. 554, 87 S. Ct. 648, 17 L. Ed. 2d 606. While the statute under attack in the instant case has the effect of creating a new offense with a higher range of penalty, the challenge of deprivation of due process would appear to be bottomed upon the considerations urged in the enhancement of penalty statutes.
We reject appellant's contentions that V.T.C.A. Penal Code, Sec. 31.03(d)(4)(C), is violative of due process and placed him in double jeopardy.
The judgment is affirmed.
Opinion approved by the Court.
NOTES
[1] See and compare V.T.C.A. Penal Code, Sec. 12.42(d).
[2] V.T.C.A. Penal Code, Sec. 31.03(d)(3) provides that theft of property of the value of $20 or more but less than $200 is a Class A misdemeanor.
[3] See cases collated under Arts. 62 and 63, V.A.P.C. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2025057/ | 125 Ill. 2d 117 (1988)
530 N.E.2d 1340
THE PEOPLE OF THE STATE OF ILLINOIS, Appellee,
v.
JOHN WAYNE GACY, Appellant.
No. 64382.
Supreme Court of Illinois.
Opinion filed September 29, 1988.
Rehearing denied December 5, 1988.
*118 *119 *120 *121 *122 Richard S. Kling, of Chicago, and Thomas Ost, Laura Monahan and Jomarie Fredericks, law students, for appellant.
Neil F. Hartigan, Attorney General, of Springfield, and Richard M. Daley, State's Attorney, of Chicago (James S. Veldman and Kevin Sweeney, Assistant State's Attorneys, of counsel), for the People.
Affirmed.
JUSTICE CLARK delivered the opinion of the court:
This case involves the petition of the defendant, John Wayne Gacy, under the Post-Conviction Hearing Act (Ill. Rev. Stat. 1985, ch. 38, par. 122-1 et seq.), challenging his convictions and sentences. In the circuit court of Cook County, after a trial by jury, the defendant was tried and convicted of murdering 33 boys and young men. He was also found guilty of one count of deviate sexual assault, and a second count of indecent liberties with a child. For 12 of these murders, the State sought and obtained the death penalty, the jury finding the existence of one or more of the statutory aggravating circumstances and that no mitigating circumstances precluded the imposition of death (Ill. Rev. Stat. 1979, ch. *123 38, par. 9-1). The defendant was sentenced to imprisonment for his natural life on the remaining murder charges. On direct appeal to this court, his convictions and sentences were affirmed (103 Ill. 2d 1), and his petition for writ of certiorari was denied by the Supreme Court of the United States (470 U.S. 1037, 84 L. Ed. 2d 799, 105 S. Ct. 1410). His subsequent petition for post-conviction relief was dismissed without an evidentiary hearing in the circuit court of Cook County, and this appeal followed (107 Ill.2d R. 651).
The factual background of this case is recited at length in the defendant's direct appeal, and need not be repeated here. On this appeal the defendant raises five principal claims of error: (1) that his trial counsel's failure to present any evidence in mitigation deprived him of the effective assistance of counsel at his sentencing hearing, (2) that his trial counsel's failure to make offers of proof as to which of the defendant's statements to his expert psychiatric witnesses would have been offered into evidence had not the trial court precluded the defendant from doing so deprived the defendant of the effective assistance of counsel, (3) that the trial judge erred by precluding the defendant's psychiatric witnesses from testifying as to the defendant's statements to them, (4) that his trial counsel's failure to request that the jury be sequestered during the five- to nine-day period after their selection and before trial deprived the defendant of the effective assistance of counsel, and (5) that his death sentence is unconstitutional on account of a variety of facial deficiencies in the Illinois death penalty statute. Acting pro se, the defendant has also filed a supplementary petition for post-conviction relief, to which are attached two letters which list 43 (numbered "1" to "43A," with no number "33") additional issues he claims entitle him to post-conviction relief. As to each *124 claim he maintains that the circuit court erred by dismissing his petition without any evidentiary hearing.
The State claims that all of these allegations of error were decided against the defendant on his direct appeal and are therefore barred on his post-conviction petition by res judicata. (See People v. Kubat (1986), 114 Ill. 2d 424, 436.) Since, however, this is a death case, and since in any case we find no merit in any of the defendant's allegations, we need not consider whether they are barred.
Under the Post-Conviction Hearing Act, a defendant is only entitled to an evidentiary hearing if the allegations of his petition, together with the record of his trial and supporting affidavits, make a substantial showing of a violation of his constitutional rights. (People v. Silagy (1987), 116 Ill. 2d 357, 365.) We find that the defendant has not made such a showing as to any of his allegations.
The defendant first argues that his defense counsel's failure to present any mitigating evidence at his sentencing hearing denied him the effective assistance of counsel. We find no merit in this argument. The standard for ineffective assistance at a sentencing hearing is the two-prong standard enunciated in Strickland v. Washington (1984), 466 U.S. 668, 687, 80 L. Ed. 2d 674, 693, 104 S. Ct. 2052, 2064. Under this standard, the defendant must prove: (1) that his counsel's representation was so deficient that his counsel was not functioning as the "counsel" guaranteed the defendant by the sixth amendment, and (2) that this deficient performance so prejudiced the defendant as to deprive him of a fair hearing. The defendant's petition does not adequately allege either deficiency or prejudice.
The standard for assessing claimed deficiencies in an attorney's performance is that of "reasonably effective assistance," which is within the "range of competence *125 demanded of attorneys in criminal cases." The standard is one of objective reasonableness, under "prevailing professional norms." (466 U.S. at 687-88, 80 L. Ed. 2d at 693-94, 104 S.Ct. at 2064-65.) To establish a deficiency, the defendant must overcome the strong presumption that the challenged action or lack of action might be the product of "`sound trial strategy.'" (466 U.S. at 689, 80 L. Ed. 2d at 694-95, 104 S.Ct. at 2065.) At death sentencing hearings, decisions not to present mitigating evidence will not be deemed incompetent if they stem from a theory of defense which does not require the use of mitigating evidence (466 U.S. at 699, 80 L. Ed. 2d at 700-01, 104 S.Ct. at 2070 (reliance upon extreme emotional distress mitigating circumstance)), or from a theory which might be adversely affected by the use of such evidence (Burger v. Kemp (1987), 483 U.S. 776, 793-94, 97 L. Ed. 2d 638, 656-57, 107 S. Ct. 3114, 3125-26).
We acknowledge that there may be cases in which counsel's failure to present mitigating evidence does not flow from a reasonable alternative strategy and will therefore be deemed incompetent. (Compare People v. Gaines (1984), 105 Ill. 2d 79, People v. Kubat (1983), 94 Ill. 2d 437, and People v. Lewis (1981), 88 Ill. 2d 129, with Gaines v. Thieret (N.D. Ill. 1987), 665 F. Supp. 1342, rev'd on other grounds (7th Cir.1988), 846 F.2d 402, United States ex rel. Kubat v. Thieret (N.D. Ill. 1988), 679 F. Supp. 788, and Lewis v. Lane (7th Cir.1987), 832 F.2d 1446; see also Blake v. Kemp (11th Cir.1985), 758 F.2d 523.) This, however, is not such a case.
The evidence which the defendant now claims should have been presented in mitigation includes both statutory and nonstatutory mitigation. In support of the statutory mitigating factor of extreme mental or emotional disturbance, the defendant now claims that his attorney should have recalled the psychiatric witnesses who testified at trial, and who indicated their belief that the *126 defendant murdered while under extreme mental or emotional disturbance. The defendant also claims that his trial counsel should have introduced evidence of nonstatutory mitigation, including evidence of his traumatic childhood, warm relationships with family members and friends, success in business, political, and civic affairs, and his good behavior while in prison awaiting trial. In addition, he claims that a relative of one of the deceased victims wrote a letter forgiving him, which might also have been presented in mitigation.
Both claims are substantially weakened by the fact that much of this evidence was actually presented at trial, and all evidence at trial was admitted by stipulation at the death penalty hearing. In fact, in his closing argument at the sentencing hearing, trial counsel used the psychiatric evidence to argue that the defendant had acted while under extreme mental or emotional disturbance. As we stated on the defendant's direct appeal, we believe that counsel could reasonably have believed that the jurors would not have been impressed, and might actually have been irritated, by a pointless rehash of the lengthy testimony they had already heard at trial.
In response, the defendant argues that consideration of the jury's reaction to the repetition of this testimony is "unwarranted speculation," and somehow usurps the jury's function of hearing evidence. This argument misses the point. The burden of proving incompetence, and of overcoming the presumption that an attorney's decision is the product of "sound trial strategy," rests upon the defendant, not the State. Trial strategy is less a science than an art. An attorney is entitled to speculate as to how a jury will react to the presentation of evidence. An attorney's reasoned judgment that a jury will be bored or fatigued by unnecessary repetition is both natural and commonplace. The State is not obligated to prove that such a judgment is correct. Nor has the *127 defendant provided any argument as to why we should consider such a judgment unreasonable.
The defendant's argument with respect to nonstatutory mitigation is similarly unavailing. Again, a reasonable attorney might have concluded that the jury would be irritated by the repetition of this evidence, most of which it had heard already at trial. The fact that defense counsel did not refer to this evidence in closing argument does tend to suggest that he did not believe that it would have much value as mitigation. But even this judgment would not have been unreasonable. As we pointed out on defendant's direct appeal, albeit in a different context, much of this evidence was "questionable." (103 Ill.2d at 102.) Evidence that the defendant led a double life, engaging in charitable and political activities at the same time he was committing a series of sadistic torture murders, might have been reasonably viewed by counsel as tending to exacerbate rather than mitigate his offense in the minds of the jurors. The same could be said of evidence that the defendant was a good husband and stepfather to his second wife and their children. Moreover, even this evidence was not unambiguously helpful: many witnesses testified that the defendant's business and social activities were motivated by a desire to manipulate others and gain an advantage for himself. Similarly, counsel might reasonably have feared that testimony as to the defendant's unhappy childhood could be viewed as a vain attempt to excuse or justify these horrendous crimes.
Our determination is influenced by the fact that counsel's closing argument tends to suggest that his failure to dredge up these facts or make use of them was based not on laziness or incompetence but upon a reasonable strategic choice. Instead of arguing that the "good" aspects of the defendant's character and actions made death an inappropriate penalty for a series of sadistic *128 torture murders, the defendant's counsel chose to focus instead on other things. By arguing that the defendant acted under the influence of extreme emotional disturbance, he implied that the defendant's acts were not the kind which could be deterred by the imposition of death. By proposing that the societal interest in keeping the defendant alive for scientific study outweighed its interest in taking revenge, he suggested a principled basis upon which even a juror who was unsympathetic to the defendant might find mitigating factors sufficient to preclude the imposition of death. Given the horrific character of the crimes and the age of some of the victims, the decision to make these arguments, rather than to "call * * * one witness to attempt to `pull at the heartstrings' of the only-one-juror necessary to vote for no-death," was not unreasonable.
For these reasons, the decision of Blake v. Kemp (11th Cir.1985), 758 F.2d 523, heavily relied upon by the defendant, is distinguishable. In that case defense counsel testified that he made no preparation for the penalty phase of the trial because he believed that the defendant would be found not guilty by reason of insanity. Counsel further admitted that he made no effort even to ascertain whether mitigating evidence was available. (758 F.2d at 533-35.) Here, in contrast, counsel's decision to proceed with the sentencing hearing without asking for a continuance, and not to present mitigating evidence, appears to have stemmed from his reasonable decision to rely upon mitigating evidence already presented and not from a belief that the defendant would be found not guilty.
For similar reasons, Gaines v. Thieret (N.D. Ill. 1987), 665 F. Supp. 1342, rev'd on other grounds (7th Cir.1988), 846 F.2d 402, United States ex rel. Kubat v. Thieret (N.D. Ill. 1988), 679 F. Supp. 788, and Lewis v. Lane (7th Cir.1987), 832 F.2d 1446, are also distinguishable. *129 (While none of these cases are mentioned in the defendant's brief, the defendant did rely on Gaines in oral argument; similar issues were raised in Lewis and Kubat.) In Gaines, unlike here, the defendant presented no evidence at his trial. (See People v. Gaines (1981), 88 Ill. 2d 342, 348.) Rather than presenting an alternative theory of mitigation, counsel gave a one paragraph argument which merely asked the jury not to "kill Dickey Gaines." (Gaines, 665 F. Supp. at 1365.) In Kubat, similarly, the defendant relied at trial on a defense of alibi (679 F. Supp. at 805), which would not aid in the establishment of mitigation. The defendant's counsel also compounded his failure to present available mitigation evidence by also failing to object to erroneous jury instructions and by presenting a "rambling, incoherent discourse" in closing argument. (679 F. Supp. at 812-14.) In Lewis, defense counsel's principal error lay in failing to object to the admission of the erroneous statement that the defendant had four previous felony convictions (832 F.2d at 1458), and, as in Gaines, the defendant did not present any evidence at trial (88 Ill.2d at 141).
Even were we to assume that counsel's performance was deficient, we do not believe that the defendant has adequately alleged prejudice. Under Strickland, a defendant who proves that his counsel's performance fell below prevailing professional norms must also prove that there is a "a reasonable probability that, absent the errors, the sentencer * * * would have concluded that the balance of aggravating and mitigating circumstances did not warrant death." (466 U.S. at 695, 80 L. Ed. 2d at 698, 104 S.Ct. at 2068.) The defendant appears to argue that if presentation of some of the mitigating evidence "might have convinced the jury that [the defendant] was not the totally reprehensible person they thought he was" (emphasis in original), prejudice has been shown. The defendant is mistaken. The Strickland standard requires *130 a reasonable probability of a different result, not merely a possibility. This standard is not easy to apply to capital sentencing hearings, where the jury is being asked to weigh aggravation and mitigation so as to determine whether the defendant deserves death. But given the dubious character of the unpresented mitigating evidence and the overwhelming nature of the aggravating evidence, we cannot conclude that the jury's decision would have been any different had the defendant's counsel acted as the defendant now wishes that he had.
The defendant's next two points both relate to expert psychiatric testimony at trial. They are most easily considered together. Relying on People v. Hester (1968), 39 Ill. 2d 489, the trial judge ruled that the expert witnesses for the State would be allowed to recount statements made to them by the defendant, but the defendant's expert witnesses would not. The rationale for the Hester rule was to prevent the defendant's experts from becoming conduits by which the defendant's self-serving hearsay declarations might be conveyed to the jury. In our opinion on the defendant's direct appeal, we noted that, despite the trial court's ruling, the defendant's experts were permitted to testify in substance as to what the defendant said to them. While the experts were generally not allowed to quote the defendant directly, they were often permitted to convey the substance of his statements through paraphrases, answers to hypothetical questions, and narrative recitation of information provided by the defendant in their conversations with him. Other statements of the defendant were introduced through cross-examination of the State's experts. While noting that Hester's validity was questionable (103 Ill.2d at 70-73), we concluded that the substantial admission of the defendant's statements in so far as they were needed to explain the basis upon which his experts formed their opinions precluded us from considering *131 whether the trial judge's ruling was in error. In other words, we determined that any possible error was harmless.
Since our holding in the defendant's direct appeal, we have overruled Hester and held that a psychiatric expert may not be precluded from relating statements made to him by the defendant which figure in his diagnosis. (People v. Anderson (1986), 113 Ill. 2d 1, 12-13.) It is thus now clear that the trial judge's ruling was in error. It is still not reversible error, however, because, for the reasons just given, it did not prevent the defendant's psychiatric witnesses from providing the basis for their opinions. Therefore the defendant's contention that this error mandates the granting of his petition is without merit.
In a related contention, the defendant asserts that his trial counsel's failure to make any offer of proof as to which of the defendant's statements his experts would have related had they been allowed to do so deprived him of the effective assistance of counsel. It is true that our finding of harmlessness was partially premised upon defense counsel's failure to make such an offer. But the difficulty with this argument is that the defendant has still not specifically alleged or demonstrated by affidavit which statements should have been included in the offer of proof. Without knowing the content of these statements, it is impossible to determine whether the failure to make an offer of proof constituted ineffective assistance under the Strickland standard. Therefore, the defendant has failed to make a substantial showing of a violation of his constitutional rights sufficient for an evidentiary hearing.
In his fourth argument, the defendant contends that the failure of the trial court to sequester the jury between the time of their selection and the beginning of the trial deprived him of a fair and impartial jury. Alternatively, *132 he argues that his attorney's failure to request such sequestration deprived him of the effective assistance of counsel. These arguments were made on the defendant's direct appeal, and they have not improved with age. As on his direct appeal, defendant asserts that the jurors might have been exposed to prejudicial publicity during this short period but provides no specific instance of such publicity. In any case, the decision as to whether to sequester a jury rests within the sound discretion of the trial judge, and will not be questioned absent a showing of prejudice. (People v. Brisbon (1985), 106 Ill. 2d 342, 355.) The fact that other States provide in capital cases for mandatory sequestration upon the defendant's request is not pertinent. Since immediate sequestration would have placed a great burden on the jurors, who were being asked to leave Winnebago County for a lengthy trial in Cook County, it was not unreasonable for defense counsel to decide not to seek such sequestration. Since counsel's performance was not deficient, the first prong of the Strickland test has not been met, and this allegation also is without merit.
In his fifth argument, the defendant reraises a number of challenges to the constitutionality of the Illinois death penalty statute which have been rejected many times in the past. We have previously held that the statute is not unconstitutional on account of allegedly inadequate safeguards against the arbitrary or capricious imposition of death (People v. Shum (1987), 117 Ill. 2d 317), improper placement of the burden of proof at the second stage of the death penalty hearing (People v. Whitehead (1987), 116 Ill. 2d 425), and the absence of a requirement that the jury specifically find death to be an appropriate punishment (People v. Christiansen (1987), 116 Ill. 2d 96). Nothing in the defendant's brief provides any ground for reconsideration which has not been considered and rejected before.
*133 We now come to the 43 additional claims of error which are raised by the defendant pro se. In the evaluation of these claims we have been handicapped by the reluctance of the attorneys representing the State and the defendant to comment upon or respond to them. The defendant's counsel's brief, in its sixth point, states that "some of those issues would have entitled [the defendant] either to an evidentiary hearing or other post-conviction relief," but does not identify which issues counsel believes meritorious or provide any authority in support of them. At oral argument, defendant's counsel admitted that some of these allegations were "preposterous," but maintained that others he cited specifically the allegations which the defendant has numbered 1, 3, and 10 were in his opinion meritorious. The attorney for the State in his brief also has declined to address any of the pro se claims, maintaining that these issues have been waived by defense counsel's failure in his brief to cite any authority in their support or to argue otherwise in their favor. The State also argues generally that the allegations in the pro se letters are "devoid of argument, devoid of citations of authority, and for the most part devoid of specific factual allegations." Like defense counsel, the attorney for the State has declined to address the merits of any these issues in his brief, although he did respond briefly to some of them in oral argument.
Keeping in mind that the defendant's life is at stake, we do not believe that it would be wise for us to follow the course charted by the attorneys for the defendant and the State. While it might be argued that these claims have been waived on appeal by defense counsel's perfunctory endorsement of them in his brief, it is not true, as the counsel for the State argues, that all of the issues raised in the pro se letters are devoid of argument, authority, and specific factual allegations. Some of the allegations contain citations to authority. Others refer *134 to cases whose identity is clear from the context even in the absence of citation. All of the arguments are without merit, but not all are frivolous or inconsequential. And while in some instances the factual allegations are so lacking in specificity as to justify dismissal of the defendant's petition on that basis alone, other contain the proper measure of factual detail. We therefore consider the pro se allegations, grouping them together into appropriate categories.
A number of the defendant's allegations concern alleged "conflicts of interest" on the part of his trial counsel. While most of these are in reality claims of incompetence, one, in particular does genuinely relate to a supposed conflict of interest. This is the claim (No. 3) that his attorney "was offered a book deal in April 1979, [and that] even while he refused to accept this offer the seed was planted as to how much money was or could be made. The offer was six million for book rights. From that point forward, [trial counsel's] main concern was making and keeping records, as he called it; `To preserve the record for a book.' Tapes were made on all previously covered conversations, all writing by the defendant was taken and kept by the defense attorney even after trial. He was more concern[ed] with that then preparation for the defense."
Had trial counsel actually accepted this alleged "book offer," this claim would be worthy of serious consideration. Under our Rule 5-104(b) (107 Ill.2d R. 5-104(b)):
"Prior to the conclusion of all aspects of the matter giving rise to his employment, a lawyer shall not enter into any arrangement or understanding with a client or a prospective client by which he acquires an interest in publication rights with respect to the subject matter of his employment or proposed employment."
*135 The rationale for this rule is that the acquisition of financial rights creates a situation in which the attorney may well be forced to choose between his own pocketbook and the interests of his client. Vigorous advocacy of the client's interest may reduce the value of publication rights; conversely, ineffective advocacy may result in greater publicity and greater sales. In fact, it has been held that the acquisition of such book rights by a defendant's attorney constitutes a conflict of interest which may so prejudice the defendant as to mandate the reversal of a conviction. (See People v. Corona (1978), 80 Cal. App. 3d 684, 145 Cal. Rptr. 894.) In Corona the defendant retained a private attorney who, in exchange for his services, obtained exclusive rights to the defendant's life story and a waiver of the attorney-client privilege. The income derived from publication was to go solely to the attorney. The court in Corona held that reversal was warranted because the attorney deliberately decided not to develop viable incompetence, insanity and irresponsibility defenses so as to insure that the publication rights would retain their value. The defendant thus suffered actual prejudice from the conflict.
Under our precedents such a showing would not be necessary, because we have held that the acquisition by an attorney of a financial stake in litigation directly adverse to that of his client is a per se conflict, which warrants reversal even in the absence of prejudice. (See, e.g., People v. Washington (1984), 101 Ill. 2d 104; People v. Coslet (1977), 67 Ill. 2d 127; People v. Stoval (1968), 40 Ill. 2d 109.) In such cases, defense counsel's "tie to a person or entity * * * which would benefit from an unfavorable verdict for the defendant * * * might `subliminally' affect counsel's performance in ways difficult to detect and demonstrate." Moreover, such a conflict might subject the attorney to later charges that his representation *136 was less than faithful. (People v. Spreitzer (1988), 123 Ill. 2d 1, 16, 17.) However, the mere fact that the defendant's attorney was offered, and refused to accept, a contract for publication rights does not constitute a "tie" sufficient to engender a per se conflict. We could not therefore reverse on the basis of this alleged conflict without some showing of prejudice i.e., without a showing that the alleged conflict caused specific, identifiable deficiencies in defense counsel's performance. The allegation that defense counsel kept careful records of his transactions with the defendant proves nothing careful records would be valuable for many legitimate purposes relevant to the conduct of the defendant's case. The general allegation that defense counsel neglected the defendant's case in favor of keeping records for a later book sale is, without more, meaningless. Because the defendant has not pointed to specific actions not taken because of too much attention to careful record-keeping, he has not sufficiently alleged prejudice.
In a related series of contentions, the defendant now claims that, after a dispute with his attorney over the proper conduct of his defense, he requested a different attorney but was thwarted from obtaining one by his attorney's alleged machinations. More specifically he claims that his attorney "blocked this by not letting me talk with, call or write anyone, unless it was censored by [defense counsel]" (No. 4), that his attorney failed to secure a well-known, out-of-State, defense attorney as the defendant's counsel (No. 5), and that he obtained by subterfuge the defendant's signature on a motion to have counsel appointed for him (No. 22).
To believe these contentions we would have to believe that during a lengthy period leading up to, during, and following the defendant's trial, his counsel single-handedly kept the defendant incommunicado. This is preposterous. Nothing prevented the defendant from writing *137 to F. Lee Bailey, his relatives, or, for that matter, the trial judge and expressing his desire for another attorney. The defendant is not illiterate and is perfectly capable of understanding a motion for appointment of counsel by the court.
Allied to these claims are a number of others which relate to supposed disagreements between the defendant and his attorney over the proper course of his defense. Thus the defendant claims that he did not want to agree to joinder of all the charges against him (Nos. 6, 27) and was inadequately advised and misled as to the consequences of raising the affirmative defense of insanity (No. 21). If these are claims that the defendant has a right to micro-manage all aspects of his defense, they must fail because no such right exists. If they are claims that his attorney was incompetent for failing to object to joinder or for raising the defense of insanity, they are frivolous. The defendant has not given any legal argument, and we know of none, for the proposition that the counts should have been severed and the State forced to conduct separate trials on each of 33 charges of murder. Therefore, under Strickland, the defendant has not demonstrated a reasonable probability that the outcome would have been different. The defendant is also not correct in his statement that a plea of insanity constitutes an "admission of guilt on all counts."
The defendant also claims that his attorney was incompetent because he lacked experience in "mass-murder" cases and because the attorney's son was in the hospital at the time of the defendant's arrest (No. 1). Both of the claims are meritless. In United States v. Cronic (1984), 466 U.S. 648, 665, 80 L. Ed. 2d 657, 672, 104 S. Ct. 2039, 2050, the United States Supreme Court specifically rejected the use of "inexperience" as a per se indicium of incompetence: "The character of a particular lawyer's experience may shed light in an evaluation of *138 his actual performance, but it does not justify a presumption of ineffectiveness in the absence of such an evaluation." The notion that a lawyer would need a special "mass-murder" expertise in order competently to represent the defendant is therefore without merit. The defendant has also not identified any particular action taken or not taken by his attorney as a result of the illness of the attorney's son.
Many of the defendant's claims of incompetence also relate to the defendant's supposed desire not to plead insanity but, rather, to plead not guilty to all the charges and prove a defense of alibi. The defendant claims that his attorney failed to: investigate a possible alibi defense (No. 10) or "potential defense of Not Guilty" (No. 23), subpoena employment records which would have demonstrated such a defense (No. 13), investigate unstated "evidence establishing innocence, or conspiracy" (No. 12), "challenge and attack the case in chief" and make objections to the admission of unspecified evidence (No. 24). He also claims that his attorney was ineffective because he kept replacing unnamed "investigators because they kept finding evidence showing others may have committed the crime, because it didn't fit into the Insanity defense" (No. 14).
All of these claims of incompetence must fail, for two reasons. First, under Strickland, an attorney's "strategic choices made after thorough investigation of law and facts relevant to plausible options are virtually unchallengeable; and strategic choices made after less than complete investigation are reasonable precisely to the extent that reasonable professional judgments support the limitations on investigation." (Strickland, 466 U.S. at 690-91, 80 L. Ed. 2d at 695, 104 S.Ct. at 2066.) In this case, the attorney's decision not to investigate supposed evidence of alibi but to rely instead on the insanity defense was not unreasonable. We will not rehash the overwhelming *139 evidence including the 29 bodies recovered from the crawlspace under the defendant's home and the defendant's detailed confessions which proved that the defendant had committed the acts with which he was charged. (103 Ill.2d at 45-50.) But given this evidence, it was not unreasonable for the defendant's attorney to choose an insanity defense, and to forgo vain attempts to prove that the victims were killed by some other person. The different factual context distinguishes this case from United States ex rel. Green v. Rundle (3d Cir.1970), 434 F.2d 1112, cited by the defendant, in which alibi was the only plausible defense. Indeed, had the defendant's attorney taken the opposite tack, and neglected the insanity defense in favor of futile attacks on the State's case in chief, the defendant would now have a much more plausible claim of incompetence. The same reasoning, together with the absence of factual detail in the defendant's claims, militates against a finding of a reasonable probability of a different outcome had the defendant's attorney taken the actions which the defendant now wishes that he had taken.
Similar reasoning dictates rejection of claims that the defendant's trial attorney made a number of other errors, including: "failing to interview state witness prior to taking the stand" (No. 7), "failure to interview or call [character] witnesses" at trial (No. 11), failing to object to the prosecution's use of large "billboard" exhibits (No. 16), failure to object to the "limited" voir dire of the jury (No. 17), and failure to "bring" perjury charges against three unnamed prosecution witnesses (No. 43) or to raise the "issue" of perjury (No. 43-A). In all of these cases, the defendant's claims are either so unspecific as to be unintelligible or relate to such minor issues that they cannot support a finding of a reasonable probability of a different outcome.
*140 A number of other claims of incompetence were actually raised by the defendant's attorney on this appeal and do not need to be separately considered. These include claims that the defendant's attorney lacked "tactical or strategic justification for his conduct at the sentencing hearing" (No. 19), failed to raise extreme emotional disturbance as a mitigating factor (No. 20), failed to present evidence at the hearing and gave a casual or perfunctory closing statement (No. 25), and failed to request that the jury be sequestered sooner (No. 30). The only novel aspect to the defendant's charges of incompetence at the sentencing hearing is that he specifically mentions defense counsel's failure to use the defendant's "drug problem" in his closing argument at trial or at the sentencing hearing (No. 39). As we have stated with regard to other mitigating evidence, the defendant's use of drugs was brought to the jury's attention during trial, and was introduced at the sentencing hearing by stipulation. We cannot say to a reasonable probability that more emphasis upon this circumstance by defense counsel would have changed the outcome of the hearing or trial.
Several other of the defendant's claims against his attorney concern matters which, whether or not they are true, have no bearing upon defendant's case. For the purposes of this appeal, it does not matter whether it is true, as the defendant claims, that a valuable television set mysteriously disappeared from the defendant's attorney's office (No. 28). This is not relevant here. Similarly, an unsupported allegation that defense counsel "leaked" confidential information (No. 29) is meaningless without a statement of what information was disclosed and how it damaged the defendant.
A final set of claims of incompetence relate to his attorney's supposed lack of vigor in attempting to exclude or suppress various pieces of evidence. The defendant *141 argues, for example, that his attorney failed to "challenge weaknesses in the prosecution's search warrants" (No. 2), failed to challenge the admission of defendant's statements even though the defendant was supposedly the victim of the "`Christian Burial ploy'" (the defendant is apparently referring to the interrogation technique which consists of asking a murder suspect to provide the location of a missing body so that it can receive a "Christian burial" (see, e.g., Brewer v. Williams (1977), 430 U.S. 387, 51 L. Ed. 2d 424, 97 S. Ct. 1232)) and was denied access to his attorney (No. 9), failed to "void" the defendant's supposedly illegal arrest (No. 18), and failed to challenge the accuracy of the inventory of items seized in the search of defendant's home (Nos. 41, 42). In connection with these claims, the defendant also reraises his substantive challenges to the validity of the search warrants (Nos. 35, 36). In most of these instances, defendant's claims must fail for the simple reason that challenges to the admission of these items of evidence would have failed, and, in some cases, did fail not because of any lack of vigorous advocacy but because of lack of legal merit. In our opinion on direct appeal, we have already stated why the search warrants used in the case were valid and that they identified the items to be seized with sufficient particularity. (103 Ill.2d at 24-28.) We have also stated why the defendant's confessions were properly admitted and why we do not believe that he invoked his right to counsel before being interrogated. (103 Ill.2d at 28-29.) Absent an allegation that the defendant was not given his Miranda warnings, the police were entitled to use "the Christian burial ploy" as a means of interrogation. The claim that the police had no probable cause to arrest the defendant after finding 29 bodies in the crawlspace under his house is frivolous. The defendant's claim that his insanity defense would have benefited from a more accurate inventory of *142 the drugs found at his house during the search is, to say the least, bizarre. We have already stated why more or better evidence of the defendant's drug-taking was not likely to change the outcome of his trial. The argument that his counsel was incompetent for failing to object to an instruction telling the jury not to consider "sympathy" in their deliberations must also fail because, as is now clear, the instruction was proper. People v. Spreitzer (1988), 123 Ill. 2d 1, 41-43.
Some other claims raise substantive issues which were either considered on direct appeal or lack merit. Those which were rejected on direct appeal include claims of prosecutorial misconduct on summation (Nos. 32, 40) (see 103 Ill. 2d at 96-98), and the prejudicial effect of inflammatory and irrelevant comments of a witness (No. 34) (see 103 Ill. 2d at 74-75). We see no need for reconsideration, and the defendant has presented no more cogent arguments in support of his contentions than he did on his direct appeal. The claim that the defendant, who is white, was prejudiced by the alleged exclusion of black veniremen from his jury (No. 38) has no merit. (See People v. Holland (1987), 121 Ill. 2d 136, 157.) The defendant's point which is labeled "No. 41" contains only a list of constitutional provisions which is intended to support other points. There is no point numbered "33."
It remains only to consider those points numbered 8, 15, and 31. These claim, in essence, that the defendant was denied his right against coerced self-incrimination by the admission of statements he made to the State's examining psychiatrists, statements which were garnered without first providing him with Miranda warnings. These claims, and the ancillary claim of incompetence which is made in connection with them, are meritless. It is true that, under Estelle v. Smith (1981), 451 U.S. 454, 468, 68 L. Ed. 2d 359, 372, 101 S.Ct. *143 1866, 1876, "[a] criminal defendant, who neither initiates a psychiatric evaluation nor attempts to introduce psychiatric evidence, may not be compelled to respond to a psychiatrist if his statements can be used against him at a capital sentencing proceeding." (Emphasis added.) Where, however, the defendant does attempt to introduce such evidence, Smith is inapplicable. (Buchanan v. Kentucky (1987), 483 U.S. 402, 424, 97 L. Ed. 2d 336, 356, 107 S. Ct. 2906, 2918.) Here, the defendant's entire defense strategy was premised upon a plea and proof that the defendant was not guilty by reason of insanity. Therefore, this claim is without merit.
For the reasons stated, the judgment of the circuit court of Cook County is affirmed. The clerk is directed to enter an order setting Wednesday, the 11th day of January, 1989, as the date on which the sentence of death entered by the circuit court of Cook County shall be executed. The defendant shall be executed by lethal injection in the manner provided by section 119-5 of the Code of Criminal Procedure of 1963 (Ill. Rev. Stat. 1983, ch. 38, par. 119-5). A certified copy of this order shall be furnished by the clerk of this court to the Director of Corrections, to the warden at Stateville Correctional Center, and to the warden of the institution where the defendant is confined.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2432964/ | 713 S.W.2d 107 (1986)
Jerry Wayne MELTON, Appellant,
v.
The STATE of Texas, Appellee.
Jimmie Lee SLOAN, Appellant,
v.
The STATE of Texas, Appellee.
Nos. 65165, 65166.
Court of Criminal Appeals of Texas, En Banc.
July 2, 1986.
*109 John D. Byers, Sulphur Springs, for appellants.
Robert Huttash, State's Atty., Austin, for State.
Before the court en banc.
OPINION
McCORMICK, Judge.
Both appellants were indicted for the offense of theft over $200.00. At a joint trial during which the appellants were represented by separate counsel, they were found guilty and both were assessed punishments of five years.
The appellants, represented by the same counsel on appeal, have each filed a brief. A review of these briefs show them to be identical to one another with the exception of an additional ground of error present in appellant Sloan's case. The State has not seen fit to file any briefs. The state of the appellants' briefs leaves much to be desired. Because the two briefs are identical to one another except in the one respect we have pointed out, we find that many contentions that are made do not apply to both appellants. Moreover many of the grounds of error are multifarious; they do not cite to any authority and contain no argument. Nevertheless, we have reviewed the contentions as best as we can determine what they are and have found reversible error in each case.
Department of Public Safety Investigator Jimmy Jacobs testified that on or about October 11, 1978, he received information from an individual named Bo Lemmons that an individual was selling stolen heavy equipment. Lemmons was an ex-convict whom Jacobs had had under surveillance because Jacobs suspected that Lemmons was himself involved in some type of illegal activities. As a result of this information, on the evening of October 11, Jacobs, working in an undercover capacity, telephoned appellant Melton and told him that he had heard that Melton had a D-8 bulldozer for sale. Melton replied that he not only had a D-8 bulldozer but also had a John Deere front-end loader which he wished to sell. The two men agreed on a price of $6500 for the D-8 Caterpillar bulldozer and $2,000 for the John Deere front-end loader. Melton indicated to Jacobs that he had the two pieces of equipment and was prepared to deliver them. A deal was struck whereby Melton agreed to deliver the John Deere front-end loader to the Winfield Truck Stop on Saturday, October 14, where Jacobs was to meet him. On Saturday, October 14, Jacobs waited for Melton at the Winfield Truck Stop but Melton never appeared. After waiting for three hours, Jacobs attempted to call Melton. Melton's wife answered the phone and said that Melton was not home. On October 15, Jacobs called Melton again. Melton told Jacobs he had not been able to deliver the equipment to the truck stop because his driver had been arrested for cattle theft and was in jail. Melton apologized and said that the next time the delivery would be completed.
On October 24, Jacobs called Melton again. When Jacobs asked what equipment Melton had, Melton replied that he had a White Freightliner truck and lowboy trailer with a 977 Caterpillar loader on it. Jacobs testified that he interpreted this to mean that Melton already had this equipment in his possession. Melton said he *110 would sell all three pieces of equipment for $10,000. Jacobs asked Melton to check the mileage on the truck and to see what kind of bucket was on the loader. An agreement was reached whereby Melton agreed to deliver the load to the Bonanza Steak House in Sulphur Springs on October 26. It was also agreed that Jacobs would call back the next day so that the plan could be finalized. On October 25, Jacobs called Melton back. Melton told Jacobs he could not check the truck's mileage but that the loader had a two or three yard bucket on it. He also told Jacobs that even though the equipment was worth at least $20,000, because it was "hot", he would sell it for $10,000. It was agreed that the delivery was to be made at 2:00 a.m. on October 27. The equipment was to be brought out on Interstate 30 and parked on the shoulder of the freeway directly in front of the Bonanza Steak House. Jacobs was to be parked between the service road and the freeway. It was also agreed that Jacobs would call Melton again on October 26.
On October 26, Jacobs called Melton's home and talked to Melton's wife. He left a phone number where he could be reached. At 9:00 that evening Melton called Jacobs and said he had the equipment and he could meet Jacobs sooner than planned but instead of the 977 Caterpillar loader, he was bringing a W-8 International front-end loader. Melton told Jacobs he would deliver the 977 loader the next weekend. The two agreed to meet at about 1:30 a.m. and to lower the price from $10,000 to $9,000 because of the change in equipment.
At about 1:25 a.m. Jacobs and another DPS officer Bob Shedd, were waiting alongside the freeway in Sulphur Springs. Melton drove up in a pickup and parked on the shoulder of the freeway. A truck and lowboy trailer carrying a front-end loader drove by and stopped approximately a quarter of a mile down thefreeway. Melton and Jacobs got out of their vehicles and approached each other. At that point Jacobs arrested Melton and other officers in seven other police units converged on the scene and arrested appellant Sloan, who was driving the stolen White Freightliner.
Jacobs testified that the stolen equipment was a Model 4000 White Freightliner tractor, VIN 751629G, registered to Howard Freeman, Inc., in Irving, a Case W-8 front-end loader, VIN 9811831, and a lowboy trailer registered to Howard Freeman, Inc. in Irving. Jacobs testified that the truck was hot-wired. He further testified that the value of the truck would be $15,000, the value of the trailer would be $6,000 and the value of the W-8 loader would be $15,000. Finally Jacobs testified that he used no inducement, threats or coercion to get Melton to talk with him and that it was Melton who had set the initial $10,000 price on the equipment.
Appellant Melton took the stand and agreed that he and appellant Sloan stole the White Freightliner, lowboy trailer and the front-end loader. However, the gist of Melton's testimony was that he had been entrapped by both Lemmons and Jacobs. He testified that in the latter part of September 1978, he was working as a heavy equipment operator at a Dallas construction site when he was introduced to Lemmons. At this first meeting Lemmons asked Melton if he would be interested in dealing in stolen heavy equipment. Lemmons said he knew an individual who would pay a dollar a pound for heavy equipment that was in good shape. Melton testified that he told Lemmons he did not know anything about stealing equipment. In response, Lemmons told Melton to give him his phone number and he would have the buyer call him. Melton gave his phone number to Lemmons.
Two weeks later Lemmons telephoned Melton and said that a man named "Bill" would be calling him. The next day Melton received a phone call from "Bill." (This was in fact DPS Investigator Jacobs). According to Melton's testimony, when Jacobs asked him if he had any equipment for sale, Melton replied that he did not have anything. Jacobs then told Melton he would pay him $6500 for a D-8, $5,000 for a D-6 or $2500 for a backhoe. Once again Melton told Jacobs that he had no equipment, but *111 he would look around and see if he could find anything for him. Jacobs then called Melton a second time. When Jacobs asked Melton if he had anything, Melton replied that he did not. Jacobs then asked if Melton was going to get him anything in the future and Melton replied that he would. According to Melton, Jacobs called him daily pressuring him to get him some equipment. In addition, Melton testified that he received another visit from Bo Lemmons who told him that if he did not have a way of transporting the equipment, Jacobs would furnish him a trailer. Lemmons also told Melton that Jacobs was his banker and had a lot of money and pull.
According to Melton, the first purchase that was actually arranged concerned a Case backhoe. Melton testified that although he agreed with Jacobs to deliver the backhoe to the Winfield Truck Stop he had no intention of actually making the delivery. Melton testified that after he did not show up at the truck stop, Jacob's called his home again. Melton testified that during this conversation Jacobs appeared to be very angry and he told Melton that Melton's failure to bring the equipment had caused him to lose $1,000. Melton testified that at this point, he became very afraid of Jacobs because he thought Jacobs might be involved in the Mafia. He felt that if he did not furnish some equipment for Jacobs, he might be hurt. Thus when Jacobs called him on October 24, Melton told him he had something lined up. And when Melton spoke with Jacobs on October 26, he told Jacobs he already had the equipment although he had not in fact yet stolen it. Finally Melton testified that he never would have stolen the property if Jacobs and Lemmons had not exerted pressure on him.
Appellant Sloan did not testify. However Melton testified that he first involved Sloan in the scheme after he had agreed to deliver the backhoe to the Winfield Truck Stop. It is undisputed that neither Jacobs or Lemmons ever had any contact with appellant Sloan before Sloan's arrest.
Both appellants initially argue that the State failed to prove the ownership of the stolen property. The indictment alleged in pertinent part that the appellants:
"... did then and there with intent to deprive the owner, Howard Freeman of property, namely 1972 White Freightliner # 4000 VIN751629G and a 1955 Trailmobile Float VIN105305 and a Model W8G International loader VIN9811831, did knowingly and intentionally exercise control over and appropriate such property without the owner's effective consent, which property had a value of $200.00 or more but less than $10,000.00."
When the trial court applied the law to the facts in the application paragraphs of the appellants' charges, no mention of the Trailmobile Float and the International Loader was made:
"Therefore, if you believe from the evidence beyond a reasonable doubt that Howard Freeman was the owner of property, to-wit: a 1972 White Freightliner # 4000 VIN751629G, and that the [appellant], did, in Hopkins County, Texas, on or about October 26, 1978, knowingly or intentionally exercise control over and appropriate said property without the effective consent of the said Howard Freeman, and with the intent to deprive the said owner of the said 1972 White Freightliner # 4000 VIN751629G, which property had a total value of more than $200.00, you will find the defendant guilty."
The jury verdicts signed by the jury foreman read:
"We, the jury, find the defendant guilty of theft of over $200.00."
The only allegation as to ownership that the jury had to find in order to convict appellants was in relation to the 1972 White Freightliner. Our review of the evidence adduced at trial shows that Jimmy Jacobs, the investigator with the Department of Public Safety, testified that he ran a check on the truck stolen by the appellants and found that it was registered to Howard Freeman, Inc. of 1424 East Grauwyler Road in Irving. In addition, Howard *112 Freeman took the stand and testified that he was president of Howard Freeman, Inc. located at 1424 East Grauwyler in Irving. He testified that his company owned one model 4000 White Freightliner which was stolen on the night of October 26, 1978, along with a lowboy trailer and a W-8-E Case rubber tired loader. Freeman was shown a photograph of the truck stolen by appellants and testified that it appeared to be his truck. He further testified that the truck was valued at approximately $12,000. He also examined a picture of the W-8-G loader stolen by appellants and identified it as belonging to his company. Freeman testified that the lowboy trailer was valued at $6,000 and the loader valued at $8600. We find the evidence sufficient as to the ownership of the truck.
Appellants' third ground of error is worded as follows:
"THE COURT ERRED IN FAILING TO CONDUCT A HEARING ON ENTRAPMENT AS A MATTER OF LAW SINCE THE CASE IN CHIEF SHOWED AN ABUNDANCE OF EVIDENCE WHICH WOULD PROVE ENTRAPMENT AS A MATTER OF LAW."
A reading of the text under this ground of error suggests that appellants are contending that the trial judge should have found as a matter of law that they were entrapped.
A reading of the record compels us to find that the issue of entrapment was not raised with regard to appellant Sloan. We note that although the defense of entrapment is not available to a defendant that denies the commission of the offense, it is available to a defendant who pleads not guilty and who does not take the stand or offer any testimony inconsistent with the commission of the crime. Norman v. State, 588 S.W.2d 340, 345 (Tex.Cr.App. 1979). Thus in the instant case, where appellant Sloan did not testify, it is conceivable that he could still rely on the benefits of the entrapment defense. We now turn to the merits of his argument.
V.T.C.A., Penal Code, Section 8.06(a) provides as follows:
"It is a defense to prosecution that the actor engaged in the conduct charged because he was induced to do so by a law enforcement agent using persuasion or other means likely to cause persons to commit the offense. Conduct merely affording a person an opportunity to commit an offense does not constitute entrapment." (emphasis added)
The statute quoted above mandates that there must be a direct link between the defendant and the law enforcement agent. The defendant must be induced by the law enforcement agent, not by another co-defendant as we have in the present case. It was appellant Melton who had the contact with both Jacobs and Lemmons. It was appellant Melton who invited appellant Sloan to become involved in the offense. There is no showing in the record that any law enforcement agent ever made contact with appellant Sloan or induced him in any way. A similar argument was made in Norman v. State, supra. In Norman a panel of this Court rejected the defendant's defense of "vicarious" entrapment after it was shown that the law enforcement agent only had personal contact with an individual named Reyes who then induced the defendant's husband who then induced the defendant to deliver heroin. The panel went on to hold:
"To hold otherwise would not advance the policy behind this "objective" test of entrapment as adopted by the Legislature in Section 8.06, supra, which is to deter police conduct violative of law enforcement standards in a civilized society. As stated, only the individual acted upon by the unscrupulous agent enjoys the benefit of the objective test in Section 8.06, supra. The Legislature in Section 8.06, supra, has balanced the benefit of the deterrent effect upon law enforcement agents of allowing unscrupulously induced defendants to go free, with the cost to society of allowing someone other than the directly induced defendant to avail himself of the defense. We note this same cost-benefit analysis has been applied to illegal search and seizure exclusionary *113 rule questions. The U.S. Supreme Court has balanced the benefit of the deterrent effect upon law enforcement agents who conduct illegal searches and seizures by suppressing the evidence illegally obtained therefrom with the cost to society of suppressing same. (citations omitted). The immediate and calculable "cost" of sustaining a "vicarious" entrapment defense outweighs the uncertain and therefore negligible deterrent value upon law enforcement agents.
"The Legislative intent espoused in Section 8.06, supra, to make entrapment a personal defense and the cost of an unrestricted extension of the defense do not allow vicarious invocation of the entrapment defense.
. . . . .
"The vicarious entrapment defense espoused by the appellant attentuates the `cost-benefit' policy by allowing a defendant to discredit the inducement methods of State agents when she was never a party to such inducements. Such a policy would allow entrapment defenses by all defendants involved to prevail ad infinitum from the original improper use of governmental power by the State agent, regardless of whether each defendant was ever induced by the government to commit the crime in the first place." Norman, supra at 346.
Because the evidence presented at trial did not raise the issue of entrapment as to appellant Sloan, we overrule his ground of error.
Turning now to appellant Melton, we find that the issue of entrapment was raised. Normally, the factual issue of entrapment is a question for the jury, unless as a matter of law the accused has established beyond a reasonable doubt that he was entrapped. Redman v. State, 533 S.W.2d 29 (Tex.Cr.App.1976); McKelva v. State, 453 S.W.2d 298 (Tex.Cr.App.1970); Jones v. State, 427 S.W.2d 616 (Tex.Cr. App.1968). Where the evidence on the issue of entrapment is in conflict, the issue should be submitted to the jury. Poe v. State, 513 S.W.2d 545 (Tex.Cr.App.1974); Ransom v. State, 630 S.W.2d 904 (Tex.App. Amarillo 1982, no petition).
In Redman v. State, supra, after the undercover officer testified that he had bought marihuana from the defendant, the defendant testified that he sold marihuana to the undercover agent solely because of the agent's repeated requests and because he felt that his friendship with the agent depended on supplying him with marihuana. This Court held that since the issue of entrapment was controverted, the defendant had not proven entrapment as a matter of law and the issue was properly submitted to the jury. See also Benavidez v. State, 652 S.W.2d 486 (Tex.App.Corpus Christi 1983, no petition).
In the instant case, the only testimony directly relating to the entrapment defense was given by appellant Melton and DPS Investigator Jacobs. The evidence supporting the claim of entrapment was given by appellant Melton. Officer Jacobs testimony, if believed, refuted Melton's defense of entrapment. Credibility of the witnesses was therefore crucial. As such, we hold that entrapment was not established as a matter of law and the issue of entrapment was properly submitted to the factfinder. Starkey v. State, 647 S.W.2d 350 (Tex.App. Corpus Christi 1982, petition refused). Appellants' third ground of error is overruled.
In their seventh ground of error, appellants complain of several instances of improper jury argument by the prosecutor. Initially, we note that this ground of error is multifarious and fails to comply with Article 40.09(9) V.A.C.C.P. Thiel v. State, 676 S.W.2d 593 (Tex.Cr.App.1984); Euziere v. State, 648 S.W.2d 700 (Tex.Cr.App.1983); Felder v. State, 564 S.W.2d 776 (Tex.Cr. App.1978); Nabors v. State, 508 S.W.2d 650 (Tex.Cr.App.1974). Second, appellants' briefs contain no citation to authority or argument. The appellants have merely listed the instances of alleged improper conduct. This also is in violation of Article 40.09(9), supra. McWherter v. State, 607 S.W.2d 531 (Tex.Cr.App.1980); Williams v. *114 State 535 S.W.2d 637 (Tex.Cr.App.1976). Third, appellants' briefs only refer to the record by page numbers. Mere references to pages of the record do not sufficiently identify complained of testimony. Thiel v. State, supra.
Nevertheless we have reviewed this ground of error in the interest of justice and have found reversible error. During the prosecutor's closing argument during the guilt-innocence phase of the trial he argued the following:
"People, do you understand the quantity of what we're dealing with here today? Do you understand there is over three hundred Case backhoes out there missing, 580's?"
Appellant Sloan's counsel immediately objected on the basis that there was no evidence produced which connected the defendants to any other equipment other than what was alleged in the indictment. The trial court sustained this objection and ordered the jury to disregard the prosecutor's previous statement. When Sloan's counsel moved for a mistrial, the trial court overruled the motion. Then the prosecutor went on to argue the following:
"What did Jerry Wayne Melton talk about in his conversation? What are we talking about, one truck? No, we're talking about 977's, Case 580's, John Deere front end loaders. We're talking about D-8's, D-6's. We're talking about tractor trailer rigs, lowboy trailers. Folks, we're not talking about hubcap theft. We're talking about major theft. And, there is (sic) two major thieves right there in this courtroom."
In order to be appropriate, jury argument must fall within the areas of (1) summation of the evidence; (2) reasonable deduction from the evidence; (3) answer to argument of opposing counsel; or (4) a plea for law enforcement. Alejandro v. State, 493 S.W.2d 230 (Tex.Cr.App.1973).
Clearly the prosecutor in the instant case was trying to persuade the jury that these defendants were responsible for more than just the offense alleged in the instant indictment and to convict them on that basis. Such argument was totally outside the record and impermissible. Turrentine v. State, 536 S.W.2d 219 (Tex.Cr. App.1976); Thomas v. State, 527 S.W.2d 567 (Tex.Cr.App.1975); Rodriquez v. State, 520 S.W.2d 778 (Tex.Cr.App.1975). See also Walker v. State, 664 S.W.2d 338 (Tex. Cr.App.1984).
Ordinarily, any injury from an improper jury argument is obviated when the court instructs the jury to disregard the argument, unless the remark is so inflammatory that its prejudicial effect cannot reasonably be removed by such an admonishment. McKay v. State, 707 S.W.2d 23 (Tex.Cr.App.1985).
In Simpson v. State, 493 S.W.2d 793 (Tex.Cr.App.1973), the defendant was charged with the offense of selling heroin. During the punishment phase of the trial the prosecutor argued that not only had Simpson sold heroin on the date alleged in the indictment but also on three other occasions. This Court found that where there was no such evidence in the record, the prosecutor's remark was highly improper and prejudicial. Furthermore the Court held that although the trial court instructed the jury to disregard the prosecutor's statement, the instruction was insufficient to cure the error. We find a similar situation in the instant case. The prosecutor's tactic of imputing to the defendants the responsibility for the theft of 300 other pieces of heavy equipment was so prejudicial that we have no other alternative but to reverse the appellants' convictions. See also Lopez v. State, 500 S.W.2d 844 (Tex.Cr.App.1973).
Accordingly, the judgments are reversed and remanded.
TEAGUE, J., agrees that the appellants' convictions must be reversed because of improper jury argument, but disagrees with the majority opinion's disposition of appellant Melton's third ground of error.
WHITE, J., concurs in the result.
ONION, P.J., not participating. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1032688/ | j | 01-03-2023 | 07-09-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2611940/ | 884 P.2d 478 (1994)
In the Matter of Victor R. RUYBALID, Esq., An Attorney Admitted to Practice Law Before the Courts of the State of New Mexico.
No. 22207.
Supreme Court of New Mexico.
November 7, 1994.
*479 Sally E. Scott, Albuquerque, for Disciplinary Bd.
Art Michael, Santa Fe, for respondent.
OPINION
PER CURIAM.
This matter came before the Court upon the recommendation of the Disciplinary Board to approve a conditional agreement not to contest and consent to discipline executed by Victor R. Ruybalid, which we determine to be appropriate discipline. The disciplinary proceeding in which the consent agreement was entered arose out of multiple violations by Ruybalid of the rules governing attorney trust accounts. The consent to discipline provides for an indefinite suspension of two years minimum duration, the imposition of which will be deferred on certain conditions set forth in the agreement. The conditions include that Ruybalid shall be placed on supervised probation during the entire period of suspension, that he shall accept instruction from his supervisor concerning trust account recordkeeping and management procedures, that he shall submit to and pay for two audits of his current trust account during the probationary period, and that he shall cooperate with disciplinary counsel to confirm that he does not owe any money to clients whose funds were deposited in his trust account during the period in which the violations occurred.
This proceeding involved virtually every conceivable type of misuse of a trust account, with the exception of the most serious conversion of client funds. No clients have complained that Ruybalid failed to remit sums due them from his trust account. It is for this reason that the Court is willing to approve and impose the discipline set forth in the consent agreement.
The violations that occurred were extremely serious. For a long period of time, Ruybalid commingled client funds with his personal funds and funds from an unrelated business he operated in violation of SCRA 1986, 16-115. Among others, he wrote checks for his groceries, his credit card bills, and his utilities on his trust account. Remarkably, he wrote a trust account check to the State Bar of New Mexico for a continuing legal education course. Ruybalid maintained the trust account as an interest-bearing account, even though he was not an IOLTA participant, in violation of SCRA 1986, 16-115(D). In direct contradiction of SCRA 1986, 17-204(A)(1), he had an automatic withdrawal card available on his trust account. Rule 17-204(A)(1) prohibits disbursements to cash.
Ruybalid also violated Rule 16-115(A) by failing to maintain and preserve trust account records in accordance with the requirements of Rule 17-204. Ruybalid was unable to provide all documents requested by disciplinary counsel, even though the documents requested were within the five-year preservation period required by Rule 17-204(A). The "ledger sheets" he produced did not contain the information required to be recorded; most did not state either the source of deposits or the reasons for disbursements of client funds. Some ledgers reflected the receipt of client funds that should have been deposited in trust but which were not reflected in the records subpoenaed by disciplinary counsel from the bank. The bank records also reflected deposits from clients not shown on the ledgers.[1]
In addition, Ruybalid's conduct during the pendency of the investigation of this matter *480 was unsatisfactory. He failed to cooperate with disciplinary counsel, in violation of SCRA 1986, 16-803(D), by refusing to provide bank statements, cancelled checks, deposit records, and failing to respond to the request of disciplinary counsel for additional information needed to complete the investigation. He told disciplinary counsel he had only begun using the trust account for personal purposes after he had phased out his law practice. The bank records obtained by disciplinary counsel showed this was not the case. Client funds and personal funds were commingled for at least two years before Ruybalid closed the trust account. This misrepresentation violated SCRA 1986, 16-801(A).
Attorneys in this state should have no misconception about this Court's opinion of an attorney's failure to properly maintain an attorney trust account. The Court views such transgressions as being of the most serious nature. It is recommended that all attorneys practicing in this state ensure that their trust accounts are in compliance with the provisions of Rules 16-115 and 17-204. Rule 17-204 sets forth in detail exactly what an attorney must do to be in compliance with the requirements for maintaining attorney trust accounts. It is unlikely that any attorney who studies and follows this rule would ever have to face this Court to address violations of his or her trust account obligations.
Ruybalid's conduct during the investigation conducted by disciplinary counsel was inexcusable. The Rules of Professional Conduct, SCRA 1986, 16-101 to 16-805 (Repl. Pamp.1991 & Cum.Supp.1994), specifically require attorneys to cooperate with disciplinary counsel and the Disciplinary Board in the discharge of their respective functions. See SCRA 1986, 16-803(D). Moreover, this Court expects to receive full cooperation from every New Mexico attorney during an investigation. The functions of the disciplinary board and disciplinary counsel are essential to the Court's exercise of its inherent jurisdiction and concomitant duty to prescribe and regulate the standards of conduct of lawyers in the state of New Mexico. See Preface to Rules Governing Discipline. Misrepresentation in any form is unacceptable conduct by an attorney. As the Disciplinary Board has stated, "When dealing with an attorney, another person (whether an attorney or a lay person) has the right to expect that the attorney will be honest and straightforward." Matter of Ellis, 29 State Bar Bulletin 29 (September 27, 1990). Honesty is certainly to be expected when a lawyer is dealing with the Court's disciplinary system.
IT IS THEREFORE ORDERED that Victor R. Ruybalid be suspended indefinitely from the practice of law in the state of New Mexico for a minimum of two years, effective August 18, 1994;
IT IS FURTHER ORDERED that the imposition of the indefinite suspension be deferred on the following terms and conditions:
1. Ruybalid shall be on probation throughout the deferral period, under the supervision of Steven L. Tucker, Esq., or a licensed New Mexico attorney who is hereby appointed supervising attorney by this Court;
2. Ruybalid shall meet with his supervising attorney as often as the supervisor deems necessary or advisable and accept instruction from and comply with all directives of the supervisor concerning trust account recordkeeping and management procedures. Ruybalid shall demonstrate to the satisfaction of the supervising attorney that his current trust account is in compliance with the requirements of Rules 16-115 and 17-204. The supervisor shall provide quarterly reports to disciplinary counsel concerning Ruybalid's compliance with supervision. Thirty (30) days prior to the conclusion of the minimum two-year probationary period, the supervisor shall advise disciplinary counsel concerning whether Ruybalid has satisfactorily complied with the supervisor's instructions and directives.
3. Ruybalid shall submit to and bear the expense of two audits of his current trust account during the probationary period, conducted at times and by auditors selected by or approved of by disciplinary counsel. If either audit reveals further violations of Rule 16-115 (including violations of Rule 17-204), disciplinary counsel may *481 seek to have the deferral of his suspension revoked and may file additional charges of misconduct based upon the findings of the audit.
4. Ruybalid shall cooperate with disciplinary counsel and the CPA firm providing accounting services to the Disciplinary Board in this matter in carrying out the procedures set forth in the conditional agreement not to contest and consent to discipline to confirm that none of his clients are due money from his trust account. Ruybalid also shall comply fully with the procedures set forth in the agreement for resolving any disputes that may arise concerning whether any sums are due to his clients from the trust account.
5. All charges of the CPA firm shall be paid in full by Ruybalid before the end of the probationary period, including reimbursement to the Disciplinary Board for all payments it made to the CPA firm in this matter, which sum is included in the costs set forth below.
6. Ruybalid shall successfully complete the Multistate Professional Responsibility Exam during the two-year minimum probationary period.
7. Ruybalid shall reimburse the Disciplinary Board $7,086.24, for all costs incurred in the investigation and prosecution of this matter, together with any and all additional costs and charges that may accrue according to the terms of the conditional agreement not to contest and consent to discipline. All costs shall be paid by Ruybalid on or before August 16, 1996, and any unpaid balance as of that date shall be subject to an annual interest rate of fifteen percent (15%).
8. Ruybalid shall observe all provisions of the Rules of Professional Conduct and Rules Governing Discipline during his probation.
IT IS FURTHER ORDERED that at the conclusion of the two-year minimum period of suspension, Ruybalid will not be automatically reinstated, but rather will be reinstated only after proceedings conducted pursuant to SCRA 1986, 17-214(G);
IT IS FURTHER ORDERED that this opinion be published in New Mexico Reports and Bar Bulletin.
IT IS SO ORDERED.
NOTES
[1] Not only does a lawyer's failure to maintain the required records violate ethical duties, but also it makes investigation of alleged trust account violations more difficult and costly. The cost of having a CPA firm recreate trust account transactions can, as happened here, run into the thousands of dollars. These are costs that the lawyer, if found to have violated SCRA 1986, 16-115 and 17-204, will be required to bear. See SCRA 1986, 17-106(B) (Cum.Supp.1994). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2611941/ | 884 P.2d 167 (1994)
Randall WILLIAMS, Appellant,
v.
STATE of Alaska, Appellee.
No. 1377.
Court of Appeals of Alaska.
November 10, 1994.
*168 Geoffry B. Wildridge, Asst. Public Defender, Fairbanks, and John B. Salemi, Public Defender, Anchorage, for appellant.
Jacquelyn L. Parris, Asst. Dist. Atty., Harry L. Davis, Dist. Atty., Fairbanks, and Bruce M. Botelho, Acting Atty. Gen., Juneau, for appellee.
Before BRYNER, C.J., and COATS and MANNHEIMER, JJ.
OPINION
MANNHEIMER, Judge.
Randall Williams appeals his conviction for driving while intoxicated, AS 28.35.030(a). We affirm.
On March 20, 1993, Alaska State Trooper Gary Tellep observed one car towing another down College Road in Fairbanks. Concerned that the tow chain was too short for safety, Trooper Tellep stopped the two vehicles. Williams was steering the car that was being towed. His breath had an odor of alcoholic beverages, and there were empty beer cans in the towed vehicle. Tellep asked Williams to perform some field sobriety tests; as a result of Williams's performance on these tests, Tellep arrested Williams for driving while intoxicated. A later Intoximeter test showed Williams's blood alcohol level to be .241 percent.
Williams asked the district court to suppress all of the State's evidence and to dismiss his case. He argued that Tellep's decision to arrest him had not been supported by probable cause. The underlying basis of Williams's argument was his assertion that his towed vehicle was not "operable" within the meaning of the Alaska cases construing the DWI statute. The State stipulated that, at the time it was being towed, Williams's car could not move under its own power because its engine would not start. Nevertheless, District Court Judge Mark I. Wood denied Williams's motion. Williams renews his argument on appeal.
We must first decide if Williams was "driving" or "operating" a vehicle. Several years ago, Alaska law contained a regulation that governed this situation. Former 13 AAC 10.200, cited in the supreme court's decision in Jacobson v. State, 551 P.2d 935, 937 (Alaska 1976), declared that "[i]n the traffic regulations and in AS 28.35.030, ... `operator' means a person who drives [a vehicle] or is in actual physical control of a vehicle or who is exercising control over or steering a vehicle being towed by a motor vehicle". However, this regulation was repealed in 1979. In its place, AS 28.40.100(a)(7) defines the term "driver". This statutory definition omits any reference to towed vehicles; it declares simply that "driver" means "a person who drives or is in actual physical control of a vehicle".
Despite the failure of AS 28.40.100(a)(7) to specifically mention towed vehicles, we conclude that a person who steers a towed vehicle is "driving" within the meaning of the Alaska statutes. Virtually unanimous case law from other jurisdictions holds that "driving" means exercising control over the motion of a moving vehicle, regardless of what impetus is propelling the vehicle. See State v. Keeton, 74 Ohio App. 3d 817, 600 N.E.2d 752, 755-56 (1991) (steering a vehicle being towed out of a ditch is "operating"); State v. Tacey, 102 Vt. 439, 150 A. 68, 69-70 (1930) (steering a vehicle being towed down the road by a truck is "operating"); State v. Larson, 479 N.W.2d 472, 473-74 (N.D. 1992) (steering a vehicle being pushed from behind by another vehicle is "driving"); Hester v. State, 196 Tenn. 680, 270 S.W.2d 321, 321-22 (1954) (same); Chamberlain v. State, 163 Tex. Crim. 529, 294 S.W.2d 719, 720 (1956) (same); Rogers v. State, 147 Tex. Crim. 602, *169 183 S.W.2d 572 (1944) (same); Walker v. State, 241 Ark. 396, 408 S.W.2d 474, 475-76 (1966) (same); State v. Edmonson, 371 S.W.2d 273, 274-75 (Mo. 1963) (same); Duckett v. State, 108 Ga. App. 317, 132 S.E.2d 811 (1963) (guiding a car being pushed by 10 or 12 people is "operating"); Farley v. State, 251 Miss. 497, 170 So. 2d 625, 626-27 (1965) (steering a car that is coasting downhill is "operating"); State v. Jeanette, 172 N.J. Super. 587, 412 A.2d 1339, 1340-42 (App. 1980) (pushing a motorcycle using one's feet, and coasting and riding on downhill inclines, is "operating"); State v. Cole, 62 Ohio Misc.2d 70, 591 N.E.2d 1378 (Muni. 1992) (same); People v. Jordan, 75 Cal. App.3d Supp. 1, 142 Cal. Rptr. 401, 405-07 (1977) (pedaling a moped with the motor turned off is "driving"). See James O. Pearson, Jr., Annotation: "What Constitutes Driving, Operating, or Being in Control of a Motor Vehicle for Purposes of [a] Driving While Intoxicated Statute or Ordinance", 93 A.L.R. 3d 7 (1979), §§ 6 and 10. See also 7A Am.Jur.2d "Automobiles and Highway Traffic", § 300, pp. 481-82 & 483, stating that both the terms "driving" and "operating" are normally held to include the act of steering a vehicle that is being pushed or towed.
In many of the cases cited in the preceding paragraph, the defendant's vehicle was being towed or pushed because it was not capable of moving under its own power. Tacey, 150 A. at 69 (the defendant's car could not be started); Larson, 479 N.W.2d at 472 (the defendant's bus had broken down); Chamberlain, 294 S.W.2d at 720 (the engine of the defendant's car had stopped running); Duckett, 132 S.E.2d at 812 (the defendant's car would not start); Farley, 170 So.2d at 626 (the defendant "tried to crank the car but it would not start"; police officers also could not start the car, and they eventually had to call a tow truck). Nevertheless, the courts ruled that the defendants' conduct fell squarely within the policy of their states' drunk driving statutes.
[T]he legislature has criminalized the conduct of those who [, while intoxicated,] pilot their moving vehicles on the highway, thereby endangering themselves and all those who encounter them in their inebriated journey.
Larson, 479 N.W.2d at 474. Accord, Hester, 270 S.W.2d at 322. See also Jeanette, 412 A.2d at 1341, upholding the conviction of a motorcyclist who was forced to coast his bike after his girlfriend withheld the ignition key because she thought he should not drive. The New Jersey court stated:
This court is of the opinion that the public is to be protected from the operation by an intoxicated driver of a motor vehicle, whether it is powered by its engine or gravity. It is the driver's judgment and dexterity that are impaired, and this impairment is present irrespective of the source of the vehicle's power.
We find ourselves in agreement with these courts. The public danger addressed by Alaska's DWI statute is the danger posed by intoxicated people who undertake to control the movement of an automobile on a highway at a time when they are not fully capable of exercising the judgement and coordination required to drive safely. An intoxicated person in control of a car moving down a highway whether that car is being towed or pushed, or whether it is coasting downhill poses an equivalent danger to passengers, to other drivers, and to pedestrians, whether or not the car's engine will start. We hold that the act of steering a towed car is "driving" within the meaning of AS 28.35.030(a) and AS 28.40.100(a)(7). Compare Jacobson v. State, 551 P.2d 935, 938 (Alaska 1976), where our supreme court held that an intoxicated person in control of a non-moving vehicle was a sufficient danger to public safety to fall within the DWI statute.
Williams next argues that, because his car could not be started, it was no longer a "motor vehicle" within the meaning of AS 28.40.100(a)(12). That statute declares that the term "motor vehicle" means "a vehicle which is self-propelled except a vehicle moved by human or animal power". We, however, reject the idea that a motor vehicle ceases to be a motor vehicle whenever it cannot be started. If we were to read the statute literally (as Williams suggests we should), we would have to conclude that an automobile is only a "motor vehicle" when the engine is actually running that when *170 someone turns the engine off, or when the automobile stalls, the automobile stops being a "motor vehicle" because it is no longer "self-propelled". Such a conclusion is illogical and at odds with the legislative intent behind the statutory definition. We conclude instead that a vehicle's status as a "motor vehicle" depends on whether the vehicle was designed or constructed to be self-propelled, not whether it is presently capable of moving under its own power. As the Vermont Supreme Court said:
Manifestly it was the design, mechanism, and construction of the vehicle, and not its temporary condition, that the Legislature had in mind when framing the definition of a motor vehicle.
Tacey, 150 A. at 69. Accord, Farley, 170 So.2d at 627. We recognize that the Oregon Supreme Court reached the opposite result in State v. Duggan, 290 Or. 369, 622 P.2d 316 (1981), but we believe that the dissent in that case is better-reasoned.[1]
Finally, Williams argues that our construction of "driving" and "motor vehicle" are at odds with the Alaska Supreme Court's decision in Department of Public Safety v. Conley, 754 P.2d 232 (Alaska 1988). Conley involved an administrative license revocation action based on Conley's violation of the DWI statute. Conley had been involved in a disturbance at a bar, and she had been asked to leave. The police officer who responded to the disturbance concluded that Conley was too intoxicated to drive. He tried to persuade her to take a cab or to ask a friend for a ride home, but she refused. A little later, the officer saw Conley approach her car and, with keys in hand, sit down behind the wheel. The officer stepped toward the car and positioned himself so that Conley could not close the door. He asked her what she was doing, and Conley replied that she was about to drive home. As Conley was moving her hand to insert the key in the ignition, the officer arrested her. Conley, 754 P.2d at 233.
Because Conley had not moved the car or operated any of its controls or mechanisms, the question litigated at the administrative hearing was whether Conley had been in physical control of the vehicle at the time of her arrest. See Jacobson, 551 P.2d at 938, holding that AS 28.35.030(a) prohibits an intoxicated person from being in "actual physical control" of a motor vehicle. As part of her defense, Conley argued that the State had failed to show that her car was "operable" at the time she exercised control over it. The supreme court said:
We agree that a finding that the car is "reasonably capable of being rendered operable" is required in civil driver's license revocation proceedings. See State v. Smelter, ... [36 Wash. App. 439] 674 P.2d 690, 693 (1984).
Conley, 754 P.2d at 236.
While Conley speaks only of "civil driver's license revocation proceedings", the Washington case cited by the supreme court was a criminal prosecution for DWI. We assume, for purposes of deciding this appeal, that the "operability" requirement announced in Conley applies to DWI prosecutions as well as to administrative proceedings.
Nevertheless, we conclude that Williams's case presents no question of "operability". Both Conley and the Washington case it relies on, Smelter, imposed the operability requirement in the context of a defendant who was charged, not for driving or operating a motor vehicle, but for simply being in control of one. The Washington Court of Appeals explained that the requirement of operability was being added to make sure that the defendant's conduct truly posed the danger envisioned by the legislature when it defined the crime of driving while intoxicated to include simply being in control of a non-moving vehicle:
A definition of "control" that focuses [solely] upon "the authority to manage" a motor vehicle, perhaps as evidenced by lawful possession of the keys while seated in the driver's seat, would permit a finding *171 of actual physical control of an inoperable vehicle. The question of what constitutes the elements of ["]actual physical control["], such as whether the motor must be running or, by extension, whether the vehicle must be operable, has been characterized as a policy issue. State v. Juncewski, 308 N.W.2d 316, 320 (Minn. 1981).
Smelter, 674 P.2d at 693. The Washington court then continued:
In general, laws prohibiting driving while intoxicated are deemed remedial statutes, to be "liberally interpreted in favor of the public interest and against the private interests of the drivers involved." [Juncewski, 308 N.W.2d] at 319. Specifically, actual physical control statutes have been characterized as "preventive measure[s]," State v. Schuler, [243 N.W.2d 367, 370 (N.D. 1976)], which "deter individuals who have been drinking intoxicating liquor from getting into their vehicles, except as passengers,", State v. Ghylin, [250 N.W.2d 252, 255 (N.D. 1977)], and which "enable the drunken driver to be apprehended before he strikes." State v. Webb, [78 Ariz. 8, 274 P.2d 338, 339 (1954)].
Smelter, 674 P.2d at 693.
When the Washington court spoke of apprehending an intoxicated driver "before he strikes", we believe the court meant "before he assumes control of a moving vehicle". If, as the Washington court intimated, the legislative aim behind criminalizing "actual physical control" was to forestall intoxicated persons from assuming control of a moving vehicle, then it makes sense to include an "operability" requirement of some sort when defining what instances of physical control actually create the danger contemplated by the legislature.
However, the evidence in this case shows that Williams was not merely in physical control of his vehicle. He was driving it steering it as it moved along the road. Williams's conduct clearly created the danger envisioned by the legislature when it prohibited driving while intoxicated. By failing to brake or by steering incorrectly, Williams might have struck the car towing him. By swerving from his lane, he might have collided with on-coming traffic. Or, by braking or maneuvering his vehicle in such a way as to disrupt the motion of the towing vehicle, he might have caused the towing vehicle to strike another vehicle or a pedestrian. See our decision in Smith v. State, 739 P.2d 1306, 1307 (Alaska App. 1987), in which the driver of a towed vehicle was convicted of criminally negligent homicide under AS 11.41.130(a): during the towing, Smith first struck the vehicle that was towing him, then later swerved his towed vehicle over the center line, struck an on-coming car, and killed the driver.
For these reasons, we hold that a person who steers a towed automobile is driving a "motor vehicle" within the meaning of Alaska's driving while intoxicated statute, AS 28.35.030(a). We consequently uphold Judge Wood's denial of Williams's motion to dismiss the case. For the same reasons, we uphold District Court Judge Jane F. Kauvar's refusal (as the trial judge) to instruct the jury that Williams could not be convicted unless the jury found that his vehicle was "reasonably capable of being rendered operable". Because Williams's vehicle was actually moving along the road, its operability was irrelevant.
Williams next challenges the propriety of a response Judge Kauvar gave to a question posed by the jury. The jury in Williams's case was instructed that the crime of driving while intoxicated could be established either by proof that the defendant had been "driving" or by proof that the defendant had "actual physical control over the vehicle". However, the same jury instruction informed the jury that "the act of driving involves actual movement of a motor vehicle caused by the acts of the driver". This limitation was incorrect. Williams's act of steering his towed vehicle was "driving" for purposes of the DWI statute even though the towing vehicle provided the motive power. However, apparently as a result of this definition of "driving", the jury focused on a theory of "actual physical control".
The instruction on "actual physical control" stated, in pertinent part:
To exercise "actual physical control" means a person must be physically or bodily able to assert dominion, in the sense of *172 movement, over an object as he would if he were actually driving the vehicle.
During its deliberations, the jury sent a note to the court asking for a definition of "dominion". Pursuant to a stipulation of the parties, Judge Kauvar answered the jury's question by telling them that "dominion" meant "supreme authority or control".
However, the jury later sent another note asking for a more complete definition of "dominion", and also asking whether the adjective "supreme" was intended to modify both "authority" and "control", or simply "authority".[2] Williams asked Judge Kauvar to tell the jury that "dominion" required "supreme control", but Judge Kauvar instead told the jury that "dominion" included not only "perfect control" but also "preponderant or overriding influence".
On appeal, Williams cites Black's Law Dictionary (6th ed. 1991), p. 486, for the proposition that "dominion" requires a finding of "perfect control" or "complete retention of control". However, the Black's entry clearly refers to dominion over property; the complete phrases it uses are "perfect control in right of ownership" and "complete retention of control over disposition". This definition is not controlling here.
It is obvious that the driver of a towed vehicle does not have "perfect control" over the movements of the vehicle. Nevertheless, such a driver has sufficient control over the vehicle to pose a significant danger to others, whether or not the driver is intoxicated. See Smith v. State, supra. Judge Kauvar did not commit error when she refused to define "actual physical control" as requiring "perfect control".
Williams's next point on appeal concerns an evidentiary ruling of the trial judge. Among the field sobriety tests Trooper Tellep administered to Williams was the horizontal gaze nystagmus (HGN) test. This test, in which a suspect is asked to track a moving object with his or her eyes, is described in State v. Grier, 791 P.2d 627 (Alaska App. 1990). Williams asked Judge Kauvar to prohibit the State from introducing evidence of this test; he argued that the State had not yet proved that the HGN test was generally accepted within the scientific community as a valid way to test a person's level of intoxication. See Contreras v. State, 718 P.2d 129, 134-36 (Alaska 1986); Pulakis v. State, 476 P.2d 474, 478 (Alaska 1970); Frye v. United States, 293 F. 1013 (D.C. Cir.1923). But see Daubert v. Merrell Dow Pharmaceuticals, Inc., ___ U.S. ___, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993). Judge Kauvar denied Williams's request, relying on this court's decision in Grier.
Grier is not dispositive of this issue. In Grier, this court held that the HGN test was reliable enough to be used by police officers in making decisions to arrest. Grier, 791 P.2d at 631. But at the same time this court expressly noted that, to reach this holding, it was unnecessary to decide whether the HGN test met the requirements of Contreras and Frye. Grier, 791 P.2d at 631 n. 2. The question of whether HGN evidence is admissible at criminal trials in this state is still open.
After examination of the record in this case, we find that it is still unnecessary to decide the admissibility of HGN evidence. While Judge Kauvar did deny Williams's request for a protective order, no evidence of Williams's performance on the HGN test was introduced at his trial. Trooper Tellep testified that he administered the HGN test to Williams, and he described the testing procedure to the jury. Tellep testified that "in a good portion of the ... population, [a "bouncing of the eye" during the HGN test] shows a level of intoxication". However, Tellep never described Williams's performance on the HGN test, nor did he state whether Williams had passed or failed the test.[3] The jury *173 heard an audio tape of the field sobriety tests, but that tape contains no statement indicating how Williams did on the HGN test. On the tape, Tellep can be heard instructing Williams on how to take the test, but nothing is said about Williams's performance; after a brief silence, Tellep can be heard asking Williams to perform balance tests. In sum, the jury heard that Williams had been asked to take the HGN test, but they heard no evidence that Williams had failed the HGN test.
The prosecutor's opening statement contained an assertion that Williams had failed the HGN test. And, despite the lack of evidence to support it, the prosecutor's final argument contained a similar assertion. However, these were the only comments at Williams's trial about his performance on the HGN test, and both comments were made in the middle of long lists of factors indicating that Williams was intoxicated.
Williams's attorney did not object to the prosecutor's statement during final argument. Moreover, Judge Kauvar specifically instructed the jury that they "must not consider as evidence any statement or argument of counsel". We therefore find that the prosecutor's assertion that Williams had failed the HGN test was harmless error.
Williams's final contention on appeal is that Judge Kauvar should not have allowed the prosecutor to introduce evidence of Williams's .241 intoximeter reading. The underlying facts are as follows:
Following Williams's arrest, Tellep took Williams to the trooper office and there administered the Intoximeter 3000 breath test. Tellep waited the 15-minute observation period mandated by 13 AAC 63.040(a)(1) before asking Williams to blow into the machine. However, when Williams did so, the Intoximeter aborted the test, giving a reading of "mouth alcohol". Tellep explained that this meant the machine was getting breath from Williams's mouth but was not getting a proper breath sample from his lungs.
About nine minutes later, Williams again blew into the Intoximeter. This time, the machine completed the test and produced the breath-alcohol result of .241 (nearly two and a half times the legal limit).[4]
At trial, Williams objected to the admission of the breath test result. He argued that the mandatory 15-minute observation period applied again after an aborted test attempt, and that therefore his Intoximeter result was invalid because Tellep had not waited the full 15 minutes between the aborted "mouth alcohol" test and the second test that produced the .241 result. Williams called the court's attention to a portion of the State Troopers' Intoximeter instruction manual which specifically instructed Intoximeter operators that an additional 15-minute observation period was necessary after any "mouth alcohol" reading before they again attempted to run the test.
Judge Kauvar concluded that the Troopers' instruction manual did not have the force of law and that 13 AAC 63.040 controlled the administration of the test. Judge Kauvar further found that, under this regulation, the only mandatory waiting period was the initial 15-minute observation period that the regulation did not require an additional observation period after an aborted test. Judge Kauvar therefore ruled that Williams's Intoximeter breath test result could be admitted, although she expressly allowed Williams both to argue and to introduce evidence indicating that the breath test result was inaccurate.
Williams did cross-examine Tellep about the instruction manual provision directing Intoximeter operators to wait an additional 15 minutes after a "mouth alcohol" reading. Tellep stated that he was unfamiliar with this provision and that it had apparently been added to the manual after he received his training at the State Trooper Academy.
*174 The prosecutor then called Alaska State Trooper Richard Quinn to testify as an expert witness on the Intoximeter 3000. Quinn testified that the Intoximeter gives a "mouth alcohol" reading and aborts the breath test whenever it detects that the alcohol content of the incoming breath sample decreases sharply during the intake of the sample. Quinn testified that this decrease in alcohol content can indicate either that residual alcohol is present in the test subject's mouth or that the test subject has not blown steadily and evenly into the machine.
Quinn also testified that, despite the Intoximeter's programmed response of "mouth alcohol", his personal experience was that a suspect's failure to blow steadily and evenly was generally the cause of a "mouth alcohol" reading whenever the subject (like Williams) was eventually determined to have a breath-alcohol level of .20 or higher.
In addition, Quinn testified that no additional 15-minute waiting period was required after a "mouth alcohol" reading. Quinn acknowledged the contrary statement in the instruction manual, but he nevertheless declared that this statement was inconsistent with State Trooper policy and was unsupported by any considerations of test accuracy. Quinn explained that the 15-minute waiting period suggested in the training manual is a conservative one: according to information Quinn received in training, residual alcohol in a person's mouth generally disappears within eight to ten minutes. Quinn added that even this 8- to 10-minute figure is conservative because, from his own experimentation with the Intoximeter, mouth alcohol becomes undetectable by the machine after five minutes.
Finally, Quinn testified that if a suspect's residual mouth alcohol has not disappeared by the time of the next test attempt, the Intoximeter will again detect the mouth alcohol and will again abort the test.
On appeal, Williams argues that Judge Kauvar's construction of 13 AAC 63.040(a)(1) makes no sense. He argues that if the Intoximeter can not be trusted to give an accurate reading without an initial 15-minute observation period before a suspect's first breath test, then the machine can not be trusted to give an accurate reading unless another full 15-minute waiting period is observed prior to any follow-up test. However, the only evidence presented on this question was Richard Quinn's testimony that a second 15-minute waiting period was not necessary under the circumstances of this case and that, given the 9-minute interval between Williams's first and second tests, there was little or no reason to doubt the validity of the result yielded by the second test.
On this record, Judge Kauvar did not err in finding that 13 AAC 63.040(a)(1) only envisioned an initial 15-minute waiting period. Moreover, even if a second 15-minute waiting period were required, Quinn's testimony established that Williams's breath test was conducted in substantial compliance with the regulatory requirement.
Absolute compliance with the breath test regulations is not required to secure admission of the breath test result; substantial compliance will suffice for admissibility, after which the defendant may present evidence questioning the validity of the test and may argue to the jury that the breath test result deserves little weight. Oveson v. Anchorage, 574 P.2d 801, 804-05 (Alaska 1978); Gilbreath v. Anchorage, 773 P.2d 218, 221-22 (Alaska App. 1989); Ahsogaek v. State, 652 P.2d 505, 506 (Alaska App. 1982).
Here, Williams was able to cross-examine both Tellep, the trooper who administered the test, and Quinn, the trooper who testified as an expert witness on Intoximeter testing. Williams cross-examined both of these witnesses about the provision in the Troopers' training manual that prescribed a second 15-minute waiting period, and he questioned Quinn about the reliability of an Intoximeter result taken less than 15 minutes after a "mouth alcohol" reading. Moreover, Judge Kauvar instructed the jury to weigh the breath test result in light of the government's level of compliance with the waiting-period regulation.[5] On this record, we conclude *175 that Judge Kauvar did not abuse her discretion when she allowed the government to introduce the Intoximeter result.
The judgement of the district court is AFFIRMED.
NOTES
[1] We also note that if a vehicle ceased being a "motor vehicle" whenever it could not run under its own power, the "operability" requirement imposed by Department of Public Safety v. Conley, 754 P.2d 232 (Alaska 1988) which we are about to discuss would be completely superfluous.
[2] The jury's note read:
(1) We require further definitions of dominion[.]
(2) Did your definition "supreme authority or control" mean "control or supreme authority" or did it mean "supreme authority or supreme control"?
(3) What is "supreme"? More than 50%; less than 99%?
[3] After Tellep had explained the HGN test to the jury, the prosecutor asked Tellep to go back and detail Williams's performance when reciting the alphabet and counting backwards. After Tellep described Williams's performance on these tests, the prosecutor asked Tellep to move on to the next tests (the balancing tests), apparently forgetting that the subject of the HGN test had been dropped before Tellep ever discussed Williams's performance on that test.
[4] After submitting to the breath test, Williams opted to have an independent test done of his blood-alcohol level. A blood sample was drawn and was sent to a hospital for testing, but Tellep did not know what the result of this test was, and neither party introduced other evidence concerning this independent test.
[5] Judge Kauvar told the jurors:
To be considered valid, the chemical analysis of the person's breath shall have been performed according to methods approved by the Department of Public Safety. If it is established that the chemical analysis of breath was performed according to approved methods by a person trained according to techniques, methods and standards of training approved by the Department of Public Safety, it may be inferred that the test results are valid, but if it is not so established you may reject the test entirely or give it such weight as you think it deserves.
The weight to be given the Intoximeter evidence is strictly a factual matter for you, the Jury.
Regulations adopted by the Department of Public Safety require that the following procedure must be used to obtain and analyze a breath sample on a breath test instrument:
"Observe the person to be tested for at least 15 minutes immediately before testing, to insure that the person does not regurgitate or place anything in his mouth during that period." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2611951/ | 884 P.2d 1182 (1994)
118 N.M. 703
STATE of New Mexico, Plaintiff-Appellee,
v.
Cynthia Renee WARE, Defendant-Appellant.
No. 15163.
Court of Appeals of New Mexico.
September 27, 1994.
Cert. Denied November 3, 1994.
*1183 Tom Udall, Atty. Gen., Jennifer L. Stone, Asst. Atty. Gen., Santa Fe, for plaintiff-appellee.
Sammy J. Quintana, Chief Public Defender, Rita LaLumia, Asst. Appellate Defender, Santa Fe, for defendant-appellant.
OPINION
FLORES, Judge.
Defendant appeals her conviction for possession of cocaine. She raises three issues on appeal: (1) whether there was sufficient evidence to support her conviction; (2) whether the results of the urine test should have been suppressed as a privileged probation record; and (3) whether the results of a urine test should have been suppressed as the fruit of an unreasonable search and seizure. We affirm.
FACTS
Defendant was on probation for possession of cocaine. As a condition of her probation, Defendant was required to submit to urinalysis testing. Defendant violated certain conditions of her probation by failing to report for a monthly probation report meeting and purchasing a car without the permission of her probation officer. Those violations prompted Defendant's probation officer to order Defendant to submit to a urine test. Defendant's urine test came back positive for the presence of cocaine. Defendant was ultimately charged with possession of cocaine.
At a bench trial, Defendant's urine test results were admitted into evidence. In addition, Defendant's probation officer testified that prior to taking the test Defendant told him that the test was going to come back positive for the presence of cocaine. Defendant also told her probation officer that she needed help for drugs. The trial court found Defendant guilty of possession of cocaine.
DISCUSSION
Defendant contends there is insufficient evidence to support her conviction for possession of cocaine. A sufficiency of the evidence review involves a two-step process. See State v. Orgain, 115 N.M. 123, 126, 847 P.2d 1377, 1380 (Ct.App.), cert. denied, 115 N.M. 145, 848 P.2d 531 (1993). First, "[w]e review the evidence in the light most favorable to the verdict, resolving all conflicts therein and indulging all reasonable inferences therefrom in support of the judgment." Id. We then make "a legal determination of whether the evidence viewed in this manner could support the conviction" beyond a reasonable doubt. Id.
In State v. McCoy, 116 N.M. 491, 496, 864 P.2d 307, 312 (Ct.App.1993), reversed on other grounds by State v. Hodge, 118 N.M. 410, 882 P.2d 1 (1994) (No. 21,305), we recognized that a positive drug test is relevant, circumstantial evidence that the defendant possessed cocaine at the time of ingestion. However, we also recognized that a positive drug test alone is insufficient evidence of possession of cocaine. McCoy, 116 N.M. at 497, 864 P.2d at 313. To support a conviction for possession of cocaine there must also be corroborating evidence to prove that the defendant knowingly, intentionally, and voluntarily possessed the drug at the time it was ingested. Id. Defendant suggests there is insufficient evidence to corroborate her positive drug test. We disagree.
As the State points out, Defendant's probation officer testified that Defendant stated that the urine test would come back positive for cocaine. We believe the fact finder could reasonably infer from this statement that Defendant knowingly ingested cocaine. See State v. Vialpando, 93 N.M. 289, 292, 599 P.2d 1086, 1089 (Ct.App.) (fact finder determines weight of the evidence including all reasonable inferences), cert. denied, 93 N.M. 172, 598 P.2d 215 (1979). Defendant also told her probation officer that she needed help for drugs. We believe the fact finder could reasonably infer *1184 from this statement that Defendant also intentionally and voluntarily ingested the cocaine. See id. Defendant points out that there are conflicting inferences that can be drawn from her statements to her probation officer. We simply note that we do not reweigh the evidence or substitute our judgment for that of the fact finder. See State v. Vernon, 116 N.M. 737, 738, 867 P.2d 407, 408 (1993). In short, under our standard of review, we believe there was sufficient evidence to support Defendant's conviction because there was corroborative evidence to show that Defendant knowingly, intentionally, and voluntarily possessed the cocaine at the time of ingestion. See McCoy, 116 N.M. at 497, 864 P.2d at 313; Orgain, 115 N.M. at 126, 847 P.2d at 1380; Vialpando, 93 N.M. at 292, 599 P.2d at 1089.
Defendant also argues that there was insufficient evidence to prove jurisdiction in this case because there was no proof that Defendant ingested the cocaine within the State of New Mexico. See State v. Benjamin C., 109 N.M. 67, 69, 781 P.2d 795, 797 (Ct. App.) (proof of where defendant lives or is arrested is insufficient to prove offense was committed in the state), cert. denied, 109 N.M. 54, 781 P.2d 782 (1989). Because Defendant was living very close to the Texas border, she contends this case is indistinguishable from Benjamin C. in that it is just as likely that the crime could have been committed outside of New Mexico. We rejected the same argument in McCoy.
In McCoy we noted that a general condition of probation is that the probationer remain in the state. 116 N.M. at 496, 864 P.2d at 312. We also noted that such a probation condition could be sufficient, circumstantial evidence from which the fact finder could infer that the ingestion of cocaine occurred in New Mexico. Id. In this case there was evidence that one of Defendant's conditions of probation was that she could not leave the state without obtaining permission from her probation officer. Defendant's probation officer also testified that Defendant never sought or received permission to leave the state. Consequently, unlike Benjamin C., we hold there was sufficient evidence from which the trial court could infer that Defendant ingested cocaine while in New Mexico. See McCoy, 116 N.M. at 496, 864 P.2d at 312.
Defendant also argues that her drug test results should not have been used to prosecute her for possession of cocaine because disclosure of the drug test results violates the privilege against disclosure found in NMSA 1978, Section 31-21-6 (Repl.Pamp. 1994). In an opinion recently filed by this Court, we rejected a virtually identical argument. See State v. Rickard, 118 N.M. 312, 881 P.2d 57 (Ct.App.), cert. granted 118 N.M. 256, 880 P.2d 867 (1994). For the reasons expressed in Rickard, we hold that Defendant cannot rely on Section 31-21-6 to argue that disclosure of her urine test results was improper.
To the extent Defendant may be arguing that disclosure of other evidence in the possession of the probation department, specifically her statements, may violate Section 31-21-6, we do not address that issue. Although Defendant's oral motion to suppress in the trial court was broad enough to include any evidence in the possession of the probation department, the only evidence specifically addressed below was the urine test results. No argument was made below that statements might be subject to a different analysis than test results, and no record was made below concerning the voluntariness of the statements or compliance with Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966). We do not address issues not raised in the trial court, and we do not address issues upon which no record was made. Rickard, 118 N.M. at 317, 317-318, 881 P.2d at 62, 62-63. Moreover, neither the point title nor the introductory paragraph of Defendant's argument in her appellate brief identify anything other than the urine test results as sought to be suppressed. Briefs on appeal must clearly and cogently identify the issues on which reversal is sought. See Clayton v. Trotter, 110 N.M. 369, 373, 796 P.2d 262, 266 (Ct.App.1990); State v. Padilla, 88 N.M. 160, 162, 538 P.2d 802, 804 (Ct.App.), cert. denied, 88 N.M. 318, 540 P.2d 248 (1975). In short, this is not an appropriate case in which to determine whether our decision in Rickard applies equally to oral statements as it does to nontestimonial evidence, *1185 and we specifically express no opinion on that issue.
Defendant's final argument is that the urine test she was subjected to as a condition of probation constituted an unreasonable search and seizure. This Court has previously held that such drug tests do not constitute unreasonable searches and seizures. See McCoy, 116 N.M. at 500, 864 P.2d at 316 (Because random drug tests are related to drug use activity which is criminal and because the testing is reasonably related to deterring future criminality, "the results of those drug tests would not be subject to suppression as the fruit of an unreasonable search and seizure."). Defendant's urine test results, therefore, were not subject to suppression as the fruit of an unreasonable search and seizure.
CONCLUSION
Based on the foregoing, we affirm Defendant's conviction for possession of cocaine.
IT IS SO ORDERED.
BIVINS and PICKARD, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2611956/ | 180 Ariz. 356 (1994)
884 P.2d 242
Carol REISCH, Plaintiff-Appellant,
v.
M & D TERMINALS, INC., Defendant-Appellee. Carol REISCH, Plaintiff-Appellant/Cross-Appellee,
v.
Orla REISCH, Defendant-Appellee/Cross-Appellant, and M & D Terminals, Inc., Defendant-Appellee. INTEGRAL INSURANCE COMPANY, Plaintiff-Appellant/Cross-Appellee,
v.
Carol REISCH, Defendant-Appellee/Cross-Appellant.
Nos. 1 CA-CV 90-0659, 1 CA-CV 91-0309 and 1 CA-CV 91-0487.
Court of Appeals of Arizona, Division 1, Department C.
August 9, 1994.
Reconsideration Granted October 6, 1994.
*357 David L. Sandweiss, Phoenix, for Carol Reisch.
Lewis and Roca by Merton E. Marks, Janet Napolitano and James T. Acuff, Jr., Phoenix, for M & D Terminals, Inc. and Integral Ins. Co.
Jones, Skelton & Hochuli by Peter G. Kline and Phillip H. Stanfield, Phoenix, for Orla Reisch.
OPINION
KLEINSCHMIDT, Judge.
This consolidated appeal arose out of a single vehicle accident. There is also a cross-appeal. We will set forth the specific facts which are pertinent to the various issues raised as we discuss those issues, but the basic facts which gave rise to the litigation are as follows.
Orla Reisch was a truck driver for M & D Terminals, Inc. On a day in April 1988, Orla's wife, Carol, agreed to accompany him on a trip for his employer from Phoenix to Tuba City. Orla was driving a tractor pulling double trailers. On a downgrade north *358 of Flagstaff in a heavy rain, Orla passed a pickup truck at a speed of 55-60 miles per hour. As he completed the pass, the trailers began to sway, Orla lost control, and the truck left the highway and rolled over. Carol was ejected from the truck and severely injured.
The accident gave rise to three separate actions which have been consolidated in this appeal. We refer to the cases as Reisch I, II, and III.
Reisch I (1 CA-CV 91-0309) Carol Reisch brought this action against her husband, Orla Reisch, and his employer, M & D Terminals, Inc. The claim against M & D was based on vicarious liability for Orla's negligent driving. Summary judgment was granted in favor of M & D based on the rule embodied in the Restatement (Second) of Agency section 242 which, in essence, states that an employer is not liable for injuries to a passenger riding in the employer's truck in knowing violation of a rule which forbids carrying passengers.
Carol then sought to amend her complaint to add a separate cause of action against M & D for negligent hiring and failing to properly train, supervise, or monitor Orla. This motion was denied. Carol prevailed on her negligence claim against Orla and was awarded damages in a trial to the court. The trial judge, however, denied Carol's motion to recover costs and attorney's fees. Carol appeals all three of these unfavorable rulings.
Orla filed a cross-appeal from the trial court's order granting summary judgment in favor of Carol on Orla's claim that she was comparatively negligent because she rode with him in violation of the no passenger rule when she had reason to believe he was a dangerous driver.
Reisch II (1 CA-CV 91-0487) Integral Insurance Company, M & D's insurer, brought this declaratory judgment action against Orla and Carol Reisch seeking a declaration that Integral was not required to indemnify Orla for any judgments entered against him in Carol's favor. The insurance company claimed that Orla's violation of the no passenger rule negated his permission to drive the truck, so that he was not an insured under the terms of the policy. Carol counterclaimed against Integral on this issue, and she prevailed on cross-motions for summary judgment. She appeals the partial denial of her motion for attorney's fees.
Reisch III (1 CA-CV 90-0659) To avoid the expiration of the statute of limitations, Carol filed this action against M & D while her motion for leave to amend the complaint was pending in Reisch I. She alleged the identical claim for negligent hiring and failure to train, supervise or monitor that was the subject of her motion to amend. M & D filed a motion to dismiss on the grounds that Carol's suit was an impermissible horizontal appeal of the denial of the motion for leave to amend in Reisch I. The motion to dismiss was granted, and Carol appeals this ruling.
REISCH I
THE TRIAL COURT CORRECTLY APPLIED THE RESTATEMENT (SECOND) OF AGENCY SECTION 242
M & D Terminals based its motion for summary judgment in Reisch I on the Restatement (Second) of Agency section 242 which reads:
A master is not subject to liability for the conduct of a servant towards a person harmed as the result of accepting or soliciting from the servant an invitation, not binding upon the master, to enter or remain upon the master's premises or vehicle, although the conduct which immediately causes the harm is within the scope of the servant's employment.
M & D's company policy forbade drivers from carrying unauthorized passengers. This policy was in accord with a federal safety regulation found at 49 C.F.R. section 392.60. In 1988, Orla had signed a document which read:
NO ONE IS PERMITTED TO RIDE IN YOUR TRUCK OTHER THAN THOSE STATED IN SUBPART G PROHIBITED PRACTICES SECTION # 392.60 [of the federal Motor Carrier Safety Regulations].
THIS IS ALSO A COMPANY POLICY AND WILL NOT BE TOLERATED.
*359 ANYONE FOUND TRANSPORTING UNAUTHORIZED PERSONS WILL BE TERMINATED ....
Orla testified that when he signed the document he clearly understood that he could not take passengers in an M & D truck without company permission. When asked if he understood what would happen if he were caught doing so, he answered: "Be terminated."
At the time her husband asked her to take the trip to Tuba City with him, Carol Reisch knew that she and her husband would be violating company policy if she did so. Before leaving on the trip, they discussed the policy and both made a conscious decision to ignore it.
In granting M & D's motion for summary judgment, the trial court relied on Hottovy v. United States, 250 F. Supp. 315 (D.Ariz. 1966). In Hottovy an army pilot, contrary to regulations, asked a civilian to join him for a brief helicopter flight. The helicopter crashed, injuring the civilian, and she sued the government under a theory of respondeat superior and as the owner of the helicopter. The government's motion to dismiss on the basis of section 242 of the Restatement (Second) was granted.
The trial court also relied on Illustration No. 2 to the Restatement (Second) section 242 which reads:
A, a truck driver for P, invites T to ride with him, this being against orders, as T should know. While T is riding in response to the invitation, A drives the truck recklessly to make up for lost time, and thereby injures T. P is not liable to T. [Emphasis added.]
Reisch argues that the Restatement (Second) and Hottovy are at odds with other Arizona authority like Ohio Farmers Ins. Co. v. Norman, 122 Ariz. 330, 594 P.2d 1026 (App. 1979). In Norman, a restaurant employee had been told by his employer not to burn trash. The employee did so anyway, and the fire spread to neighboring property. When sued on a theory of respondeat superior, the restaurant owners defended on the basis that their employee had violated instructions. Division Two of this court rejected this defense and noted that the general rule is that an employer may be accountable for the wrongful act of an employee committed while acting in the course and scope of his employment even though the employer has expressly forbidden the conduct which gave rise to the injury.
There is an important distinction between cases like Norman and the one now before us. In Norman, the victims of the employee's negligence were totally innocent. Here, Carol Reisch was in complicity with her husband in the breach of the employer's rule. The Restatement (Second), where it says that an employer is not liable for a person harmed as the result of accepting an employee's invitation which is not binding upon the employer, recognizes that such complicity by the injured person is an element of the employer's defense. This element is even more clearly apparent in the illustration to section 242, which includes a reference to the injured person's knowledge that the invitation is issued against the employer's orders. The general rule that an employer is responsible for an employee's acts done in the course and scope of employment, even though the employer has expressly forbidden the conduct which causes the harm, does not apply under the facts of this case.
Carol Reisch would distinguish Hottovy because in that case there was no showing that the short flight around Phoenix which ended in the crash was undertaken as a part of the pilot's employment. While she is correct, the distinction is not the point upon which the case turns. The court apparently assumed that the flight was within the scope of the pilot's employment, and then proceeded to apply section 242 of the Restatement (Second).
Finally, Reisch argues that section 242 is the minority rule and ought not be adopted. One case which she cites, Meyer v. Blackman, 59 Cal. 2d 668, 31 Cal. Rptr. 36, 381 P.2d 916 (1963), does specifically reject section 242. The California Supreme Court declined to give effect to section 242 because it was contrary to long established and clear California case law. We do not follow Meyer because Arizona has no case law which is contrary to section 242. Furthermore, Meyer *360 is less persuasive than it might otherwise be because it makes no mention of whether the deceased passenger was aware of the fact that the employee had no authority to allow him to ride in the car.
Arizona follows the Restatement (Second) in the absence of contrary authority. Jesik v. Maricopa County Community College Dist., 125 Ariz. 543, 546, 611 P.2d 547, 550 (1980). Although there is a split of authority on the point at issue, we do not believe that Reisch is correct in characterizing section 242 as the minority rule. A number of courts have adopted section 242. See Klatt v. Commonwealth Edison Co., 33 Ill. 2d 481, 490, 211 N.E.2d 720, 729 (1965) (considering divergent authority and adopting section 242). See also Jones v. Avco Mfg. Corp, 218 F.2d 406 (8th Cir.1955), cert. denied, 350 U.S. 826, 76 S. Ct. 55, 100 L. Ed. 738 (1955); Meyer v. Culley, 69 Wyo. 285, 241 P.2d 87 (1952); Antonen v. Swanson, 74 S.D. 1, 48 N.W.2d 161 (1951); Gunn v. Coca-Cola Bottling Co., 154 Neb. 150, 47 N.W.2d 397 (1951); Wilson v. Dailey, 191 Md. 472, 62 A.2d 284 (1948); Home Stores v. Parker, 179 Tenn. 372, 166 S.W.2d 619 (1942); Struble v. Bell, 126 N.J.L. 168, 17 A.2d 800 (1941); Ruiz v. Clancy, 182 La. 935, 162 So. 734 (1935); Braselton v. Brazell, 49 Ga. App. 269, 175 S.E. 254 (1934); Dempsey v. Test, 98 Ind. App. 533, 184 N.E. 909 (1933); Electric Bakeries v. Stacy's Adm'r, 252 Ky. 20, 66 S.W.2d 70 (1933); Clark v. Harnischfeger Sales Corp., 238 A.D. 493, 264 N.Y.S. 873 (1933).
Finally on this point, the other cases Reisch relies on do not support her position. In Pierson v. United States, 527 F.2d 459 (9th Cir.1975), the court criticized the language of section 242 of the Restatement (Second) which says that the master is not liable for an invitation, "not binding on the master," as assuming the question to be decided, i.e., whether the servant had apparent authority to extend the invitation. Assuming the construction the Pierson court gives the words "not binding upon the master" is correct, Pierson has no importance for the case before us because here, Reisch concedes that her husband had no apparent authority to ask her to ride with him in the truck.
In Whittle v. United States, 328 F. Supp. 1361 (M.D.Ala. 1971), it is true, as Reisch says, that the court observed that the Supreme Court of Alabama had not adopted section 242. But the court went on to apply a rule that a person in Reisch's situation can only recover for willful or wanton misconduct that would bar Reisch's recovery in this case.
In Pierce v. Der Weinerschnitzel Int'l Inc., 313 F. Supp. 740 (W.D.Mo. 1970), the jury found as a matter of fact that a wife who was traveling with her husband had the express approval of the husband's employer to do so. That is precisely the opposite of what the evidence in this case shows. Pierce does not support Reisch.
Reisch, for the first time on appeal, asserts that a rejection of section 242 of the Restatement (Second) would have the salutary effect of preserving consistency between the state and federal law on the subject of interstate carriers and suggests, vaguely, that federal regulations defining "employees" have preempted common law principles of agency and respondeat superior in this area of the law. A failure to raise an issue of federal preemption in the trial court waives the issue on appeal. See Sweeney v. Westvaco Co., 926 F.2d 29, 37 (1st Cir.1991). Even if that were not the case, Reisch's argument on this point is so underdeveloped that it precludes analysis.
THERE WAS NO MATERIAL DISPUTE OF FACT CONCERNING THE RULE AGAINST PASSENGERS
Reisch's next argument is that it was not proper to grant summary judgment in favor of M & D because there were disputed questions of fact on the issue of whether M & D should be estopped from claiming that the Reischs knew they were violating a company policy by allowing Carol Reisch to accompany her husband on the trip to Tuba City. Their argument is based on the single assertion that Orla had seen his boss at M & D, Dennis Simmons, carrying a passenger in a company truck. Reisch, relying on Restatement *361 (Second) of Agency sections 33 & 215,[1] argues that Simmons's conduct could have reasonably led Orla Reisch to believe that it was permissible to carry passengers without written authorization. The record does not indicate whether the passenger in Simmons' truck was indeed unauthorized, and nothing in the record suggests that it was accepted custom at M & D for its drivers to carry unauthorized passengers. Orla testified that, while other drivers allowed passengers in their trucks, he could not say that the management of M & D was aware of this. The evidence, taken as a whole, leads irrefutably to the conclusion that the Reischs knew the policy was in force and chose to ignore it. There is no disputed question of fact to justify a trial on this point. Orme School v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990).
ALLOWING THE PLAINTIFF TO AMEND HER COMPLAINT WOULD NOT HAVE CHANGED THE RESULT OF HER CASE
As we have already explained, after summary judgment was granted on the grounds that section 242 of the Restatement (Second) would preclude recovery, the Plaintiff sought to amend her complaint to allege that M & D was negligent in hiring Orla Reisch and in failing to properly train, supervise or monitor him. The trial judge refused to allow the Plaintiff to file the amended complaint, saying that the request was untimely. The Plaintiff makes a strong argument that it was an abuse of discretion to deny leave to amend, but we believe that M & D has an unanswerable response. M & D points out that even if the Plaintiff could show that it was negligent in hiring and training Orla, the rule established in section 242 of the Restatement (Second) would preclude recovery. As M & D puts it:
Thus, even assuming arguendo that M & D negligently put Orla Reisch in the driver's seat, the controlling law of the case was that M & D was not liable to a person harmed by Orla Reisch as a result of that person's knowingly trespassing upon M & D's vehicle. This legal fact breaks the chain of causation. Hence, for a trespasser, it was immaterial whether M & D negligently hired or supervised Orla Reisch. A contrary result would be anomalous.
Carol Reisch's rejoinder to this is to say that there is a distinction between the employer's vicarious liability based on the negligence of its employee which is negated by section 242 and the employer's direct liability for negligent hiring and training which is outside the protection of section 242. According to Carol, the protection afforded by section 242 only comes into play if the employer is liable only by reason of its status as an employer. We are not persuaded by that argument because it ignores the fact that in either case the employee driver was the instrumentality that caused the harm. If Reisch's argument were correct, the policy embodied in section 242 would be significantly undermined.
THE TRIAL COURT DID NOT ABUSE ITS DISCRETION IN DENYING THE REQUEST FOR SANCTIONS
Carol Reisch claims that the trial judge abused his discretion in refusing to award her fees and expenses against Orla incurred in proving both liability and damages. With respect to liability, Carol asked Orla to admit that it was negligent for him to drive at a speed which was greater than reasonable and prudent and that such negligence was the cause of the accident. She also requested Orla to admit that he had been negligent in passing another vehicle in *362 an unsafe manner, and that this maneuver was also a cause of the accident.
Orla responded to the request for admissions by saying that he was traveling at the speed limit and that his speed was reasonable and prudent. He made no particular response about the passing maneuver except to refer to his assertion that he was driving at a reasonable and prudent speed.
Carol Reisch deposed the police officers who investigated the accident and the eyewitness who had been in the vehicle that Orla was passing at the time his truck went off the road. She also hired an expert on trucks to establish that Orla had been negligent. Ultimately, she filed a motion for summary judgment on the issue of liability and this was granted. It follows, she says, that she should have been awarded her expenses and fees.
The trial judge did not abuse his discretion in denying the award. While the facts present a strong case for liability, and one which Orla apparently chose not to contest on appeal, they are not so overwhelming that it was totally unreasonable for Orla to require the Plaintiff to develop her case against him. In other words, the trial court could have found on this record that one of the grounds under Rule 37(c), Arizona Rules of Civil Procedure, for refusing to pay expenses existed, i.e., that Orla had reasonable grounds to believe he might have prevailed on this issue, was established.
THE CROSS-APPEAL
CAROL REISCH DID NOT ASSUME THE RISK OF AN ACCIDENT AND SHE WAS NOT CONTRIBUTORILY NEGLIGENT
Orla Reisch claims that the trial court erred in granting partial summary judgment in favor of Carol on the issue of comparative negligence. He argues that Carol's presence in the truck was a violation of a federal motor safety regulation and that Carol fully understood that, for safety reasons, she was not supposed to be a passenger in the truck.
The rule against carrying passengers, 49 CFR section 392.60, provides that "[N]o driver shall transport any person or permit any person to be transported on any motor vehicle...." On its face, the rule is addressed to drivers and not to passengers. Orla's argument on this point is vague, but we can posit several ways in which obedience to the rule would either reduce accidents or lessen their consequences. First, the presence of a passenger might distract a driver and cause an accident. Carol Reisch acknowledged that she understood this reason for the rule. There is, however, no suggestion that Carol's presence in any way contributed to the accident. If the presence of a passenger was not the proximate cause of the accident, no finding of negligence can be predicated on that circumstance. See Fox v. Lyte, 143 A.D.2d 390, 532 N.Y.S.2d 432, 434 (App. 1988).
Second, the no passenger rule would lessen the consequences of an accident by limiting the number of people exposed to harm. In other words, if Carol had not been a passenger she could not have been injured. Orla does not expressly make this argument, and he has cited no case which holds, with respect to a driver who has actually invited a passenger to ride, that a passenger's contributory negligence can somehow be predicated on this second reason for the rule against carrying passengers.
Orla has another argument as to why it was error to grant summary judgment against him on the issue. According to Orla, Carol also knew that he had been involved in two previous accidents and knew that he was a careless driver. Carol testified about her husband's driving habits:
Q: Were you at all concerned about your husband as a driver? Did you feel he was safe?
A: He scares me in the car even. But no, not just normal I guess. I don't know. Didn't really worry me at the time, no.
Q: What do you mean, he scares you in the car?
A: He just gets too close. He switches lanes all the time, and it scares me.
We observe at the outset that this argument is really one of assumption of the risk rather than contributory negligence. See Galindo v. TMT Transport, Inc., 152 Ariz. 434, 437, 733 P.2d 631, 634 (App. 1986). We *363 believe it was proper for the court to grant summary judgment on this issue. Orla's accident history was negligible. One of the accidents had been the fault of the other driver and the other accident was a rear-end collision of undisclosed severity. Although Carol said that when Orla was driving a car he got too close to other cars and switched lanes frequently, in our opinion, this, taken in context with her other comments about Orla being a normal driver and her having no particular fear on the occasion of this trip, is too ethereal to support a finding of assumption of the risk. While a person who rides with a driver who is known to be incompetent or incapacitated may assume the risk of an accident, we agree with the qualification of that rule as stated in 5 Blashfield Automobile Law and Practice section 215.28 at 387:
As a general rule, a guest, merely because of his knowledge that the driver on former occasions has so driven his automobile as to indicate that he is likely to drive recklessly or carelessly, is not deemed to assume the risk of any such negligence or failure to use due care by accepting an invitation to ride.
Orla relies heavily on two cases, MacDonald v. Eichenauer, 77 Ariz. 252, 269 P.2d 1057 (1954), and McGriff v. McGriff, 114 Ariz. 323, 560 P.2d 1230 (1977), for the proposition that there was a question of fact as to whether Carol Reisch was contributorily negligent. In MacDonald the plaintiff, who had twice been asked to ride in the cab of a truck and who insisted on riding in the bed, was injured when machinery which was being transported on the bed of the truck shifted and struck him. In McGriff, the plaintiff insisted that his brother, who was in a state of exhaustion, drive. This was enough to allow the jury to consider whether the plaintiff had assumed the risk of the brother's falling asleep at the wheel. These cases do not help Orla because in both of them the plaintiff passenger was engaged in some act of specific negligence over and above mere presence in the vehicle that led to his injury. In MacDonald, the passenger was riding in a dangerous position contrary to the driver's request, and in McGriff the passenger insisted on turning over the wheel to someone who was in no shape to drive.
Orla also refers to the fact that Carol was not riding in a passenger seat at the time of the accident but instead was riding on a carpeted platform that Orla had installed beside the driver's seat. Again, Orla's argument is unclear. He appears to use this fact to reinforce his argument that Carol had no permission to ride in the truck, as opposed to suggesting that had Carol been riding in a regular seat she would not have suffered injuries as serious as those which in fact she did receive. His argument adds little to his case because Carol freely admitted that she knew she was not supposed to be riding in the truck.
REISCH II
THE VIOLATION OF THE NO PASSENGER RULE DID NOT NEGATE COVERAGE FOR THE DRIVER
This case, Reisch II, was brought by Integral Insurance Company seeking a declaration that it had no duty to defend Orla Reisch. Integral issued a Trucker's Policy of Insurance to M & D. The policy, in compliance with the requirements of Ariz. Rev. Stat. Ann. ("A.R.S.") section 28-1170(B), insured anyone who used an M & D vehicle with M & D's express or implied permission against loss arising out of the use of the vehicle. Integral takes the position that since Orla Reisch violated M & D's no passenger rule, he was not driving with the company's permission.
The trial judge, relying on James v. Aetna Life & Casualty, 26 Ariz. App. 137, 546 P.2d 1146 (1976), held that the violation of the no passenger rule was the type of minor deviation from the terms of employment which would not negate coverage for the driver. In James, Division Two of this court adopted the "minor deviates rule" under which a driver who deviates from the permission to use a vehicle given him by his employer is still insured under the omnibus clause unless the deviation was substantial in terms of duration, distance, time, or purpose. Id. at 139, 546 P.2d at 1147.
The insurer insists that the employer's explicit and strict no passenger rule, coupled *364 with the fact that Carol Reisch, who would benefit from coverage, was implicated in the violation of the rule, render the minor deviation rule inapplicable in this case. The insurer bolsters its argument by reference to an affidavit of M. Dennis Simmons, the Vice President of M & D, who averred that "the presence of an unauthorized passenger in an M & D vehicle nullifies the driver's permission to drive that vehicle." It points out that there is no Arizona case on permissive use which includes the combination of facts presented in this case.
In our opinion, the trial judge correctly ruled that the Integral policy provided coverage for Orla Reisch under the circumstances of this case. Cases from other jurisdictions hold that a breach of the no rider rule is not so substantial a deviation from the permission to use the vehicle as to vitiate coverage under the omnibus clause of a policy like the one we construe in this case. See Hawley v. Indemnity Ins. Co. of N.A., 257 N.C. 381, 126 S.E.2d 161 (1962); Phoenix Assurance Co. v. Latta, 373 P.2d 146 (Wyo. 1962); Travelers Indem. Co. v. Federal Ins. Co., 297 F. Supp. 1346 (N.D.Ga. 1969); Kobetitsch v. American Mfrs.' Mut. Ins. Co., 390 So. 2d 76 (Fla.App. 1980). At least one case holds that is true even though the passenger knows of the employer's no passenger rule. Johnson v. National Casualty Co., 176 So. 235 (La. App. 1937). In Johnson, the court quoted extensively from an earlier case, Utica Mut. Ins. Co. v. Langevin, 87 N.H. 267, 177 A. 549 (1935), which, save for any reference as to whether the injured rider was aware of the no rider rule, involved facts similar to those present in Johnson. The Langevin court observed:
The employee's possession of the truck was rightful, he was using it in the employer's business, and his operation of it was within his service. While he had no right to invite others to ride, likewise he had no right to operate the truck negligently. Carrying passengers and negligent operation were both unauthorized. If the carrying was without, and the negligence within, the scope of the employment, the policy does not make the difference a test of insurance.
The dual status of the employee in acting at the same time within and without the promotion of his employer's business may be assumed ..., but the question here is not of the validity of the distinction. It is, instead, whether the policy makes the distinction. Nothing is found thus to construe the policy. On the contrary, its purpose to give an unnamed insured as much insurance as the named assured has seems [sic] unmistakable ....
If there is at the same time both an authorized and unauthorized use, the policy protects for liability arising from the latter as much as for the former use.
Id. at 267, 177 A. at 549.
Integral suggests that Johnson is distinguishable because the unauthorized passenger in Johnson was a minor and because the evidence that he knew about the rule forbidding riders was unclear. These points of distinction are not persuasive because the court in Johnson assumed the rider knew he was violating a company rule.
Reisch has another argument as to why the insurance policy issued to M & D affords coverage for Orla's negligence. The policy contains the following language:
SECTION II LIABILITY COVERAGE
A. COVERAGE
We will pay all sums an `insured' legally must pay as damages because of `bodily injury' ... to which this insurance applies, caused by an `accident' and resulting from the ownership, maintenance or use of a covered `auto'.
* * * * * *
1. WHO IS AN INSURED
The following are `insureds':
a. You for any covered `auto'.
b. Anyone else while using with your permission a covered `auto' you own, hire or borrow ...
The policy then proceeds to enumerate a number of circumstances under which coverage does not apply and in this respect says nothing about an exclusion based upon carrying passengers or violating a company rule. This, says Reisch, brings the case within the holding of Hartford Accident & Indem. Co. v. *365 Collins, 96 F.2d 83 (5th Cir.1938). In Collins, an employee, in disregard of a company rule, invited Collins to join him on a trip which the employee was making in the course and scope of his employment. Collins was injured in an accident and the insurer denied coverage based on the violation of the employer's no passenger rule. The court rejected this argument, saying,
Waltermeyer's [the employee's] use of the car on the trip was with his employer's permission .... Does the fact that he was violating a rule in taking Collins into the car annul the employer's permission to use the car? We think not.... The policy makes no reference to the named assured's rules; they do not enter into the insurance. If the insurer intended to restrict the insurance to blameless users by permission of the automobiles, the language of the policy ought clearly so to provide .... We think Waltermeyer continued to be an insured, though he broke a rule of his employer in taking a companion into the automobile.
96 F.2d at 84.
The insurance company has not responded directly to this argument based on Collins. We assume, however, that it relies on the strong showing it has made that the violation of the no passenger rule negated Orla's permission to drive the truck at all, and that cases like Collins, which assume permissive use, simply beg the question. We have taken this line of reasoning into account, but we nonetheless believe that Orla is covered under the policy. Most cases which have considered the question hold that a violation of the no passenger rule will not vitiate coverage. We do not believe that Simmons's affidavit adds anything to the insurer's position because we think it is implicit in all of the cases that had the employer known that a driver was carrying unauthorized passengers, the employer would not have allowed the trip to proceed. It is not that the deviation is "minor" as far as the employer may be concerned, but that in contemplation of law it is "minor" in the context of an omnibus insurance clause.
The insurer has not cited a single decision holding that a violation of the no passenger rule vitiates coverage. It relies on the fact that because Carol Reisch was knowingly involved in the breach of the company rule, she is not the kind of innocent injured party entitled to the benefits of insurance. We disagree. Carol Reisch's conduct was not so egregious as to forfeit coverage in an action against her husband when her husband did not deviate from the permission given him with respect to time, place and purpose.
THE TRIAL COURT DID NOT ABUSE ITS DISCRETION IN DENYING PLAINTIFF'S ATTORNEY'S FEES
After prevailing on the merits against the insurer, Carol Reisch moved for an award of attorney's fees in the amount of $7,625.00, based on A.R.S. section 12-341.01(A), the statute which allows an award of fees to the party who prevails on an action in contract. The trial court awarded fees in the amount of $3,500 pursuant to A.R.S. section 12-341.01(A). It declined to award the balance because it found that Integral's position was not without some merit and the issue was one of first impression in Arizona. It also found that Carol's having knowingly violated company policy made it inequitable to award her full fees. She now asserts that this was an abuse of discretion.
The legal issue the insurer presented was novel and not specious. The trial court did not abuse its discretion in refusing to award full fees. See Associated Indem. Corp. v. Warner, 143 Ariz. 567, 570, 694 P.2d 1181, 1184 (1985), and Great Western Bank & Trust Co. v. Pima Sav. and Loan Ass'n, 149 Ariz. 364, 368, 718 P.2d 1017, 1021 (1986).
Reisch also claims that the trial court should have awarded her full fees under the private attorney general doctrine, which is an equitable rule which allows the court to award fees to a party who has vindicated a right that (1) benefits a large number of people, (2) requires private enforcement, and (3) is of societal importance. Arizona Ctr. for Law in the Pub. Interest v. Hassell, 172 Ariz. 356, 371, 837 P.2d 158, 173 (App. 1991). To say that one has established a new rule of law which will apply in many cases in the future is not the same as saying *366 that the action Reisch defended benefitted a large number of people. Reisch's defense to the claim benefitted just herself. The private attorney general doctrine does not apply in this case.
REISCH III
As we noted above, Carol Reisch filed this action alleging that M & D Trucking had negligently hired and supervised Orla Reisch. The trial court dismissed the action on the grounds that it was a horizontal appeal from the ruling in Reisch I denying Carol Reisch the right to file an amended complaint. Given our previous conclusion expressed in our discussion of Reisch I to the effect that Reisch could not recover on a theory of negligent hiring or supervision in the face of the rule expressed in section 242 of the Restatement (Second), we need not belabor the point. The trial court did not err in dismissing the complaint alleging negligent hiring and supervision.
The judgments of the trial court are affirmed in all respects as to each of these three consolidated cases.
LANKFORD, P.J., and GARBARINO, J., concur.
NOTES
[1] Restatement (Second) of Agency §§ 33 and 215 read as follows:
§ 33. General Principle of Interpretation An agent is authorized to do, and to do only, what it is reasonable for him to infer that the principal desires him to do in the light of the principal's manifestation and the facts as he knows or should know them at the time he acts.
§ 215. Conduct Authorized but Unintended by Principal
A master or other principal who unintentionally authorizes conduct of a servant or other agent which constitutes a tort to a third person is subject to liability to such person. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1801908/ | 618 So.2d 17 (1993)
Albert Lee SPELL, et al., Plaintiffs-Appellees,
v.
N.L. INDUSTRIES, INC., et al., Defendant-Appellant.
No. 92-692.
Court of Appeal of Louisiana, Third Circuit.
May 5, 1993.
Gilbert Hennigan Dozier, Lafayette, for plaintiffs-appellees Albert Lee Spell et al.
Richard Stephen Vale, Jeffery Wade McDonald, Metairie, for defendant-appellant TWO R DRILLING.
Randall Kurt Theunissen, Roger Ernest Ishee, Lafayette, for defendants-appellees Union Oil, Baroid Corp.
Before STOKER, and DECUIR, JJ., and CULPEPPER, J. Pro Tem.[*]
*18 DECUIR, Judge.
This controversy arises out of a suit by Albert Lee Spell and Helen Spell adverse to N.L. Industries, Inc., N.L. Baroid, Baroid Drilling Fluids, Inc., Two "R" Drilling Company, Inc., and Union Oil Company of California, for personal injuries allegedly sustained by Albert Lee Spell while employed as a tankerman aboard a barge. Plaintiffs allege that defendants, Union Oil and/or Two "R" Drilling were the owners pro hac vice of the barge to which plaintiff was assigned at the time of his injury. Alternatively, plaintiffs allege that Albert Lee Spell was the employee of the owner or operator of the barge in question under a theory of joint principal or borrowed servant doctrine.
Two "R" Drilling filed a cross-claim adverse to Union Oil alleging that at the time of plaintiff's accident, plaintiff's employer was a contractor, invitee, or agent of Union Oil and further alleging the existence of a contract between Two "R" and Union wherein Union agreed to defend and indemnify Two "R" Drilling. Thereafter, Two "R" Drilling filed a motion for summary judgment contending there was no issue of material fact as to whether Union Oil owes a defense and indemnity to Two "R" in the action brought by Albert and Helen Spell. The trial judge granted Two "R" Drilling's motion and rendered judgment ordering Union Oil to assume the defense of Two "R" for the remainder of the litigation. Union Oil now appeals the judgment of the trial court.
The record reflects that Union subcontracted with plaintiff's employer, N.L. Industries or Baroid Corporation, to furnish drilling fluid material and chemicals and mud engineering and logging services. Union (operator) also contracted with Two "R" Drilling (contractor) to perform drilling services. Two "R" contends that according to the contract entered into between Two "R" and Union, Union must defend and indemnify Two "R" for any injuries to Union's invitees, employees, subcontractors, officers, and directors regardless of fault. A reciprocal indemnity provision in the same contract requires Two "R" to defend and indemnify Union against any suits brought by Two "R" employees, officers, directors, contractors and subcontractors, regardless of fault. The contract also contains the following insurance provisions:
13. INSURANCE:
During the life of this Contract, Contractor shall at Contractor's expense maintain with an insurance company or companies authorized to do business in the state where the work is to be performed or through a self-insurance program, insurance coverages of the kind and in the amounts set forth in Exhibit "A." Contractor shall, if requested to do so by Operator, procure from the company or companies writing said insurance a certificate or certificates that said insurance is in full force and effect and that the same shall not be cancelled or materially changed without ten (10) days prior written notice to Operator. For liabilities assumed hereunder by Contractor, its insurance shall be endorsed to provide that the underwriters waive their right of subrogation against Operator. Operator will, as well, cause its insurer to waive subrogation against Contractor for liability it assumes.
21. SPECIAL PROVISIONS:
* * * * * *
B. Insurance: Operator shall be named additional insured except for workman's compensation, on Contr. insurance. With a cross liability clause (severability of interest).
It is Union's contention that the contract between Union and Two "R" required as one of its terms that Union be named as an additional insured in Two "R" Drilling's insurance policies. Union contends that if Union is named as an additional insured as contractually required, then any obligation that Union contractually has to defend and/or indemnify Two "R" should be furnished by Two "R"'s insurance carrier. Union further argues that if Two "R" did not follow the mandate of this insurance provision, i.e. name Union as an additional insured, then Two "R" breached the contract and by virtue of this breach, Two "R" *19 is not entitled to a defense or indemnification.
The trial judge, in reasons for judgment, found that the contractual provisions regarding indemnity and insurance are independent and the indemnification provision remains effective regardless of whether Two "R" complied with the insurance provision in question. The trial judge found nothing in the contract requiring compliance with the insurance provision for the indemnification provision to remain effective. We agree and affirm the judgment of the trial court.
The purpose of the reciprocal indemnity provisions in the contract between Two "R" and Union is to allocate risk inherent in the activity between the parties to the contract. These indemnity provisions clearly require both Union and Two "R" to bear liability for any claims filed by their respective employees, contractors, subcontractors, etc. The indemnity provision at issue provides:
14.9 Operator's indemnification of Contractor. Operator agrees to protect, defend, indemnify and save Contractor, its officers, directors, employees and joint owners harmless from and against: any claims, demands and causes of action of every kind and character without limit and without regard to the cause or causes thereof or the negligence of any party or parties arising in connection herewith in favor of Operator's employees or Operator's contractors or their employees of Operator's invitees other than those parties identified in paragraph 14.8 on account of bodily injury, death or damage to property. If it is judicially determined that the monetary limits of insurance required hereunder or of the indemnities voluntarily and mutually assumed under paragraph 14.9 (which Contractor and Operator hereby agree will be supported either by available liability insurance under which the insurer has no right of subrogation against the indemnitee, or voluntarily self-insured in part or whole) exceed the maximum limits permitted under applicable law, it is agreed that said insurance requirements or indemnities shall automatically be amended to conform to the maximum monetary limits permitted under such law.
The interpretation of a contract is the determination of the intent of the parties to the contract. When the words of the contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties' intent. The determination of the intention of the parties is the foremost requirement in the interpretation and construction of a contract. Perkins v. Rubicon, Inc., 563 So.2d 258 (La.1990); Sutherland v. Hamner, 488 So.2d 486 (La.App. 3rd Cir.1986); Poole v. Ocean Drilling & Exploration Co., 439 So.2d 510 (La.App. 1st Cir.1983), writ denied, 443 So.2d 590 (La.1983). We find from a reading of the contract as a whole that it was clearly the intention of the parties that Union be obligated to defend and indemnify Two "R" against actions brought by Union employees, contractors, subcontractors, etc. The indemnity provision of the contract at issue clearly obligates Union to defend and indemnify Two "R" against the action brought by Albert and Helen Spell. Furthermore, Paragraphs 13 and 14.9 of the contract in question clearly evidence the parties' intent that each party procure separate policies of insurance providing coverage for "liability assumed" by each party pursuant to the reciprocal indemnity provisions.
This court rejects Union's argument that "if" Two "R" breached the terms of the contract by failing to have Union named as an additional insured pursuant to Paragraph 21 of the contract, then Two "R" is not entitled to a defense and indemnification by virtue of that breach. We find no indication of an intention that compliance with the insurance provision in question is required for the indemnification provisions to remain effective. DeWoody v. Citgo Petroleum Corp., 595 So.2d 395 (La.App. 3rd Cir.1992). We find no intention on the part of the parties that the insurance provision requiring that Union be *20 named as an additional insured under policies procured by Two "R" was to satisfy Union's obligation to defend and indemnify Two "R".
We Affirm. Costs of appeal are assessed against appellant.
AFFIRMED.
NOTES
[*] Judge William A. Culpepper, Retired, participated in this decision by appointment of the Louisiana Supreme Court as Judge Pro Tempore. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1877805/ | 391 B.R. 671 (2008)
In re Patrick ARGENTI, Debtor.
United States of America, Plaintiff
v.
Patrick Argenti, Defendant.
Bankruptcy No. 05-51885. Adversary No. 06-5078.
United States Bankruptcy Court, D. Connecticut, Bridgeport Division.
August 4, 2008.
*673 Ann M. Nevins, Esq., United States Attorney's Office, Bridgeport, CT, for Plaintiff.
Steven D. Feinstein, Esq., Gallo, Feinstein & Naishtut, Rye Brook, NY, James Berman, Esq., Zeisler and Zeisler, Bridgeport, CT, for Defendant.
MEMORANDUM OF DECISION ON COMPLAINT TO DENY DISCHARGE UNDER 11 U.S.C. § 727(a)
ALAN H.W. SHIFF, Bankruptcy Judge.
The plaintiff, on behalf of the Internal Revenue Service, brought this action under 11 U.S.C. § 727(a)(4)(A)[1] to deny the defendant a discharge, alleging that he made false statements under oath in this bankruptcy case. The defendant, chapter 7 debtor, admits that he made false statements under oath, but contends that he did not do so knowingly and fraudulently and that his false statements were immaterial.
BACKGROUND
On November 25, 1996, the defendant formed and was the sole director and shareholder of Silver Miracle, Inc.[2] On or before January 6, 1999, the defendant established a bank account for Silver Miracle on which he was the sole signatory.[3] On or about January 1, 2002, he transferred his 100% ownership of Silver Miracle in a stock transfer to three trusts (collectively the "trusts") which he had previously established for his three children, and for which his wife is trustee.[4] Notwithstanding that transfer, the defendant remained the sole signatory on the Silver Miracle bank account.[5]
On or about September 22, 2005, the IRS issued a levy against a bank account owned by the defendant's wife for the satisfaction of a $319,418 tax liability the IRS claimed was jointly owed by her and the defendant.[6] That account contained approximately *674 $263,944.[7] Less than a month later, on October 14, 2005, the defendant commenced this chapter 7 case and filed the requisite Schedules, Statement of Financial Affairs ("SOFA"), and creditor mailing matrix. The defendant omitted any IRS tax liability from Schedule F.[8] On November 3, 2005, the defendant met with the IRS to discuss the levy. At the conclusion of that meeting, the defendant signed an affidavit acknowledging his tax liability.[9] On November 18, 2005, he testified at the first meeting of creditors ("§ 341 Meeting"). See 11 U.S.C. § 341(a). In response to the bankruptcy trustee's inquiry as to whether his Schedules were complete, the defendant affirmed that they were free from omissions.[10] On that date, the bankruptcy trustee filed a report of no distribution, certifying that the defendant's bankruptcy estate had no assets. On January 24, 2006, the defendant amended Schedule F to add the IRS and two other entities as creditors.[11]
On October 26, 2006, the plaintiff commenced this adversary proceeding.[12] On November 6, 2007, in anticipation of trial, the parties entered into a Stipulation of Facts in which the defendant admitted that he gave false testimony under oath at the § 341 Meeting,[13] and that he made false statements under oath in his Schedules, SOFA, and creditor mailing matrix.[14]See infra at 675.
DISCUSSION
Code § 727(a)(4)(A) provides in relevant part:
(a) The court shall grant the debtor a discharge, unless
(4) the debtor knowingly and fraudulently, in or in connection with the case
(A) made a false oath or account....
11 U.S.C. § 727(a)(4)(A).
Since a denial of discharge under § 727 is characterized as an "extreme remedy," the complaint "must be construed strictly against the [the plaintiff] and liberally in favor of the [the defendant]." In re Cacioli 463 F.3d 229, 234 (2d Cir.2006) (citation omitted). The plaintiff bears the burden of proof. Rule 4005, Fed. R. Bankr.P.[15] In this context, because the defendant has admitted he made false statements under oath in connection with this case, the plaintiff need only prove by a preponderance of the evidence that the defendant knew those statements were false, he made them with the intent to defraud creditors or the trustee, and they were material to the bankruptcy case. In re Murray, 249 B.R. 223, 228 (E.D.N.Y. 2000); In re Gollomp, 198 B.R. 433, 437 (S.D.N.Y.1996); In re Shallow, 367 B.R. 48, 54 (Bankr.D.Conn.2007).
*675 A false oath or account has been defined to include statements in documents, such as the Schedules, SOFA, and creditor mailing matrix, and statements made by a debtor during examinations under oath, such as his testimony during the § 341 Meeting. See Montey Corp. v. Maletta, (In re Maletta), 159 B.R. 108, 112 (Bankr.D.Conn.1993). Both omissions and affirmative misstatements qualify as false statements under § 727(a)(4)(A). Republic Credit Corp. v. Boyer, (In re Boyer), 367 B.R. 34, 35 (Bankr.D.Conn.2007), aff'd 384 B.R. 44 (D.Conn.2008). As this court has previously noted:
a debtor has ... affirmative dutie[s] to identify all assets [and] liabilities and to answer all questions fully and with the utmost candor. Creditors and those charged with the administration of the bankruptcy estate are entitled to a truthful statement of the debtor's financial condition. Such complete disclosure is ... a prerequisite to the debtor's ability to obtain a discharge. Maletta, supra, 159 B.R. at 112.
A false oath or account is deemed to be made with knowledge of its falsity if it was known by a debtor to be false when made or if it was made with reckless disregard for the truth. D.A.N. Joint Venture L.P. v. Cacioli, (In re Cacioli), 285 B.R. 778, 784 (Bankr.D.Conn. 2002), aff'd 332 B.R. 514 (D.Conn.2005), aff'd 463 F.3d 229 (2d Cir.2006). Courts may consider a debtor's education and business experience when evaluating knowledge of a false statement. Northeast Alliance Fed. Credit Union v. Garcia, (In re Garcia), 260 B.R. 622, 631 (Bankr. D.Conn.2001).
The plaintiff claims and the defendant has conceded[16] that he made seven false statements. He testified at the § 341 Meeting that: (1) he rented his residence,[17] (2) he was not related to the landlord of his residence,[18] (3) the only business he ever owned was Argenti, Inc.,[19] and (4) his children were supporting him with money from their employment.[20] In addition, the defendant: (5) stated in his answer to SOFA Question 14 that he did not hold or control property of another,[21] (6) omitted his IRS tax liability from his Schedule F,[22] and (7) omitted a reference to the IRS from his creditor mailing matrix.[23] The plaintiff argues that the defendant knowingly and fraudulently made each of those false statements as a strategy for hiding from the bankruptcy trustee the transfer of his Silver Miracle assets to the trusts, supra at 673. The plaintiff need only satisfy its burden of proof on one of those false statements.
The defendant's answer to SOFA Question 14 is perhaps the best example on the issue of the defendant's intent. That question required him to "[l]ist all property owned by another person that [he] holds or controls."[24] The defendant's response, which was under oath, was to *676 put an "X" in the box next to Question 14 indicating "None."[25]
The plaintiff argues that the following evidence regarding the Silver Miracle bank account proves that the defendant intentionally and fraudulently misstated the truth in answering that question. The defendant knew he was the sole signatory on the Silver Miracle account.[26] It is undisputed that the defendant had the sole right to use the funds in that account[27] and he repeatedly exercised that right for his own purposes, i.e., to pay his ordinary living expenses.[28] The defendant has admitted "that the checks [drawn on the Silver Miracle account were] for mundane living expenses, not only of the [defendant], but of the [defendant's] spouse and the [defendant's] children."[29] For example, from January 2005 to January 2006, the defendant wrote checks totaling over $81,000.[30] Those checks included $10,545 in checks made out to cash, a check in the defendant's name for $1,000, and $23,451.96 in checks made out to American Express.[31]
The defendant testified that he was not in control of the Silver Miracle bank account because his wife authorized every check in her capacity as trustee.[32] He claims that he was simply a "bookkeeper" and "[he] had a honor and ... an obligation" to only sign checks if specifically authorized by his wife.[33] The defendant was not a credible witness in asserting that claim.[34] Indeed, throughout the course of the trial he was evasive and combative in attempting to explain his false statements under oath regarding, inter alia, the Silver Miracle account.[35]
The issue then evolves to whether that intentionally false statement was material to this bankruptcy case. A statement was material if it was pertinent to the discovery of assets. Maletta, supra, 159 B.R. at 112. The plaintiff argues that had the defendant honestly answered Question 14, the bankruptcy trustee would have learned of the defendant's transfer of Sliver Miracle and its assets to the trusts, see supra at 673. With that information, the bankruptcy trustee could have explored the possibility of avoiding the transfer for the benefit of the estate.[36]
*677 The defendant counters that his false statement was not material because the Silver Miracle bank account was not held in his name. That argument misconstrues the plain language of the question. Question 14 does not inquire about property the defendant owns (compare, e.g., SOFA question 18), but rather property that is under the defendant's control. Obviously, the materiality of Question 14 is that it serves to furnish information about property the bankruptcy trustee might pursue. Indeed, the bankruptcy trustee testified that had he been aware of the defendant's status as sole signatory of the Silver Miracle account, he likely would not have filed a report of no distribution,[37]see supra at 673, and would have investigated whether the funds in the account were property of the estate.[38]
Having determined the plaintiff has offered persuasive evidence that the defendant knowingly and fraudulently gave a false answer to SOFA Question 14 and that his answer was material in this case, the court need not address whether the plaintiff has also satisfied its burden of proof as to the defendant's other false statements. Nonetheless, a brief comment on his false statement concerning his tax liability is warranted.
As noted, this case was commenced on October 14, 2005. The petition included Schedule F, and it was signed by the defendant under penalty of perjury that it was accurate.[39] Schedule F required the defendant to "[s]tate the name ... of all entities holding unsecured claims without priority against the [defendant] or the property of the [defendant], as of the date of filing of the petition."[40] The defendant omitted his IRS tax liability from Schedule F. See supra at 675 (false statement (6)). It is clear that this omission was intentional because he admitted at trial that, although he was not sure of the exact amount of the debt, he knew on the petition date that he owed the IRS hundreds of thousands of dollars.[41] It is worth noting that the defendant attempted to conceal that omission at the § 341 Meeting when he testified that his Schedules were accurate. See supra at 674. He testified at trial that he did not inform the bankruptcy trustee of his IRS-tax liability at the meeting because he felt that the collectability of the debt was questionable due to its age, and he was unsure of the amount of the debt.[42] Those explanations are belied by the fact that the defendant acknowledged the IRS's efforts to collect the debt and the amount of the debt in an affidavit executed on November 3, 2005, fifteen days before the § 341 Meeting.[43] Under those circumstances, the defendant's belated amendment of Schedule F on January 24, 2006, supra at 674, can only be viewed as an acknowledgment that his intentional omission had been discovered.
CONCLUSION
For the foregoing reasons, the defendant's discharge is DENIED, and a separate order to that effect will follow.
NOTES
[1] See infra at 673-75. The plaintiff's Complaint, cited 11 U.S.C. § 727(c)(1), which refers to § 727(a). Complaint ¶ 4. At trial, the plaintiff clarified that its objection is based only on § 727(a)(4)(A). Trial Tr. Vol. I, 4-5, November 7, 2007 ("Tr.Vol.1").
[2] Trial Tr. Vol. II, 17-19, November 8, 2007 ("Tr.Vol.II"); Plaintiff's Exh. G at 7-11.
[3] Plaintiff's Exh. G at 1-6.
[4] Plaintiff's Exh. L at 1-23; Plaintiff's Exh. K at 1-5; Plaintiffs Exh. N at 1-2; Plaintiffs Exh. O at 2; Plaintiff's Exh. P at 2.
[5] Tr. Vol. II at 21-22.
[6] Stipulation of Facts dated November 6, 2007("Stipulation") at ¶ 5-7; Plaintiffs Ex. I at 4; Tr. Vol. II at 54-55.
[7] Plaintiff's Exh. I at 4.
[8] Stipulation at ¶ 8.
[9] Plaintiff's Exh. I at 1-4; Tr. Vol II at 31 and 52-53.
[10] Audio Recording of § 341 Meeting, Plaintiff's Exh. E at 3:36 (minute:second).
[11] Plaintiff's Exh. D at 1-6.
[12] The plaintiff's Complaint was timely filed due to extensions of the original January 17, 2005 filing deadline to and through October 31, 2006. Stipulation at ¶ 4.
[13] Stipulation at ¶ 15.
[14] Id. at 8-15.
[15] Rule 4005, Fed. R. Bankr.P., states: "At the trial on a complaint objecting to a discharge, the plaintiff has the burden of proving the objection."
[16] Tr. Vol. II at 10-11, 27-28, 57 and 59-60; Plaintiff's Exh. F at 68-69; Stipulation at ¶¶ 9-15.
[17] Plaintiff's Exh. E at 2:09.
[18] Id. at 2:11.
[19] Id. at 2:15.
[20] Id. at 2:42.
[21] Plaintiff's Exh C at 5; Stipulation at ¶ 15(F).
[22] Stipulation at ¶ 8.
[23] Id.
[24] Plaintiff's Exh. C at 5.
[25] Id. at 5 and 8.
[26] Stipulation at ¶¶ 12 and 15(F); TV. Vol. II at 19-20; Plaintiff's Exh. H at 1-48.
[27] Tr. Vol. II at 19-20 and 63.
[28] Plaintiff's Exh. H at 1-48.
[29] Defendant's Post-Trial Memorandum at 11.
[30] Plaintiff's Exh. H at 1-48.
[31] Id.
[32] Tr. Vol. II at 20; Trial Tr., Vol. III, 22-25, November 9, 2007 ("Tr.Vol. III").
[33] Tr. Vol. II at 20-21; Tr. Vol. III at 32-34 and 42-46.
[34] It is noteworthy that an adverse inference may be drawn when a party fails to call a witness whose testimony would be material and the witness is within the control of that party. Revson v. Cinque & Cinque, P.C., 221 F.3d 71, 81-82 (2d Cir.2000). See also Martinelli v. Bridgeport Roman Catholic Diocesan Corp., 196 F.3d 409, 432, n. 10 (2d Cir.1999). When determining whether a witness was available to be called by a party the court looks to "all the facts and circumstances bearing upon the witness's relation to the parties, rather than merely on physical presence or accessibility." Id. Here, the court need not determine whether such an inference should be drawn from the defendant's failure to call his wife as a witness in support of his claim that he was not in control of the Silver Miracle bank account as the court already has found that his testimony regarding that account was not credible.
[35] Tr. Vol. II at 8-11, 42-44 and 57-59; Tr. Vol. III at 32-35, 42-49 and 57-63.
[36] Tr. Vol. I at 34-35 and 53-54.
[37] Tr. Vol. I at 22-24.
[38] Tr. Vol. I at 34-35, 50-51 and 53-54.
[39] Plaintiff's Exh. B at 15.
[40] Plaintiff's Exh. B at 10.
[41] Tr. Vol. II at 57.
[42] Tr. Vol. III at 13.
[43] Plaintiff's Exh. I at 4; Tr. Vol. II at 54-55. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1487815/ | 453 F. Supp. 651 (1977)
H. Leslie SANBORN, Jr., et al., Plaintiffs,
v.
UNITED STATES of America et al., Defendants.
Civ. No. S-76-154.
United States District Court, E. D. California.
September 19, 1977.
*652 *653 Phillip A. Cooke, Arostegui, Islip, Cooke, Marquez, Epley & Gengler, Marysville, Cal., for plaintiffs.
Dwayne Keyes, U. S. Atty., Richard W. Nichols, Chief Asst. U. S. Atty., Sacramento, Cal., for federal defendants.
Evelle J. Younger, Atty. Gen., State of Cal., John M. Morrison and Steward L. Andrews, Jr., Deputy Attys. Gen., Sacramento, Cal., for state defendants.
MEMORANDUM
MacBRIDE, Chief Judge.
This matter is before the court on the motion to dismiss of defendants United States, Department of the Interior, Bureau of Reclamation, and Army Corps of Engineers. These defendants, together with the State of California, have been sued by numerous named plaintiffs in an attempt to redress damage to trees, crops, and real property caused by excess water standing on their land during April 1974.
Plaintiffs have sought to allege fifty-seven causes of action in their complaint, with each cause of action seeking to state a claim for relief for inverse condemnation, negligence, and trespass. Attacking these claims, the federal defendants base their motion to dismiss on the following grounds: (1) lack of jurisdiction over the federal defendants other than the United States, (2) lack of jurisdiction over the subject matter, and (3) failure to state a claim upon which relief may be granted.
Improper Federal Defendants
Federal defendants properly argue that, absent specific statutory authority, agencies of the United States, such as the Department of the Interior, the Bureau of Reclamation, and the Army Corps of Engineers, may not be sued in their own name (eo nomine). Land v. Dollar, 330 U.S. 731, 67 S. Ct. 1009, 91 L. Ed. 1209 (1947). Accordingly, all federal defendants in this action, other than the United States, must be dismissed.
Jurisdiction over The Subject Matter
Plaintiffs have failed to allege in their complaint a statement of the "grounds upon which the court's jurisdiction depends," as required by FRCP 8(a). However, the court cannot agree with the contention of the federal defendants that this defect is fatal to plaintiffs' action. This Circuit has taken the rather liberal position that ". . . if facts giving the court jurisdiction are set forth in the complaint, the provision conferring jurisdiction need not be specifically pleaded." Williams v. United States, 405 F.2d 951, 954 (9th Cir. 1969). In the case at bar, the plaintiffs have argued in their memoranda that this court has jurisdiction over their inverse condemnation claims pursuant to the Tucker Act, 28 U.S.C. § 1346(a), and jurisdiction over their negligence and trespass claims pursuant to the Federal Tort Claims Act, 28 U.S.C. § 1346(b). Facts supporting such jurisdiction do appear in plaintiffs' complaint, with the exception discussed below, and little would be gained by requiring the plaintiffs to amend their complaint to include a statement of jurisdiction. Therefore, the court must deny the federal defendants' motion to dismiss based on the plaintiffs' noncompliance with FRCP 8(a).
Plaintiffs seek to have this court assume jurisdiction over the claims against *654 the State of California under the doctrine of pendent or ancillary jurisdiction. They would append their state claims against California to their claims against the federal defendants. The federal defendants contend that such joinder is improper, thereby rendering the plaintiffs' complaint defective. The implication is that the court should dismiss the claims against the federal defendants because of this defect. It is well established in this Circuit that such joinder of parties is impermissible. As was noted in Williams v. United States, supra, 405 F.2d at 954:
"This court has repeatedly held that in order for a claim against the other parties to be joined properly with a claim against the United States under the Federal Tort Claims Act, an independent ground of jurisdiction must exist, and the theory of pendent jurisdiction is not sufficient."
Accord, Morris v. United States, 521 F.2d 872 (9th Cir. 1975); Ayala v. United States, 550 F.2d 1196 (9th Cir. 1977). No independent ground of federal jurisdiction over the claims against California is alleged or indicated by plaintiffs. It does not follow, however, that improper joinder requires dismissal of the claims against the federal defendants. No authority is cited which would support such a dismissal. Rather, since the claims against California have been improperly joined, and this court is therefore without jurisdiction over the claims against California, the claims against California must be dismissed. Pursuant to FRCP 12, this court possesses the power to dismiss a claim sua sponte where lack of subject matter jurisdiction is called to the attention of the court, and this is an appropriate case to exercise that power.
The court also finds that it lacks subject matter jurisdiction over plaintiffs' claims for inverse condemnation. No jurisdiction over a claim against the United States exists unless its sovereign immunity is waived. The Tucker Act, 28 U.S.C. §§ 1491, 1346(a)(2), does waive the sovereign immunity of the United States with respect to inverse condemnation cases. Dugan v. Rank, 372 U.S. 609, 83 S. Ct. 999, 10 L. Ed. 2d 15 (1963). Section 1346(a)(2)[1] vests district courts and the Court of Claims with concurrent jurisdiction over taking claims seeking no more than $10,000 in damages. Section 1491[2] vests the Court of Claims with exclusive jurisdiction over inverse condemnation claims exceeding $10,000. Blanchette v. Connecticut General Insurance Corp., 419 U.S. 102, 95 S. Ct. 335, 42 L. Ed. 2d 320 (1974); Myers v. United States, 323 F.2d 580 (9th Cir. 1963). Each of plaintiffs' taking claims seek damages in excess of $10,000, and therefore are within the exclusive jurisdiction of the Court of Claims.
Plaintiffs seek to avoid the $10,000 limitation on this court's inverse condemnation jurisdiction by reliance on 28 U.S.C. § 1500, which provides:
"The Court of Claims shall not have jurisdiction of any claim for or in respect to which the plaintiff or his assignee has pending in any other court any suit or process against the United States or any person who, at the time when the cause of action alleged in such suit or process arose, was, in respect thereto, acting or professing to act, directly or indirectly under the authority of the United States." (emphasis added).
They read this provision to mean that where a plaintiff has a Federal Tort Claims *655 Act claim filed in a federal district court arising from a particular incident, the Court of Claims may not assume jurisdiction over a Tucker Act suit arising from the same transaction. And plaintiffs reason from this construction that, since the Court of Claims may not assume jurisdiction over the Tucker Act inverse condemnation claim, the district court must have jurisdiction. Both plaintiffs' construction of Section 1500 and plaintiffs' reasoning are in error.
The purpose of Section 1500 belies plaintiffs' proposed construction:
"The purpose of Sec. 1500, supra, was to prohibit the filing and prosecution of the same claims against the United States in two courts at the same time." Frantz Equipment Co. v. United States, 98 F. Supp. 579, 580, 120 Ct. Cl. 312 (1951).
See also Matson Navigation Co. v. United States, 284 U.S. 352, 52 S. Ct. 11, 76 L. Ed. 515 (1931); National Cored Forgings Co. v. United States, 132 F. Supp. 454, 132 Ct. Cl. 11 (1955). This goal is accomplished by divesting the Court of Claims of jurisdiction over a given claim where the plaintiff has the same claim pending in the district court. Matson Navigation Co. v. United States, supra. When a plaintiff has a tort claim pending in a district court, the jurisdiction of the Court of Claims over an inverse condemnation claim arising out of the same facts is not affected since the latter claim is not the same as the former.
Even assuming arguendo that the Court of Claims is divested of its jurisdiction over plaintiffs' inverse condemnation claim because they filed a tort claim with this court, it does not follow that this "lost" jurisdiction becomes vested in the district court. The jurisdiction of the district court to entertain suits against the United States is dependent upon express waivers of sovereign immunity, which are to be strictly construed. United States v. Sherwood, 312 U.S. 584, 61 S. Ct. 767, 85 L. Ed. 1058 (1941). The only express waiver of sovereign immunity which vests the district court with jurisdiction over inverse condemnation claims against the United States is set forth at 28 U.S.C. § 1346(a)(2), and it limits the district court's jurisdiction to claims involving $10,000 in damages or less. Nowhere in 28 U.S.C. § 1500 does it say that, where the Court of Claims loses its jurisdiction, said jurisdiction becomes vested in the district courts. Absent such a provision, this court cannot find that Section 1500 operates to vest this court with jurisdiction over inverse condemnation claims which seek over $10,000 in damages.
In another attempt to circumvent the $10,000 limitation on this court's jurisdiction over inverse condemnation actions, plaintiffs argue that the court may assume jurisdiction over their inverse condemnation claims pursuant to the doctrine of pendent or ancillary jurisdiction. Plaintiffs reason that this court has jurisdiction over their tort claims pursuant to 28 U.S.C. § 1346(b), the Federal Tort Claims Act, and that it may assume jurisdiction over their Tucker Act inverse condemnation claims by appending these claims to their Federal Tort Claims Act claims. However, plaintiffs offer no authority for the startling idea that the doctrine of pendent or ancillary jurisdiction may be utilized by a district court to avoid the well established requirement of a waiver of sovereign immunity. The United States has nowhere expressly consented to be sued on inverse condemnation claims in the district courts where such claims seek more than $10,000 in damages. This court cannot, by using the judge-made doctrine of pendent jurisdiction, waive the immunity of the United States where Congress, the constitutional guardian of this immunity, has declined to do so. Consequently, plaintiffs' taking claims against the defendants must be dismissed for lack of subject matter jurisdiction.
Failure to State a Claim
Federal defendants also argue that plaintiffs' tort and taking claims should be dismissed for failure to state a claim. With respect to the taking claims, defendants contend that: (1) no taking-by-flooding claim is stated because only a single flood is alleged, (2) no taking-by-seepage claim is stated because only "consequential damages" *656 are alleged, and (3) no taking claim is stated because from the allegations of the complaint it appears that the immunity provisions of 33 U.S.C. § 702c apply. Defendants maintain that plaintiffs have failed to state a claim in tort because the immunity provisions of 33 U.S.C. § 702c apply. Since this court is without jurisdiction over plaintiffs' inverse condemnation claims, it need not decide whether the plaintiffs have failed to state proper taking claims.[3] This finding, however, does not dispose of defendants' further contention that no tort claim is stated because of the asserted immunity.
By enacting the Flood Control Act of 1928, Congress undertook to construct flood control projects, an undertaking which might have exposed the government to considerable liability. To limit this exposure, § 3 of the Flood Control Act of 1928, 33 U.S.C. § 702c, was adopted. Section 702c (Section 3 of the Act) reads in pertinent part:
"No liability of any kind shall attach to or rest upon the United States for any damage from or by floods or flood waters at any place."
The aforementioned purpose was recognized in Graci v. United States, 456 F.2d 20, 25 (5th Cir. 1971):
"These cases, and what little legislative history there is, strongly support the view that the purpose of § 3 was to place a limit on the amount of money that Congress would spend in connection with flood control programs. Congress undoubtedly realized that the cost of extensive flood control projects would be great and determined that those costs should not have added to them the floodwater damages that might occur in spite of federal flood control efforts. See National Manufacturing Co. v. United States, supra [8 Cir., 210 F.2d 263]; Guy F. Atkinson Co. v. Merritt, Chapman & Scott Corp., N.D.Cal.1954, 126 F. Supp. 406, 408."
While plaintiffs acknowledge that this immunity applies generally to flood cases involving the operation of flood control projects, they contend that § 702c does not apply to their case because of the existence of two exceptions.
First, plaintiffs argue that Section 702c does not afford immunity where the negligence of the United States was the sole cause of the flooding. Plaintiffs concede that if the negligence of the federal defendants and some unusual climatic condition together caused the flooding, or if the unusual climatic condition alone caused the flooding, the federal defendants may be immune under Section 702c. In support of their position, plaintiffs cite Stover v. United States, 204 F. Supp. 477 (N.D.Cal.1964), in which Judge Halbert did state in dicta that Section 702c does not apply where the negligence of the United States is the sole cause; Judge Halbert went on to find that Section 702c did apply because the United States and the climate were jointly responsible for the flooding in question. On appeal, the Ninth Circuit, following its earlier decision in Clark v. United States, 218 F.2d 446 (9th Cir. 1954), affirmed Judge Halbert's decision on the ground that Section 702c precluded liability even where the negligence of the United States was the sole cause of the damaging flood. Stover v. United States, 332 F.2d 204 (9th Cir. 1964). Accord, Parks v. United States, 370 F.2d 92 (2nd Cir. 1966); Florida East Coast Ry. Co. v. United States, 519 F.2d 1184 (5th Cir. 1975). Therefore, even assuming that the negligence of the United States was the sole cause of the flooding, Section 702c applies.
*657 Second, plaintiffs contend that Section 702c does not afford the government immunity where the flooding causing the damage complained of was unrelated to a flood control project. This the government concedes, as it must. Government Reply Memorandum, p. 8; Peterson v. United States, 367 F.2d 271 (9th Cir. 1966). In Peterson, plaintiffs sued the United States to obtain relief for damage to their boats. These boats were destroyed when, without warning, a group of Air Force engineers dynamited an ice jam on an Alaskan river, thereby causing a sudden release of water to sweep downstream where plaintiffs' boats were moored. The ice jam, which had accumulated from natural causes, was blown up in order to abate the flooding of United States Air Force base upstream from the ice jam. The district court dismissed the plaintiffs' claims, relying on Section 702c. On appeal, the Ninth Circuit reversed, reasoning that Section 702c was enacted to prevent liability that might be incurred in connection with flood control projects undertaken by the United States. The appellate court found that this purpose would not be served by the application of the Section 702c immunity to the case before it:
"The decision to dynamite the ice jam was wholly unrelated to any Act of Congress authorizing expenditures of federal funds for flood control, or any act undertaken pursuant to any such authorization." 367 F.2d at 275.
This requirement that the act complained of be related to a flood control project was reaffirmed in dicta in McClaskey v. United States, 386 F.2d 807 (9th Cir. 1967), and has been approvingly noted in Florida East Coast Ry. Co. v. United States, supra; Parks v. United States, supra; and Graci v. United States, supra. In Graci, the government sought to invoke the Section 702c immunity with respect to a claim arising out of the operation of a navigational aid project, which was unconnected to flood control. The district court found that the immunity did not apply, and the Fifth Circuit affirmed, stating:
"The question then becomes whether it is reasonable to suppose that in exchange for its entry into flood control projects the United States demanded complete immunity from liability for the negligent and wrongful acts of its employees unconnected with flood control projects. Judge Heebe answered that it would not be reasonable so to conclude. [Graci v. U. S.] 301 F.Supp. [947] at 952. Our analysis of another group of § 3 cases leads us to agree." (emphasis in original).
The government argues that the plaintiffs have the burden of pleading facts which indicate that the Section 702c immunity does not apply. No authority is offered. Since this immunity is an affirmative defense, the court must reject the government's argument and find that the pleading burden with respect to the immunity is on the government. FRCP 8(c). However, even though the plaintiffs need not plead in a manner to bring their claims outside the immunity, if the allegations in their complaint indicate that the immunity applies, the court must dismiss the plaintiffs' claims for failure to state a claim.
According to the federal defendants, plaintiffs' own allegations bring their claims within the immunity. Plaintiffs allege with respect to the cause of their injuries the following:
"During the months of March and April, 1974, the coordination of water releases affecting the amount of water in the Sacramento River Basin in the area of plaintiffs' property and/or condition of the Sacramento River bed and/or levee system was maintained in a condition so as to cause the river to be held at a high level for a sustained period of time during which period water flooded onto and/or seeped upon the property of plaintiffs and to plaintiffs' understanding killed and/or injured trees and/or crops belonging to plaintiffs by having water remain standing on same property during the warm days in April." Complaint, p. 3.
With respect to the parties precipitating the foregoing, plaintiffs allege:
*658 "Plaintiffs are informed and believe and on such information and belief allege that at all times herein mentioned the United States of America, through the Department of the Interior, Bureau of Reclamation, and the Army Corps of Engineers, and the State of California, were acting in the capacity of joint venturers as to the control of the waters which flowed onto the plaintiffs' land." Complaint, p. 3.
"At all times herein mentioned plaintiffs are informed and believe and thereon allege that the United States of America, through the Department of the Interior, Bureau of Reclamation, and/or Army Corps of Engineers, and/or the State of California, each individually and/or part of the joint venture generally known as the Central Valley Project were in some way responsible for the coordination or lack thereof of the releases of water along the Sacramento River which damaged plaintiffs' crops and real property." Complaint, pp. 3-4.
These allegations do not clearly bring the plaintiffs' claims within the immunity. Certainly, the court can take judicial notice that the Sacramento River is included within the Central Valley Project and that the Central Valley Project has, as one of its many purposes, flood control.[4]
However, while the pleadings suggest that the alleged damage resulted from the operation of this multi-purpose project, the pleadings also are susceptible to another theory that the damage resulted from activity of the defendants unrelated to the operation of the Central Valley Project. Plaintiffs' allegations do not indicate the scope of the Central Valley Project, the existence or non-existence of activity by the defendants on the Sacramento River unrelated to the operation of the Project, or the location of the plaintiffs' property. Accordingly, the court cannot conclude as a matter of law that the water releases, river bed condition, and levee system condition complained of necessarily constitute allegations of misfeasance in connection with the operation of the Central Valley Project. Plaintiffs do allege that the defendants are ". . . each individually and/or part of the joint venture generally known as the Central Valley Project . . ." responsible for the water releases in question. This does suggest that the water releases were effected as part of the operation of the Central Valley Project. But even this allegation is subject to an alternative construction because of the use of the disjunctive that the defendants were individually responsible for the flooding while not acting under the "joint venture generally known as the Central Valley Project. . . ." The federal defendants have cited the court to regulatory and statutory authority for the proposition that the Bureau of Reclamation and the Army Corps of Engineers are authorized to engage in flood control activity. But, no authority has been cited for the proposition that these defendants may only engage in activity related to flood control projects. Therefore, it is quite possible that the activity of the defendants allegedly giving rise to the plaintiffs' damages was unrelated to a flood control project. On this basis alone, the court must deny the federal defendants' motion to dismiss the plaintiffs' Federal Tort Claims Act claims.
Had the plaintiffs clearly plead that their damages resulted from the operation of the Central Valley Project for one of its intended purposes, the court would grant the federal defendants' motion to dismiss. *659 Plaintiffs have maintained that, even if their damage resulted from the operation of the Central Valley Project, the Section 702c immunity would not bar their claims unless the particular activity which caused the damage was undertaken for the purpose of flood control. The government argues that the rule proposed by plaintiffs would render meaningless one of the primary purposes of the immunity: the avoidance of litigation and potential liability in connection with the operation of flood control projects. This will occur, the government says, because: ". . . it is very difficult, if not impossible, as a practical matter to segregate particular acre-feet or cubic-feet-per-second of water releases into precise categories of purpose; a single release may well serve multiple purposes, just as the project itself serves multiple purposes." Government's Response to Plaintiffs' Further Memorandum, p. 3. There being no evidence before the court on the difficulty of such an undertaking, the court must decline to accept the government's argument at this stage of the proceedings. But this does not end the court's inquiry. As noted earlier, Section 702c was enacted to limit the cost to the government of constructing flood control projects. Where the government participates in the construction of a multiple purpose project and one of the purposes is flood control, and if the operation of the project is held to subject the government to liability because of non-flood control activity, the government would be subjected to additional costs because of its efforts to control floods. Such a result could be avoided only if the government used rivers and dam sites solely for flood control purposes. Such an option was certainly not contemplated by Congress because of the obvious detriment to the public welfare in view of the many functions rivers serve in modern society. Accordingly, the court must conclude that the Section 702c immunity protects the government from liability for damage caused by floods allegedly caused by the operation of a river project which has, as one of its purposes, flood control, if the action giving rise to the damage was undertaken in furtherance of one of the purposes of the multiple purpose project.
IT IS THEREFORE ORDERED that the federal defendants' motion to dismiss plaintiffs' inverse condemnation claims for lack of jurisdiction is GRANTED for the reasons stated herein.
IT IS FURTHER ORDERED that the federal defendants' motion to dismiss plaintiffs' Federal Tort Claims Act claims against all defendants, for failure to state a claim, is DENIED.
IT IS FURTHER ORDERED that the federal defendants' motion to dismiss all of plaintiffs' claims against the Department of Interior, the Bureau of Reclamation, and the Army Corps of Engineers for lack of jurisdiction is GRANTED.
IT IS FURTHER ORDERED, sua sponte, that plaintiffs' claims against the State of California are dismissed for lack of jurisdiction.
NOTES
[1] Section 1346(a)(2) provides in pertinent part:
"(a) The district courts shall have original jurisdiction, concurrent with the Court of Claims, of:
* * * * * *
(2) Any other civil action or claim against the United States, not exceeding $10,000 in amount, founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages not sounding in tort."
[2] Section 1491 provides in pertinent part:
"The Court of Claims shall have jurisdiction to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort."
[3] It may be noted, however, that plaintiffs have only alleged that they were subjected to a single flooding. Such an allegation fails to state a claim for inverse condemnation. United States v. Cress, 243 U.S. 316, 37 S. Ct. 380, 61 L. Ed. 746 (1916); B. Amusement Co. v. United States, 180 F. Supp. 386, 148 Ct. Cl. 337 (1960); Fromme v. United States, 412 F.2d 1192, 188 Ct. Cl. 1112 (1969); Hartwig v. United States, 485 F.2d 615, 202 Ct. Cl. 801 (1973); Stover v. United States, 332 F.2d 204 (9th Cir. 1964). Had they alleged that, due to the conduct of the United States, they will inevitably be subjected to future floods which would not otherwise occur, a taking would have been stated. But no such allegations appear in plaintiffs' complaint.
[4] In United States v. Gerlach Live Stock Co., 339 U.S. 725, 70 S. Ct. 955, 94 L. Ed. 1231 (1950), the Supreme Court noted:
"In the Rivers and Harbors Act of August 26, 1937, § 2, 50 Stat. 844, 850, and again in the Rivers and Harbors Act of October 17, 1940, 54 Stat. 1198, 1199-1200, Congress said that `the entire Central Valley project . . . is . . declared to be for the purposes of improving navigation, regulating the flow of the San Joaquin River and the Sacramento River, controlling floods, providing for storage and for the delivery of the stored waters thereof . . .' The 1937 Act also provided that `the said dam and reservoirs shall be used, first, for river navigation, improvement of navigation, and flood control . . . .'" Id. at 731, 70 S.Ct. at 958. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1631248/ | 599 S.W.2d 866 (1980)
D. W. DURHAM and Rose Durham, Appellants,
v.
UVALDE ROCK ASPHALT COMPANY, Appellee.
No. 16283.
Court of Civil Appeals of Texas, San Antonio.
May 14, 1980.
Rehearing Denied June 11, 1980.
*868 Allan K. Dubois, Lang, Cross, Ladon, Boldrick & Green, San Antonio, for appellants.
William P. Dobbins, Dobbins, Harris & Gonzalez, Stephen P. Allison, Jess M. Irwin, III, Sawtelle, Goode, Davidson & Troilo, San Antonio, for appellee.
OPINION
KLINGEMAN, Justice.
This is a suit by Uvalde Rock Asphalt Company (Uvalde Rock) against D. W. Durham and Rose Durham (Durhams) on a guaranty agreement.[1] Trial was to a jury who, in answer to the only special issue submitted, found: (1) the sum of $38,335.61 is owed by the Durhams to Uvalde Rock under the guaranty agreement; (2) reasonable attorney's fees for services performed for Uvalde Rock is $4,000. The trial court entered judgment for Uvalde Rock against the Durhams in the principal amount of $38,335.61, plus attorney's fees in the amount of $3,000. The Durhams appeal from this judgment.
A chronological summary of the events leading up to this suit is as follows:
Jan. 31, 1975Bill Durham and his wife signed a contract and agreement with appellee. Among other things, this agreement required that the debtor keep the property free from other liens, and that there would be no adverse liens on the collateral.
Jan. 31, 1975Appellant and wife executed a guaranty agreement with appellee, guaranteeing all indebtedness incurred by Bill Durham.
Feb., 1975Appellee began doing business with Bill Durham with $18,000 of "stocking inventory" to be paid on an open account basis.
Aug., 1976Upon learning Bill Durham was in arrears on his account, appellants gave appellee oral notice of termination of the guaranty agreement. It is undisputed that no written notice of termination was given. At about this same time Bill Durham and appellee instituted a new payment plan calling for inventory purchases on a c.o.d. basis with an additional ten per cent which was to be applied to amounts past due. It is contested as to whether appellants knew and/or agreed to this new payment plan. In this same month appellee found a financing statement on file since 1973 on R & R's inventory in favor of State Bank of East Fort Worth. It is disputed as to whether both appellee and appellants knew of this financing statement.
May, 1977Appellee stopped doing business with R&R. The value of the unopened saleable inventory was disputed but the shipment was refused by appellee because of the previously filed financing statement. Appellee sued both the principal obligors, Bill Durham and his wife, and the guarantors, appellants.
Oct., 1977A summary judgment was rendered against Bill Durham and his wife for $38,335.61, and no appeal was perfected as to this judgment. During the trial on the merits of the case before us, the appellants requested a trial amendment on the defense of mutual mistake, contending that neither party to the guaranty agreement knew of this previously filed financing statement and that, if they had known of it, the guaranty agreement would not have been made. Appellee protested that there was no evidence to support such trial amendment and that it constituted a surprise and was *869 prejudicial. The trial court refused to permit the filing of the trial amendment.
Dec., 1978The jury found that appellants owed $38,335.61 and attorney's fees of $4,000. The judge decreased the attorney's fees to $3,000.
By nine points of error appellants assert that the trial court erred in (a) refusing to permit filing of their requested trial amendment on mutual mistake; (b) refusing to submit certain special issues submitted by them; (c) in submitting certain other special issues; (d) in refusing to grant appellants' motion for instructed verdict; (e) in rendering judgment for appellee in the principal amount of $38,335.61; and (f) in awarding attorney's fees to appellee in the amount of $3,000.
MUTUAL MISTAKE
Appellants assert that the trial court erred (1) in refusing to allow the filing of a trial amendment asserting the defense of mutual mistake, (2) in refusing to submit appellants' requested issue on mutual mistake.
It is undisputed that the pleading upon which appellants went to trial did not assert the defense of mutual mistake. Mutual mistake is an affirmative defense which must be pleaded or it is waived. Rule 94, Tex.R.Civ.P.; Petrey v. Buckner & Sons, 280 S.W.2d 641, 642 (Tex.Civ.App. Waco 1955, writ ref'd n. r. e.). Appellants contend that the testimony of both parties raised the issue of mutual mistake because the undisputed evidence demonstrated that if both parties had known of the existence of the prior financing statement given by the debtor, Bill Durham, they would not have entered into the guaranty agreement and that it was an error not to permit the trial amendment or to submit the requested special issue on mutual mistake. They further assert that the testimony raised mutual mistake of fact as a matter of law, Nelms v. Cox, 327 S.W.2d 785, 787 (Tex.Civ.App. Eastland 1959, writ ref'd n. r. e.); that a mutual mistake as to the same material fact, held by both parties, is an affirmative defense which will void one's obligations under a contract, Petrey v. Buckner & Sons, 280 S.W.2d 641, 643 (Tex.Civ.App.Waco 1955, writ ref'd n. r. e.); and that the failure to grant a trial amendment where appropriate constitutes an abuse of discretion, Vermillion v. Haynes, 147 Tex. 359, 365, 215 S.W.2d 605, 609 (1948).
Appellee asserts that there is not one shred of evidence to indicate that knowledge of the previous financing agreement given by Bill Durham would have caused Uvalde Rock not to have entered into the guaranty contract with appellant, and that the evidence is to the contrary.
The permitting or refusing to file a trial amendment is within the sound discretion of the trial court and unless it clearly appears that such discretion has been abused, its order permitting or refusing a trial amendment will not be disturbed on appeal. City of Houston v. Riggins, 568 S.W.2d 188, 194 (Tex.Civ.App.Tyler 1978, writ ref'd n. r. e.); City of Houston v. LeBlanc, 562 S.W.2d 20, 22 (Tex.Civ.App. Waco 1978, writ ref'd n. r. e.); Burnett v. File, 552 S.W.2d 955, 957 (Tex.Civ.App. Waco 1977, writ ref'd n. r. e.); State v. Beever Farms, Inc. 549 S.W.2d 223, 225 (Tex.Civ.App.San Antonio 1977, writ ref'd n. r. e.); Simon v. Watson, 539 S.W.2d 951, 958 (Tex.Civ.App.Waco 1976, writ ref'd n. r. e.); Myers v. Cliff Hyde Flying Service, Inc., 325 S.W.2d 841, 848 (Tex.Civ. App.Houston 1959, no writ).
It is not an abuse of discretion to deny leave to file a trial amendment which would change the factual basis of the lawsuit, and which would probably be prejudicial to the opposing party. Lord v. Ins. Co. of North America, 513 S.W.2d 96, 101 (Tex. Civ.App.Dallas 1974, writ ref'd n. r. e.). Moreover, a court does not err in denying permission to file a trial amendment when the record shows a lack of diligence. Coffey v. Fort Worth & Denver Railway Co., 285 S.W.2d 453, 457 (Tex.Civ.App.Eastland 1955, no writ); Westinghouse Electric Corp. v. Pierce, 153 Tex. 527, 531, 271 S.W.2d 422, 424 (1954).
*870 It is to be remembered that there is not just one contract involved in this dispute, but two: (1) the contract between Bill Durham, the debtor, and Uvalde Rock; and (2) the guaranty agreement between D. W. Durham and wife, Rose Durham, and Uvalde Rock. In the case before us we are only concerned with the guaranty obligations. Appellants rely on the testimony of an employee of Uvalde Rock that he would not have entered into the agreement with Bill Durham had he known of the previously existing financing statement. There is testimony that such employee had no authority to bind Uvalde Rock, and that any such decision would have had to be made by the president of Uvalde Rock. The fact, that such employee would not have entered into the agreement with Bill Durham, the debtor, is not proof of the fact of mutual mistake on the instrument here involved (the guaranty agreement). There is no evidence to indicate that knowledge of the previous financing statement given by Bill Durham would have caused Uvalde Rock not to enter into the guaranty contract and logically the existence of a prior financing statement given by Bill Durham made the guaranty contract all the more crucial in Uvalde Rock's decision to advance goods to Bill Durham.
The mistake must relate to the subject matter of the contract involved and not to a matter that is collateral or incidental to that contract. To enable a party to a written contract to be relieved from liability thereunder on the ground of mutual mistake of fact, the mistake in question must deal with a material part of the contract itself. That is, the mistake must involve the subject matter of the contract and the substance thereof. It may not be related to a mere collateral matter. Brown-McKee, Inc. v. Western Beef, Inc., 538 S.W.2d 840, 845 (Tex.Civ.App.Amarillo 1976, writ ref'd n. r. e.).
In our opinion, the evidence at its best indicates unilateral mistake. Mutual mistake was not raised by the evidence.
Based upon the record, we conclude that the trial court did not abuse its discretion in refusing to allow filing of the trial amendment on mutual mistake.
In view of our holding that the trial court did not abuse its discretion in not permitting the filing of the trial amendment, we need not discuss appellants' point of error that the trial court erred in refusing to submit the special issue on mutual mistake. In any event, we do not find anything in the record to show that such special issue was ever presented to the trial court for its consideration in accordance with the provisions of Rule 279, Tex.R. Civ.P. Such rule provides in substance that failure to submit any issue shall not be deemed grounds for reversal unless its submission in substantially correct wording has been requested in writing and tendered by the party complaining of the judgment. Rules 273 and 274, Tex.R.Civ.P., in effect, require that a request for a special issue shall be made separate and apart from the party's objection to the court's charge, that the requested special issue must be in writing and in that form timely presented to the trial court for him to endorse his ruling and official signature thereon. Since appellant did not make a proper request for the submission of such special issue, there is no basis for appellate review. Hines v. Pointer, 523 S.W.2d 733, 742 (Tex.Civ.App.Fort Worth 1975, writ ref'd n. r. e.); T J Service Co. v. United States Fidelity & Guar. Co., 472 S.W.2d 168, 173 (Tex.Civ.App.Corpus Christi 1971, writ ref'd n. r. e.); American Pozzolan Corp. v. Desert Trucking Co., 450 S.W.2d 433, 434 (Tex.Civ.App.San Antonio 1970, writ ref'd n. r. e.).
INSTRUCTED VERDICT
By three points of error appellants complain that the trial court erred in overruling appellants' motion for instructed verdict because (a) the creditor and primary debtor altered the method of payment without the consent of the grantor, (b) appellee failed to accord payment credit on the guaranteed portion of the open account first, and (c) the guaranty contract is unconscionable.
*871 A preemptory instruction is warranted only when the evidence is such that no other verdict can be rendered and the winning party is entitled to judgment as a matter of law. White v. White, 141 Tex. 328, 331, 172 S.W.2d 295, 296 (1943); Ormsby v. Travelers Indemnity Co. of Rhode Island, 573 S.W.2d 281, 283 (Tex.Civ.App. Waco 1978, no writ).
The rule generally is that the plaintiff is entitled to a directed verdict when reasonable minds can draw only one conclusion from the evidence. The task of an appellate court in such a case is to determine whether there is evidence of probative force to raise fact issues on material questions presented. The court must consider all the evidence, in the light most favorable to the party against whom the verdict was instructed, disregarding all contrary evidence and inferences. Henderson v. Travelers Ins. Co., 544 S.W.2d 649, 650 (Tex.1976); Echols v. Wells, 510 S.W.2d 916, 919 (Tex.1974). When reasonable minds may differ as to the truth of controlling facts the issue must go to the jury. Collora v. Navarro, 574 S.W.2d 65, 68 (Tex.1978); Najera v. Great Atlantic & Pacific Tea Co., 146 Tex. 367, 370, 207 S.W.2d 365, 366 (1948); Santos v. Guerra, 570 S.W.2d 437, 438 (Tex.Civ.App.San Antonio 1978, writ ref'd n. r. e.).
(A) Appellants argue that Bill Durham, the debtor, and Uvalde Rock altered the method of payment without the guarantors' consent and that this discharged the grantors as a matter of law, citing McKnight v. Virginia Mirror Co., 463 S.W.2d 428 (Tex.1971).
The guaranty contract here involved signed by appellants expressly provided: "The obligation incurred herein by the undersigned shall not be discharged or diminished by the fact that ... with or without notice to the undersigned, or either of them, subsequent alterations may have been made in the terms or methods of payment...."
In First Nat. Bank of El Paso v. Int'l Sheep Co., 29 S.W.2d 513 (Tex.Civ.App.El Paso 1930, writ ref'd), the question involved whether or not a guarantor was discharged by an increase in the interest rates charged on certain promissory notes. The court said:
The guarantors placed no such limitation in the guaranty contract, but instead expressly agreed and bound themselves by all the terms and conditions of any note or notes signed or to be signed by the sheep company to the bank, and the only limitation in the guaranty is as to the amount of $20,000 .... The interest of any subsequent note or notes of the sheep company involving the indebtedness guaranteed, as we view the guaranty, was to be calculated on the rate of interest expressed in any subsequent note. We think the trial court was in error in his conclusion from his findings as to the effect on the liability of the guarantors by reason of the charge [sic] in the rate of interest in the subsequent note, and the judgment based on such conclusions. We agree with appellees' insistence that a contract of guaranty is strictly construed, and that any material alteration in the indebtedness guaranteed, made without their consent, will release the guarantor. All of the authorities so hold. We need not review them. But, as here, where the guarantors, in advance, expressly in the guaranty contract waive notice, and agree and bind themselves by all the terms and conditions contained in any note or notes, and by agreement made themselves party to such note or notes, the courts must construe and give effect to the guaranty as made. To do otherwise would interrupt and make uncertain such commercial transactions.
29 S.W.2d at 517.
Here, the alteration in the method of payment was authorized by the parties in the original contract and in the guaranty agreement. In addition, there is evidence that the new method of payment was known to the guarantors and agreed to by the guarantors, including testimony by D. W. Durham himself. Another witness testified unequivocally that D. W. Durham *872 agreed to the implementation of the new plan. Under such testimony as to the agreed modification as to the method of payment and the additional fact that such change or alteration was authorized by the guaranty contract, there is no such alteration of the contract as would constitute a discharge of the guarantors.
(B) Appellants also urge that they should have been granted an instructed verdict because the evidence shows that certain payments were made by Bill Durham for which he was given credit, but which appellee did not credit the guaranteed portion of the account first; that it has long been the law in Texas that where payments were made on a running account, after a guaranty has expired, such later payments must be applied on the indebtedness secured by the guarantor and not on that subsequently contracted for and that in a case of a long and running account, payments must be credited to the oldest portion of the account first as a matter of law.
Appellee asserts that since the alteration of method of payment requiring Bill Durham to pay on a c.o.d. basis, with an additional ten per cent to be applied on the preexisting indebtedness, was authorized by the guaranty contract and was approved by Bill Durham, the debtor, and D. W. Durham, the guarantor, the method of crediting the guaranteed portion of the account, and the amounts of credit were proper. While the general rule is that when a contract does not specify how payments shall be applied to a running account, payments shall be applied to the oldest portion of the account, the general rule is here not applicable since the creditor Uvalde Rock and the debtor Bill Durham agreed to a new payment plan designating the method in which payment was to be applied, and the guarantors agreed to this change. Under these conditions, the payments were correctly applied pursuant to their agreement. Champlain Oil & Refining Co. v. Chastain, 403 S.W.2d 376, 389 (Tex.1965); Watson v. Cargill, Inc., Nutrena Division, 573 S.W.2d 35, 39 (Tex.Civ.App.Waco 1978, writ ref'd n. r. e.).
(C) Appellants also urge that the trial court erred in refusing to grant appellants' motion for instructed verdict because the guaranty agreement was unconscionable under the provisions of Tex.Bus. & Comm.Code Ann. § 2.302 (Vernon 1968). In support of this contention, they rely on evidence that the agreement was drafted by attorneys for Uvalde Rock on their standard form of agreement and was signed by relatively unsophisticated individuals without legal advice, and that the contract was unbelievably lopsided.
We disagree. The contract provided for the termination of such contract by the guarantor at any time by simply sending a written notice of termination to Uvalde Rock. No such notice was ever sent. There is no evidence that the guarantors did not understand the guaranty contract or were in any way forced to enter into such guaranty contract. There is evidence that the debtor was the son of the guarantors and that D. W. Durham was interested in the son's business and worked in the business.
The trial court did not err in refusing to grant appellants' motion for instructed verdict.
SPECIAL ISSUE SUBMISSION AND OBJECTIONS TO THE CHARGE
By one point of error appellants complain that the trial court erred in refusing to submit appellants' requested issue inquiring as to the oral termination of the guaranty agreement in August, 1976.
We have carefully searched the record and are unable to find where any such special issue was requested in accordance with the terms and provisions of Rules 273, 276 and 279, Tex.R.Civ.P.
Rule 279, Tex.R.Civ.P., provides in part as follows: "... Failure to submit an issue shall not be deemed a ground for reversal of the judgment, unless its submission, in substantially correct wording has been requested in writing and tendered by the party complaining of the judgment;..."
*873 Rules 273 and 276 also provide in substance that a requested special issue must be in writing and in that form timely presented to the trial court for him to endorse his ruling and official signature thereon.
As far as the record before us indicates, the requested issue complained of here has never been presented in writing to the trial court for her consideration; the trial court did not evidence her ruling on any such written request and she did not sign any such written request officially; and no such requested special issue was filed with the Clerk.
Since appellants did not make a proper request for submission of the issue, there is no basis for appellate review. Hines v. Pointer, 523 S.W.2d 733, 742 (Tex.Civ.App. Fort Worth 1975, writ ref'd n. r. e.); T J Service Co. v. United States Fidelity & Guar. Co., 472 S.W.2d 168, 173 (Tex.Civ. App.Corpus Christi 1971, writ ref'd n. r. e.); J. Weingarten, Inc. v. Scott, 456 S.W.2d 266, 269 (Tex.Civ.App.Houston [14th Dist.] 1970, no writ); American Pozzolan Corp. v. Desert Trucking Co., 450 S.W.2d 433, 435 (Tex.Civ.App.San Antonio 1970, writ ref'd n. r. e.); Preston State Bank v. Nat'l Union Fire Ins. Co., 320 S.W.2d 184, 185 (Tex.Civ.App.Dallas 1958, no writ). Appellants' point of error No. 7 is overruled.
By two points of error appellants assert that the trial court erred in (a) submitting Special Issue No. 2 where there was no evidence that any attorney's fees had been incurred prior to termination of the guaranty agreement, and (b) submitting Special Issue No. 1 without instructing the jury to consider all lawful offsets and credits.
Appellee asserts that appellants' points of error were not properly preserved for appellate review under the Texas Rules of Civil Procedure, citing numerous cases including Rodriguez v. Garcia, 519 S.W.2d 908, 911 (Tex.Civ.App.Corpus Christi 1975, writ ref'd n. r. e.); Hines v. Pointer, 523 S.W.2d 733, 742 (Tex.Civ.App.Fort Worth 1975, writ ref'd n. r. e.).
Rule 272, Tex.R.Civ.P., prescribes the procedure that must be followed in order to preserve for appellate review the court's ruling on an objection made to a court's charge.
Rule 272, as amended in 1976, reads as follows:
The charge shall be in writing, signed by the judge, and filed with the clerk, and shall be a part of the record of the cause. It shall be submitted to the respective parties or their attorneys for their inspection, and a reasonable time given them in which to examine and present objections thereto, which objections shall in every instance be presented to the court in writing, or be dictated to the court reporter in the presence of the court and opposing counsel, before the charge is read to the jury. All objections not so presented shall be considered as waived. The judge shall announce his rulings thereon before reading the charge to the jury and shall endorse his rulings on the objections if written or dictate same to the court reporter in the presence of counsel. Objections to the charge and the court's rulings thereon may be included as a part of any transcript or statement of facts on appeal and, when so included in either, shall constitute a sufficient bill of exception to the rulings of the court thereon. It shall be presumed, unless otherwise noted in the record, that the party making such objections presented the same at the proper time and excepted to the ruling thereon.
In the case before us counsel for appellants on October 26, 1978, dictated his objections here complained of to the court reporter in the presence of the court and opposing counsel. The court reporter later transcribed them with other material and they purportedly are a part of the statement of facts by an instrument designated "Defendant's Motion for Trial Amendment, Defendant's Motion for Instructed Verdict, Plaintiff's Motion for Instructed Verdict, Objection to the Court's Charge." Such instrument is dated May 21, 1979, and contains the court reporter's certificate of that *874 date that she in shorthand reported such proceedings and that the foregoing pages contain a true and correct transcription of her shorthand notes taken on such occasion. Such writing also contains a statement by the attorneys that such writing is a full, true and correct transcription of the proceedings had of the above entitled cause at the place and time thereon shown. The trial court judge did not sign this purported statement of facts.
This purported statement of facts is a conglomeration of various motions, requests, objections, and comments by counsel and trial judge. The only objections we can find in this instrument as to the court's charge are as follows: Special Issues Nos. 1 and 2 were first objected to by appellants' counsel, without giving any reason. Thereafter, Special Issue No. 1 was objected to on the grounds that there was no evidence or insufficient evidence to support such issue. Such issue was then objected to for not including the words "excluding attorney's fees, if any." Special Issue No. 2 was objected to on the grounds that there was no evidence or insufficient evidence to support such issue. At the conclusion on the hearing which is found in an instrument herein designated as "Defendant's Motion for Trial Amendment, Defendant's Motion for Instructed Verdict, Plaintiff's Motion for Instructed Verdict, Objections to the Court's Charge," the trial court overruled all objections made.
Assuming for the purpose of this opinion that such objections were properly preserved for review by this court, we overrule all of appellants' points of error as to the court's charge as submitted. We have heretofore held that there is sufficient evidence to support the submission of both Special Issue No. 1 and Special Issue No. 2. Appellants' only other complaint is of the failure of the court to include in Special Issue No. 1 the words "excluding attorney's fees, if any." The charge as submitted inquires as to what sum of money is owed by the Durhams to Uvalde Rock in accordance with the guaranty agreement. The Special Issue contains this instruction: "In Answer to Special Issue No. 1, do not include an amount for attorney's fee, if any." The special issue as submitted gives appellants substantially what they requested and meets their objections, and clearly shows the jury that attorney's fees are not to be included in the sum of money, if any, awarded to appellee. The entire charge as submitted sufficiently satisfies all objections made by appellants and the special issue as submitted is proper. The record before us presents no reversible error to the charge.
Appellants' contention that the trial court erred in submitting Special Issue No. 1 without instruction to the jury to consider all lawful offsets and credits is subject to the same objections herein above discussed. The failure of a court to submit a definition or explanatory instruction is not grounds for reversal unless a substantially correct definition or instruction has been requested in writing and tendered by the party complaining of the judgment. Tex.R.Civ.P. 279; State v. Harrington, 407 S.W.2d 467, 479 (Tex.1966); Yellow Cab and Baggage Co. v. Green, 154 Tex. 330, 333, 277 S.W.2d 92, 93 (1955); Olivares v. Porter Poultry & Egg Co., 523 S.W.2d 726, 729 (Tex.Civ.App.San Antonio 1975, no writ); McNutt v. Qualls, 433 S.W.2d 521, 524 (Tex. Civ.App.Dallas 1968, no writ); Wilson v. City of Port Lavaca, 407 S.W.2d 325, 331 (Tex.Civ.App.Corpus Christi 1966, writ ref'd n. r. e.); Crowell-Gifford Furniture Co. v. Cloutman, 276 S.W.2d 539, 551 (Tex. Civ.App.Beaumont 1955, writ ref'd n. r. e.). Appellants failed to comply with the requisites of Rule 279.
OFFSETS AND CREDITS
Appellants' Point of Error No. 8 complains that the trial court erred in rendering judgment for appellee in the principal amount of $38,335.61 when appellants were entitled to certain credits as a matter of law.
After Uvalde Rock and Bill Durham stopped doing business certain goods were tendered to Uvalde Rock by D. W. Durham which were refused by Uvalde Rock. D. W. *875 Durham testified that the tendered items were worth between $20,000 and $30,000, and a credit manager for Uvalde Rock testified to a value of about $10,480. Appellants assert that there was a misapplication of security in not giving credit for the goods tendered; that this constitutes a defense to the guarantor to the extent of the value of the misapplication; and that the trial court should have credited the value of such goods as a matter of law.
Alternatively, they assert that if they were not entitled to such offset as a matter of law they were entitled to jury consideration specifically focusing on such offset or credit.
The goods in this case were not tendered by the debtor, Bill Durham, but by the guarantor. Basically, the tender was refused by Uvalde Rock because Bill Durham, the debtor, had previously encumbered the collateral contrary to the provisions of a security agreement, and the goods here involved were covered by a previously filed financing statement in Tarrant County, Texas, by the State Bank of East Fort Worth approximately one and a half years prior to the guaranty agreement.
Under certain circumstances a purchase money security agreement may be superior to a previously filed security agreement if the requirements provided for by the Texas Business and Commerce Code are properly satisfied. Basically, the subsequent purchase money creditor must timely and properly file and perfect his security agreement and must timely and properly notify any prior holders. The basis for appellee's refusal to accept the goods tendered was that they were subject to a prior existing security agreement held by the bank on the same goods which in effect was a superior lien to any lien held by Uvalde Rock; that the bank was entitled to satisfy its lien from any inventory held by Bill Durham; and that if Uvalde Rock had accepted the goods it would have been liable to the bank for the amount of Bill Durham's indebtedness to the bank to the extent of the value of the inventory received.
The matter of offset is an affirmative defense on which appellants had the burden of pleading and proof. It was appellants' burden to show that the bank's lien was not a superior lien to that of Uvalde Rock because, if the bank's lien was a superior lien, appellee would be placing itself in jeopardy by accepting such tendered goods and could be responsible for Bill Durham's indebtedness to the bank to the extent of such inventory. Appellants did not meet their burden. There is no proof in the record that (a) Uvalde Rock had ever filed a financing statement as required by the Texas Business & Commerce Code on the goods involved, (b) the bank had any notice of Uvalde Rock's interest in the inventory, or (c) the bank's lien was ever released. See In re Samuels, 526 F.2d 1238 (5th Cir. 1976), cert. den. Stowers v. Mahon, 429 U.S. 834, 97 S. Ct. 98, 50 L. Ed. 2d 99 (1976); Borg-Warner Acceptance Corp. v. Wolfe City Nat'l Bank, 544 S.W.2d 947, 951 (Tex.Civ.App.Dallas 1976, no writ); Tex.Bus. & Com.Code Ann. §§ 2.401(a), 2.403, 2.507, 2.511, 9.204(a), 9.312(e) (Vernon 1968).
The trial court did not err in entering judgment on the jury's answer to Special Issue No. 1 where the evidence did not establish appellants' entitlement to any credit as a matter of law.
Appellants also complain that the trial court erred in refusing to submit an issue or instruction concerning offsets and credits. As hereinbefore discussed, appellants' complaint as to the court's charge, both as to submission of a requested special issue and any instruction, were not properly preserved for appellate review, and were waived.
ATTORNEY'S FEES
Appellants' sixth point of error asserts that the trial court erred in submitting Special Issue No. 2 where there was no evidence that any attorney's fees had been incurred prior to the termination of the guaranty agreement in August, 1976.
This is a no evidence point of error and is governed by the applicable rules pertaining *876 thereto. State v. Vargas, 419 S.W.2d 926, 927 (Tex.Civ.App.San Antonio) writ ref'd n. r. e. per curiam 424 S.W.2d 416 (Tex. 1968); Calvert, "No Evidence" and "Insufficient Evidence" Points of Error, 38 Tex.L. Rev. 361, 362 (1960).
Appellants urge that under the wording of the guaranty agreement they were not liable for any attorney's fees because these attorney's fees were incurred after the guaranty contract was terminated, and there is no evidence that any attorney's fees were incurred prior to the purported termination.[2] In the alternative, they assert that, if it was their burden of establishing termination, they were deprived of doing so by the trial court's refusal to submit an issue on termination.
We have concluded that appellants' Point of Error No. 6 is without merit for the following reasons: (a) the guaranty agreement was never canceled or terminated as provided in the contract; (b) appellants' suggested construction of the contract as to attorney's fees is unwarranted; (c) there is a fact issue as to the amount of attorney's fees incurred; and (d) since the agreement between Bill Durham, the primary obligor, and Uvalde Rock provides for attorney's fees and since the guaranty covers any and all indebtedness that the primary obligor may owe, the attorney's fees are included as a part of the guaranteed debt. Mayfield v. Hicks, 575 S.W.2d 571, 576 (Tex.Civ.App.Dallas 1978, writ ref'd n. r. e.); Gubitosi v. Buddy Schoellkopf Products, Inc., 545 S.W.2d 528, 538 (Tex.Civ. App.Tyler 1976, no writ); Young v. J. F. Zimmerman & Sons, Inc., 434 S.W.2d 926, 927 (Tex.Civ.App.Waco 1968, writ dism'd); McGhee v. Wynnewood State Bank, 297 S.W.2d 876, 884 (Tex.Civ.App. Dallas 1957, writ ref'd n. r. e.).
We hold that the trial court properly concluded that attorney's fees were recoverable from the guarantors. Appellants' Point of Error No. 6 is overruled.
By cross point, appellee asserts that the trial court erred in reducing the amount of attorney's fees awarded by the jury from $4,000 to $3,000. We agree. Rule 301, Tex.R.Civ.P., provides in substance that the judgment is to conform to the pleadings, the nature of the case proved, and the verdict; provided, that the court may upon motion and notice disregard any Special Issue Jury Finding that has no support in the evidence. The record before us does not disclose any such motion to disregard any such jury finding. Under Rule 301, Tex.R.Civ.P., the trial court is not empowered to disregard a jury finding on its own initiative and in the absence of a motion. S. Pac. Transp. Co. v. Allen, 525 S.W.2d 300, 304 (Tex.Civ.App.Houston [14th Dist.] 1975, no writ); Texas Compensation Ins. Co. v. Matthews, 510 S.W.2d 640, 645 (Tex.Civ.App.Houston [1st Dist.] 1974, no writ); Republic Bankers Life Ins. Co. v. Herring, 463 S.W.2d 743, 744 (Tex. Civ.App.Waco 1971, no writ); McPherson v. Black, 346 S.W.2d 615, 616 (Tex.Civ.App. Waco 1961, writ ref'd n. r. e.); Beal v. Great American Indemnity Co., 322 S.W.2d 399, 402 (Tex.Civ.App.Texarkana 1959, no writ); Christopherson v. Whittlesey, 197 S.W.2d 384, 385 (Tex.Civ.App.Beaumont 1946, writ ref'd).
There is ample evidence in the record to support an award of $4,000 and we find no basis under the record to reduce the amount of attorney's fees awarded by the jury.
All of appellants' points of error have been considered and all are overruled.
The judgment is reformed so as to provide for recovery of attorney's fees in the amount of $4,000. As so reformed, the judgment is affirmed.
NOTES
[1] Uvalde Rock also sued William D. Durham, d/b/a R & R Installation Supply Company (R & R), and a summary judgment was entered for Uvalde Rock against William D. Durham from which no appeal has been perfected. William D. Durham, who is also referred to as Bill Durham, is a son of appellants.
[2] The guaranty contract in substance provides that it may be canceled by the guarantor by written notice, and specifically provides that such guaranty agreement shall remain in force and effect until receipt by Uvalde Rock of written notice by registered mail of such termination. The guaranty contract further provides that upon receipt of such written notice as aforesaid, the guarantor shall have no obligation to pay any indebtedness incurred after the date such notice is received, although the guarantor still shall be liable on such guaranty for all indebtedness incurred on or prior to such date, and that the term "indebtedness" as used therein shall include reasonable attorney's fees when incurred and interest when due. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1650435/ | 802 F. Supp. 1554 (1992)
FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Alliance Savings & Loan Association, Plaintiff,
v.
James HOWSE, et al., Defendants, and Third Party Plaintiffs,
Justin Rose, et al., Third Party Defendants.
Civ. A. No. H-89-1908.
United States District Court, S.D. Texas, Houston Division.
April 13, 1992.
*1555 *1556 *1557 Lisa H. Pennington, Hurlie H. Collier, James C. Winton, Baker & Hostetler, Houston, Tex., for plaintiff.
Abbe David Lowell, Brand & Lowell, Washington, D.C., Michael P. Von Blon, Austin, Tex., Harriet O'Neill, Houston, Tex., for defendant James Howse, Everett Mattson, Marian Rosen, Arnold Rudolph, Irving Weiner, Gertrude Yang and Merilee Aron.
Abbe David Lowell, Washington, D.C., Michael P. Von Blon, Austin, Tex., Jack J. Rawitscher, Houston, Tex., for defendant Leonard Cersonsky.
Robert A. Hall, Woodard Hall & Primm, Houston, Tex., for defendant Alan Gaylor.
Sidney Ravkind, Mandell & Wright, Houston, Tex., for defendant Walter Wright.
Stephen E. McConnico, Scott Douglass & Luton, Austin, Tex., for defendant Baker Brown Sharman.
Esther L. Hajdar, Asst. Atty. Gen., Austin, Tex., for cross-defendant L.L. Bowman.
Rufus Wallingford, Fulbright & Jaworski, Houston, Tex., for third-party defendant Thomas E. Lee.
MEMORANDUM
HARMON, District Judge.
The FDIC brought this action on behalf of Alliance Savings seeking recovery from directors and officers of the failed institution under several causes of action stemming from their alleged malfeasance. Pending before the Court are the following motions:
(1) Motion to Dismiss Counterclaims (Instrument No. 108) filed by the FDIC;
(2) Motion to Dismiss Counterclaims arising in Tort (Instrument No. 110) filed by the FDIC;
(3) Motion to Dismiss Third Party Claims (Instrument No. 113) filed by J. Patrick Millinor;
(4) Motion to Dismiss Third Party Claims (Instrument No. 114) filed by J. Gordon Zuber;
(5) Motion to Dismiss Cross-Claims (Instrument No. 117) filed by Baker, Brown, Sharman & Parker;
(6) Motion to Dismiss Third Party Claims (Instrument No. 121) filed by John Dunn;
(7) Joint Motion to Consolidate Responses to Third Party Motions to Dismiss (Instrument No. 122) filed by Gertrude Yang, et al ("Director Defendants");
*1558 (8) Motion to Dismiss Third Party Cross-Claims (Instrument No. 123) filed by Baker, Brown, Sharman & Parker;
(9) Motion to Dismiss Third Party Complaint (Instrument No. 145) filed by Third Party Defendants Foreman & Dyess, et al;
(10) Motion to Dismiss Third Party Complaint (Instrument No. 146) filed by Third Party Defendants KPMG Peat Marwick;
(11) Motion to Extend Time for Filing Response to Third Party Motions (Instrument No. 151) filed by Gertrude Yang, et al;
(12) Motion to Dismiss Third Party Cross-Claims (Instrument No. 157) filed by Baker, Brown, Sharman & Parker;
(13) Motion to Set Time for Filing Consolidate Responses to Third Party Motions to Dismiss (Instrument No. 187) filed by Gertrude Yang, et al;
(14) Motion to Dismiss Third Party Complaint (Instrument No. 206) filed by Michael Copeland and Jack Sorensen;
(15) Motion to Dismiss Amended Third Party Claims (Instrument No. 214) and for Sanctions, filed by John Dunn;
(16) Motion to Dismiss Amended Third Party Claims (Instrument No. 217) filed by Third-Party Defendants L.L. Bowman and Kenton Fickes;
(17) Motion for Summary Judgment (Instrument No. 222) filed by Justin Rose;
(18) Motion to Dismiss Amended Third Party Complaint or in the Alternative Motion to Strike (Instrument No. 231) filed by Third Party Defendant KPMG Peat Marwick;
(19) Motion for Protective Order (Instrument No. 235) filed by Justin Rose;
(20) Motion to Dismiss Amended Third Party Claims or in the Alternative Motion to Strike (Instrument No. 237) filed by J. Patrick Millinor;
(21) Motion to Lift Stay (Instrument No. 247) filed by Walter Wright;
(22) Motion to Dismiss Amended Third Party Complaint or in the Alternative Motion to Strike (Instrument No. 252) filed by Third Party Defendants Jack Elias, et al;
(23) Motion to Dismiss the FDIC's Third Amended Complaint (Instrument No. 266) filed by Gertrude Yang, et al;
(24) Motion to Quash Summons (Instrument No. 276) filed by RCM Government Securities, Inc.;
Having considered the motions, the responses and the applicable law this Court is of the opinion that the Plaintiff's Motions to Dismiss the Director Defendants' Counterclaims should be granted, the Director Defendants' Motion to Dismiss should be denied, and the Motions to Dismiss the Director Defendants' Third-Party Claims and Cross-Claims should be granted.[1] As a result of these rulings the other motions now before the court are moot.
I. STATEMENT OF FACTS
In the fall of 1985, regulatory officials rendered a report that criticized the financial health of Alliance. On October 30, 1985, the Board of Directors, defendants ("Director Defendants") in this action, signed an agreement that provided that "[d]uring the period of supervision, the association, its directors, officers, employees and shareholders shall act in accordance with the instructions and directions as may be given by the Savings & Loan Commissioner of Texas ..." Director Defendants Counterclaim Ex. 1, amended, August 31, 1990. On November 10, 1985, Alliance entered into a Consent Agreement with the FSLIC. In that agreement the Association acknowledged that the financial situation of the Association "require[s] extraordinary action" and that "grounds exist or will exist for the appointment of a conservator" and that the "Association shall, at the direction of the FSLIC, take all corporate actions necessary to effect a plan ... *1559 approved by the FSLIC, and/or shall at the direction of the FSLIC, provide for the management of its day-to-day operations in accordance with the Management Services Agreement approved by the FSLIC ..." Director Defendants Counterclaim Ex. 2, amended, August 31, 1990.
The FSLIC commenced this action against the Director Defendants for self dealing and the use of flawed business practices. The law firm of Baker, Brown, Sharman & Parker was also named as a defendant in this action for its failure to exercise due care and for legal malpractice. The FDIC-Corporate succeeded the FSLIC-Corporate as the plaintiff in this lawsuit.
The Director Defendants have counterclaimed for breach of contract, misrepresentation, negligence, and indemnification for attorneys fees.
The Director Defendants' claim for breach of contract is premised on the allegation that Ken Fickes, a state banking official, failed to perform his responsibilities under the agreement in that he failed to formulate a business plan. The agreement, however, never actually placed a burden on the FSLIC to come up with a plan; rather it was "authorized to negotiate a plan ..." Id. Defendants claim for misrepresentation rests on the same facts, namely that the FDIC failed to assist Alliance in formulating a business plan in that the supervisor repeatedly failed to provide guidance. The claim for negligence is no different from that for contract and misrepresentation. Defendants allege that the FDIC failed to perform its duty with care. The Defendants ask for attorneys fees if they succeed in establishing that they are not guilty of negligence or that they failed to perform a duty required under law.
Plaintiff's first defense to the counterclaim is that this court lacks jurisdiction over the counterclaim for breach of contract. Moreover, plaintiff asserts that it is not the proper party to the counterclaim and thus the counterclaim should be dismissed. Additionally, plaintiff contends that the Defendants do not have standing to sue under the contract as the contract was executed with Alliance and not the individual board members.
Director Defendants bring their counterclaims sounding in tort and contract, but the facts remain the same with regard to both claims.
The preliminary issue to be addressed is whether the FDIC is the proper party to the Director Defendants' counterclaim. Next there will be a discussion of whether the Director Defendants have standing to assert their claims under contract and tort. The discussion will then move to a consideration of whether the counterclaims are properly claims for recoupment arising out of the same transaction or occurrence. Finally, there will be a determination of whether plaintiff, if it owed any duty to the defendants at all, owed a contractual duty or one arising in tort. Each of these issues is answered in the negative, and each issue represents an independent basis for dismissal. Although each issue is dispositive, all rationales will be discussed.
II. DISCUSSION
A. Standard of Review
1. Motion to dismiss under Rule 12(b)(6)
Fed.R.Civ.P. 12(b)(6) provides that a motion to "dismiss for failure to state a claim upon which relief can be granted" may be proffered to dismiss a claim. When a district court reviews the sufficiency of a complaint, before it receives any evidence either by affidavit or admission, its task is inevitably a limited one. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90 (1974). The issue is not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims. Id. In considering a motion to dismiss under Rule 12(b)(6), the District Court should construe the allegations in the complaint favorably to the pleader and accept as true all well-pleaded facts in the complaint. LaPorte Constr. Co. v. Bayshore Nat'l Bank, 805 F.2d 1254, 1255 (5th Cir.1986); Windor v. The Tennessean, 719 F.2d 155, 158 (6th Cir.), cert. denied, 469 *1560 U.S. 826, 105 S. Ct. 105, 83 L. Ed. 2d 50 (1984). Dismissal of a claim is improper "unless it appears beyond a 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, 102, 2 L. Ed. 2d 80 (1957), Hughs v. Rowe, 449 U.S. 5, 10, 101 S. Ct. 173, 176, 66 L. Ed. 2d 163 (1980); Kaiser Aluminum & Chem Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir.1982), cert. denied, 459 U.S. 1105, 103 S. Ct. 729, 74 L. Ed. 2d 953 (1984).
Therefore, in challenging the sufficiency of the complaint under rule 12(b)(6), the defendant bears the burden of proving that under no interpretation of the facts set forth in the complaint can the plaintiffs succeed. Conley, 355 U.S. at 45-46, 78 S.Ct. at 102.
B. The Applicable Law
1. FDIC's Motion to Dismiss Counterclaims
i. Proper Party
At the time the events giving rise to the counterclaims occurred, the Federal Home Loan Bank Board ("FHLBB") was the regulatory agency responsible for supervising federally insured savings institutions. The FHLBB was a division within the FSLIC. 12 U.S.C. §§ 1464, 1725(a), 1726, 1729(c). Subsequent to the events at issue, Congress enacted comprehensive changes to the statutory scheme concerning thrift regulation by means of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub.L. 101-73, 103 Stat. 183. FIRREA abolished the FHLBB and the Federal Savings and Loan Insurance corporation (FSLIC), two of the agencies at issue here, and repealed the statutory provisions governing those agencies' conduct. §§ 401, 407, 103 Stat. 354-357, 363. At the same time, Congress granted the Federal Deposit Insurance Corporation ("FDIC") discretionary enforcement authority similar to that possessed by the antecedent agencies. §§ 201, 301, 103 Stat. 187-88, 277-343; see U.S. v. Gaubert, ___ U.S. ___, ___ n. 1, 111 S. Ct. 1267, 1271 n. 1, 113 L. Ed. 2d 335 (1991).
The FDIC then assumed the receivership function of administering the assets and liabilities of each individual receivership, as the appropriate successor of the FSLIC. See generally FDIC v. Gillard, 740 F. Supp. 427 (N.D.Tex.1990). The FDIC-Receiver is the proper successor in interest of the FSLIC-Receiver, who is the proper party to the Director Defendants' (hereinafter "Director Defendants" or "defendants") counterclaims. The FDIC-Corporate is the successor in interest of the FSLIC-Corporate who initially brought this lawsuit.[2]
Although the FDIC may simultaneously act in both capacities, FDIC v. Godshall, 558 F.2d 220, 223 (4th Cir.1977), a claim based on the FDIC's conduct in one capacity may not be asserted against the FDIC acting in a totally different capacity. See generally FDIC v. Eckert Seamans Cherin & Mellott, 754 F. Supp. 22, 25 (E.D.N.Y.1990) (citing In re F & T Contractors, Inc., 718 F.2d 171 (6th Cir.1983) (ruling that a claim against FDIC corporate may not be brought against the FDIC receiver). The Fifth Circuit has also noted the distinction between the FSLIC's actions as "receiver" and its actions as "insurer." See Godwin v. FSLIC, 806 F.2d 1290, 1291 n. 1 (5th Cir.1987); Lambert v. FSLIC, 871 F.2d 30, 32 (5th Cir.1989) (per curiam); cf. FDIC v. Condit, 861 F.2d 853, 882 (5th Cir.1988).
Defendants assert that the counterclaims they now pursue stemmed from actions undertaken "between the current plaintiff and the current defendant[s]." Def.s' Resp. to Pl.'s Mot. at 11 n. 4 (emphasis original). This allegation is totally baseless. The consent agreement that is the basis for defendants tort and contract counterclaims was entered into by the FSLIC in its regulatory receivership capacity, *1561 not the FSLIC in its corporate capacity.[3]See FDIC v. Berry, 659 F. Supp. 1475 (E.D.Tenn.1987); FDIC v. Baker, 739 F. Supp. 1401, 1407 (C.D.Cal.1990). The FDIC-Corporate as successor in interest to the FSLIC-Corporate is not the proper party to Defendants' counterclaims and therefore they are properly dismissed. When the FDIC in its corporate capacity purchases assets from the FDIC as receiver, the FDIC corporate is not deemed a successor in interest to the failed bank, nor does it assume the liabilities of receivership. See FDIC v. Andolshek, 714 F. Supp. 1535, 1545 (W.D.Mich.1989) (citing Batsakis v. FDIC, 670 F. Supp. 749, 752-53 (W.D.Mich.1987); FDIC v. Vestring, 620 F. Supp. 1271, 1274 (D.Kan.1985); FDIC v. First Mortgage Investors, 485 F. Supp. 445, 452 (E.D.Wis. 1980)). The FDIC-Corporate cannot be held liable for any contracts entered into, or fraud perpetrated by, agents of the bank. Id. Any claims arising from the actions of the failed bank and its agents are enforceable only against the FDIC-Receiver. Id.; FDIC v. Condit, 861 F.2d 853 (5th Cir.1988); Batsakis, 670 F.Supp. at 753; FDIC v. Vogel, 437 F. Supp. 660, 665 (E.D.Wis.1977). Analogous application of that rule indicates that Defendants' counterclaims, asserted against Plaintiff FDIC-Corporate, for actions taken by FSLIC in its regulatory capacity, whose successor remains FDIC-Receiver, must be dismissed for failure to state a claim. See FDIC v. Andolshek, 714 F.Supp. at 1545; see generally FDIC v. Coble, 720 F. Supp. 748, 750 (E.D.Mo.1989) (affirmative defenses of contributory negligence and failure to mitigate held to be legally insufficient as the FDIC-Corporate was not involved with bank operations until it was declared insolvent).
ii. Standing
Defendants counterclaim for recovery in contract and tort. The "contract" they claim was breached was in actuality a consent agreement entered into between FSLIC in its regulatory capacity and Alliance Savings and Loan Association; the agreement was not entered into, as Defendants erroneously suggest, between the Defendants and the Plaintiff. Defendants also seek recovery for the alleged tortious acts of the regulators that caused a diminution in the value of their holdings; Defendants do not have standing to assert this ground of recovery inasmuch as it belongs to the FDIC.
The directors are suing in their individual capacities, and do not sue derivatively in the name of the corporation. This court must look to Texas law to determine if counterclaimants have standing to bring their actions individually, inasmuch as state law determines whether shareholders may maintain a nonderivative action. Crocker v. Federal Deposit Insurance Corp., 826 F.2d 347 (5th Cir.1987), cert. denied, 485 U.S. 905, 108 S. Ct. 1075, 99 L. Ed. 2d 235 (1988).
Texas adheres to the general rule that a shareholder does not have a direct right against a director who has mismanaged the affairs of the corporation. In other words, a shareholder's right of action is derivative. Gaubert v. U.S., 885 F.2d 1284, 1291 (5th Cir.1989), rev'd on other grounds, ___ U.S. ___, 111 S. Ct. 1267, 113 L. Ed. 2d 335 (1991); Leach v. Federal Deposit Insurance Corp., 860 F.2d 1266, 1274 (5th Cir.1988).
In determining whether an individual may bring a nonderivative action a court must look to the "nature of the wrong," not the existence of the injury. Schoellkopf v. Pledger, 739 S.W.2d 914, 919 (Tex.App.Dallas 1987), rev'd on other grounds, 762 S.W.2d 145 (Tex.1988). That determination turns on whether all shareholders are "wounded," or just one person has been hurt by the misconduct. The law treats the former as harm to the corporate body, and the latter as harm to the individual. Leach, 860 F.2d at 1269.
*1562 As a matter of law, a cause of action for injury to the property of a corporation or for destruction of its business is vested in the corporation, not a shareholder, even though the harm may result in loss of earnings to the shareholder. A corporate shareholder has no individual cause of action for personal damages caused solely by wrong done to the corporation. Faour v. Faour, 789 S.W.2d 620, 622 (Tex.App. Texarkana 1990, n.w.h.) (citing to Commonwealth of Massachusetts v. Davis, 140 Tex. 398, 168 S.W.2d 216 (1942), cert. denied, 320 U.S. 210, 63 S. Ct. 1447, 87 L. Ed. 1848 (1943)). Only a corporation, not its shareholders, can complain of injuries sustained by a corporation. United States v. Palmer, 578 F.2d 144 (5th Cir.1978).
A suit for the depreciation of share value must be brought by the corporation. Commonwealth, 140 Tex. at 401, 168 S.W.2d 216. As a result, it is the corporation that receives any recovery in a successful action. Ross v. Bernhard, 396 U.S. 531, 538, 90 S. Ct. 733, 738, 24 L. Ed. 2d 729 (1970). An individual shareholder "has no separate and independent right of action for wrongs to the corporation which merely result in depreciation in the value of [his] stock." Faour, 789 S.W.2d at 622 (emphasis supplied); Commonwealth of Massachusetts v. Davis, 168 S.W.2d at 218.
Yet, a shareholder may still bring suit if a director violates a duty arising from a contract or representation owing directly to him. Faour, 789 S.W.2d at 622 (citing to Stinnett v. Paramount-Famous Lasky Corporation, 37 S.W.2d 145 (Tex. Com'n App.1931, holding approved)). In such a case, a shareholder may sue in a nonderivative action regardless of whether the corporation also brings suit. Faour, 789 S.W.2d at 662.
An independent right does arise when an individual brings suit for misrepresentation, yet, a showing that a duty was owed to him or her personally is required. Normally, a corporate officer owes a fiduciary duty to the shareholders collectively, i.e., the corporation, but he does not occupy a fiduciary relationship with the individual shareholder, unless some contract of special relationship exists between them in addition to the corporation relationship. Faour v. Faour, 789 S.W.2d at 621-622; Kaspar v. Thorne, 755 S.W.2d 151 (Tex. App.Dallas 1988, no writ).
Other than Defendant's conclusory allegations, Defendants have failed to show that a duty, arising either in contract or tort, owed directly to them individually, was breached.
The consent agreement which Defendants argue placed a duty on the FSLIC was not entered into by the directors but by Alliance itself.[4] The duty of adequate performance, if any was owed by the regulatory officials, was owed not to the directors or directly to Alliance, but to the insurance fund. FDIC v. Burdette, 696 F. Supp. 1183, 1189-90 (E.D.Tenn.1988). Defendants' counterclaims must fail for lack of standing.[5]
iii. Recoupment
Recoupment allows a "defendant to reduce the amount of plaintiff's claim by asserting a claim against the plaintiff which arose out of the same transaction to arrive at a just and proper liability on the plaintiff's claim." In re *1563 Holford, 896 F.2d 176, 178 (5th Cir.1990) (per curiam) (emphasis original). Recoupment is a defense that goes to the foundation of the plaintiff's claim by deducting from plaintiff's recovery all just allowances or demands accruing to the defendant with respect to the same contract or transaction; as a purely defensive procedure it is available to defendants so long as plaintiff's claim survives, even though affirmative action by the defendant may be barred by limitations. Distribution Services, Ltd. v. Eddie Parker Interests, Inc., 897 F.2d 811 (5th Cir.1990). The mere fact that "the same two parties are involved in the claims to be offset, and that a similar subject matter gave rise to both claims does not mean that the two arose from the `same transaction' for purposes of the doctrine of recoupment." In re Davidovich, 901 F.2d 1533, 1538 (10th Cir.1990) (per curiam) (bankruptcy action).
The FDIC-Corporate's suit alleges that the Directors and Officers breached certain contractual and fiduciary duties to Alliance and, among other things, engaged in self-dealing between 1983 and 1985. Specifically, the Directors employed flawed business practices in connection with Alliance's association in several real estate development ventures. The Directors, on the other hand, assert a counterclaim for negligence and breach of contract based on the alleged failure of the government to assist Alliance in its day-to-day operations, leading to Alliance's insolvency. These claims do not arise out of the same transaction or occurrence. Defendants' counterclaims do not sound in recoupment. See FSLIC v. Burdette, 696 F. Supp. 1183, 1187 (E.D.Tenn.1988); FDIC v. Manatt, 723 F. Supp. 99, 103-04 (E.D.Ark.1989); see also In re McConnell, 934 F.2d 662, 667 (5th Cir.1991) (court upheld bankruptcy court finding that a contract did not arise out of same transaction as the alleged fraud and were thus unrelated).
iv. Duty
The law is clear that the FSLIC, or its successor the FDIC, owes no duties that could form the basis of a negligence action. The regulatory activities of these governmental agencies are subject only to the singular duty owed to the insurance fund; the agencies owe a duty to neither the institution itself nor its agents. FDIC v. Baker, 739 F. Supp. 1401, 1404-07 (C.D.Cal 1990); FDIC v. Burdette, 696 F.Supp. at 1189; Harmsen v. Smith, 586 F.2d 156, 157-58 (9th Cir.1978); FDIC v. Demspter, 637 F. Supp. 362, 366-67 (E.D.Tenn.1986). To imply that the Directors may be the beneficiary of that duty runs contrary to public policy. FSLIC v. Roy, No. JFM-8-1227, 1988 WL 96570 (D.Md. June 28, 1988).
Moreover, the defendants' counterclaims for breach of contract, if the consent agreement imposed an obligation on the governmental agency at all, should be dismissed. As mentioned above, the Director Defendants were not parties to the agreement. Def. Yang's First Counterclaim Ex. 2. Republic National Bank v. National Bankers Life Ins. Co., 427 S.W.2d 76 (Tex.Civ. App.Dallas 1968, no writ).
2. The Law Firms' Motions to Dismiss Third-Party and Cross-Claim Actions
In addition to the jurisdictional reasons for dismissal of the third-party claims against the law firms of Baker, Brown, Sharman & Parker ("Baker Brown") and Foreman & Dyess, which will be discussed below, there exists an independent substantive reason for dismissal of the director defendants' crossclaims and the third-party claims of others.
Texas follows the traditional view that an "attorney owes no duty to third party non-clients." Bell v. Manning, 613 S.W.2d 335, 338 (Tex.Civ.App.Tyler 1981, writ ref'd n.r.e.). Texas courts have continued to resist the adoption of relaxed privity requirements; and have refused, in most situations, to hold attorneys liable to third persons finding "that an attorney owes no duty to a third party in the absence of privity of contract." First Municipal Leasing Corp. v. Blankenship, Potts, Aikman, Hagin & Stewart, 648 S.W.2d 410, 412-13 (Tex.App.Dallas 1983, writ ref'd n.r.e.). An attorney owes no duty to *1564 a third party "even under circumstances where the attorney renders an opinion to his client on which he knows a third party will rely." Marshall v. Quinn-L Equities, Inc., 704 F. Supp. 1384, 1394-95 (N.D.Tex. 1988). Therefore, an attorney is not ordinarily liable to a third party for damages resulting from performance of professional services. Bryan & Amidei v. Law, 435 S.W.2d 587, 593 (Tex.Civ.App.Fort Worth 1968, no writ). The Director Defendants who bring third party actions and crossclaims against Baker, Brown and Foreman & Dyess have failed to show that they have contracted with those law firms. Berry v. Dodson, Nunley & Taylor, 717 S.W.2d 716, 719 (Tex.App.San Antonio 1986, writ dism'd by agr). In the absence of a showing of privity of contract or some special relationship, their actions may not be maintained. Republic National Bank v. National Bankers Life Ins. Co., 427 S.W.2d 76 (Tex.Civ.App.Dallas 1968, no writ).
3. Pendant Party Jurisdiction
The Third-Party Plaintiffs,[6] James Howse, Leonard Cersonsky, Alan Gaylor, Everett Mattson, Marian Rosen, Arnold Rudolph, Merilee Aron Weiner, Independent Executrix of the Estate of Irving Weiner, and Gertude Yang brought third-party actions, without leave of court, against Justin Rose, John Dunn, RCM Government Securities, Inc. ("RCM"), bank regulators Kenton Fickes and Lee Bowman III, the accounting firm of Klyneld, Peat, Marwick and Goerdeler ("Peat Marwick"), J. Patrick Millinor, the law firm of Foreman & Dyess and its former partners Hartford H. Prewett, Leonard B. Rosenburg, Thomas E. Lee, Wayne G. Dodson, Joseph R. Pulaski, John B. Scofield, J. Currie Bechtol, William D. Hoops, P.C., James E. Babcock, James W. Newman, Jr., Randal E. Evens, L. Todd Gremillion, B.J. Walter, Jr., P.C., Donald W. Brodsky, James E. Doyle, David G. Dunlap, Darrel E. Reed, Jr., George R. Nelson, P.C., Darold Maxwell, Robert H. Walls, J. Gordon Zuber, David Lewis, Michael Copeland, and Jack Sorenson. The Director Defendants as noted above also brought a cross-claim against Baker Brown. Several of the third-party defendants have filed motions to dismiss the amended third-party complaint. Additionally, several of the third-party defendants, brought cross-claims against the other third-party defendants who then subsequently filed motions to dismiss.
The Directors' third-party complaint asserts that "if the third-party plaintiffs are found liable to the FDIC for losses resulting from loan practices and administration at Alliance, they are entitled to [contribution and/or indemnification] from [the third party defendants] in an amount to be determined at trial." Director Def. Amended Third-Party Compl.
The motions to dismiss the third-party claims and the third-party cross-claims may be considered together since they involve the same issue of supplemental jurisdiction, previously known as ancillary and pendant jurisdiction.
a. The Applicable Law
i. Supplemental Jurisdiction
Congress enacted the Judicial Improvements Act of 1990 in order to, among other things, fill jurisdictional gaps created by the United States Supreme Court's decision in Finley v. United States, 490 U.S. 545, 109 S. Ct. 2003, 104 L. Ed. 2d 593 (1989). Finley invalidated the application of pendant party jurisdiction. It noted that "with respect to the addition of parties, as opposed to the addition of claims, we will not assume that the full constitutional power has been congressionally authorized, and will not read jurisdictional statutes broadly." Finley v. United States, 490 U.S. at 549, 109 S.Ct. at 2007. Congress through 28 U.S.C. § 1367 codified and restored supplemental jurisdiction to essentially that which existed before Finley. See C. WRIGHT, A. MILLER & E. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3567.3 at 35 (Supp.1991).
Supplemental jurisdiction, as it is now called, may now be extended over all claims that are so related to the claims in the main controversy that they form part of the *1565 same case or controversy under Article III of the United States Constitution. 28 U.S.C. § 1367(a); see United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 1138, 16 L. Ed. 2d 218 (1966). Section 1367 took effect on December 1, 1990,[7] and is only applicable to actions commenced on or after that date. Pub.L. No. 101-650 § 310(c); Loeber v. Bay Tankers, Inc., 924 F.2d 1340, 1345 n. 3 (5th Cir.1991) ("Because the instant action commenced before the enactment of the Judicial Improvements Act on December 1, 1990 that act does not apply to the instant case."); In re Shell Oil, 932 F.2d 1518, 1521 n. 7 (5th Cir.1991) (ancillary jurisdiction) ("we note that under recently enacted legislation `supplemental jurisdiction' is to be used for all civil cases commenced on or after December 1, 1990."). This Court must now address the preliminary issue of whether the effective date of § 1367 bars application of its jurisdictional dictates.
The underlying action was commenced on June 1, 1989, long before the effective date of § 1367. The Director Defendants' third-party complaint[8] was filed on August 31, 1990, and third-party defendants Copeland's and Sorenson's counterclaims and crossclaims were filed on September 24, 1990, and October 24, 1990, respectively. It is clear that these actions were commenced before the effective date of § 1367; as a result § 1367 does not apply to these third-party action. Consequently, this court will undertake an analysis of pendant party jurisdiction under Finley.[9]
b. Pendant Party Jurisdiction under Finley[10]
Applying Finley this Court finds that there is no independent basis of federal jurisdiction over the state law causes of action brought by the Director Defendants against third parties and the various third parties against others. These third-party claims and cross-claims do not give rise to federal question jurisdiction.[11]See Eagle Properties, Ltd v. Scharbauer, 807 S.W.2d 714, 718-21 (Tex.1990) (discussing pendant-party jurisdiction in the federal courts to resolve an issue of res judicata and collateral estoppel). A federal court may decide state law claims brought by third-party plaintiffs only when those claims fall within the court's ancillary or pendent-party jurisdiction.
Ancillary jurisdiction generally involves claims asserted defensively, i.e., "claims by a defending party hailed into court against his will," or by a party *1566 "whose rights might be irretrievably lost unless he could assert them in an ongoing action in a federal court." Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 376, 98 S. Ct. 2396, 2404, 57 L. Ed. 2d 274 (1978); W.R. Grace & Co. v. Continental Cas. Co., 896 F.2d 865, 871 (5th Cir.1990). Pendent-party jurisdiction involves jurisdiction over parties not named in claims properly before the federal court and over whom there is no independent basis of federal jurisdiction. Note, Pendent Party Jurisdiction After Finley v. United States: A Trend Toward Its Abolition, 24 Ga.L.Rev. 447, 453-54 (1990); A. Miller, Ancillary and Pendent Jurisdiction, 26 S.Tex.L.J. 1, 5-11 (1985). The state law claims of the Director Defendants against various third-parties might be ancillary, but since they would have necessitated jurisdiction over new parties not named in any claim independently cognizable by the federal court, this court will consider the question raised as one involving pendent-party jurisdiction. Eagle Properties, Ltd v. Scharbauer, 807 S.W.2d at 719 n. 1; see also Finley v. United States, 490 U.S. 545, 548, 109 S. Ct. 2003, 2006, 104 L. Ed. 2d 593 (1989); Federal Deposit Ins. Corp. v. Israel, 739 F. Supp. 1411, 1412 (C.D.Cal.1990).
In Finley, the U.S. Supreme Court articulated pendent-party jurisdiction as "jurisdiction over parties not named in any claim that is independently cognizable by the federal court." Finley, 490 U.S. at 549, 109 S.Ct. at 2006.[12] It is not sufficient that the federal and nonfederal claims "derive from a common nucleus of operative fact" and are such that a plaintiff "would ordinarily be expected to try them in one judicial proceeding," as required for pendent claim jurisdiction under United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 1138, 16 L. Ed. 2d 218 (1966); Finley, 490 U.S. at 549, 109 S.Ct. at 2006-07. Rather, there must also be "an examination of the posture in which the nonfederal claim is asserted and of the specific statute that confers jurisdiction over the federal claim." Finley, 490 U.S. at 551, 109 S.Ct. at 2007, quoting Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373, 98 S. Ct. 2396, 2402, 57 L. Ed. 2d 274 (1978).
Pendent-party jurisdiction, therefore, may not be exercised unless the text of a statute grants, or illustrates an intent to grant, jurisdiction over additional parties.
In a similar case involving the FSLIC, the Ninth Circuit determined that jurisdiction existed over a third-party complaint, where the FSLIC had an interest in the outcome. In California Union Ins. v. American Diversified Sav., 914 F.2d 1271 (9th Cir.1990), the FSLIC brought claims against directors of a collapsed thrift institution. One of the directors filed a third-party complaint against an insurer. The court found that 12 U.S.C. § 1730(k)(1) granted jurisdiction over the third-party claim. This differs from the present case in two respects. First, 12 U.S.C. § 1730(k)(1) contains broader language than 12 U.S.C. § 1819, referring to "any civil action, suit, or proceeding to which the [FSLIC] shall be a party," as opposed to "all suits ... to which the FDIC shall be a party." Second, the court in California Union based its decision in part on the fact that the FSLIC had a "clear stake" in the director's claim against the insurer and even joined the director in his motion for summary judgment. The FDIC, in the instant action, has no real interest in the Director Defendants Third-Party Claims.
In Federal Deposit Ins. Corp. v. Ohara's, Inc., 713 F. Supp. 966 (N.D.Miss. 1989), the court there held that in a suit brought by the FDIC-Corporate, no pendent *1567 party jurisdiction existed over FDIC-Receiver inasmuch as 12 U.S.C. § 1819 specifically excludes the FDIC-Receiver from the exercise of subject matter jurisdiction in suits which involve only the rights or obligations of depositors, creditors, stockholders and the state bank under state law. Moreover, in Fair v. NCNB Texas Nat'l Bank, 733 F. Supp. 1099 (N.D.Tex.1990), the court concluded ancillary or pendent-party jurisdiction would not be exercised where such a move would not serve the interests of judicial economy and convenience. In that case however, the federal claims were dismissed leaving only the pendant-party claims. Neither of these cases relies upon Finley, however.
Federal courts since Finley, but before the enactment of 28 U.S.C. § 1367, have read jurisdiction-granting statutes narrowly. Eagle Properties, Ltd. v. Scharbauer, 807 S.W.2d at 719-20. This type of statutory interpretation has often resulted in finding a lack of pendent-party jurisdiction. See, e.g., Iron Workers Pension Fund v. Terotechnology, 891 F.2d 548 (5th Cir.1990) (denying pendant-party jurisdiction in suit under the Employee Retirement Income Security Act, 29 U.S.C. § 1132(e)), cert. denied sub nom., 497 U.S. 1024, 110 S. Ct. 3272, 111 L. Ed. 2d 782 (1990); Sarmiento v. Texas Bd. of Veterinary Medical Ex'rs, 939 F.2d 1242, 1248 (5th Cir.1991) (denying pendant-party jurisdiction under 42 U.S.C. § 1983); Marshall v. Southwestern Bell Tel. Co., 760 F. Supp. 113, 114 (E.D.Tex. 1991) (Title VII and ADEA do not provide independent jurisdictional basis over pendant-party action).
As no independent basis exists for jurisdiction over these pendant-party claims this court must scrutinize the relevant statute that confers jurisdiction on this court. In Federal Deposit Ins. Corp. v. Israel, 739 F. Supp. 1411, 1413 (C.D.Cal.1990), the court interpreted 12 U.S.C. § 1819, and found that it explicitly grants jurisdiction only over claims to which the FDIC is a party. The court concluded that it had no subject matter jurisdiction over the defendants' third-party claims. Federal Deposit Ins. Corp. v. Israel, 739 F.Supp. at 1414. The statute reads:
Except as provided in subparagraph (D), all suits of a civil nature at common law or in equity to which the [FDIC], in any capacity, is a party shall be deemed to arise under the laws of the United States.
12 U.S.C. § 1819(b)(2) (West 1989).
This statute cannot be interpreted to mean that everything the FDIC touches, it "federalizes." Yankee Bank for Finance & Savings v. Task Associates, 731 F. Supp. 64, 67 (N.D.N.Y.1990). In Federal Deposit Ins. Corp. v. Israel, much like the case at hand, the FDIC was the plaintiff and certain defendants filed cross-claims and third-party claims against new parties which were exclusively state-law claims for indemnification. Applying Finley, the court squarely addressed the question of whether 12 U.S.C. § 1819 affirmatively grants jurisdiction over cross-claims of this nature, permitting the federal court to adjudicate those claims on the merits. After careful examination of the language of the statute and federal decisions interpreting other jurisdictional statutes, the court held that the terms "civil actions" or "civil suits" refer to specific claims, not just "the general theme of the suit," and that the court should not exercise jurisdiction over the third-party claims. Federal Deposit Ins. Corp. v. Israel, 739 F.Supp. at 1414. That decision accords with the canon that a congressional grant of jurisdiction should be read narrowly, Healy v. Ratta, 292 U.S. 263, 54 S. Ct. 700, 78 L. Ed. 1248 (1934), and that "a grant of jurisdiction over claims involving particular parties does not itself confer jurisdiction over additional claims by or against different parties." Finley v. United States, 490 U.S. at 556, 109 S.Ct. at 2010. Although the Israel court found that it may be fair to assert "that the Finley rule is nonsensical ... [the court observed that that view] is clearly not the state of the law." Federal Deposit Ins. Corp. v. Israel, 739 F.Supp. at 1414.
In discussing the hardships to the parties the court noted that there was:
*1568 [n]o doubt [that] this order makes adjudication of the present controversy even more cumbersome. It requires the ... defendants to pursue claims factually related to this litigation in a separate forum. Nevertheless, this is what the law commands.[13] The implications upon the application of 12 U.S.C. § 1819 and other jurisdictional statutes if it were otherwise would be disagreeable.
Federal Deposit Ins. Corp. v. Israel, 739 F.Supp. at 1414. (footnote added)
In light of Finley v. United States, Federal Deposit Ins. Corp. v. Israel, and Eagle Properties, Ltd. v. Scharbauer, and based on this court's reading of the relevant jurisdiction statute, 12 U.S.C. § 1819, this court finds that it does not have jurisdiction over the third-party claims brought by the Director Defendants and the subsequent cross-claims for indemnification filed before the effective date of 28 U.S.C. § 1367.
4. Liability under FIRREA § 1821(k)
The Director Defendants seek to dismiss the FDIC's state law claims arguing that 12 U.S.C. § 1821(k) limits their liability to actions founded on gross negligence or a higher state of culpability. The Defendants contend that the FDIC's other state law claims are preempted under the statute.
Several courts have found that the plain language of the statute establishes that an action based on state law claims, other than gross negligence, may be maintained. The last sentence of § 1821(k) states "Nothing in this paragraph shall impair or affect any right of the corporation under other applicable law." The FIRREA section that permits the FDIC to seek damages for conduct amounting to or exceeding gross negligence is not exclusive and does not preempt state law claims premised on conduct that does not amount to gross negligence. Federal Deposit Ins. Corp. v. Canfield, 957 F.2d 786 (10th Cir.1992); Federal Deposit Ins. Corp. v. Fay, 779 F. Supp. 66, 67 (S.D.Tex.1991); Federal Deposit Ins. Corp. v. Black, 777 F. Supp. 919, 921-22 (W.D.Okl.1991).
III. CONCLUSION
This Court having considered all other contentions presented concludes, for the reasons set forth above, that the Plaintiff's Motions to Dismiss the Director Defendants' Counterclaims should be granted; the Director Defendants' Motion to Dismiss the FDIC's state law claims should be denied; and Defendant Baker, Brown's motion to dismiss the Director Defendants' Third-Party Claims and Cross-Claims should be granted. The third-party complaints and crossclaims are dismissed without prejudice for lack of jurisdiction.
For the purposes of clarification the remaining parties to this action, in this forum, are: (1) the FDIC; (2) the Director Defendants; and (3) the law firm of Baker, Brown, Sharman & Parker.
NOTES
[1] The Third-Party Defendants' motions to dismiss will be considered together in the interest of judicial economy as those motions present the same issues.
[2] On January 22, 1990 (instrument # 47), the Court substituted in the FDIC-Corporate as the plaintiff in this action.
[3] Moreover, as will be discussed below, Defendants have no standing to assert a claim for breach of contract.
[4] The Defendants allude to, but do not elaborate on, the contention that they are third-party beneficiaries to the consent agreement, and as a result, have standing to sue. Their claim can only survive "if there is a contract or other liability of which the stockholder personally is the beneficiary, the cause of action arises to him as with any other cause of action he may have under the same circumstances." Gaubert v. U.S., 885 F.2d at 1291-92 (citing Cullum v. General Motors Acceptance Corp., 115 S.W.2d 1196, 1201 (Tex.Civ.App.Amarillo, 1938, no writ) (emphasis supplied). In the instant action the Defendants have failed to support there allegation that the consent agreement was entered into for their benefit.
[5] Defendants do not allege that they sought to bring a derivative action in the name of Alliance. The pleadings do not reveal any request by Defendants that the FSLIC bring suit on their behalf. Indeed, even if futile, the demand must be made. See Gaubert v. U.S., 885 F.2d at 1290 n. 6.
[6] The Third-Party Plaintiff's include most of the parties that constitute the Director Defendants.
[7] See Judicial Improvements Act of 1990, Pub.L. No. 101-650, Title III, § 310(c), 104 Stat. 5089, 5113. See D. Siegal, Practical Commentary, "The 1990 Adoption of § 1367, Codifying `Supplemental' Jurisdiction," following text of 28 U.S.C.A. § 1367 (West Supp.1991).
[8] To avoid undue hardships to defendants, other courts have viewed a third-party claim as an independent "action" for purposes of § 1367's effective date. In re Joint E. & So. Dist. Asbestos Litigation, 769 F. Supp. 85, 87 (E. & S.D.N.Y. 1991).
[9] The third-party plaintiffs now seek to amend their third-party complaint; that act does not change the fact that the action was commenced before the effective date of 28 U.S.C. § 1367.
[10] This Court will use the term "pendant party" jurisdiction instead of the term "supplemental" jurisdiction as this Court has determined that for the purposes of this discussion it must follow the Finley rubric.
[11] The Director Defendants brought their third-party claims asserting this Court's jurisdiction under statutory interpleader. 28 U.S.C. § 1335. Many courts have held these interpleader provisions are remedial in character and should be construed liberally. 7 WRIGHT, MILLER & KANE, FEDERAL PRACTICE AND PROCEDURE: CIVIL 2D § 1704 (1986 & Supp.1991) (citing In the Matter of Bohart, 743 F.2d 313, 324 (5th Cir.1984)). "The primary test for determining the propriety of interpleading the adverse claimants ... [is] whether the state holder legitimately fears multiple vexation directed at a single fund." Id. Additionally, interpleader requires a stake, fund or other identifiable property. Id. The Director Defendants use of defensive interpleader is not appropriate in this action since they are neither stakeholders nor are they exposed to the danger of multiple liability. Moreover, statutory interpleader requires at least "minimal" diversity of citizenship between two or more of the adverse claimants and requires an amount in controversy. The Director Defendants have not sufficiently pled diversity of citizenship between the third-party plaintiffs and the third-party defendants as required by 28 U.S.C. § 1332(a)(1). The Director Defendants have also failed to deposit the "stake" with the Court or post an adequate bond as required by statute. 28 U.S.C. § 1335(a)(2).
[12] The Court there held that the Federal Tort Claims Act does not permit the exercise of pendent-party jurisdiction over additional parties to whom no independent basis for federal jurisdiction exists. The Court found that the most significant element of "posture" was the fact that the added claims involved added parties over whom there was no independent basis for jurisdiction. The Court read the statute narrowly and found that it did not permit the exercise of jurisdiction over actions against parties other than the United States. The Court emphasized the rule expressed in precedent that "a grant of jurisdiction over claims involving particular parties does not itself confer jurisdiction over additional claims by or against different parties." Finley, 490 U.S. at 556, 109 S.Ct. at 2010.
[13] Finley declared "`neither the convenience of the litigants nor considerations of judicial economy can suffice to justify'" jurisdiction over state law claims involving additional parties without an independent basis for jurisdiction. Loeber v. Bay Tankers, Inc., 924 F.2d 1340, 1346 (5th Cir.1991) (admiralty jurisdiction covers pendant-party actions). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1746831/ | 363 S.W.2d 175 (1962)
W. L. NORMAN, Appellant,
v.
B. V. CHRISTIE & CO. et al., Appellees.
No. 13997.
Court of Civil Appeals of Texas, Houston.
November 29, 1962.
Rehearing Denied December 20, 1962.
*176 John H. Jenkins and Herbert Finkelstein, Houston, for appellant.
Milas C. Bradford, Jr., Houston, attorney, and Baker, Botts, Shepherd & Coates, Houston, of counsel, for appellees.
COLEMAN, Justice.
This is a suit for contribution between joint venturers arising by reason of a judgment against appellee, B. V. Christie & Co., in favor of the City of Houston.
The case was tried to the court without a jury and no findings of fact or conclusions of law were requested or filed. The parties stipulated that B. V. Christie & Co. paid to W. L. Norman $4,000.00 in cash, which amount represented one-half of the fee received by B. V. Christie & Co., after deducting expenses, for services rendered as fiscal agent to Harris County Fresh Water Supply District No. 23.
Appellant has conceded that the facts set out in appellees' pleadings, and quoted, or summarized below, are true: W. L. Norman was associated with B. V. Christie & Co. under a contract by virtue of which he was entitled to a percentage of the net profit on any transactions or business which he originated and were accepted by B.V.Christie & Co." It was through the efforts of W. L. Norman that B. V. Christie & Co. secured a contract with Harris County Fresh Water Supply District No. 23 to act as its fiscal agent and financial adviser. B. V. Christie & Co. was paid $9,750.00 by the District and "delivered to W. L. Norman fifty per cent of that amount (less certain expenses) which represented Norman's share of the Fiscal Agent's fee in accordance with the contract between Norman and Christie." Thereafter the District sued Christie and in Cause No. 426,876-C, which, on appeal, is reported in Tex.Civ.App., 317 S.W.2d 219, recovered 9,750.00 plus interest from June 28, 1957.
In Cause No. 426,876-C in the District Court of Harris County, Texas, the trial court found as a fact that the contract between Christie and the District resulted in granting to Christie a discount on the bonds issued by the District which Christie purchased. The District bonds were sold to Ketcham & Nongard. Christie participated in the purchase and thereafter received and sold some of the bonds at a profit. The trial court concluded as a matter of law that the payment by the District to Christie of the $9,750.00 fiscal agent's fee violated Article 7939, Texas Revised Civil Statutes, requiring such bonds to be sold at not less than their face value and accrued interest. These findings and conclusions were introduced into evidence apparently by agreement. Norman was not joined as a defendant in the suit for recovery of this fee and judgment was rendered against Christie only. The Court of Civil Appeals affirmed the judgment of the trial court. Christie has paid the judgment.
It is not questioned that the agreement between Norman and Christie constituted them partners or joint venturers. Ordinarily a partnership or a joint venture implies a community of interest both as to profits and losses, if any. Brown v. Cole, 155 Tex. 624, 291 S.W.2d 704, 59 A.L.R. 2d 1011. The judgment paid by Christie was *177 a result of liability incurred in the prosecution of the joint venture, and the rule is well established that one partner paying a firm debt has a right to contribution from the other members of the partnership. 32 Tex.Jur., Partnership, § 57, pp. 308-310.
Appellant contends that since appellees by this suit seek to recover profits arising from the sale of water district bonds in violation of Art. 7939, T.R.C.S., and the public policy of the State of Texas, the court erred in failing to leave the parties where it found them and in entertaining this suit.
The Supreme Court of Texas considered the rules of law applicable to such cases in Lewis v. Davis, 145 Tex. 468, 199 S.W.2d 146, where the Court said:
"The general rule that denies relief to a party to an illegal contract is expressed in the maxim, In pari delicto potior est conditio defendantis. 17 C. J.S. Contracts Sec. 272, p. 656. The rule is adopted, not for the benefit of either party and not to punish either of them, but for the benefit of the public. 12 Am.Jur. p. 729, Sec. 214. In many cases relief is granted to the party who is not in pari delicto. American National Ins. Co. v. Tabor, 111 Tex. 155, 230 S.W. 397; Pioneer Mutual Compensation Corp. v. Diaz, 142 Tex. 184, 177 S.W.2d 202; Graham v. Dean, 144 Tex. 61, 188 S.W.2d 372; 12 Am.Jur. pp. 734, 735, Sec. 217. It has been said that even where the parties are in pari delicto relief will sometimes be granted if public policy demands it. 12 Am.Jur. pp. 729, 730, Sec. 214. There is often involved, in reaching a decision as to granting or withholding relief, the question whether the policy against assisting a wrongdoer outweighs the policy against permitting unjust enrichment of one party at the expense of the other. The solution of the question depends upon the peculiar facts and the equities of the case, and the answer usually given is that which it is thought will better serve public policy. Graham v. Dean, 144 Tex. 61, 188 S.W.2d 372; Scott's The Law of Trusts, Vol. 3, pp. 2196-2197, Sec. 422; Benefits under Illegal Transactions, by John W. Wade, 25 Tex.Law Review, pp. 31-62."
The contract tainted with illegality is the contract between Christie, acting for the joint venture, and the Water District. The agreement between Christie and Norman establishing the basis for joint participation in the venture was not illegal. This agreement, however, did not form a general partnership. The parties were to be associated only in items of business originated by Norman and accepted by Christie. Proof of this agreement, the judgment against Christie, and of the release showing payment could not establish that Norman was liable for contribution. Introduction into evidence of the contract between Christie and Norman would not establish that Norman participated in the particular transaction out of which liability to the District arose. It was necessary that evidence be produced showing that the employment of Christie & Co. by the District resulted from negotiations begun by Norman, and that the judgment against Christie was an obligation of the joint venture.
In Stone v. Robinson, Tex.Com.App., 234 S.W. 1094, the court said:
"* * * To determine if a demand connected with an illegal act can be enforced, the test is whether the plaintiff requires any aid from the illegal transaction to establish his case. If he does, then he cannot maintain his action. If he does not, the illegal transaction is not permitted to be a defense to his cause of action. Read v. Smith, 60 Tex. 379; Wiggins v. Bisso, 92 Tex. [219] 222, 47 S.W. 637, 71 Am. St. Rep. 837; Oliphant v. Markham, 79 Tex. [543] 547, 15 S.W. 569, 23 Am. St. Rep. 363."
In Pioneer Mutual Compensation Co. v. Diaz, 142 Tex. 184, 177 S.W.2d 202, the court said: "* * * The test of whether a demand connected with an illegal transaction *178 may be enforced at law is whether or not a case may be established without reliance on the illegal transaction."
In Morrison v. City of Fort Worth, 138 Tex. 10, 155 S.W.2d 908, the Supreme Court of Texas said:
"In the case at bar the plaintiff sues for that which a valid law of the State compelled the City to pay her deceased husband. She seeks recovery, not under the contract, but under a mandatory State statute. In order to establish her cause of action the plaintiff requires no aid from the illegal contract. Under such a record, the illegal contract constitutes no bar to the plaintiff's cause of action. This is because of the settled rule in this State that, even though a demand is in some way connected with an illegal transaction, still recovery may be had if the plaintiff requires no aid from the illegal transaction to establish his case. Oliphant v. Markham, 79 Tex. 543, 15 S.W. 569, 23 Am. St. Rep. 363; Beer v. Landman, 88 Tex. 450, 31 S.W. 805; Hall v. Edwards, Tex.Com.App., 222 S.W. 167."
While we have found no case in which a partner sought contribution by reason of the payment of an obligation arising out of an illegal contract, a proper disposition of such a case depends on whether or not the plaintiff requires aid from the illegal transaction to establish his case. In making such a determination it is necessary to bear in mind the rule that if a party can show a complete cause of action without being obligated to prove his own illegal act, although said illegal act may appear incidentally and may be important in explanation of other facts in the case, he may recover. City of Galveston v. O'Mara, Tex. Civ.App., 146 S.W.2d 416, aff'd 138 Tex. 16, 155 S.W.2d 912.
In order to prove that the judgment was a liability of the joint venture, it might have become necessary to prove the contract between Christie and the District, not for the purpose of enforcing the contract, but to show that the judgment was an obligation of the joint venture. It was not necessary to introduce the contract into evidence in this case for the reason that appellant, in his pleadings, admitted participation in the joint venture from which the judgment resulted. However, it appears from appellees pleadings that the judgment secured against Christie & Co., was based on findings of fact that the payment made to Christie & Co. by the District was in violation of the laws of the State of Texas.
In any event, proof of the illegal contract merely appears incidentally in explanation of the judgment rendered against Christie & Co. Proof of the terms of the contract between Christie & Co. and the District was not required in order for Christie & Co. to establish a complete cause of action against Norman. Neither was it necessary to show the facts developed in the trial at which the City of Houston recovered the judgment against Christie & Co. The rule of City of Galveston v. O'Mara, supra is applicable.
Appellees contend that in this case the public policy against permitting unjust enrichment outweighs the policy against assisting a wrongdoer. They contend that the public policy would be better served by requiring appellant to give up his profit than by denying appellees assistance in recouping their loss. The parties are in pari delicto. There is no suggestion in the record that either of the parties had any specific intent to commit an illegal act. Since it is not the purpose of this rule of law to benefit or punish either or the parties, we consider that the policy against permitting unjust enrichment outweights the policy against assisting a wrongdoer. Lewis v. Davis, supra.
Appellees' cause of action is not based on appellant's duty to return to appellees money paid to him under a mistake of fact as to the profit realized by the venture. The relief sought is enforcement of the obligation assumed *179 by appellant as a participant in the joint venture to share the losses, if any, as well as the profits.
Appellees have assigned error to the action of the trial court in failing to render judgment in their favor for the additional sum of $875.00, which was one-half of the expense incurred in rendering the services required by the contract with the District, and was deducted from the supposed profit before appellant received his share. Appellees have paid the judgment in full. The judgment in amount of $9,750.00 plus interest was an obligation of the joint venture. Appellees' cross-point is sustained.
The judgment of the trial court is reformed to award appellees a recovery of $4,875.00 plus interest at 6% from June 28, 1957, together with costs, and, as reformed, is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1751482/ | 900 S.W.2d 755 (1995)
Peter S. WEAKLY and Linda Jane Weakly, Appellants,
v.
Robert EAST and Jeannette Holloway, Appellees.
No. 13-94-053-CV.
Court of Appeals of Texas, Corpus Christi.
March 2, 1995.
Rehearing Overruled May 25, 1995.
*757 William Robert Anderson, III, Sorrell, Anderson & Lehrman, Corpus Christi, Ward H. Thomas, Jr., Sorrell, Anderson, Lehrman & Wanner, Corpus Christi, for appellants.
Russell H. McMains, Corpus Christi, J. G. Adami, Jr., Robert J. McGuire, Warburton, Adami, McNeill, Paisley & McGuire, Alice, for appellees.
Before DORSEY, YANEZ, and RODRIGUEZ, JJ.
OPINION
DORSEY, Justice.
Peter and Jane Weakly appeal the granting of summary judgment in favor of Robert East and Jeanette Holloway in the Weaklys' suit alleging various torts arising out of a failed land sale. We affirm.
Background Facts
The Weaklys owned a ranch in Kleberg and Kennedy counties in 1989. At that time the Weaklys were deeply in debt, owing between $6.3 and $7.2 million to various creditors. Their ranch was to be posted for foreclosure the first Tuesday in April 1989 by the Federal Land Bank which held a mortgage in excess of $2 million. The Weaklys had obtained a postponement of an earlier foreclosure because of their negotiations with Lee Bass to buy the properties. Bass had requested the delay to allow the parties to complete their negotiations. He wrote a letter to the Federal Land Bank indicating that they were negotiating for the property to be purchased at a price between $5 and $6.3 million depending on the quantity of property, cattle, equipment, and the mineral interests to be conveyed.
On March 15, 1989, the Weaklys met East for the first time. East and his accountant, Holloway, came to the ranch at Jane Weakly's sister's invitation. The Weaklys contend that as a result of a several hour meeting that day, East agreed to buy their property for $6.3 million. East denies that there was an agreement on that date but that he was interested in the property and began making inquiries, through his accountant and attorney to determine whether to buy the property. At the end of the meeting, the Weaklys were to gather various title and lien documents and provide that information to Holloway. Paul Pearson, East's attorney, was to begin the title work. All were aware that the property was scheduled for foreclosure the first week of April, two weeks away. During those two weeks, Holloway met with the Weaklys several times. The final meeting occurred the afternoon of Friday March 31, 1989. East made an offer at that time and Pearson suggested that the best way to handle the sale was through bankruptcy proceedings to be filed by the Weaklys. East and his advisors were concerned that title could not be cleared other than through bankruptcy proceedings due to the number and complexity of the indebtedness involving the ranch, the mineral interests, the equipment, and the cattle. The Weaklys rejected East's offer. The following Monday they filed bankruptcy.
Appellants sued East and Holloway alleging breach of oral contract, fraud, civil conspiracy, tortious interference with business relations, and negligent misrepresentation. Appellees obtained summary judgment on all claims and this appeal resulted. By seventeen points of error, appellants claim that *758 summary judgment should not have been granted.
Summary Judgment
The summary judgment was granted generally; if it can be upheld on any ground asserted in the motion, it will be sustained. Benavides v. Moore, 848 S.W.2d 190, 192 (Tex.App.Corpus Christi 1992, writ denied). Summary judgment for the defendant, which disposes of a plaintiff's entire case, is proper only if the defendant establishes that the plaintiff could not succeed on any of the theories pleaded. Delgado v. Burns, 656 S.W.2d 428, 429 (Tex.1983); Gibbs v. General Motors Corp., 450 S.W.2d 827, 828 (Tex.1970).
In a summary judgment proceeding, the burden is on the movant to establish that there are no genuine issues of material fact and that he is entitled to judgment as a matter of law. Evidence favorable to the non-movant will be taken as true; every reasonable inference from the summary judgment evidence will be indulged in favor of the non-movant and any doubts resolved in the non-movant's favor. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985).
Appellees moved for summary judgment on several grounds, among which were the statute of frauds and whether the torts alleged are only a breach of contract action in disguise. First we address the statute of frauds issue.
Statute of Frauds
A contract for the sale of real estate is not enforceable unless it is in writing and signed by the party charged with the promise or agreement. TEX.BUS. & COM.CODE ANN. § 26.01 (Vernon 1987); Rittgers v. Rittgers, 802 S.W.2d 109, 113 (Tex.App.Corpus Christi 1990, writ denied). Even if East made an oral contract to buy the Weakly property, that promise could not be enforced nor could the Weaklys recover damages for breach of that unenforceable agreement. Nagle v. Nagle, 633 S.W.2d 796, 799 (Tex. 1982); Hooks v. Bridgewater, 111 Tex. 122, 229 S.W. 1114 (1921); Keriotis v. Lombardo Rental Trust, 607 S.W.2d 44, 46 (Tex.Civ. App.Beaumont 1980, writ ref'd n.r.e.).
A. Fraud
The Weaklys acknowledge that no writing memorializing the purported agreement exists and have abandoned their claims for breach of contract. They now contend that they are not seeking to enforce East's agreement to buy their property but instead are seeking damages resulting from his fraud on them which caused them to abandon other negotiations and resulted in their bankruptcy.
Appellants allege that East never intended to consummate the sale at the $6.3 million agreement, but instead intended to cause them to rely on that agreement until just before the foreclosure sale and then either attempt to buy the property at a significantly lower price, buy the property from the bankruptcy court, or at foreclosure. Under appellants' fraud theory, they seek damages for the difference between what they received for the property sold by the bankruptcy court and what they would have received had they struck a deal with another buyer such as East or Bass.
Appellants do not contend that East or Holloway fraudulently represented that no written agreement was necessary or that East refused to sign a written agreement. The statute of frauds bars fraud claims arising out of the unenforceable oral promise unless the fraud prevents the necessary writing. Nagle, 633 S.W.2d at 800; Keriotis, 607 S.W.2d at 46. That is not the case here.
Appellants claim fraud because East allegedly promised to purchase the ranch knowing at the time the promise was made that he was not going to fulfill it. Nevertheless, the essence of appellants' fraud claim is the oral promise to purchase realty. As such, the statute of frauds bars its enforcement. Summary judgment was proper on these claims.
B. Civil Conspiracy
Appellants allege that there was a civil conspiracy between East and Holloway to deprive them of full value for their property. A civil conspiracy requires two or more *759 persons who agree upon an object, a meeting of minds on the object to be accomplished, and one or more overt, unlawful acts committed in furtherance of the conspiracy which results in damages. Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex.1983); Bernstein v. Portland Savings & Loan Ass'n, 850 S.W.2d 694, 705 (Tex.App.Corpus Christi 1993, writ denied). The only arguably overt unlawful act claimed by appellants is the alleged fraud perpetrated by East and Holloway. The object of the fraud was East's failure to complete the unenforceable contract to buy the land. In order to prove a civil conspiracy, appellants must prove breach of the oral agreement and fraud. Proof of either is within the statute of frauds. Appellants' claim of civil conspiracy is precluded by the statute of frauds because it relies on proof of the oral agreement.
C. Tortious Interference With Prospective Advantage
Next, appellants allege that East and Holloway interfered with their negotiations with Bass. A claim of tortious interference with prospective advantage requires proof of the following: a reasonable probability that a contract would have been made but for the interference, a willful and intentional act of interference, such intentional interference was the proximate cause of damage, and actual damage. Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 939 (Tex.1991) (elements of tortious interference with contract); Harshberger v. Reliable-Aire, Inc., 619 S.W.2d 478, 481 (Tex.Civ.App.Corpus Christi 1981, writ dism'd w.o.j.) (elements of interference with prospective advantage). The plaintiff must also show that the defendant knew of the actual or prospective contract. Id. Appellants contend that East allegedly instructed them to call Bass and tell him that East would buy the property. For summary judgment purposes we assume that East instructed appellants as alleged. This action, like the others, relies on proof that East reneged on his oral promise to buy the Weakly property. Proof of that promise is barred by the statute of frauds. This action must also be barred.
D. Negligent Misrepresentation
Finally, the Weaklys allege that East made a negligent misrepresentation to their detriment. The commercial tort of negligent misrepresentation requires proof of the following: a misrepresentation made by a defendant in the course of his business, or in a transaction in which he has a pecuniary interest; the misrepresentation is false and provided for the guidance of others in their business; the defendant did not exercise reasonable care or competence in obtaining or communicating the information; and the plaintiff suffers pecuniary loss by justifiably relying on the representation. Federal Land Bank Ass'n v. Sloane, 825 S.W.2d 439, 442 (Tex.1991) (citing RESTATEMENT (SECOND) OF TORTS § 552 (1977)); Collins v. Allied Pharmacy Management, 871 S.W.2d 929, 936 (Tex.App.Houston [14th Dist.] 1994, no writ); Keriotis, 607 S.W.2d at 46. Under this theory of liability, East allegedly misrepresented his intent to purchase the property, that intent was falsely communicated to the Weaklys who relied on his stated intent to their detriment. Even if the Weaklys justifiably relied on East's statement that he would purchase their property, they are precluded from proving that East agreed to do so because of the statute of frauds. This tort, like the others, has as its nucleus East's unenforceable oral contract to buy their property. See Collins, 871 S.W.2d at 936.
All of appellants claimed bases for recovery are barred as a matter of law by the operation of the statute of frauds. See Nagle, 633 S.W.2d at 800; Collins, 871 S.W.2d at 936. We overrule all seventeen points of error. Our disposition of this ground renders unnecessary our consideration of appellants' other complaints. Tex.R.App.P. 90(a).
The JUDGMENT is AFFIRMED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1445871/ | 520 F.Supp. 414 (1981)
MOBIL OIL CORPORATION, Plaintiff,
v.
DEPARTMENT OF ENERGY and James B. Edwards, Secretary, Defendants.
No. 81-CV-340.
United States District Court, N. D. New York.
May 15, 1981.
*415 Bond, Schoeneck & King, Syracuse, N. Y., Akin, Gump, Strauss, Hauer & Feld, Washington, D. C., William C. Streets, Gail F. Schultz, Fairfax, Va., for plaintiff; Thomas E. Myers, R. Bruce McLean, Daniel Joseph, Harry R. Silver, Joseph T. Casey, of counsel.
George H. Lowe, U. S. Atty., N.D.N.Y., Syracuse, N. Y., Thomas H. Kemp, Samuel Sooper, Washington, D. C., for defendants; Paula Ryan, Asst. U. S. Atty., of counsel.
MEMORANDUM-DECISION AND ORDER
MUNSON, Chief Judge.
Presently before the Court is a motion by defendant Department of Energy (DOE) to quash the subpoena of plaintiff Mobil Oil Corporation (Mobil), which seeks the production of a study commissioned by the DOE, and an accompanying intra-agency memorandum. Mobil has identified these documents as follows:
1. Contractors Report: Validation of Crude Oil Entitlements Information System; prepared by Transportation Energy Research Associates; dated March 9, 1981 (two volumes); and,
2. Memorandum to Al Linden from Charles Smith (referencing the above study), undated.
The DOE seeks to quash Mobil's subpoena on the grounds that the documents demanded thereunder are protected from release by the pre-decisional executive privilege, and that the documents are irrelevant to the instant proceedings. Mobil counters that *416 the disputed documents are not properly the subject of executive privilege because the DOE has failed to satisfy the strict procedural requirements for assertion of the privilege, or demonstrate that the documents contain the type of information that may properly be withheld under executive privilege. Furthermore, Mobil asserts that even assuming that the disputed documents do contain privileged information, Mobil's need for the information outweighs whatever value that would accrue to the DOE in preserving its confidentiality. On May 11, 1981, the Court ordered the DOE to submit the "Validation" study for in camera inspection. Having completed this inspection, and upon consideration of the arguments of the parties and the applicable law, the Court concludes that the "Validation" study must be released by the DOE to Mobil. The accompanying agency memorandum, however, would appear to be protected from release by executive privilege. The reasons for these decisions follow.
Among the evidentiary privileges traditionally recognized by the courts is a subcategory of the executive or governmental privilege, which is termed the pre-decisional privilege. See NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 95 S.Ct. 1504, 44 L.Ed.2d 29 (1975). Under this privilege the government may properly withhold documents requested by its adversaries during discovery, that reflect "`advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated.'" Id. at 150, 95 S.Ct. at 1516. The purpose of this privilege is to encourage frank discussion of ideas and policies. Typically such exchanges would be inhibited were the participants to expect that their remarks would be disseminated publicly. Id. See also Coastal States Gas Corp. v. Department of Energy, 617 F.2d 854, 866 (D.C.Cir.1980). Thus, by protecting from disclosure the ebb and flow of the deliberative process, the pre-decisional privilege seeks to ensure the quality of governmental decisionmaking. NLRB v. Sears, Roebuck & Co., supra 421 U.S. at pp. 150-51, 95 S.Ct. at p. 1516.
At the same time, courts have held that the pre-decisional privilege is limited and, for example, would not include "purely factual material," even if such material is contained in "deliberative memoranda." EPA v. Mink, 410 U.S. 73, 87-88, 91, 93 S.Ct. 827, 836, 838, 35 L.Ed.2d 119 (1973); Parke, Davis & Co. v. Califano, 623 F.2d 1, 5 (6th Cir. 1980); Vaughn v. Rosen, 523 F.2d 1136, 1145 (D.C.Cir.1975); In re Franklin Nat. Bank Securities Lit., 478 F.Supp. 577, 583-84 84 (E.D.N.Y.1979). In determining whether material is "purely factual" or deliberative, a court must have "an understanding of the function of the documents in issue in the context of the administrative process which generated them." N. L. R. B. v. Sears, Roebuck & Co., 421 U.S. 132, 138, 95 S.Ct. 1504, 1510, 44 L.Ed.2d 29 (1975). Moreover, the government has the burden of proof on the applicability of the pre-decisional privilege. Gulf Oil Corp. v. Schlesinger, 465 F.Supp. 913, 917 (E.D.Pa.1979).
Courts have outlined specific procedures which must be followed by the government when invoking the pre-decisional privilege. First, the claim of the privilege must be lodged by the head of the agency which has control over the matter, after personal consideration of the allegedly privileged nature of the information. Coastal Corp. v. Duncan, 86 F.R.D. 514, 516-17 (D.Del.1980). This power to claim the privilege may be delegated by the head of the agency, but only to a subordinate with high authority. Nevertheless, before this properly may be done, the head of the agency must issue guidelines on the use of the privilege. These requirements are designed to guarantee both that the delegatee official has sufficient expertise in the agency's operations and functions, and will be able to render decisions on privileged information after reasoned judgment. The second procedural requirement is that a claim of privilege must specifically designate and describe the information that is purportedly privileged. And third, the agency must provide "precise and certain" reasons for preserving the confidentiality of the requested information.
Id. at 517-19.
*417 After determining that an agency has rightfully asserted the pre-decisional privilege, and has satisfied the applicable procedures, a court may still rule that the privileged information must be released. This is because the pre-decisional privilege is not absolute, but is only a qualified right. In re Franklin Nat. Bank Securities Lit., 478 F.Supp. 577, 582 (E.D.N.Y.1979). Consequently, a court must weigh the competing interests militating for and against disclosure of the privileged information. For instance, though the deliberative process in governmental decision-making merits protection, against this consideration must be balanced the interest of the private litigant, the need for accurate judicial fact-finding, and even the public interest in learning how effectively the government is operating. Id. The court in In re Franklin also considered the following factors:
(i) the relevance of the evidence sought to be protected; (ii) the availability of other evidence, see, e. g., Carl Zeiss Stiftung v. V. E. B. Carl Zeiss, Jena, 40 F.R.D. 318, 331 (D.D.C.1966), aff'd on opinion below, 128 U.S.App.D.C. 10, 384 F.2d 979, cert. denied, 389 U.S. 952, 88 S.Ct. 334, 19 L.Ed.2d 361 (1967); (iii) the "seriousness" of the litigation and the issues involved, see, e. g., Freeman v. Seligson, 132 U.S.App.D.C. 56, 60, 405 F.2d 1326, 1340 (D.C.Cir.1968); (iv) the role of the government in the litigation, see, e. g., Carl Zeiss Stiftung, 40 F.R.D. at 329; Bank of Dearborn v. Saxon, 244 F.Supp. 394, 401-03 (E.D.Mich.1965), aff'd, 377 F.2d 496 (6th Cir. 1967); and (v) the possibility of future timidity by government employees who will be forced to recognize that their secrets are violable.
Id. at 583.
In the instant case, the Court does not believe that the government has sufficiently demonstrated that the "Validation" study is deliberative information within the ambit of the pre-decisional privilege. Aptly entitled "Validation of the Crude Oil Entitlements Information System," an abstract contained in the report describes its scope:
The objective of the study was to assess the ability of the [entitlements] system to provide appropriate and meaningful information of sufficient accuracy in relation to the requirements of the primary user(s). The study examined in detail the evolution and purpose of the system and the regulatory program it supports, the DOE processing of the information, the respondent reporting practices, as well as the uses of the data being collected. The principal focus of the study was, however, to quantitatively assess the quality of the data being collected, processed and used, and to identify and quantify the consequences and degree of data quality for the primary and other users of the data.
The abstract goes on to describe the findings of the study, which are more appropriately left for consideration at another time.
For present purposes, however, despite the DOE's claims that the study is pre-decisional because it is in draft form and has yet to be formally cleared by the DOE for publication, the opposite conclusion is indicated. The "Validation" study is a quantitative assessment of the quality of the entitlements program data system, and the "consequences" to users from relying on the existing system. As such, the study is clearly post-decisional because it analyzes a decision that has been made already. See NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 152 and n. 19, 95 S.Ct. 1504, 1517 and n. 19, 44 L.Ed.2d 29 (1975); Coastal States Gas Corp. v. Department of Energy, 617 F.2d 854, 866 (D.C.Cir.1980); Cliff v. Internal Revenue Service, 496 F.Supp. 568, 575 (S.D. N.Y.1980).
Furthermore, because the only purpose of the study was to "identify" and "quantify," the Court is hard-pressed to view it as anything but purely factual material which, therefore, is not privileged. See EPA v. Mink, 410 U.S. at 89, 93 S.Ct. at 836; Parke, Davis & Co. v. Califano, 623 F.2d 1, 5 (6th Cir. 1980); Coastal States Gas Corp. v. Department of Energy, supra at pp. 866-869; Soucie v. David, 448 F.2d 1067, 1077 (D.D.C. 1971); Cliff v. Internal Revenue Service, *418 supra at p. 575; In re Franklin Nat. Bank Securities Lit., 478 F.Supp. 577, 583-85 (E.D.N.Y.1979). The study was not intended to give advice, compare Lead Industries Ass'n v. Occup. S. & H. Admin., 610 F.2d 70, 83 (2d Cir. 1979), or to interpret the existing record with a view toward changing present policy. Id. Neither is there anything suggestive or personal about the study, nor does it contain "agency give-and-take." Coastal States Gas Corp. v. Department of Energy, supra at p. 868. In sum, the Court is convinced that the study in dispute is post-decisional and factual in substance, and would not properly fall under the protection of the pre-decisional privilege.
Only brief mention need be made on the pre-decisional and deliberative characteristics of the accompanying memorandum to the "Validation" study. As a primary hurdle there is some question concerning the actual identity of the accompanying memorandum. Plaintiff Mobil has requested that the DOE produce an undated memorandum to one Al Linden from one Charles Smith. The DOE has in fact identified two such memoranda according to the April 22, 1981 affidavit of Albert H. Linden, Acting Administrator of the Energy Information Administration. These documents are dated respectively March 12, and 13, 1981. It should be noted that Mr. Linden's affidavit is the only evidentiary support provided by the DOE in support of its motion to quash. Apparently Mobil seeks the March 12, 1981 memorandum, which is described by the Linden affidavit as containing Mr. Smith's draft "findings and recommendations concerning the use of the data collected by the Entitlements System." Personal findings and recommendation of this sort, as indicated by the above discussion of the law, are privileged since they are truly pre-decisional and deliberative in function. See NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 150, 95 S.Ct. 1504, 1516, 44 L.Ed.2d 29 (1975); Coastal States Gas Corp. v. Department of Energy, 617 F.2d 854, 869 (D.C.Cir. 1980); Lead Industries Ass'n v. Occup. S. & H. Admin., 610 F.2d 70, 83 (2d Cir. 1979).
The next question to be examined by the Court is whether the DOE satisfied the applicable procedural requirements when it invoked the pre-decisional privilege. Evidence presently before the Court demonstrates that little effort was made by the DOE to satisfy the various procedural requirements. The DOE does not claim that its Secretary personally reviewed the contents of the disputed documents. Neither has the DOE offered any proof as to whether the Secretary properly delegated to Acting Administrator Linden the authority to invoke the pre-decisional privilege. Still, as a DOE Administrator, Linden would appear to possess the requisite authority. See Coastal Corp. v. Duncan, 86 F.R.D. 514, 517 (D.Del.1980). In any event, the DOE has not submitted to the Court any administrative guidelines designed for the purpose of assisting the "delegatee" official in deciding whether to invoke the pre-decisional privilege.
A second requirement under the procedures is that documents withheld by the agency on a claim of privilege must be specifically described by the agency. This step has been complied with by the DOE through the statements contained in the Linden affidavit, although the description of the "Validation" study is more specific than the description of the accompanying March 12, 1981 memorandum. Linden's description of the "Validation" study is clear enough so that a reader may appreciate the role of the study in the DOE's operations. The same could not as readily be said about Linden's description of the March 12, 1981 memorandum. Only a charitable reading of the four corners of the Linden affidavit reveals its intended meaning the disputed memorandum embodies Mr. Smith's personal recommendations for policy changes in the use of entitlements system information. It would, therefore, seem that the March 12, 1981 memorandum is adequately described, and meets the requirements of applicable procedures.
As a third procedural obstacle, an agency must provide "precise and certain" reasons for preserving the confidentiality of requested information. As for the "Validation" study, the DOE has failed even to attempt to provide the Court with an explanation *419 for withholding its release. The Linden affidavit asserts that the release of the March 12, 1981 memorandum would "confuse the public as to the facts and reasons underlying the agency's position in the final version." This supposed justification is entirely unsatisfactory. In the Court's view this "explanation" is more of a comment on the competency or literacy of the author of the report, than on the public's ability to understand it. A second reason provided by Linden's affidavit is that the release of the March 12, 1981 memorandum would "discourage the free and frank exchange of ideas in the agency's decision-making process and endanger the objective nature of the agency deliberations which will lead to the final publication of the report by the agency." The Court agrees with plaintiff Mobil that this statement is rather conclusory. But the personal and tentative policy recommendations of the type which appear to be found in the March 12, 1981 memorandum, have been traditionally protected from release by the pre-decisional privilege, and accordingly would satisfy the third procedural requirement.
The final duty of a court is to balance the competing interests of the parties with respect to the release of the disputed information. While the DOE has offered no reasons to justify withholding the "Validation" study, Mobil has offered several persuasive reasons that weigh in favor of releasing the study. First, the "Validation" study relates directly to a central issue of the present litigation. Specifically, the reasonableness of the DOE's desire to issue the January, 1981 entitlements notice in view of the possibility that the notice is based upon inaccurate data. Second, the DOE is in exclusive control of material regarding the effectiveness of its own regulations and information gathering systems, and the extent to which they have been complied with by the oil companies. Third, Mobil argues that the factual nature of the "Validation" study decreases the likelihood that public dissemination would cause any government employees to be inhibited from expressing their views in the future.
Other broader public interest concerns would also favor disclosure of the "Validation" study. The judiciary's need for accurate information to guarantee informed decision-making is one of these. Due to the DOE's control over the entitlements system, it would be much harder for the Court to reach a reasoned judgment in this case without the DOE's own internal studies of the effectiveness of that system. The public interest in the proper functioning of its governmental agencies is also implicated. The DOE has been accused in this law suit of mismanaging a billion dollar governmental program that has far-reaching affects on the American public. The thorough airing of these complaints would be hampered were the DOE permitted to withhold the "Validation" study.
And finally, the release of the "Validation" study reduces the significance to Mobil of the March 12, 1981 memorandum, which merely provides one official's tentative recommendations for policy changes based on the "Validation" study's conclusions. Much more relevant to the instant case is a factual assessment of the effectiveness of the entitlements information system, and its impact on the existing users of the system. This, of course, is the precise subject of the "Validation" study. As such, the plaintiff's need for the tentative recommendations does not outweigh the DOE's interest in preserving the pre-decisional and deliberative information contained in the March 12, 1981 memorandum.
In conclusion, the defendant DOE's motion to quash Mobil's April 21, 1981 subpoena is denied as to the document entitled "Validation of Crude Oil Entitlements Information System," and is granted with regard to the March 12, 1981 memorandum addressed to the attention of Albert H. Linden, Jr. Defendant DOE is hereby ordered by this Court to immediately provide an accurate and complete copy of the "Validation" study to plaintiff Mobil.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1597265/ | 638 So.2d 645 (1994)
Sylvia GRABERT
v.
IBERIA PARISH SCHOOL BOARD,
Melvin A. SMALL
v.
IBERIA PARISH SCHOOL BOARD.
No. 93-C-2715.
Supreme Court of Louisiana.
July 5, 1994.
*646 Michael Joseph Juneau, Juneau, Judice, Hill & Adley, Lafayette, for applicant.
James Isaac Funderburk, Funderburk & Herpin, Abbeville, Kenneth Warren DeJean, Lafayette, for respondent.
CALOGERO, Chief Justice.[*]
Plaintiffs are tenured supervisory level employees who work under four year employment contracts with the Iberia Parish School Board. The contracts indicate the respective positions of employment but they do not reflect the salary to be paid for the positions. Their lawsuits, filed about six months apart, contend that the Board breached the respective contracts by paying them less than they were due under the appropriate salary index. They sought recovery of the underpaid wages retroactive to the date of entitlement.
The Board pled prescription, relying on Louisiana Civil Code Article 3494 and its three year limitation on suits filed for recovery of past due wages. The Board received a favorable partial summary judgment in the district court. The court of appeal reversed, 625 So.2d 574; 625 So.2d 578. They concluded that plaintiffs' respective causes of action were for breach of contract, a personal action, which in their view, prescribes in ten years under Louisiana Civil Code of Civil Article 3499.
We granted the Board's writ application to examine the court of appeal's decision that Plaintiffs' claims are not subject to the three year prescriptive period provided in article 3494[1], but rather the ten year prescription for personal actions under article 3499.[2]
Plaintiffs, and the court of appeal, would have us believe that article 3494's three year prescriptive period for past wages is not applicable here because their action for breach of contract is distinguishable from a claim for past due wages.
The answer appears to be simple enough. A petition claiming breach of contract by the payment of wages less than what is due and seeking judgment for the underpaid wages is clearly a cause of action asserting the right to recover unpaid wages. Breach of contract is not a free standing cause of action. It is a legal premise, or principle, which gives rise to the right to claim some substantive remedy at law. Here that remedy is the recovery of past due wages.
*647 The actions are plainly for salary or wages past due under the allegedly appropriate salary index. The three year prescription provided for in article 3494 is directly and explicitly applicable. The nature of the claim (for under paid wages) is not something different because it arises out of breach of contract. The contract breached made provisions for the very wages sought.
This petition to recover underpaid "compensation for services rendered" is admittedly a personal action as defined by Louisiana Civil Code of Procedure article 422.[3] However, the ten year prescriptive period set forth in article 3499, is only applicable to personal actions "unless otherwise provided for by legislation." La.Civ.Code art. 3499 (West 1994). The prescriptive period for the instant consolidated suits for the recovery of underpaid wages is otherwise provided for in article 3494, for that article, as earlier indicated, provides a three year prescriptive period for personal actions seeking "compensation for services rendered."
Starns v. Emmons, 538 So.2d 275 (La. 1989), is a case which, by analogy, supports our decision in this case. In that case there was a demand for rent arrearages in a petition alleging a breach of contract. Plaintiffs argued that "the inclusion of a demand for rent arrearage in a petition alleging breach of contract does not give the suit the character of an action to recover rent" and further, "because the entire action sounds in contract, the ten year period of article 3499, not the three year prescription of article 3494, should apply." Id. at 277-78. This Court dismissed plaintiffs argument reasoning that all actions covered by article 3494 are grounded in contractual relationships. Id. "Article 3494 does not present a choice between a contract remedy and some other remedy; it merely provides exceptions to the general rule stated in article 3499 that a personal action prescribes in ten years."
In the instant case, the Plaintiffs' consolidated suits are simply actions to recover past due salaries in accordance with the appropriate salary index. Although Plaintiffs urge that their claims deal exclusively with interpreting their rights under their respective employment contracts this argument is unpersuasive as virtually all claims for wages arise out of breach of a contract, oral or written, to pay wages for services rendered. Accordingly, the employer's failure to pay the full and proper compensation for services provided gives rise to an action for breach of contract for which the remedy is recovery of wages.[4]
For the reasons expressed above the applicable prescriptive period in this suit for underpaid wages is three years under Civil Code article 3494.
DECREE
Accordingly, the judgment of the court of appeal is reversed and that of the district court reinstated.
JUDGMENT OF THE COURT OF APPEAL REVERSED; JUDGMENT OF THE DISTRICT COURT REINSTATED.
WATSON, J., dissents believing the court of appeal was correct.
NOTES
[*] Ortique, J., not on the panel. Rule IV, Part 2, § 3. Judge Charles A. Marvin, Chief Judge, Court of Appeal, Second Circuit, sitting in place of Justice James L. Dennis.
[1] "The following actions are subject to a liberative prescription of three years: (1) An action for the recovery of compensation for services rendered, including payment of salaries, wages, commissions, tuition fees ..." La.Civ.Code Ann. art. 3494 (West 1994).
[2] "Unless otherwise provided by legislation, a personal action is subject to a liberative prescription of ten years." La.Civ.Code Ann. art. 3499 (West 1994).
[3] In pertinent part, article 422 provides "[a] personal action is one brought to enforce an obligation against the obligor, personally and independently of the property which he may own, claim or possess."
[4] In addition to the court of appeal's decision being wrong as a matter of law, the decision conflicts with the more sound decision of the First Circuit in Achord v. City of Baton Rouge, 489 So.2d 1373 (La.App. 1st Cir.1986), writ denied 493 So.2d 641 (La.1986). In Achord, presented with a similar factual situation, the court concluded that article 3494's three year prescriptive period applied to plaintiff's claim for past due increases in salary. It should be noted, however, that the issue before the court was not whether the 10 year or 3 year prescriptive period applied. The issue there was whether article 3494 should be applied retroactively. The court simply applied the three year period without discussion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1915489/ | 263 B.R. 567 (2001)
In re Monta J. CALLANDER, Gail R. Callander, Debtors.
No. 00-60801.
United States Bankruptcy Court, S.D. Ohio, Eastern Division.
May 9, 2001.
Monta J. Callander, Gail R. Callander, Columbus, Ohio, William A. Semons, Columbus, Ohio, for debtors.
Frank M. Pees, Worthington, Ohio, for Chapter 13 Trustee.
HomeComings Financial Network, Blue Bell, PA, Tracey M. Johnson, Lerner, Sampson & Rothfuss, Cincinnati, Ohio, for HomeComings Financial Network.
ORDER OVERRULING OBJECTION TO CONFIRMATION
DONALD E. CALHOUN, Jr., Bankruptcy Judge.
This case is before the Court upon the objection by HomeComings Financial Network ("HomeComings") to confirmation of the debtors' plan of reorganization. The issue is whether a plan of reorganization can be confirmed over objection by a creditor who holds a second mortgage on the debtors' residential real estate, where the value of the real estate is less than the claim of the first mortgage holder, and the plan treats the second mortgage as an unsecured nonpriority debt, and requires the second mortgage to be released upon completion of the plan. This Court holds that such a plan may be confirmed.
I. FINDINGS OF FACT
Monta and Gail Callander ("Debtors") filed a petition for relief under Chapter 13 of the Bankruptcy Code on November 24, 2000. In Schedule A, the Debtors listed the value of their principal residence *568 ("Residence") at $60,000.00. On January 2, 2001, Old Kent Mortgage Services filed a proof of claim for $61,720.81, secured by a first mortgage on the Debtors' Residence. On January 25, 2001, HomeComings filed a proof of claim for $34,950.91, secured by a second mortgage on the Debtors' Residence.
The Debtors submitted an amended plan of reorganization ("Plan") on February 2, 2001. In the Plan, the Debtors attempt to "strip off" HomeComings' lien on the Residence. "The term `strip off' is colloquially used when, there being no collateral value for a mortgage, the entire lien is proposed to be avoided." In re Mann, 249 B.R. 831, n. 1 (1st Cir. BAP 2000).
At the confirmation hearing on March 1, 2001, Mr. Bruce Gosney, a licensed real estate appraiser who had appraised the Residence at the Debtors' request, testified that the value of the Debtors' Residence was $60,000.00. Mr. Gosney's credentials and method of appraisal were unchallenged by HomeComings. Further, HomeComings did not present any evidence of its own, nor cross-examine the Debtors' expert.
Value of the collateral is an essential factual issue. Resolution of the legal issue before the Court hinges directly on the role the value of the collateral plays in the interpretation of two Bankruptcy Code sections and in the application of an important U.S. Supreme Court decision. If the value of the collateral is sufficient to secure even $1.00 of HomeComings' claim, the result reached by the Court would be entirely different. However, HomeComings' in its memorandum supporting its opposition to confirmation and in its presentation at the confirmation hearing did not controvert the Debtors' evidence as to the value of the Residence. Therefore, based on the uncontroverted evidence submitted by the Debtors, the Court finds that the value of the Debtors' Residence is $60,000.00.
II. STATUTORY AUTHORITY
Section 506(a) of the Bankruptcy Code provides, "[a]n allowed claim of a creditor secured by a lien on property in which the estate has an interest . . . is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property . . . and is an unsecured claim to the extent that the value of such creditor's interest . . . is less than the amount of such allowed claim."[1] 11 U.S.C. § 506(a).
Section 1322(b)(2) of the Bankruptcy Code allows a Chapter 13 plan to "modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence . . ."[2] 11 U.S.C. § 1322(b)(2).
III. NOBELMAN
In Nobelman v. American Sav. Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), the Supreme Court addressed whether, in a Chapter 13 case, an undersecured claim secured only by a mortgage on a debtor's principal residence may be bifurcated into its secured and unsecured components. Where a plan proposes to pay a claim as secured only to the extent of the value of the collateral, with the remainder of the claim proposed to be paid *569 as an unsecured, nonpriority debt, such treatment is colloquially referred to as a lien "strip down." Nobelman made it clear that lien strip downs are not permitted. Not specifically addressed in Nobelman, however, is whether a claimant may be treated as wholly unsecured where, as here, there is no equity whatsoever to which the claimant's otherwise valid security interest could attach, after a § 506(a) valuation.
If Nobelman controls the interpretation of § 1322(b)(2)'s anti-modification clause here, HomeComings' claim must be treated as secured despite the Court's § 506(a) valuation. If Nobelman does not control the interpretation of § 1322(b)(2) here, then HomeComings may be treated as wholly unsecured because there is no equity in the Residence to secure HomeComings' lien, after a § 506(a) valuation. Naturally, HomeComings asks this Court to apply the holding in Nobelman regardless of the value of the Residence. The real question becomes whether Nobelman should apply in a situation, like here, where the value of the Residence is insufficient to provide any equity to which the junior lienholder's security interest can attach.
IV. CASELAW
Research on this question reveals a notable split among courts to have addressed this issue, with a majority willing to distinguish Nobelman and allow a wholly unsecured junior mortgage to be stripped off. See, In re McCarron, 242 B.R. 479 (Bankr. W.D.Mo.2000); In re Flowers, No. 98-11492, 1999 WL 118022 (Bankr.E.D.Va. 1999); Johnson v. Asset Management Group, LLC (In re Johnson), 226 B.R. 364 (D.Md.1998); In re Perugini, 234 B.R. 247 (Bankr.D.Conn.1999); In re Phillips, 224 B.R. 871 (Bankr.W.D.Mich.1998); In re Cerminaro, 220 B.R. 518 (Bankr.N.D.N.Y. 1998); In re Bivvins, 216 B.R. 622 (Bankr. E.D.Tenn.1997); In re Smith, 215 B.R. 716 (Bankr.W.D.Tenn.1998); In re Scheuer, 213 B.R. 415 (Bankr.N.D.N.Y.1997); In re Cervelli, 213 B.R. 900 (Bankr.D.N.J.1997); In re Geyer, 203 B.R. 726 (Bankr.S.D.Cal. 1996); In re Sanders, 202 B.R. 986 (Bankr. D.Neb.1996); Wright v. Commercial Credit Corp. (In re Wright), 178 B.R. 703 (E.D.Va.1995), appeal dismissed without op., 77 F.3d 472 (4th Cir.1996) (unpublished table decision); Vaillancourt v. Marlow (In re Vaillancourt), 197 B.R. 464 (Bankr.M.D.Pa.1996); Castellanos v. PNC Bank, N.A. (In re Castellanos), 178 B.R. 393 (Bankr.M.D.Pa.1994); In re Mitchell, 177 B.R. 900 (Bankr.E.D.Mo.1994); In re Lee, 177 B.R. 715 (Bankr.N.D.Ala.1995); In re Woodhouse, 172 B.R. 1 (Bankr.D.R.I. 1994); In re Sette, 164 B.R. 453 (Bankr. E.D.N.Y.1994); In re Hornes, 160 B.R. 709 (Bankr.D.Conn.1993); In re Moncrief, 163 B.R. 492 (Bankr.E.D.Ky.1993); In re Kidd, 161 B.R. 769 (Bankr.E.D.N.C.1993); In re Lee, 161 B.R. 271 (Bankr.W.D.Okla. 1993); In re German, 258 B.R. 468 (Bankr. E.D.Okla.2001).
A significant minority of courts, however, have held that Nobelman should apply in situations like the one presented here, thus placing a wholly unsecured second mortgage holder's claim within the anti-modification clause of § 1322(b)(2). See Green Tree Consumer Discount Co. v. Miller (In re Miller), No. 99-13446DWS, 1999 WL 1052509 (Bankr.E.D.Pa.1999); In re Cupp, 229 B.R. 662 (Bankr.E.D.Pa. 1999); In re Bauler, 215 B.R. 628 (Bankr. D.N.M.1997); In re Shandrew, 210 B.R. 829 (Bankr.E.D.Cal.1997); In re Fraize, 208 B.R. 311 (Bankr.D.N.H.1997); In re Barnes, 207 B.R. 588 (Bankr.N.D.Ill.1997); In re Barnes, 199 B.R. 256 (Bankr. W.D.N.Y.1996); In re Neverla, 194 B.R. 547 (Bankr.W.D.N.Y.1996); and In re Lane, 248 B.R. 534 (Bankr.E.D.Tenn. 2000).
*570 Courts within the Southern District of Ohio have also split on this question. In re Perkins, 237 B.R. 658 (Bankr.S.D.Ohio 1999) was factually similar to the instant case. In Perkins, the value of the senior mortgagee's claim was $45,387.95; the value of the property in question was established as $40,000.00; and the value of the junior mortgagee's claim was $19,458.22. The debtor attempted to strip off the junior mortgagee's lien using the modification power of § 1322(b)(2). The Court, however, would not allow it, writing, "[b]ased on the court's interpretation of § 1322(b)(2) and the Supreme Court's decision in Nobelman, the lien is protected from modification regardless of whether the lien would be wholly unsecured after a § 506(a) valuation." Perkins, 237 B.R. at 661.
In re Purdue, 187 B.R. 188 (S.D.Ohio 1995) was also factually similar to the instant case. There, the value of the debtor's residence was $32,500.00. Chase Mortgage, the senior mortgagee, had a claim of $34,827.81. Associates Financial Services Corporation, the junior mortgagee, had a claim of $5,818.64. Therefore, as in this case, the junior mortgagee's claim was wholly unsecured after a § 506(a) valuation. The District Court, in affirming the Bankruptcy Court's decision, declined to apply Nobelman. After pointing out that Nobelman involved a claim with a secured component, the Court reasoned, almost syllogistically, "Associates' claim does not include a secured claim component. The value of Debtor's principal residence is less than Chase Mortgage's claim. No portion of Associates' security interest is supported by value in the collateral. Accordingly, pursuant to 11 U.S.C. 506(a), Associates' claim is a wholly unsecured claim. Section 1322(b)(2) permits a debtor, without limitation, to modify the rights of holders of unsecured claims." Purdue 187 B.R. at 190.
V. HOLDING
This Court today adopts the majority position, and holds that, where § 506(a) valuation establishes that there is no equity to which a junior lienholder's security interest can attach, the junior lienholder's rights are not protected by § 1322(b)(2)'s anti-modification clause. Accordingly, a plan of reorganization which proposes to treat such a creditor as wholly unsecured may be confirmed. Given the impact of this holding and the extent of the split in authority, further discussion of the factors this Court finds persuasive is warranted.
A. STATUTORY INTERPRETATION
Principles of statutory interpretation provide strong support for the majority position, which allows a wholly unsecured lien such as HomeComings' to be stripped off. Given a choice between two equally plausible statutory interpretations, a court should choose the interpretation which gives effect to the whole statutory scheme. See, e.g., Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 976, 140 L.Ed.2d 90 (1998) ("[W]e are hesitant to adopt an interpretation of a congressional enactment which renders superfluous another portion of that same law." [citation omitted]). Adopting the position advanced by HomeComings would render § 506(a) superfluous where a claim, supported by a security interest in the debtor's principal residence, is actually wholly unsecured after a § 506(a) valuation. Declining to apply Nobelman to these facts, however, permits the Court to construe § 506(a) and § 1322(b)(2) in harmony. Such an analysis gives meaning to a determination of the collateral's value under § 506(a), and remains true to § 1322(b)(2) because a claimant whose security interest in a debtor's principal residence enjoys no value to which it can attach, is not, in reality, a secured claimant. An unsecured *571 claimant's rights can be modified without nullifying the anti-modification clause in § 1322(b)(2), because, in light of Nobelman, § 1322(b)(2)'s anti-modification clause still operates to protect a claim with a secured component.
Indeed, the beauty of Nobelman is that it interprets the Bankruptcy Code so as to render neither § 506(a) nor § 1322(b)(2) superfluous. An explanation of the history of Nobelman helps illustrate this point. Before Nobelman, the majority position allowed debtors to strip down liens in a Chapter 13 case, effectively eviscerating the anti-modification clause in § 1322(b)(2). In In re Nobleman, 968 F.2d 483 (5th Cir.1992), the Fifth Circuit, following the then-minority position, held that such a strip down was not allowed, and determined there was a conflict between § 506(a) and § 1322(b)(2). In resolving this conflict, the Fifth Circuit decided that § 1322(b)(2) required courts to ignore § 506(a) where a creditor held a security interest in the debtor's principal residence, regardless of whether there was equity to which the security interest could attach. Based on this reasoning, the Fifth Circuit held that Chapter 13 debtors could not bifurcate such a claim into its secured and unsecured components and then attempt to modify that claim using § 1322(b)(2). In other words, the Fifth Circuit held that a claim secured even in part by an interest in a debtor's principal residence fell within § 1322(b)(2)'s anti-modification clause and could not be stripped down because § 1322(b)(2)'s anti-modification clause rendered § 506(a) inapplicable to such a claim.
The Supreme Court, however, while upholding the conclusion that a strip down is not allowed, expressly rejected the Fifth Circuit's resolution of the conflict it perceived between §§ 506(a) and 1322(b)(2). As Justice Thomas explained, "Petitioners were correct in looking to § 506(a) for a judicial valuation of the collateral to determine the status of the bank's secured claim." Nobelman, 508 U.S. at 328, 113 S.Ct. 2106. That is, rather than finding that § 1322(b)(2) renders § 506(a) a nullity, the Supreme Court emphasized the necessity of determining, through § 506(a), whether there is a secured claim at all. Because there was a secured component to the claim after a § 506(a) valuation, the bank's rights in Nobelman were determined to come within § 1322(b)(2)'s anti-modification clause. In this manner, the Supreme Court was able to resolve whether a lien strip down was allowed in a Chapter 13 without rendering either § 506(a) or § 1322(b)(2) superfluous.
B. CREDITORS' RIGHTS
Application of Nobelman's analysis of creditors' rights also lends strong support to the majority position. Justice Thomas, writing for a unanimous Court, relied heavily on analyzing the rights enjoyed by a secured party in determining that the anti-modification clause of § 1322(b)(2) prevented a strip down in a Chapter 13 case. "The bank's `rights' . . . are reflected in the relevant mortgage instruments which are enforceable under Texas law. They include the right to repayment of the principal in monthly installments over a fixed term at specified adjustable rates of interest, the right to retain the lien until the debt is paid off, the right to accelerate the loan upon default and to proceed against petitioners' residence by foreclosure and public sale, and the right to bring an action to recover any deficiency remaining after foreclosure." Nobelman, 508 U.S. at 329, 113 S.Ct. 2106.
Likewise here, HomeComings bargained for certain rights, enforceable under state law. However, as explained in In re Lam, 211 B.R. 36 (9th Cir. BAP 1997), "[a]n *572 analysis of the state law `rights' afforded a holder of an unsecured `lien,' if such a situation exists, indicates these rights are empty rights from a practical, if not a legal, standpoint. A forced sale of the property would not result in any financial return to the lienholder, even if a forced sale could be accomplished where the lien attaches to nothing. Nothing secures the `right' of the lienholder to continue to receive monthly installment payments, to retain the lien until the debt is paid off, or the right to accelerate the loan upon default, if there is no security available to the lienholder to foreclose on in the event the debtor fails to fulfill the contract payment obligations." Lam, 211 B.R. at 40. Stated bluntly, where the value of given collateral is insufficient to afford a creditor's security interest anything to which it can attach, the creditor's rights as set forth in the relevant security agreements are meaningless.
C. FACTUAL DISTINCTION OF NOBELMAN
This Court cannot ignore the significant difference between the instant facts and those of Nobelman. The value of the collateral in Nobelman was sufficient to provide some anchor for the security interest in question. Here there is no question that HomeComings' lien enjoys no such purchase. Nobelman's facts gave rise to a concern that the debtor was trying to turn one claim into two, as language from Nobelman illustrates. "The bank's contractual rights are contained in a unitary note that applies at once to the bank's overall claim, including both the secured and unsecured components. Petitioners cannot modify the payment and interest terms for the unsecured component, as they propose to do, without also modifying the terms of the secured component." Nobelman, 508 U.S. at 331, 113 S.Ct. 2106. Here, the Debtors have proposed a plan that accurately reflects reality and which appropriately treats HomeComings' entire claim as unsecured.
D. APPELLATE AUTHORITY
The majority position is in keeping with the trend in the Circuit Courts of Appeal and Bankruptcy Appellate Panels. Of the Circuit Courts and Bankruptcy Appellate Panels to have addressed the issue, all have adopted the position taken today. For example, in In re Mann, 249 B.R. 831 (1st Cir. BAP 2000), the United States Bankruptcy Appellate Panel for the First Circuit, in perhaps one of the more thorough analyses of the issue, "decline[d] to read Nobelman as mandating better rights for unsecured creditors holding a document purporting to be a residential real property Mortgage than for unsecured creditors without." Mann, 249 B.R. at 840.
In re Lam, 211 B.R. 36, 41 (9th Cir. BAP 1997), appeal dismissed, 192 F.3d 1309 (9th Cir.1999), held that "[t]he Nobelman decision holding that section 1322(b)(2) bars a chapter 13 plan from modifying the rights of holders of claims, secured only by the debtor's principal residence, does not apply to holders of totally unsecured claims." In In re McDonald, 205 F.3d 606, 615 (3rd Cir.2000), cert. denied, 531 U.S. 822, 121 S.Ct. 66, 148 L.Ed.2d 31 (2000), the Third Circuit held "that a wholly unsecured mortgage is not subject to the antimodification clause in § 1322(b)(2)." Similarly, in In re Bartee, 212 F.3d 277, 296 (5th Cir.2000), rehearing and rehearing en banc denied, 228 F.3d 411 (Table) (5th Cir.(Tex.) July 18, 2000) (No. 99-20463), the Fifth Circuit held "that a wholly unsecured mortgage is not subject to the antimodification clause in § 1322(b)(2)." In In re Tanner, 217 F.3d 1357, 1360 (11th Cir.2000), the Eleventh Circuit held that, "[t]he better reading of *573 § 506(a) and § 1322(b)(2) . . . protects only mortgages that are secured by some existing equity in the debtor's principal residence."
E. A BRIGHT LINE
In In re Dickerson, 222 F.3d 924 (11th Cir.2000), cert. denied, ___ U.S., ___, 121 S.Ct. 1604, 149 L.Ed.2d 470 (2001), the Eleventh Circuit, while declining to deviate from its prior decision in Tanner, supra, expressed second thoughts. "[W]ere we to decide this issue on a clean slate, we would not so hold. We find persuasive the district court's reasoning that providing `anti-modification' protection to junior mortgagees where the value of the mortgaged property exceeds the senior mortgagee's claim by at least one cent, as prescribed by the Supreme Court's decision in Nobelman [citation omitted], but denying that same protection to junior mortgagees who lack that penny of equity, places too much weight upon the valuation process." Dickerson, 222 F.3d at 926.
The Third Circuit, however, had addressed this concern a few months earlier in McDonald. "Bright-line rules that use a seemingly arbitrary cut-off point are common in the law. A day beyond the statute of limitations and the plaintiff must lose, even if the claim was otherwise unquestionably a winning one. If the evidence is just over a preponderance, the plaintiff wins full damages; just under, the plaintiff gets nothing. In bankruptcy law a Chapter 7 trustee cannot contest the validity of a debtor's claimed exemption when the 30-day period for objecting has expired and the trustee failed to obtain an extension; and this is true even if the debtor has no colorable basis for claiming the exemption [citation omitted] . . . What these examples show is that line drawing is often required in the law and, at the boundary, the appearance of unfairness is unavoidable. Simply pointing out that some arbitrariness occurs is not a compelling objection." McDonald, 205 F.3d at 613. This Court agrees with the Third Circuit and finds that concern over any perceived arbitrariness in the majority position is not well founded.
F. FAIRNESS
Today's ruling should not prove too onerous a burden on junior mortgagees, and, in fact, focuses the contest on the appropriate issue: the value of the collateral. Where a junior mortgagee wishes to press its demand to be treated as a secured claimant, it will have, through the confirmation process, ample opportunity to offer evidence of value, just as debtors will. This renders the playing field level, and the game fair.
VI. CONCLUSION
This Court holds that where a § 506(a) valuation establishes that there is no equity to secure a junior mortgagee's lien, a plan of reorganization that proposes to treat such a creditor as wholly unsecured may be confirmed. This holding is supported by the majority of decisions that have addressed the interplay of § 506(a), § 1322(b)(2), and the principles of Nobelman. Further, such a conclusion is supported by sound principles of statutory interpretation, and does not prejudice the rights of creditors.
Accordingly, HomeComings' objection to confirmation of the Plan is OVERRULED. The Debtors' Plan will be confirmed pursuant to a separate order.
IT IS SO ORDERED.
NOTES
[1] Determining a claim's secured, unsecured, or undersecured status based upon the collateral's value is generally referred to as a § 506(a) valuation.
[2] The portion of § 1322(b)(2) that prohibits a debtor from modifying the rights of a claimant who holds a security interest in real property that is the debtor's principal residence is referred to as the "anti-modification" clause. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1396996/ | 877 F. Supp. 1031 (1995)
Rehnee AIKENS, Plaintiff,
v.
BANANA REPUBLIC, INC., Defendant.
Civ. A. No. H-93-3735.
United States District Court, S.D. Texas.
March 8, 1995.
*1032 *1033 *1034 Robert Wallace, Robert T. Wallace & Associates, Houston, TX, for plaintiff.
Thomas J. Wray, Fulbright & Jaworski, Houston, TX, for defendant.
MEMORANDUM AND ORDER
CRONE, United States Magistrate Judge.
Pending before the court is Defendant Banana Republic, Inc.'s ("Banana Republic") Motion for Summary Judgment (# 11). Defendant *1035 seeks summary judgment on Rehnee Aikens ("Aikens") claims of discrimination under the Americans with Disabilities Act ("ADA") and Title VII of the Civil Rights Act of 1964 ("Title VII").
Having reviewed the motion, the submissions of the parties, the pleadings, and the applicable law, this court is of the opinion that the defendant's motion for summary judgment should be granted.
I. Background.
On August 27, 1987, Aikens was hired by Banana Republic as a part-time sales associate at its Montrose store location. When the Montrose location closed, Aikens was transferred to the Galleria store. Since 1975, Aikens has suffered from a visual impairment known as macular degeneration, which is a progressive degeneration of the back of the retina that has caused her vision to deteriorate to an acuity of 20/400.
On May 27, 1991, the store manager of Banana Republic, Diane Schmidt ("Schmidt"), promoted Aikens to the position of stockroom manager and increased her pay by fifty cents per hour. Schmidt erroneously classified Aikens as an assistant manager, which allowed her to receive incentive bonuses based on the store's performance. In May 1992, Danielle Teverbaugh ("Teverbaugh") replaced Schmidt as the store manager and discovered that Aikens' job classification had been miscoded by Schmidt. On June 24, 1992, Teverbaugh corrected Aikens' job code to reflect her true job classification stock person. Although Aikens' job duties and responsibilities did not change after her job classification was corrected, she was no longer entitled to receive incentive bonuses or attend manager meetings. On December 4, 1992, Aikens gave Banana Republic notice that she was resigning her position, effective December 12, 1992.
On January 14, 1993, Aikens filed a charge of discrimination against Banana Republic with the Equal Employment Opportunity Commission ("EEOC"). After the EEOC issued Aikens a right to sue letter, she initiated this action on November 23, 1993. In her original complaint, Aikens alleges handicap discrimination under the ADA in connection with her reclassification to stock person, claiming that it was a demotion. She attached to the complaint a copy of her EEOC charge, which alleges discrimination due to her race black, as well as handicap discrimination. Aikens recently was granted leave to file a supplemental complaint to add a claim of constructive discharge, in which she contends that she was forced to resign her position in December 1992 due to her demotion in June 1992.
II. Analysis.
A. The Applicable Standard.
Rule 56(c) provides that "[summary] judgment ... shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." FED.R.CIV.P. 56(c). The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552-53, 91 L. Ed. 2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); Williams v. Adams, 836 F.2d 958, 960 (5th Cir.1988). Once a proper motion has been made, the non-moving party may not rest upon mere allegations or denials in the pleadings, but must set forth specific facts showing the existence of a genuine issue for trial. Celotex Corp., 477 U.S. at 322-23, 106 S.Ct. at 2552-53; Anderson, 477 U.S. at 257, 106 S.Ct. at 2514-15; Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 82, 121 L. Ed. 2d 46 (1992). Summary judgment is mandated if the non-movant fails to make a showing sufficient to establish the existence of an element essential to its case on which it bears the burden of proof at trial. Celotex, 477 U.S. at 322, 106 S.Ct. at 2552.
*1036 B. Americans with Disabilities Act.
1. Effective Date.
In this case, Aikens alleges she was demoted from the position of assistant manager to stock person in violation of the ADA. Although the ADA was enacted on July 26, 1990, Congress delayed its effective date as applied to private employers until July 26, 1992. 42 U.S.C. § 12112 (1993). As stated by President Bush in enacting the ADA, "These phase-in periods and effective dates will permit adequate time for businesses to become acquainted with the ADA's requirements and to take the necessary steps to achieve compliance." Americans with Disabilities Act, Pub.L. 101-336, Signing Statement, 1990 U.S.C.C.A.N. at 602. The legislative history of the ADA is devoid of language that would support the retroactive application of the Act. R.G.H. v. Abbott Lab., No. 93 C 4361, 1995 WL 68830, at *8 (N.D.Ill. Feb. 16, 1995). Moreover, applying the ADA retrospectively would completely undermine the express purpose of the grace period that was purposefully built into the Act. Id. Accordingly, courts have uniformly construed the Act to apply only to wrongful conduct occurring after July 16, 1992. O'Bryant v. City of Midland, 9 F.3d 421, 422 (5th Cir. 1993); R.G.H., 1995 WL 68830, at *8; Gonzales v. Garner Food Servs., 855 F. Supp. 371, 373 (N.D.Ga.1994); Daniels v. Allied Elec. Contractors, 847 F. Supp. 514, 516 (E.D.Tex. 1994); Aramburu v. Boeing Co., No. 93-4064-SAC, 1993 WL 544567, at *2-3 (D.Kan. Dec. 29, 1993).
Aikens' job was reclassified on June 24, 1992. If any alleged violation occurred, it was more than one month prior to the ADA taking effect. Thus, Aikens' handicap discrimination claim based upon her alleged demotion is not actionable under the ADA. Moreover, because Aikens' constructive discharge claim is founded upon her alleged demotion, it likewise is not actionable under the ADA.
2. Prima Facie Case of Handicap Discrimination.
Furthermore, without regard to the effective date of the ADA, Aikens' claims are barred because she has not established a prima facie case of handicap discrimination.
The ADA provides that "[n]o covered entity shall discriminate against a qualified individual with a disability because of the disability of such individual in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of employment." 42 U.S.C. § 12112(a). The ADA defines a "qualified individual with a disability" as "an individual with a disability who, with or without reasonable accommodation, can perform the essential functions of the employment position that such individual holds or desires." 42 U.S.C. § 12111(8). The ADA further defines a disability as "(A) a physical or mental impairment that substantially limits one or more of the major life activities of such individual; (B) a record of such impairment; or (C) being regarded as having such impairment." 42 U.S.C. § 12102(2).
To recover under this statute, Aikens must prove that she was discriminated against on the basis of her disability. R.G.H., 1995 WL 68830, at *9. To do so, she may either present direct or circumstantial evidence of disability discrimination or may employ the indirect method of proof utilized by the courts in other types of discrimination cases. Id. Although the case law is scant regarding the ADA, especially within the Fifth Circuit, the few courts that have addressed claims brought under the Act have looked to Title VII and the Rehabilitation Act to provide guidance as to the elements which constitute a prima facie case of disability discrimination. Aucutt v. Six Flags Over Mid-America, Inc., 869 F. Supp. 736 (E.D.Mo.1994); see R.G.H., 1995 WL 68830 at *9; Grinstead v. Pool Co., No. 93-2320, 1994 WL 25515, at *2 (E.D.La. Jan. 20, 1994).
To state a prima facie case under the ADA, the plaintiff must show that: (1) she suffers from a "disability;" (2) she is a "qualified individual;" (3) she was subject to an adverse employment action; and (4) she was replaced by a non-disabled person or was treated less favorably than non-disabled employees. See R.G.H., 1995 WL 68830, at *9; Aucutt, 869 F.Supp. at 743; see also White v. York Int'l Corp., 45 F.3d 357, 360 *1037 (10th Cir. Jan. 5, 1995); Rogers v. International Marine Terminals, Inc., No. 94-0056, 1995 WL 16787, at *3 (E.D.La. Jan. 17, 1995); Stradley v. Lafourche Communications, Inc., 869 F. Supp. 442, 443 (E.D.La. 1994) (citing Chandler v. City of Dallas, 2 F.3d 1385, 1390 (5th Cir.1993), cert. denied, ___ U.S. ___, 114 S. Ct. 1386, 128 L. Ed. 2d 61 (1994) [Rehabilitation Act]); Elstner v. Southwestern Bell Tel. Co., 659 F. Supp. 1328, 1345 (S.D.Tex.1987), aff'd, 863 F.2d 881 (5th Cir.1988) [Texas Commission on Human Rights Act]. If the plaintiff succeeds in making this prima facie showing, a rebuttable presumption of discrimination arises and the burden of production shifts to the employer to articulate a legitimate, non-discriminatory justification for its actions. R.G.H., 1995 WL 68830, at *9 (citing Texas Dep't of Community Affairs v. Burdine, 450 U.S. 248, 254, 101 S. Ct. 1089, 1094, 67 L. Ed. 2d 207 (1981)); Grinstead, 1994 WL 25515, at *2. If the employer meets its burden of production, the presumption is dissolved and the burden shifts back to the plaintiff to prove that the proffered reasons are a pretext for discrimination. R.G.H., 1995 WL 68830, at *9; Grinstead, 1994 WL 25515, at *2. As with discrimination cases generally, the plaintiff at all times bears the ultimate burden of persuading the trier of fact that she has been the victim of illegal discrimination based on her disability. White, 45 F.3d 357 at 361 (citing St. Mary's Honor Ctr. v. Hicks, ___ U.S. ___, ___-___, 113 S. Ct. 2742, 2747-49, 125 L. Ed. 2d 407 (1993)).
In the instant case, Aikens has not adduced sufficient evidence to establish a prima facie case under the ADA. Aikens has not brought forward any evidence to show that she was treated less favorably than other employees, was replaced by a non-disabled person, or was otherwise discriminated against due to her handicap. Aikens' only claim of discrimination is her alleged demotion from assistant manager to stock person. In her deposition, Aikens stated that when Teverbaugh assumed store manager duties, she informed Aikens that she had been mistakenly coded with an assistant manager's title instead of the appropriate stockroom title. When asked if she had any reason to believe that the coding was anything but a mistake, Aikens responded, "No I do not." Aikens conceded at deposition that her job responsibilities and hourly pay did not change once the clerical mistake was discovered. She was simply no longer eligible for incentive bonuses because her classification was not that of an assistant manager, as she had no sales duties. Aikens has not produced any evidence indicating that her job reclassification was based on her visual impairment or that her classification as an assistant manager in the first instance was not simply a mistake. In fact, Aikens admitted at deposition that she was never criticized because of her job performance and conceded that no one at Banana Republic ever indicated her job was in any danger due to her disability. Thus, no inference can arise that her alleged demotion was based on her disability.
In addition, Banana Republic has met its burden of demonstrating a legitimate non-discriminatory reason for Aikens' job reclassification. Banana Republic has produced sufficient evidence, which is unrefuted by Aikens, that the original coding of her position as that of an assistant manager was a mistake and her subsequent reclassification was merely a correction of the prior error. Hence, Aikens has failed to establish a prima facie case of handicap discrimination, much less rebut Banana Republic's articulated, non-discriminatory reason for its actions.
C. Title VII of the Civil Rights Act.
1. Claim Not Included in the Complaint.
Aikens contends in her reply in opposition to Banana Republic's motion for summary judgment that she has raised a claim of race discrimination under Title VII. Although Aikens alleged race discrimination in her EEOC charge, she failed to include such a claim in her original complaint. In paragraph six of her complaint, Aikens did not check race in the appropriate box as a basis for her discrimination claim. Instead, she wrote in the word "handicap," stating that defendant "[d]emoted plaintiff in violation of the Americans With Disabilities Act." Aikens never sought leave to amend her *1038 complaint to include a race discrimination claim. Although she was pro se at the time of her original filing, she has been represented by counsel since March 18, 1994, when the parties filed their Joint Discovery/Case Management Plan. Thus, for almost a year, even with the assistance of counsel, Aikens has not alleged race discrimination in this action. Indeed, it was mentioned for the first time in her reply to the defendant's motion for summary judgment.
Under FED.R.CIV.P. 8(a)(2), the plaintiff must set forth a "short and plain statement" of the claim that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests. Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 103, 2 L. Ed. 2d 80 (1957). Because Aikens never amended her complaint to include a claim of race discrimination under Title VII, Banana Republic has not been afforded the "fair notice" required under Rule 8(a)(2).
2. Prima Facie Case of Race Discrimination.
Moreover, without regard to Aikens' failure to amend her complaint, Aikens' claims are barred because she has not established a prima facie case of race discrimination.
In order to establish a prima facie case of race discrimination, the plaintiff must show: (1) she is a member of a protected group; (2) she was qualified for the position; (3) an adverse employment action occurred; and (4) she was replaced by a person not in the protected group. St. Mary's Honor Ctr., ___ U.S. at ___, 113 S.Ct. at 2747; Burdine, 450 U.S. at 252-53, 101 S.Ct. at 1093-94; McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802, 93 S. Ct. 1817, 1824, 36 L. Ed. 2d 668 (1973). Alternatively, she may establish a prima facie case by showing that she is a member of a protected class, she was qualified for the position, and persons outside the protected class were treated more favorably than she. Waggoner v. City of Garland, 987 F.2d 1160, 1163 (5th Cir.1993); Johnson v. Chapel Hill Indep. School Dist., 853 F.2d 375, 381 (5th Cir.1988); Thornbrough v. Columbus & Greenville R. Co., 760 F.2d 633, 639 (5th Cir.1985). At all times, the plaintiff has the ultimate burden to prove race discrimination. St. Mary's Honor Ctr., ___ U.S. at ___, 113 S.Ct. at 2747.
Once the prima facie case is established, the burden then shifts to the employer to articulate a legitimate, non-discriminatory reason for its actions. Id.; McDonnell Douglas Corp., 411 U.S. at 802, 93 S.Ct. at 1824. If the employer meets its burden, the prima facie case is dissolved and the burden shifts back to the plaintiff to establish that the reason proffered by the employer is merely a pretext for race discrimination. Id.; Rhodes v. Guiberson Oil Tools, 39 F.3d 537, 542 (5th Cir.1994); Marcantel v. Department of Transp. & Dev., 37 F.3d 197, 200 (5th Cir.1994). To demonstrate a "pretext for discrimination," the plaintiff must show both that the employer's proffered reason was false and that race discrimination was the real reason. See St. Mary's Honor Ctr., ___ U.S. at ___, 113 S.Ct. at 2752; Rhodes, 39 F.3d at 542.
An employee's own subjective belief of race discrimination, however genuine, cannot be the basis for judicial relief. Little v. Republic Refining Co., 924 F.2d 93, 96 (5th Cir.1991); Sherrod v. Sears, Roebuck & Co., 785 F.2d 1312, 1316 (5th Cir.1986); Elliott v. Group Medical & Surgical Serv., 714 F.2d 556, 567 (5th Cir.1983), cert. denied, 467 U.S. 1215, 104 S. Ct. 2658, 81 L. Ed. 2d 364 (1984). Although Title VII protects employees against racial discrimination in the terms and conditions of employment, it does not afford minorities special preference or place upon the employer an affirmative duty to accord them special treatment. See Williams v. General Motors Corp., 656 F.2d 120, 129 (5th Cir.1981), cert. denied, 455 U.S. 943, 102 S. Ct. 1439, 71 L. Ed. 2d 655 (1982).
In the instant case, Aikens has not brought forward any evidence to show that her reclassification was due to her race, that other similarly situated persons of different races were not reclassified, or that she was replaced by someone outside of the protected class. Aikens' alleged demotion consisted simply of Banana Republic's store manager, Teverbaugh, correcting the store records to indicate her true classification as a stock person rather than as an assistant manager. *1039 Aikens was informed of the error in her classification and admitted at deposition that she had no reason to believe that it was anything other than a mistake. Aikens has presented no evidence suggesting that her reclassification was due to her race, nor has she provided any evidence to rebut Banana Republic's legitimate, non-discriminatory reason for the reclassification. Additionally, Aikens has not established that she was replaced by a person of another race after her resignation or that non-black employees were treated more favorably than she. In Aikens' deposition, she admitted that she did not know if anyone had replaced her as the stock person. Thus, Aikens has not established a prima facie case of race discrimination with respect to either her demotion or her discharge claim.
D. Constructive Discharge.
In her supplemental complaint, Aikens alleges that she was constructively discharged from Banana Republic. A constructive discharge occurs when the employer makes the employee's working conditions so intolerable that the employee is forced to resign. Junior v. Texaco, Inc., 688 F.2d 377, 378 (5th Cir.1982); Young v. Southwestern Sav. & Loan Ass'n, 509 F.2d 140, 144 (5th Cir.1975). To determine whether a constructive discharge has occurred, the plaintiff's actions must be analyzed from the standpoint of a "reasonable employee." The working conditions must have been "so difficult or unpleasant that [a] reasonable person in [the plaintiff's] shoes would have felt compelled to resign." McKethan v. Texas Farm Bureau, 996 F.2d 734, 741 (5th Cir.1993), cert. denied, ___ U.S. ___, 114 S. Ct. 694, 126 L. Ed. 2d 661 (1994) (citing Ugalde v. W.A. McKenzie Asphalt Co., 990 F.2d 239, 242 (5th Cir.1993)). The plaintiff's actions must be evaluated objectively, without regard to the "employee's subjective preference for one position over another." Epps v. NCNB Texas, 7 F.3d 44, 46 (5th Cir.1993) (citing Jett v. Dallas Indep. Sch. Dist., 798 F.2d 748, 755 (5th Cir.1986), remanded in part on other grounds, 491 U.S. 701, 109 S. Ct. 2702, 105 L. Ed. 2d 598 (1989)).
In this case, Aikens has not demonstrated the requisite intolerable working conditions. The working conditions must be viewed objectively by examining the conditions imposed by Banana Republic, not by viewing Aikens' state of mind. Shawgo v. Spradlin, 701 F.2d 470, 481 n. 12 (5th Cir.), cert. denied, 464 U.S. 965, 104 S. Ct. 404, 78 L. Ed. 2d 345 (1983). At deposition, Aikens claimed that she left Banana Republic because she was under "pressure" from Teverbaugh, the store manager. Aikens, however, could cite no specific instances of "pressure" that made her employment so intolerable that she was forced to resign. Aikens further admitted that everyone in the store was under "pressure" from Teverbaugh and she was not singled out as the sole recipient of the "pressure." In such situations, where all employees are treated identically, "no particular employee can claim that difficult working conditions signify the employer's intent to force that individual to resign." Bristow v. Daily Press, Inc., 770 F.2d 1251, 1255 (4th Cir.1985), cert. denied, 475 U.S. 1082, 106 S. Ct. 1461, 89 L. Ed. 2d 718 (1986) (citing Johnson v. Bunny Bread Co., 646 F.2d 1250, 1256 (8th Cir.1981)).
Aikens has not shown that Teverbaugh criticized her unduly. In fact, according to Aikens, Teverbaugh never indicated she was unhappy with Aikens or suggested that her job was in jeopardy. Instead, the only criticism Aikens recalled was being "nitpicked" by Teverbaugh. This "nitpicking" incident allegedly occurred when Teverbaugh performed some of Aikens' job duties of checking in part of a shipment. Aikens, however, later admitted at deposition that this incident did not really bother her. In any event, the mere fact that Aikens experienced "pressure" or was "nitpicked" does not establish such intolerable working conditions as to give rise to a constructive discharge. As the United States Court of Appeals for the Fourth Circuit noted:
Every job has its frustrations, challenges, and disappointments; these inhere in the nature of work. An employee is protected from a calculated effort to pressure him into resignation through the imposition of unreasonably harsh conditions, in excess of *1040 those faced by his co-workers. He is not, however, guaranteed a working environment free of stress.
Bristow, 770 F.2d at 1255.
Aikens cannot prevail on a constructive discharge claim based on her alleged demotion if the working conditions in her new position were not so intolerable that a reasonable employee would have resigned. Boze v. Branstetter, 912 F.2d 801, 806 (5th Cir.1990). Demotions alone do not give rise to a viable constructive discharge claim. See Jurgens v. EEOC, 903 F.2d 386, 391 (5th Cir.1990). The Fifth Circuit noted in Jurgens that a "slight decrease in pay coupled with some loss of supervisory responsibilities is insufficient to constitute a constructive discharge." Id. at 392. When the humiliation and embarrassment of demotion are not significant, there can be no claim of constructive discharge. Id. at 391.
Here, upon her reclassification, Aikens' working conditions were not so difficult or unpleasant that she had no choice but to resign. In fact, Aikens' job responsibilities did not change when her title was reclassified to that of stock person. Moreover, she does not claim that she suffered any humiliation or embarrassment from being reclassified. Indeed, at deposition, Aikens conceded that she chose to resign from her position with Banana Republic only after confirming with the Texas Commission for the Blind that resigning her employment would not affect her eligibility for additional schooling. Aikens has not described any working conditions that would be considered intolerable by a reasonable person, nor has she demonstrated that she was reasonable in resigning from Banana Republic. Hence, Aikens has failed to show that she was constructively discharged from Banana Republic.
E. Damages.
Finally, Aikens has not demonstrated that she has been damaged as a result of her alleged demotion or constructive discharge. Upon her resignation from Banana Republic, Aikens, like any other claimant, was under a duty to mitigate her damages. See Ford Motor Co. v. EEOC, 458 U.S. 219, 231-32, 102 S. Ct. 3057, 3065-66, 73 L. Ed. 2d 721 (1982); Sellers v. Delgado College, 902 F.2d 1189, 1193 (5th Cir.), cert. denied, 498 U.S. 987, 111 S. Ct. 525, 112 L. Ed. 2d 536 (1990); Hansard v. Pepsi-Cola Metro. Bottling Co., 865 F.2d 1461, 1468 (5th Cir.), cert. denied, 493 U.S. 842, 110 S. Ct. 129, 107 L. Ed. 2d 89 (1989). In order to recover damages, Aikens was obligated to exercise reasonable diligence in seeking employment substantially equivalent to the position lost. See Ford Motor Co., 458 U.S. at 231-32, 102 S.Ct. at 3065-66; Sellers, 902 F.2d at 1196.
After resigning from Banana Republic on December 12, 1992, however, Aikens has not sought or attempted to seek a new paying job. Instead, she has chosen to do volunteer work. Because Aikens has not reasonably or diligently sought employment substantially equivalent to her position with Banana Republic, she has wholly failed to mitigate her damages, thus barring any monetary recovery in this case.
III. Conclusion.
Aikens' claims under the ADA are not cognizable because they are based on events that occurred prior to the effective date of the Act. Aikens' race discrimination claims are not actionable because they were not alleged in her original complaint or in any amendment or supplement to the complaint. Moreover, she has failed to adduce sufficient summary judgment evidence to establish a prima facie case of either handicap or race discrimination. Aikens' constructive discharge claim is without basis because she has failed to show that her working conditions were so intolerable that a reasonable person would have felt compelled to resign. Finally, Aikens is barred from recovering damages, as she has made no effort to obtain substantially equivalent employment after resigning from Banana Republic.
Accordingly, Banana Republic's motion for summary judgment is GRANTED. There exist no outstanding issues of material fact, and Banana Republic is entitled to judgment as a matter of law. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1579371/ | 516 F. Supp. 1281 (1981)
Robert and Beverly OHNTRUP
v.
FIREARMS CENTER INCORPORATED et al.
v.
MAKINA VE KIMYA ENDUSTRISI KURUMU.
Civ. A. No. 76-742.
United States District Court, E. D. Pennsylvania.
June 30, 1981.
*1282 Robert A. Davitch, Jerome H. Jaffe, Sidkoff, Pincus, Greenberg & Green, P. C., Philadelphia, Pa., for plaintiff.
*1283 James A. Wayne for Firearms Center, pro se.
John R. McConnell, Morgan, Lewis & Bockius, Philadelphia, Pa., for third party defendant.
MEMORANDUM
LOUIS H. POLLAK, District Judge.
Plaintiffs Robert and Beverly Ohntrup commenced this action on March 11, 1976 to recover, under theories of warranty, product liability and negligence, for injuries allegedly sustained by Robert Ohntrup when a gun he was using malfunctioned. Plaintiffs, citizens of Pennsylvania, invoked the diversity jurisdiction of this court to bring suit against Firearms Center Incorporated ("FCI") and the Waynes, citizens of Texas, from whom plaintiffs had purchased the allegedly defective gun. On August 30, 1976, these defendants impleaded Makina ve Kimya Endustrisi Kurumu ("Makina"), a Turkish corporation whose stock is wholly owned by the Turkish Government, on the ground that Makina had manufactured the gun and sold it to defendants. Plaintiffs amended their complaint, on December 21, 1977, to include claims against Makina. On the eve of trial, Makina moved to dismiss the claims against it on the ground that it is entitled to invoke sovereign immunity, hence depriving this court of jurisdiction over the claims asserted against it.
A. Sovereign Immunity Goes to The Subject-Matter Jurisdiction of the Court.
Makina's motion to dismiss was untimely, and Makina more than once failed to comply with this court's directions as to the filing of the papers required for the determination of the motion. Therefore, in a letter dated December 18, 1980, Makina was notified by the court that non-compliance with the directions contained in that letter would be deemed to be a waiver by Makina of its defense of sovereign immunity. As Makina failed to comply with the directions contained in that letter, the first question to be determined is whether the court may decline to entertain the defense of sovereign immunity or whether, as contended by Makina, sovereign immunity goes to this court's subject-matter jurisdiction. This requires an initial determination of whether the Foreign Sovereign Immunities Act of 1976 (the "Act"), 28 U.S.C. §§ 1330, 1602 et seq. governs the entire action, or whether it applies only to the plaintiffs' claims against Makina, which were filed after the effective date of the Act, and not to FCI's third-party claims, which were filed prior to that date.
Plaintiffs and Makina agree that the issues presented by this motion are governed by the Act. Under the Act, the jurisdiction of this court is governed by 28 U.S.C. § 1330(a), which provides that "district courts shall have original jurisdiction ... as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity ... under sections 1605-1607 of this title...." The district court must, therefore, first consider whether a foreign state is entitled to immunity under sections 1605-1607 of the Act: If it is, the court loses subject-matter jurisdiction over the claim against that state. Thus, a determination that Makina is entitled to immunity under the Act would deprive this court of subject-matter jurisdiction over plaintiffs' claims against Makina; and, if, in addition, the Act is given retroactive application to FCI's claims against Makina, a determination that Makina is entitled to immunity would deprive this court of subject-matter jurisdiction over all claims against Makina in this controversy. Sugarman v. Aeromexico, Inc., 626 F.2d 270 (3d Cir. 1980).
The substantive immunity principles set forth in the Act have been given retroactive application, the courts relying on the language of the Act's Preamble, which states that "henceforth" claims of immunity should be decided in accordance with the principles of the Act. See e. g. Yessenin-Volpin v. Novosti Press Agency, 443 F. Supp. 849 (S.D.N.Y.1978). But, in the only case to pose the retroactive applicability of the provision conferring subject matter *1284 jurisdiction, the Second Circuit Court of Appeals concluded that the language in the Preamble was intended to apply to substantive immunity law alone, and declined to give the subject-matter jurisdiction provisions retroactive effect. Moreover, the court reasoned that the retroactive application of a provision affecting subject-matter jurisdiction would be open to constitutional question. Corporacion Venezolana de Fomento v. Vintero Sales Corporation, 629 F.2d 786, 790 (2d Cir. 1980). This need not, however, be decided in this action as, under the principles applicable prior to the enactment of the Act, the determination that a defendant was entitled to invoke sovereign immunity acted to deprive the court of subject-matter jurisdiction:
[T]he commander of the national vessel exercises a part of his sovereign power; and in such a case no consent to submit to the ordinary judicial tribunals of the country can be implied.... Such consent is implied where the municipal law, previously provides and changes the law of nations... But it cannot be implied where the law of nations is unchanged, nor where the implication is destructive of the independence, the equality and dignity of the sovereign. Such jurisdiction is not given by the constitution of the United States, nor is it mentioned in the judiciary act. If so important a jurisdiction was intended to be given, it would certainly have been mentioned and regulated by law...
The Schooner Exchange v. M'Faddon, 11 U.S. 116, 121, 7 Cranch 116, 123-124, 3 L. Ed. 287 (1812). Thus, under either the law as it existed prior to the passage of the Act, or the Act, a determination that Makina is entitled to invoke sovereign immunity would operate to deprive this court of subject matter jurisdiction. This court is therefore not free to determine that Makina's untimely motion and its subsequent dilatory conduct acted to waive its defense of sovereign immunity.
B. Makina's Entitlement to Invoke Sovereign Immunity
The substantive provisions of the Act are applicable to determine Makina's entitlement to invoke sovereign immunity, both as to plaintiffs' claims, and retroactively as to FCI's claim. Corporacion Venezolana, supra. Makina is a Turkish corporation whose stock is wholly owned by the Turkish government, and it is not incorporated in any other country. It is therefore, a "foreign state" within the meaning of the Act, 28 U.S.C. §§ 1603(a) and (b), and immune from this suit, 28 U.S.C. § 1604, unless it comes within one of the exceptions listed in Section 1605. Plaintiffs argue that (1) Makina has waived the defense of sovereign immunity, Section 1605(a)(1), and (2) that this transaction falls within the commercial exceptions listed in Section 1605(a)(2).
1. Waiver Under Section 1605(a)(1)
Plaintiffs[1] argue that, pursuant to Section 1605(a)(1),[2] Makina has impliedly waived any right it might have to invoke sovereign immunity in Item 11 of the Sales Agreement between Makina and FCI:
Any dispute between the parties, arising in connection with the application of this agreement, will be handled and solved by Paris International Court.
A waiver of sovereign immunity may be inferred from an agreement to arbitrate a dispute in another country or to refer disputes to the laws of another country:
With respect to implicit waivers, the courts have found such waivers in cases *1285 where a foreign state has agreed to arbitration in another country or where a foreign state has agreed that the law of a particular country should govern a contract.
H.R.Rep.No. 94-1487, 94th Cong. 2d Sess. 18 reprinted in [1976] U.S.Code Cong. & Admin.News 6604, 6617. But a waiver of immunity by a state as to one jurisdiction cannot be interpreted to be a waiver as to all jurisdictions. The quoted passage from the House Report does not mandate a contrary conclusion, as it is unclear whether, in referring to "another country", Congress intended to include a third-party country. While it is reasonable to conclude that an agreement by a foreign country to either arbitrate disputes in or be governed by the laws of the United States constitutes an implicit waiver by that state of the defense of sovereign immunity in the courts of the United States, it is much more difficult to infer such a waiver from the agreement of a foreign state to submit itself, in the same manner, to the jurisdiction of a state other than the United States. In support of their position, plaintiffs cite Ipitrade International, S. A. v. Federal Republic of Nigeria, 465 F. Supp. 842 (D.C.D.C.1978). But, in Ipitrade, the dispute had already been arbitrated, as provided in the contract, in the International Chamber of Commerce, Paris, France, and the action in the District Court was one to enforce the arbitration award. Jurisdiction over the enforcement action was provided by a treaty to which both the United States and Nigeria were signatories. Ipitrade, does not, therefore, offer significant support for the proposition urged by plaintiffs. Verlinden B. V. v. Central Bank of Nigeria, 488 F. Supp. 1284 (S.D.N.Y.1980). Moreover, Makina agreed only to the arbitration of disputes between the partiesi. e. between Makina and FCI and only insofar as the dispute arose out of the agreement. This waiver cannot be interpreted to include the dispute at issue in this suit, which involves an injury to a third-party, and which does not call into issue the contract between Makina and FCI. This action does not, therefore, fall within 28 U.S.C. § 1605(a)(1).
2. The Commercial Activity Exception
Plaintiffs argue that the instant action falls within two of the commercial exceptions provided in Section 1605(a)(2):
A foreign state shall not be immune from the jurisdiction of courts of the United States ... in any case
(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state ... or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States...
Commercial Activity Carried On in the United States
The Act defines "commercial activity carried on in the United States" as being "commercial activity carried on by such state and having substantial contact with the United States." Plaintiffs argue that, although Makina manufactured and sold the gun in Turkey, this action is one based on a commercial activity having "substantial contact" with the United States in that Makina sold the pistols to FCI for resale in the United States. Makina argues that the activities did not have a substantial contact with the United States and that, in any event, this exception was "designed to cover business torts and breach of contract actions", and that this suit, a personal injury action, is not within the intended coverage of this commercial exception. Makina's Memorandum at 11.
Personal injury suits are within the scope of this exception. Sugarman v. Aeromexico, Inc., 626 F.2d 270 (3d Cir. 1980). And the misconduct complained of need not have taken place in the United States. Sugarman, supra. Thus, as long as Makina's commercial activities which gave rise to this suit had a "substantial contact" with the United States, this court has jurisdiction over this suit. The sales agreement between FCI and Makina was concluded in Turkey, and the pistols delivered in Turkey. But, the entire relationship between Makina *1286 and FCI was intended to be one with "substantial contacts" with the United States: (1) The Sales Agreement is between Makina, and "FIREARMS CENTER INC., Victoria Texas, U.S.A."; (2) In Item-1, it provides that "MKE [Makina] agrees that FCI will be its exclusive representative ... in U.S.A."; (3) Item-2 provides for a minimum order of 1000 pistols, "to sell in U.S. A." for the first year of the contract, and provides for renewal of the contract with an increase in the minimum order by 20% a year; (4) And in Item-4, the contract requires FCI to provide after-sale service to "the customers in U.S.A.", and provides that "FCI ... will not jeopardize MKE's reputation ... by poor service or untrue advertising." Moreover, in a letter dated March 27, 1974 Makina exercised its rights to monitor FCI's advertising practices in the United States. Exhibit 3, FCI's answer to Motion to Dismiss. It is also interesting that, although Makina now insists that it sells pistols only in Turkey, in a letter dated March 27, 1974, written by Makina to FCI, FCI's Memorandum, Exhibit 3, Makina referred to its sales of pistols to FCI as "exports."
The commercial activity described above is one which has "substantial contact" with the United States. Makina intended that the pistols be imported into the United States and sold here: This situation is not one where the offending articles were sold outside the United States and "sent into the United States by means wholly outside the control" of the defendant, Yessenin-Volpin v. Novosti Press Agency, 443 F. Supp. 849, 855 (S.D.N.Y.1978). And plaintiffs' claims are based upon "the specific commercial activity carried on in the United States", Harris v. VAO Intourist, Moscow, 481 F. Supp. 1056, 1061 (E.D.N.Y. 1979)the export and sales of Makina's pistols in the United States. Moreover, the House Report specifically states that "cases based on ... [i]mport-export transactions involving sales to ... concerns in the United States" are included within this exception. House Report at 17, reprinted at 6615. This action is, therefore, "based upon a commercial activity carried on in the United States" by Makina, and Makina is not immune from this suit. 28 U.S.C. § 1605(a)(2).
Commercial Activity Elsewhere Which Causes a "Direct Effect" In the United States
Finally, plaintiffs argue that this court has jurisdiction over their claims by virtue of the last clause of Section 1605(a)(2) which creates an exception from the general immunity provision, Section 1604, for actions based upon commercial activities outside the United States which cause a "direct effect in the United States."
This section is to be applied in a manner consistent with both the principles set forth in Section 18, Restatement of the Law, Second, Foreign Relations Law of the United States (1965), House Report at 19, reported at 6618, and those of constitutional due process as set forth in International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945), and its progeny. House Report at 13-14, reprinted at 6612. Thus, the "direct effect" within this country must be substantial, and a foreseeable consequence of the actions performed elsewhere requirements derived from Section 18 of the Restatement.[3]Harris v. VAO Intourist, Moscow, supra, 481 F.Supp. at 1063. Moreover, the Court of Appeals for the Second Circuit has interpreted the reference to International Shoe as imposing the minimum contacts requirement of Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. *1287 1228, 1239, 2 L. Ed. 2d 1283 (1958), that the defendant, in some manner, "`purposely avail itself of the privilege' of conducting business in the United States." Carey v. National Oil Corporation, 592 F.2d 673, 676 (1979).
In the instant action, plaintiff has alleged that he was injured in the United States by a defective pistol which he bought in the United States from defendant, FCI. The pistol is alleged to have been supplied to FCI by Makina pursuant to an agreement between Makina and FCI wherein Makina undertook to supply FCI with pistols "to sell in U.S.A." Item-2, Sales Agreement. The Sales Agreement contains a detailed provision for the handling of "parts for any pistol part determined to be defective", Item-5, Sales Agreement. Makina, therefore, did foresee that some pistols supplied pursuant to the sales agreement, and sold in the United States, could be defective, and provided for that contingency in the Sales Agreement. Thus, the injury in the United States of a purchaser of such a defective gun was both a substantial and foreseeable consequence of Makina's actions.
The requirements of International Shoe are also satisfied. As set forth previously, Makina supplied FCI with pistols for sale in the United States, and appointed FCI as its exclusive representative for sales of its pistols in the United States. The Sales Agreement requires FCI to provide for after-sales service, and provides that FCI "will not jeopardize MKE's reputation in any way by poor service or untrue advertising." Item-4, Sales Agreement. Makina monitored FCI's advertising, Enclosure 1, FCI's Memorandum, and apparently did solicit business in the United States. See Enclosure 3, FCI's Memorandum. Makina has, therefore "purposely avail[ed] itself of the privilege of conducting business", Hanson v. Denckla, supra, 357 U.S. at 253, 78 S.Ct. at 1239, within the United States. This action is, therefore, within the exception for commercial acts which cause a "direct effect" within the United States.
Accordingly, in an accompanying order, Makina's motion to dismiss plaintiffs' and third-party plaintiffs' complaints is DENIED.
NOTES
[1] While FCI, which is proceeding pro se, has also filed a response to Makina's motion, this simply consists of several exhibits without legal argument. Thus, the legal arguments as to the issues considered on this motion have been made by plaintiffs and Makina.
[2] Section 1605(a)(1) provides:
(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case
(1) in which the foreign state has waived its immunity either explicitly or by implication, notwithstanding any withdrawal of the waiver which the foreign state may purport to effect except in accordance with the terms of the waiver;
[3] 18. Jurisdiction to Prescribe With Respect to Effect Within Territory.
A state has jurisdiction to prescribe a rule of law attaching legal consequences to conduct that occurs outside its territory and causes an effect within its territory, if
* * * * * *
(b)(i) the conduct and its effect are constituent elements of activity to which the rule applies; (ii) the effect within the territory is substantial; (iii) it occurs as a direct and foreseeable result of the conduct outside the territory; and (iv) the rule is not inconsistent with the principles of justice generally recognized by states that have reasonably developed legal systems. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2459219/ | 439 S.W.2d 830 (1969)
Foster C. DUNN, Deceased, Petitioner,
v.
Juanita DUNN, Respondent.
No. B-1102.
Supreme Court of Texas.
June 4, 1969.
*831 Brown & Gauss, Robert W. Gauss, Lubbock, for petitioner.
William H. Crenshaw, Jr., Lubbock, for respondent.
HAMILTON, Justice.
The respondent brought this suit in the trial court to secure a divorce and a division of property on January 19, 1967. The defendant, Foster C. Dunn, filed a cross-action also asking for a divorce. The trial court heard the case without a jury on May 24, 1967, and on that day made an oral pronouncement from the bench of its disposition of the cause.
On May 26, 1967, the defendant died. At issue in this Court are two questions: whether such a pronouncement was a valid judgment; and whether the trial court was required to grant the motion to dismiss this action because of the defendant's death.
The Court of Civil Appeals in this case has sustained the respondent's point of error contending that she was entitled to a motion to dismiss the cause because the defendant, Foster C. Dunn, died before the entry of a written judgment. 430 S.W.2d 27. The Court of Civil Appeals has also held that because the defendant's death occurred at a time when the trial court still had jurisdiction of the judgment, the trial court should have granted the respondent's motion to dismiss the action. This holding conflicts with a prior holding in Blain v. Broussard, 99 S.W.2d 993 (Tex.Civ.App. Beaumont 1936, no writ). In that case the trial court had pronounced an oral judgment granting a divorce, but no written judgment had been entered when the defendant died. Upon the motion of the plaintiff, the trial court set aside the divorce decree and ordered the cause dismissed. Upon appeal, the Court of Civil Appeals ordered the trial court's judgment of divorce entered nunc pro tunc. The Court of Civil Appeals in that case based its result upon a determination that the trial court did not have power to disturb a rendered divorce judgment because of a party's subsequent death. Because of the conflict of this holding with the case at bar, jurisdiction arises in this Court by virtue of Article 1728, Sec. 2, Vernon's Ann.Tex. Stat. (1953).
At the hearing on May 24, 1967, in which the trial court heard testimony on behalf of both parties, the following pronouncement was made from the bench:
"May I say as a preliminary remark, and I am going to decide the case right now, not going to take it under advisement. * * *
"I am going to grant the divorce to Mrs. Dunn, * * *
"No. 1: Mrs. Dunn shall have a homestead right in the property for a period of time from now until not later than January 1st, 1968. If there has not been a voluntary, in other words, fee title to the property, in half and half in both of them, tenants in common, subject to her homestead right, including all the income off of it until January 1st, 1968 [Sic]. At any time in the interim the parties certainly can sell the property if they can work it out between themselves to sell it, and, of course, as to the proceeds from the real estate, which includes, I am including all of that block of real estate, will be divided equally, the proceeds, after expenses of sale. Going with that sale, if there be one, would be the furniture in the little house, that is part of the deal. In other words, I am giving her the furniture in the big house outright. If by January 1st, 1968, some disposition has not been made of it between the parties, I shall appoint a receiver to dispose of the property, that real estate, and after the expenses of receivership are over with, then we will divide the proceeds of that real estate fifty fifty.
*832 "Each party will pay their own attorneys' fee. Costs will be borne by Mr. Dunn, costs of suit, not considering attorney's fees, costs of suit by Mr. Dunn."
The trial court also provided in its directive for dividing the payment of taxes on the realty. After this announcement the respondent's attorney agreed to draw a written judgment for the court. The court itself entered no record of the above proclamation on its docket sheet.
When the defendant died on May 26, 1967, there had been no written entry of the oral pronouncement from the bench on May 24, 1967.
On June 20, 1967, the husband's death certificate was filed with the court. On June 21, 1967, the respondent filed a motion to dismiss the case because of the death of her husband, and on that day the court heard argument on behalf of both parties. On June 27, 1967, the court overruled the respondent's motion to dismiss and entered a judgment in accordance with the pronouncement announced from the bench on May 24, 1967.
The Court of Civil Appeals sustained the respondent's point of error that she was entitled to her motion to dismiss the cause because the defendant died before a written judgment was entered, and accordingly reversed and remanded the cause with instructions to the trial court to dismiss the case from its docket because the trial court had not lost jurisdiction of the judgment at the time of the defendant's death. 430 S.W.2d 27, 29.
The validity of respondent's point of error sustained below first turns upon a characterization of the May 24, 1967, oral announcement from the bench. If this pronouncement was a final "decision" within the contemplation of Rule 164, Texas Rules of Civil Procedure, a party would not subsequently be entitled to a motion to dismiss or to take a nonsuit.
In Knox v. Long, 152 Tex. 291, 257 S.W.2d 289, 292 (1953), this Court set forth the rule regarding oral rendition of judgments.
"In Freeman on Judgments, 5th Ed., Vol. 1, Sec. 48, pp. 80 and 81, it is said that `the rendition of judgment is the pronouncement by the court of its conclusions and decision upon the matter submitted to it for adjudication' which `may be oral as well as written,' and that a judgment is `"rendered"' when the decision is officially announced either orally in open court or by memorandum filed with the clerk."
This rule giving validity to oral judgments from the bench is also recognized in Rule 306a, T.R.C.P., which provides in part that:
"Judges are directed to cause, and attorneys and clerks are directed to use their efforts to cause all judgments, decisions, and orders of any kind to be reduced to writing and signed by the trial judge and the date of signing stated therein; but absence of any such showing shall not invalidate any judgment or order."[1] [Emphasis added.]
The principle that an oral judgment by the court is valid is predicated upon the supporting principle that the entry of a trial judgment is only a ministerial act. Williams v. Wyrick, 151 Tex. 40, 245 S.W.2d 961 (1952); Bridgmen v. Moore, 143 Tex. 250, 183 S.W.2d 705 (1944); IV McDonald, Texas Civil Practice, § 17.05, p. 17 (1967 Supp.). Thus a written judgment signed by the trial judge is not a prerequisite *833 to the finality of a judgment. Texas State Board of Examiners in Optometry v. Lane, 337 S.W.2d 801, 804 (Tex.Civ. App.Ft. Worth 1960).
The respondent in this case also contends that the property rights of the parties were not fully determined in the May 24, 1967, announcement from the bench, and hence the court was only entering an interlocutory order. The validity of this contention depends upon an interpretation of the following portion of the court's pronouncement:
"If by January 1st, 1968, some disposition has not been made of it between the parties, I shall appoint a receiver to dispose of the property, that real estate, and after the expenses of receivership are over with, then we will divide the proceeds of that real estate fifty fifty."
It is this Court's opinion that this order was a final adjudication of the property rights of the parties in that each party to the divorce action was previously held to be entitled to a fifty percent interest in the realty in question. The court order only additionally provided for further proceedings after January 1, 1968, if the parties could not by that time agree on a disposition of the realty in order to divide the process equally. In Ferguson v. Ferguson, 161 Tex. 184, 338 S.W.2d 945, 947 (1960), this Court quoted the rule set forth in 3 Tex.Jur.2d Appeal and Error § 79, p. 345 (1959), characterizing as final such a judgment as we have before us:
"However, the finality of a judgment that settles the rights controverted by the parties is not affected by the fact that further proceedings may be required to carry it into full effect, even though such proceedings may be expressly provided for, if they are merely incidental to the proper execution of the judgment."
The May 24, 1967, oral judgment by the trial court is held to be a final judgment, dispositive of the issues before the court. After the announcement of this final judgment, the respondent was not subsequently entitled to dismiss the action, as such a dismissal would conflict with Rule 164, T.R.C.P.
The Court of Civil Appeals has also held in its opinion that when the defendant died, the cause "* * * became a moot question for litigation and there being no defendant in the case * * * the plaintiff who had prevailed in the trial was within her rights in asking the Court to dismiss the case." 430 S.W.2d 27, 28.
In Blain v. Broussard, 99 S.W.2d 993 (Tex.Civ.App.Beaumont 1936, no writ history), this instant situation was before the court. As stated before, in that case the Court of Civil Appeals held that an order by the trial court setting aside a divorce judgment because of the subsequent death of one of the parties was improper. The respondent and the Court of Civil Appeals rely upon Ledbetter v. Ledbetter, 229 S.W. 576 (Tex.Civ.App.Austin 1921, no writ history) for the contrary rule. In Ledbetter, supra, the appellant asked for a reversal and a remand; the appellee asked for a reversal and a dismissal because the cause had become moot. The Court of Civil Appeals agreed with the appellee, reversed the cause as moot because of the appellant's death pending appeal, and ordered its dismissal in the trial court. We find in neither of these cases a satisfactory enunciation of the law controlling upon a parties' death subsequent to the rendition of a divorce decree.
It is true that when a case becomes moot on appeal, all previous orders should be set aside by the appellate court and the case dismissed. Texas Foundries v. International Moulders & Foundry Workers *834 Union, 151 Tex. 239, 248 S.W.2d 460, 461 (1962). But this was not the case in the cause at bar: the property rights of the parties would be significantly affected depending upon whether the marriage was held to have been terminated by divorce decree or by death. The instant case, then, was not moot, and the Court of Civil Appeals was in error in ordering the trial court to grant a motion to dismiss the cause because of a litigant's death subsequent to the rendition of judgment.
In fact, since this cause was not moot, either the respondent or a representative for the deceased husband could have attacked the judgment for error under Rule 369a, T.R.C.P., which provides that an appeal can be perfected despite the death of a party after the rendition of judgment. This would be in keeping with the general rule in this and most jurisdictions in divorce cases that the death of a party to the divorce decree during the time allowed for appeal does not preclude an adjudication of the appeal's merits, if the decree affects property rights of the parties. Weaver v. Garrietty, 84 S.W.2d 878, 881 (Tex.Civ.App.Dallas 1935, err. ref.); Cf. Gunther v. Gunther, 301 S.W.2d 207 (Tex. Civ.App.Fort Worth 1957, dismd.); see also Bell v. Bell, 181 U.S. 175, 178-179, 21 S. Ct. 551, 45 L. Ed. 804 (1900); Matuszek v. Matuszek, 160 Pa.Super. 526, 52 A.2d 381, 382-383 (1947); 4 Am.Jur.2d Appeal and Error, Sec. 282; 148 A.L.R. 1119; 27A C.J.S. Divorce § 188a. This rule was applied in Gladney v. Gladney, 24 S.W.2d 96 (Tex.Civ.App.Texarkana 1929, no writ history), where the Court of Civil Appeals reversed the trial court because of a determination that the appellee, who had died after the judgment was rendered, had not met the statutory qualifications of residence necessary to maintain a suit for divorce.
But in this case, neither party ever attacked the judgment itself for error. In this event, there are no assignments of error as to the merits of the judgment brought forward for consideration by this Court.
In view of the conclusions of law reached above, the judgment of the Court of Civil Appeals is reversed, and that of the trial court affirmed.
NOTES
[1] Rule 306a, T.R.C.P., additionally provides that for the purpose of determining periods within which appellate steps must be taken, the date the written judgment is signed by the trial judge is controlling. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2459420/ | 516 S.W.2d 147 (1974)
Joe C. BURKETT, Appellant,
v.
The STATE of Texas, Appellee.
No. 48044.
Court of Criminal Appeals of Texas.
November 13, 1974.
Rehearing Denied December 18, 1974.
Malcolm Dade, Dallas, for appellant.
Henry Wade, Dist. Atty., and John E. Rapier, Asst. Dist. Atty., Dallas, Jim D. Vollers, State's Atty., Austin, for the State.
OPINION
ODOM, Judge.
Appellant was charged with selling an obscene magazine; the jury found him guilty of the offense charged and assessed *148 his punishment at a fine of $1,000 and confinement in jail for six months. The appellant does not challenge the sufficiency of the evidence to sustain the conviction.[1]
In his first ground of error, appellant claims that the trial court improperly limited his voir dire examination of the jury panel by refusing to permit him to propound the following question to the members of the panel: "Do you believe that it is morally wrong for an adult person to have magazines or books in their homes that show pictures depicting sexual intercourse and acts of oral sodomy."
The rule governing this ground of error was recently reaffirmed in Hernandez v. State, 508 S.W.2d 853 (Tex.Cr.App. 1974): "[T]he right to propound questions on voir dire, in order to intelligently exercise peremptory challenges, is of the greatest importance." Although we further stated in Hernandez v. State, supra, that a showing of injury is necessary when the right is restricted, citing Crowson v. State, 364 S.W.2d 698 (Tex.Cr.App.1963), if the question denied is sought in order to intelligently exercise peremptory challenges, the test for injury is not the same as that where the contention is that a trial judge erred in denying a challenge for cause. In the latter situation the cases are legion that no reversible error is shown unless injury resulted as demonstrated by the defendant having exhausted his peremptory challenges and one or more objectionable jurors having sat on the case. E.g. Ward v. State, 505 S.W.2d 832 (Tex.Cr.App.); Bell v. State, 137 Tex. Crim. 401, 129 S.W.2d 664. The rationable for permitting peremptory challenges dictates an entirely different showing of injury where the asking of a question is denied for the reason that the resulting injury is itself of an entirely different nature. The rationale was well stated in Mathis v. State, 167 Tex. Crim. 627, 322 S.W.2d 629, at 631:
"It has been long the holding of this court that the constitutional guarantee of the right to be represented by counsel (Bill of Rights, Art. 1, Sec. 10, Vernon's Ann.St.Const.) carries with it the right of counsel to interrogate the members of the jury panel to the end that he may form his own conclusion, after his personal contact with the juror, as to whether in counsel's judgment he would be acceptable to him or whether, on the other hand, he should exercise a peremptory challenge to keep him off the jury. Reich v. State, 94 Tex. Crim. 449, 251 S.W. 1072; Barnes v. State, Tex.Cr.App., 88 S.W. 805; Kerley v. State, 89 Tex. Cr.R. 199, 230 S.W. 163; Plair v. State, 102 Tex. Crim. 628, 279 S.W. 267; Pendergrass v. State, 121 Tex. Crim. 213, 48 S.W.2d 997; Belcher v. State, 96 Tex. Cr.R. 382, 383, 257 S.W. 1097; and Olliff v. State, 161 Tex. Crim. 336, 276 S.W.2d 839.
"In the Plair case, supra, it was held reversible error to refuse the request to interrogate the jurors individually as to their views concerning the suspendedsentence law and whether they objected to giving application thereof in a proper case.
"In the Pendergrass case, a liquor case, it was pointed out that the accused was entitled to inquire of the members of the jury panel whether they were prohibitionists.
"In the Reich and Belcher cases, supra, it was held reversible error to refuse to permit the accused to inquire of the jurors whether they were members of the Ku Klux Klan.
*149 "In the Olliff case, it was held that the state was authorized, over objection of the accused, to inquire for the purpose of exercising its peremptory challenges if the jurors or any member of their immediate family or any close friends were members of the religious society known as Jehovah's Witnesses.
"The holding in the cases cited and discussed is based upon the proposition that in order to intelligently exercise their peremptory challenges both the one accused of crime and the state have the right to reasonably examine the jurors to that end."
What, then, is the test for injury or not when the court denies the asking of a question sought to permit an intelligent exercise of the accused's peremptory challenges? We know from Livingston v. State, 152 Tex. Crim. 302, 214 S.W.2d 119, that injury must be shown, and that merely showing the question sought and that it was denied is not sufficient. Although Grizzell v. State, 164 Tex. Crim. 362, 298 S.W.2d 816, did not involve the denial of a question sought expressly for the exercise of a peremptory challenge, we find the test stated there to be appropriate for this situation, in light of the latitude[2] which should be accorded counsel in preparing himself to intelligently exercise his client's peremptory challenges. In Grizzell v. State, supra, on motion for rehearing, at 821, Judge Morrison, speaking for a unanimous court, gave guidance on the issue before us in the following manner.
After setting out the questions which the defendant had sought to ask, and then setting out the trial court's qualification of the bills of exception, which qualifications showed other questions which were asked, it was stated:
"As we view the questions [sought], they were no more than a restatement of what the court's qualification shows was actually asked.
"The trial court must be allowed some discretion in limiting the examination of prospective jurors or some trials would never terminate. We remain conviced that the appellant has failed to show that he has been deprived of any valuable right by the limitation herein assigned as error." Grizzell v. State, supra, at 822.
We are aware that in Cook v. State, 398 S.W.2d 284 (Tex.Cr.App.), it was stated:
"We are inclined to the belief that in cases of this kind appellant should make a showing in the record what the answer of any venireman would have been to the question propounded. Additionally, he should show that an objectionable juror served on the jury, or that he exhausted his peremptory challenges. Lehman v. State, 172 Tex. Crim. 626, 354 S.W.2d 586."
Lehman v. State, supra, in turn cites Williams v. State, 147 Tex. Crim. 178, 179 S.W.2d 297, which stated the rule for showing injury in such cases as requiring a showing:
"... that the accused was forced to accept an objectionable juror because of being caused to exercise a peremptory challenge to stand aside one who should have been challenged for cause."
The rule of Cook and Williams, then, is clearly addressed to questions sought to demonstrate that a prospective juror is subject to challenge for cause. It would be absurd to require a showing that the venireman is subject to challenge for cause as a predicate for error in denying inquiry for the intelligent exercise of peremptory challenges! Furthermore, as stated in Mathis v. State, supra, "it is immaterial how the jurors would have answered the question, for, whatever their answers, the appellant was entitled to know the answers *150 in order to enable him to exercise his peremptory challenges." The rule of Cook and Williams, therefore, should not be confused with that applied in Grizzell v. State, supra, and appropriate where a question is sought for the purpose of intelligently exercising peremptory challenges.
Applying the rule of Grizzell to the facts of the case before us, was appellant injured by the court's refusal to permit him to ask the question sought? The record before us shows only that portion of the voir dire of the jury panel in which the question is asked, objection made, and the asking of the question denied. The whole of the examination is not before us; so we are unable to ascertain whether the questions refused were anything more than a restatement of what was actually asked. We are therefore unable to ascertain whether the appellant was injured by the action of the trial court complained of The first ground of error is overruled.
In his second ground of error, appellant contends that the complaint and information failed to charge the commission of an offense in that it alleged that appellant did "sell" rather than "distribute" the matter in question.
Article 527, Sec. 3, Vernon's Ann.P.C., creates the following offense:
"Every person who knowingly:... prepares for distribution, publishes, prints, exhibits, distributes, or offers to distribute, ... any obscene matter is guilty of a misdemeanor."
Article 527, Sec. 1(E), V.A.P.C., reads:
"`Distribute' means to transfer possession of, whether with or without consideration."
The complaint and information, omitting the formal allegations, charged that appellant "did unlawfully and did knowingly sell to R.D. Rodgers an obscene magazine, to-wit:..." Clearly an offense was charged. Ground two is overruled.
In his final ground of error, appellant challenges the constitutionality of Article 527, V.A.P.C., contending that it does not specifically define the conduct, the depiction of which is prohibited.
In Miller v. California, 413, U.S. 15, 24, 93 S. Ct. 2607, 2614, 37 L. Ed. 2d 419, 430 (1973), the Court said:
"[W]e now confine the permissible scope of such [statutory] regulation to works which depict or describe sexual conduct. That conduct must be specifically defined by the applicable state law, as written or authoritatively construed." (Emphasis added.)
The judgment of this Court supported by the opinion in West v. State, 489 S.W.2d 597 (Tex.Cr.App.1972), was vacated by the Supreme Court for further consideration in the light of Miller v. California, supra, and the other series of cases handed down upon the same day. West v. Texas, 414 U.S. 961, 94 S. Ct. 268, 38 L. Ed. 2d 209 (1973).
Upon remand, we stated the authoritative construction of Article 527 in West v. State, 514 S.W.2d 433 (Tex.Cr.App.1974), and upheld the validity thereof. Ground three is overruled. West v. State, supra.
Finding no error in the proceedings, the judgment of the trial court is affirmed.
NOTES
[1] As this Court said in Hunt v. State, 475 S.W.2d 935, 936 (Tex.Cr.App.1972): "Not withstanding a jury verdict finding the magazines `obscene' under Art. 527, it is incumbent on this court to make its own independent judgment." Having reviewed the magazine upon which the prosecution is based, we agree with the verdict of the jury; the magazine is obscene in fact as well as in law. Buchanan v. State, 506 S.W.2d 236 (Tex.Cr. App.1974).
[2] We are talking of latitude, not of duration. See my concurring opinion in Hernandez v. State, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1591483/ | 389 F. Supp. 1379 (1975)
UNITED STATES of America, Plaintiff,
v.
GAF CORPORATION, Defendant.
Civ. A. No. 74-G-150.
United States District Court, S. D. Texas, Galveston Division.
February 5, 1975.
*1380 Robert Darden, Asst. U. S. Atty., and Richard Parker, Asst. U. S. Atty., Houston, Tex., for plaintiff.
F. Walter Conrad, Jr., Baker & Botts, Houston, Tex., for defendant.
MEMORANDUM OPINION
NOEL, District Judge.
A. PREFACE
This civil action was begun on September 6, 1974 when plaintiff United States of America applied to this Court for a temporary restraining order, and for temporary and permanent injunctive relief. The gist of plaintiff's complaint was that defendant GAF Corporation was in the process of drilling two deep wells for the subsurface disposal of organic chemical wastes by injection, without the approval of the Environmental Protection Agency. The extraordinary relief of a temporary restraining order was sought to prevent the drilling process from proceeding beyond the stage where geological samples of the substrata could be taken.
Upon request of the Court, all counsel promptly appeared for a conference in Chambers. By a telephone call to the drill site, counsel determined that appropriate core samples could be taken from the two wells. Thereupon, with the approval of the Court, the parties entered into a stipulation that no further drilling operations would be conducted at the site without the concurrence of plaintiff.[1]
With the case in this posture, numerous memoranda of agreement between the parties were entered into while discovery proceeded. The preservation of the status quo, achieved by the original stipulation and maintained by the memoranda of agreement, allowed the focus of the case to shift to plaintiff's request that the defendant be enjoined from using, as opposed to drilling, deep wells in contravention of the Federal Water Pollution Control Act (hereinafter called FWPCA), Chapter 26, 33 U.S.C. §§ 1251-1376.
*1381 The FWPCA was amended in 1972 (see P.L. 92-500, § 2 [Oct. 18, 1972]) so that it is now, for all practical purposes, an entirely new Act. The Congressional declaration of goals and policy which introduces the new FWPCA, § 1251(a), states that, "[t]he objective of [the FWPCA] is to restore and maintain the chemical, physical, and biological integrity of the Nation's waters." This far-reaching objective is matched by the comprehensive provisions enacted to achieve it which, as will appear, are in issue here.
On October 22, 1974, defendant moved to dismiss this action for lack of jurisdiction over the subject matter under Fed.R.Civ.P. 12(b)(1), and for failure to state a claim under Fed.R.Civ.P. 12(b)(6).[2] Controversies over discovery and other matters so occupied the attention of the Court and counsel, that attention to defendant's motion to dismiss was delayed. Plaintiff's response to the motion was not received until November 19, 1974. At a hearing on November 22, 1974, the Court requested additional briefing on the jurisdictional issue. On December 10, 1974, oral argument on defendant's motion was heard. On December 12, 1974, the Court requested comment from the parties on the relevance and impact of the recent case of Sierra Club v. Lynn, 502 F.2d 43 (5th Cir. 1974). On December 19, 1974 the Court orally announced its ruling that defendant's motion would be granted, and notified the parties that a full memorandum opinion would follow. This is that opinion.
B. THE STATUTORY SCHEME[3]
Plaintiff's original complaint alleged jurisdiction solely under § 1319(b). Plaintiff's memorandum filed simultaneously with the complaint alleged that jurisdiction would "obtain" on a variety of grounds, no one of which was adequately explained. In defendant's brief accompanying its motion to dismiss, defendant challenged plaintiff's jurisdictional allegations. Plaintiff's brief in response effectively abandoned all jurisdictional grounds other than § 1319(b). Subsequently, in the memoranda requested by the Court on November 22, 1974 and December 12, 1974 and during oral argument on December 10, 1974, plaintiff failed to assert any basis for this Court's jurisdiction except § 1319(b). Accordingly, either this Court must have jurisdiction under § 1319(b) or defendant's motion to dismiss must be granted.
33 U.S.C. § 1319(b) provides:
The Administrator [of the Environmental Protection Agency] is authorized to commence a civil action for appropriate relief . . . for any violation for which he is authorized to issue a compliance order under subsection (a) of this section. Any action under this subsection may be brought in the district court of the United *1382 States for the district in which the defendant is located or resides or is doing business, and such court shall have jurisdiction to restrain such violation and to require compliance. Notice of the commencement of such action shall be given immediately to the appropriate State.
In conferring jurisdiction on the district courts, the second sentence of subsection (b) refers and applies only to a civil action embraced in the first sentence of subsection (b), which in turn refers only to a violation for which the Administrator is authorized to issue a compliance order pursuant to § 1319(a).
Subsection (a) of § 1319 authorizes in each of three separate paragraphs the issuance of a compliance order or the commencement of a civil action for appropriate relief for any violation pursuant to subsection (b). The first two of these paragraphs, §§ 1319(a)(1) and (2), concern ineffective enforcement by a State of limitations and conditions implementing certain sections of the FWPCA in discharge permits issued under State permit programs approved pursuant to § 1342. Neither of these paragraphs applies to the instant case.
Section 1319(a)(3) is the only provision which is relevant to this case. It provides:
Whenever . . . the Administrator finds that any person is in violation of section 1311, 1312, 1316, 1317, or 1318 of this title, or is in violation of any permit condition or limitation implementing any of such sections in a permit issued under section 1342 of this title . . ., he shall issue an order requiring such person to comply with such section or requirement, or he [the Administrator] shall bring a civil action in accordance with subsection (b) of this section. (emphasis added).
Plaintiff has not complained of a violation of "any permit condition or limitation" by defendant. Indeed, there is no allegation that the Administrator has found such a violation by defendant. This Court's jurisdiction depends, therefore, on whether the Administrator could have found that the defendant is "in violation of section 1311, 1312, 1316, 1317, or 1318" of Title 33.
Section 1311 contains six subsections, the first of which provides:
(a) Except as in compliance with this section and sections 1312, 1316, 1317, 1328, 1342, and 1344 of this title, the discharge of any pollutant by any person shall be unlawful.
Subsection 1311(a) expands the list of potentially relevant sections so that it includes, with § 1311(a), the following: §§ 1311(b)-(f), 1312, 1316, 1317, 1318, 1328, 1342, and 1344.
Subsections 1311(b)-(e) concern the establishment by the Administrator of certain effluent limitations. Subsection 1311(f) bans the discharge of radiological, chemical, and biological warfare agents and high-level radioactive waste. Section 1312 concerns the establishment by the Administrator of certain water quality related effluent limitations. Section 1316 concerns the establishment by the Administrator of certain standards of performance. Section 1317 concerns the establishment by the Administrator of certain effluent standards. Section 1318 concerns inspection, monitoring, and entry by the Administrator. Section 1328 concerns the approval by the Administrator of aquaculture projects. Section 1342 concerns the issuance by the Administrator or by the States of pollution discharge permits. Section 1344 concerns the issuance by the Secretary of the Army of permits for dredged or fill material.
Plaintiff has not alleged that defendant is or could be in violation within the meaning of § 1319(a)(3), of any section of the FWPCA mentioned in the preceding paragraph. Nor does plaintiff claim that defendant has failed to comply with any of them within the meaning of § 1311(a). Plaintiff contends, rather, that the proposed discharge of defendant's *1383 pollutants[4] will be a violation of § 1311(a) per se.
There are two independent reasons, each of them entirely sufficient, why defendant could not be in violation of § 1311(a) when the chemical wastes in question are disposed of by injection into the two deep wells. These reasons will be discussed separately.
C. NO "DISCHARGE OF A POLLUTANT"
The disposal of chemical wastes into underground waters[5] which have not been alleged to flow into or otherwise affect surface waters does not constitute a "discharge of a pollutant" within the meaning of § 1311(a).
Section 1362(12) defines "discharge of a pollutant" to mean, for our purposes, "any addition of any pollutant to navigable waters from any point source." The expression "navigable waters" is defined in § 1362(7) to mean "the waters of the United States, including the territorial seas." This definition effectively excludes from consideration any concept of navigability, in law or in fact. United States v. Holland, 373 F. Supp. 665 (M.D.Fla.1974); United States v. Ashland Oil & Transp. Co., 364 F. Supp. 349, 351 (W.D.Ken.1973), aff'd, 504 F.2d 1317 (6th Cir. 1974). Thus, it is clear that this statute is intended to have broad applicability. The question before the Court is whether, in its breadth, the FWPCA applies to subsurface wells. The legislative history shows conclusively that it does not.[6]
In speaking to this issue, Senate Report No. 92-414 on the bill which became the FWPCA states:
Several bills pending before the Committee provided authority to establish Federally approved standards for groundwaters which permeate rock, soil, and other subsurface formations. Because the jurisdiction regarding groundwaters is so complex and varied from State to State, the Committee did not adopt this recommendation.
U.S.Code Cong. & Admin.News (1972) p. 3739. This statement reflects the present regulation of subsurface discharges by state agencies such as the Texas Water Quality Board, from which defendant has secured a permit to engage in the disposal here challenged.
This unequivocal recital in the Senate Report that the regulation of subsurface discharges is not within the enforcement purview of the Act was confirmed when an amendment was proposed during floor debate on the House bill, H.R. 11896, which preceded the FWPCA. The amendment in question was introduced by Congressman Aspin who proposed to fill in the void created by the lack of enforcement power over ground waters. 118 Cong.Rec. 10,666 (1972). The amendment was, however, rejected on March 28, 1972 by a vote of *1384 86 to 34. 118 Cong.Rec. 10,669 (1972).[7] The failure of the proposed amendment "strongly militates against a judgment that Congress intended a result that it expressly declined to enact." Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186 95 S. Ct. 392, 42 L. Ed. 2d 378 (1974). This Court has neither the authority nor the inclination to act where the Congress has conferred no jurisdiction.
Plaintiff has invited the Court to follow several indirect routes to arrive at a conclusion contrary to that to which the straight path of legislative history leads. Plaintiff points particularly to the following two provisions of the FWPCA:
1) 33 U.S.C. § 1362(14) which defines the term "point source" to mean "any discernible, confined and discrete conveyance, including but not limited to any . . . well. . . ." (emphasis added).
2) 33 U.S.C. § 1362(6) which excludes from the definition of the term "pollutant" certain injection discharges made in connection with the production of oil and gas.
These two provisions are the bases of arguments by plaintiff which are similar in form. Plaintiff contends that the inclusion of wells in the definition of a point source is unnecessary if this Court's conclusion stated above is correct. Plaintiff also contends that the exclusion of oil and gas injection discharges from the definition of pollutants is similarly unnecessary if this Court is right.
These contentions cannot be accepted. Plaintiff calls upon the Court to rely upon speculation as to what Congress might have meant when the legislative history is boldly conclusive as to what Congress must have meant. The Court notes that the definitional section of the FWPCA, in which the two provisions referred to above are found, applies to all of Chapter 26 of Title 33 (i. e., to the entire FWPCA) and not just to the Act's third subchapter, which concerns standards and enforcement. It is at least plausible that Congress intended to include within the scope of research under Subchapter I of the Act (33 U.S.C. §§ 1251-65) and of the permit programs, especially those of the States,[8] under Subchapter IV (33 U.S.C. §§ 1341-45) that which was excluded from the enforcement provisions of Subchapter III (33 U.S.C. §§ 1311-28).
Plaintiff makes one final attempt to build a jurisdictional back-door for itself. Section 1342(a)(3) provides:
The permit program of the Administrator under paragraph (1) of this subsection, and permits issued thereunder, shall be subject to the same terms, conditions, and requirements as apply to a State permit program and permits issued thereunder under subsection (b) of this section.
Plaintiff asks this Court to apply this paragraph in the light of that part of § 1342(b) which reads:
. . . The Administrator shall approve each [proposed State] program unless he determines that adequate authority does not exist:
(1) To issue permits which
. . . . . .
(D) control the disposal of pollutants into wells.[9]
From these provisions in the FWPCA, plaintiff would have the Court conclude that the authority to control disposal wells is a necessary condition of the federal National Pollution Discharge Elimination System (NPDES) permit program. Once more plaintiff seeks to counter with speculation the irrebuttable *1385 language and unambiguous action found in the legislative history. Suffice it to say that Congress could not possibly have meant to achieve in roundabout fashion what it expressly declined to accomplish straightforwardly.
Therefore, defendant does not threaten to discharge a pollutant within the meaning of § 1311(a). Defendant's motion to dismiss must accordingly be granted. As noted above, there is an alternative ground to support the Court's decision to dismiss.
D. NO "VIOLATION"
Even if defendant's proposed injection disposal would constitute a "discharge of a pollutant" within the meaning of § 1311(a), defendant will not be "in violation of" any applicable provision within the meaning of § 1319(a)(3). This is a second reason, independent of that already described and sufficient by itself, why this complaint must be dismissed for lack of subject matter jurisdiction.
The conclusions reached in Part B, supra, bear repeating here. Jurisdiction of civil actions brought by the government to enforce the FWPCA is conferred on the district courts in § 1319(b). That subsection refers to § 1319(a), paragraph (3) of which is relevant to this case. Section 1319(a)(3) allows for civil actions whenever the Administrator finds a violation of §§ 1311, 1312, 1316, 1317, or 1318, or of a § 1342 permit condition.
Subsection 1311(a), which is fully set out above, is the crucial provision from the point of view of plaintiff. Plaintiff earnestly contends that any discharge of a pollutant, regardless of its nature, extent or effect, is absolutely forbidden until a permit for the same is acquired.[10] Plaintiff interprets the "[e]xcept as in compliance with" language of § 1311(a) to create a burden on every person and enterprise in the country to affirmatively comply with one of the enumerated sections before discharging any pollutant.
While not absurd on its face, this interpretation of the statute must be examined in light of the fact that the effluent limitations under § 1312[11] which might be applicable to defendant's organic *1386 chemical wastes have not as yet been established. Nor has defendant's application for a permit under § 1342 been acted upon.
Plaintiff's proposed construction of § 1311(a) leads to an intolerable outcome. For all practical purposes, plaintiff maintains that the present failure of the Administrator to establish effluent limitations means that defendant cannot discharge any waste at all. Plaintiff's answer to defendant's dilemma is that a permit should be obtained under § 1342. While defendant's permit application is pending, plaintiff contends, no discharge at all is permissible. The absence of any indication in the language of the FWPCA that this drastic consequence of the Administrator's inaction is proper, convinces this Court that a more reasonable conclusion was intended. The general tone of the legislative history (which is curiously incomplete on this score) affirms this conviction. Cf. U.S. Code Cong. & Admin.News (1972) pp. 3668-3834; Congressional Record, Vol. 118, for March 28, 1972.
Much more consistent with the statutory scheme is the conclusion that § 1311(a), as well as § 1319(a)(3), require the government to demonstrate that a defendant has actually failed to comply with one of the relevant provisions of the FWPCA. After effluent limitations applicable to defendant are established, defendant must honor them as the law. Otherwise, defendant would not be "in compliance" with the section under which the effluent limitations were issued.
As the Court in Comm. for Consideration of Jones Falls Sewage Sys. v. Train, 375 F. Supp. 1148 (D.Md.1974) pointed out in applying § 1318, a statute which directs the Administrator to do something cannot, strictly speaking, be violated by anyone but the Administrator. It is only when the Administrator establishes effluent limitations under § 1312 that it becomes possible to violate the limitations and, with them, the section under which they were issued. For the time being, the Administrator's failure to establish effluent limitations denies defendant the opportunity to comply with them within the meaning of § 1311(a).
Plaintiff's proffered interpretation of the statute flies in the face of § 1319(a)(3), which allows civil actions to arrest violations either of § 1312 and other sections, or of a permit condition or limitation. This is consistent with § 1342(k), which specifies that a permit relieves its holder from suit under section 1312. But under plaintiff's theory, one without a permit cannot discharge at all, regardless of compliance with § 1312. If this were the intended result, why did Congress provide for civil actions to prevent violations of § 1312? If plaintiff is correct, compliance vel non with § 1312 is irrelevant to one without a permit because of § 1311(a) and is irrelevant to one with a permit because of § 1342(k).
The answer must be that compliance with § 1312 is relevant; that defendant can either,
(1) avoid a violation of § 1312 by never contravening the effluent limitations to be established thereunder by the Administrator of the Environmental Protection Agency, or
(2) comply with the conditions and limitations contained in a § 1342 permit.[12]
To date defendant has succeeded in accomplishing (1) above by virtue of the Administrator's failure to carry out the duty imposed upon him by § 1312 to establish effluent limitations.
This interpretation of the statute finds support in the opinion in Natural Resources Defense Council v. Train, 510 F.2d 692 at 706 (D.C.Cir.1974), where *1387 a comprehensive statement of the statutory scheme was undertaken. In that case, the Court apparently viewed the various limitations and guidelines of § 1312 and other similar provisions as means of insuring uniformity among various permit authorities. NRDC v. Train, supra, 510 F.2d at 707. This limited interpretation of the role of effluent limitations in the enforcement of the FWPCA does not seem consistent with the statutory scheme and was, in any event, so declared by dictum.
The portion of the opinion in NRDC v. Train which is highly relevant here is found at 707. Plaintiff has stressed the declaration by that Court that, "[a]fter December 31, 1974 . . . persons discharging pollutants must have obtained a permit in order to have a legal defense against prosecution."[13] On its face, this statement supports plaintiff's interpretation of the statute. But this statement was followed immediately by this observation:
Obviously, Congress contemplated that the task of evaluating permit applications and issuing permits would be completed by that date.
The Court in NRDC v. Train was not called upon to note what this Court must that Congress also contemplated the timely establishment of effluent limitations. The tardiness of the Administrator in carrying out his duties under § 1314 which is well documented in NRDC v. Train has apparently extended to the Administrator's duties under the other statutory sections, including § 1312. The failure of the Administrator has the effect of allowing, for the time being, the defendant to discharge the wastes in question without the effective federal[14] regulation Congress sought to achieve with the FWPCA.
Plaintiff has sought to avoid the legal consequences of the Administrator's dalliance by proposing the per se interpretation of § 1311(a) described above. The second alternative ground for this Court's decision that plaintiff has shown no "violation" within the meaning of § 1319(a)(3) does not weaken the FWPCA one iota. All that this decision denies to the Administrator of the Environmental Protection Agency is the freedom to restructure the FWPCA to cover what would appear to be his procrastination.
E. SUMMARY
As noted above, defendant's motion to dismiss alleged both a lack of subject matter jurisdiction, Fed.R.Civ.P. 12(b)(1), and a failure to state a claim upon which relief could be granted, Fed.R.Civ.P. 12(b)(6). The substantive implications of the decision this Court was required to make draw attention to the principle that a "narrow, cramped" reading of water pollution legislation is inappropriate. United States v. Pennsylvania Chem. Corp., 411 U.S. 655, 670, 93 S. Ct. 1804, 36 L. Ed. 2d 567 (1973). However, the Court notes that the jurisdictional implications of the decision reached here call for deference to a policy which applies in pollution cases as well as in others; that "[f]ederal jurisdictional statutes are to be strictly, not expansively, construed." United States v. Armco Steel Corp., 333 F. Supp. 1073, 1079 (S.D.Tex.1971). On balance, it has not been necessary to weight the scales in favor of either party to this action. The intent of the Congress has been *1388 clear enough that guesswork has been left behind.
Accordingly, defendant's motion to dismiss must be granted because defendant does not threaten either to discharge a pollutant under § 1311(a) or to commit a violation under § 1319(a)(3).
The Clerk shall file this Memorandum Opinion and send a copy to all counsel.
NOTES
[1] Due to the urgency of the matter, the Court's approval of the stipulation between the parties was expressed without consideration of the jurisdictional issues discussed in the text, infra, and perforce did not manifest any conclusion whatsoever on those issues.
[2] The interweaving of the jurisdictional provisions of the FWPCA with the substantive portions of subchapter III of the Act, 33 U. S.C. §§ 1311-28, has the effect of equating, at least in this case, a failure to state a claim with a lack of subject matter jurisdiction. This merger of two distinct grounds for dismissal under Fed.R.Civ.P. 12(b) is not unique to the FWPCA. See this Court's opinion in Harkless v. Sweeny Independent School Dist., 388 F. Supp. 738 (S.D. Tex.1975). The immediate dependency of subject matter jurisdiction upon the validity of the claim was achieved in that part of § 1319(a)(3) which states that a civil action is allowed "[w]henever . . . the Administrator finds that any person is in violation" of several enumerated sections of the FWPCA. This language, by virtue of § 1319(b) see discussion in text, infra makes the ability of the Administrator to find a violation under the given facts crucial to the jurisdiction of the district courts. The inability of the Administrator to find a violation under the statute has two consequences: (a) the claim presented is invalid, and (b) there is no subject matter jurisdiction.
[3] Consideration of the entire framework within which any particular statutory provision appears is always a wise step. This is particularly true when a new Act is confronted. Cf. Ethyl Corp. v. Environmental Protection Agency, No. 73-2205 (D.C.Cir. Jan. 28, 1975) [interpreting section 211(c) (1)(A) of the Clean Air Act, 42 U.S.C. § 1857f-6c(c)(1)(A)].
[4] There is no dispute that the material defendant proposes to dispose of by injection into the wells in question constitutes a pollutant within the meaning of the FWPCA. The term "pollutant" is defined in § 1362(6) to mean, inter alia, "chemical wastes".
[5] The text refers to the subsurface material into which defendant proposes to inject the organic chemical wastes at issue as underground waters. In fact, no presentation has been made to the Court on the nature of the strata into which the wells in question exit. At oral argument on defendant's motion to dismiss, the Court explicitly asked both parties if an evidentiary hearing was necessary to supplement the pleadings as to any factual matters. Each party declared that no relevant evidence was missing and thus no evidence was received on this score.
[6] Sierra Club v. Lynn, 502 F.2d 43 (5th Cir. 1974) is not to the contrary. In response to a request by the Court for comment on the applicability of the Lynn case to the instant controversy, both plaintiff and defendant agreed that the case was not directly relevant. The Court notes that the subsurface strata allegedly jeopardized in Lynn contained the water supply for the San Antonio, Texas metropolitan area. Lynn, supra, 502 F.2d at 48. Thus, the facts alleged in this case are not remotely similar in this crucial aspect to those in Lynn.
[7] Reference to the floor debate cited in the text reveals the stress placed by the House members on the existing state regulation of pollution of underground waters.
[8] See text accompanying note 9, infra.
[9] The provision quoted in the text is an excellent example of the point made in the text accompanying note 8, supra. If Congress had not included injection wells within the definitions in § 1362, the criteria for state programs to be approved would arguably not have included regulation of such wells.
[10] Plaintiff's interpretation was perhaps inspired by the opinions in United States v. Pennsylvania Chem. Corp., 411 U.S. 655, 93 S. Ct. 1804, 36 L. Ed. 2d 567 (1973) and United States v. Holland, 373 F. Supp. 665 (M. D.Fla.1974).
In the Pennsylvania Chem. case, the Supreme Court held that the failure of the Secretary of the Army to promulgate a formal regulatory-permit program was no bar to the prosecution of a discharger of industrial refuse under § 13 of the Rivers and Harbors Act of 1899, 33 U.S.C. § 407. The absence of a permit program made it impossible for the defendant in that case to secure a permit and to avoid prosecution thereby. Consequently, the discharge without a permit was a per se violation. But Pennsylvania Chem. interpreted a different statute from the one now before this Court. Section 407 of Title 33 contains significantly different language which supports the per se interpretation.
In the Holland case, the very able District Judge considered at length the proper interpretation under the FWPCA of "navigable waters" but gave no consideration at all to the issue this Court now confronts. The assumption in Holland that § 1311(a) renders all non-permitted discharges unlawful without regard to the rest of the FWPCA was apparently not challenged. It should be noted that Holland, like Pennsylvania Chem., grew out of a complaint under § 407. See 373 F.Supp. at 667, 676.
[11] Section 1312 is cited in the text as the statutory authority for the establishment of water quality related effluent limitations. As indicated in Part B in the text, supra, various other provisions of the FWPCA authorize the establishment of different limitations and standards. Cf. §§ 1311(b)-(e), 1316, and 1317. The parties have not addressed the question of the proper source or sources in the statute for regulation of defendant's discharges. Under the circumstances, the Court does not feel called upon to speculate on this question. So far as the pleadings show, none of the potentially applicable limitations or standards have been established. Section 1312 will be cited in the text as proxy for all the relevant sections. Similarly, effluent limitations will be used in the text as a shorthand reference to all the limitations and standards which may be established.
[12] The Court of Appeals for this Circuit apparently acknowledged the validity of this conclusion in Sierra Club v. Lynn, supra 502 F.2d at 63, where it was said: "The Act provides for federal and state enforcement of effluent limitations to be prescribed and of a discharge permit system."
[13] The December 31, 1974 date in the quoted statement is drawn from § 1342(k) which provides a temporary immunity to permit applicants. "Where an NPDES [National Pollution Discharge Elimination System] permit has been applied for but no final administrative disposition has been made, subsection 402(k) [§ 1342(k)] provides that, until December 31, 1974, the discharge in question shall not be a violation of either the amended FWPCA or the Refuse Act [33 U.S.C. § 407 et seq.] . . .." United States v. Rohm & Haas Co., 500 F.2d 167, 170 (5th Cir. 1974), petition for cert. docketed, 43 U.S.L.W. 3331 (U.S.Nov. 27, 1974).
[14] As noted in the text at p. 1383, defendant's injection disposal wells are regulated by the Texas Water Quality Board. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2230447/ | 702 N.W.2d 577 (2005)
OCWEN FEDERAL BANK, FSB
v.
INTERNATIONAL CHRISTIAN MUSIC MINISTRY, INC.
No. 127171.
Supreme Court of Michigan.
August 30, 2005.
SC: 127171, COA: 249081.
On order of the Court, the motion for reconsideration of this Court's order of June 2, 2005 is considered, and it is DENIED, because it does not appear that the order was entered erroneously. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1914071/ | 981 A.2d 916 (2009)
COM.
v.
DOXZON.
No. 3146 EDA 2007.
Superior Court of Pennsylvania.
July 20, 2009.
Remanded. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1566490/ | 592 S.W.2d 665 (1979)
Antoinette Maida LETSOS, Independent Executrix of the Estate of Lena Maida, Deceased, Appellant,
v.
H. S. H., INC., et al., Appellees.
No. 6052.
Court of Civil Appeals of Texas, Waco.
December 20, 1979.
Rehearing Denied January 10, 1980.
*666 Wayne H. Paris, Lykos & Bergner, Houston, for appellant.
John A. Croom, Neal D. Cannon, Jr., Houston, for appellees.
OPINION
JAMES, Justice.
This is an appeal from a case involving an alleged fraudulent conveyance. Plaintiff-Appellant Antoinette Maida Letsos, Independent Executrix of the Estate of Lena Maida, Deceased, alleged that Defendant-Appellee Salvadore J. Maida had conveyed property to Defendant-Appellees H. S. H., Inc. and Robert L. Terry III, that such *667 transfer was made to hinder, delay, and defraud Maida's creditors, that the transfer was not supported by fair consideration, and that the conveyance should be set aside under Arts. 24.02 and 24.03 of the Texas Business and Commerce Code.
This case factually originated in 1963 when Appellee Maida purchased all the common stock in an entity known as Houston Shoe Hospital, Inc. from his mother, Lena Maida, for a $150,000.00 promissory note. The note was secured by the said common stock. In 1969, Appellee Maida defaulted in the payments under the note, and subsequently the guardian of Lena Maida, and upon her death, the executrix of her estate, Antoinette Maida Letsos, Appellant, brought suit on the note. In July, 1973, Appellee Maida entered into an Agreed Judgment with Appellant Letsos, wherein it was ordered that the Estate of Lena Maida recover from Appellee Maida the sum of $94,500.15 plus certain specified interest and that the lien on all the stock of Houston Shoe Hospital, Inc. before closed. Up until 1970, the Houston Shoe Hospital, Inc. had maintained its corporate status and Maida, the sole stockholder, had operated the business. In 1970, the entity forfeited its corporate status by reason of its failure to pay its franchise taxes. Appellee Maida continued to operate the business as a sole proprietorship, using the equipment and other assets of the corporation. In March or April of 1974 Appellee Robert Terry and his brother Stan Terry formed the corporate Appellee, H.S.H., Inc. In September of 1974 Appellee Maida conveyed all the assets of the Houston Shoe Hospital, including the trade name, to H.S.H., Inc. in return for a promissory note in the principal amount of $7,800.00. After the conveyance Maida was retained as an employee of H.S.H., Inc., his principal duties being the supervision of the actual shoe repair operation. At the time of the conveyance Maida was hopelessly in debt. In addition to some $11,896.43 in liens against the business machinery and equipment, Maida owed a substantial amount of back taxes (in the approximate total amount of $35,000.00) to the Federal and State governments. He had also incurred other substantial personal debts to individuals and businesses. Although H.S.H., Inc. did not assume the debts and obligations of Maida, as consideration for the property transferred, H.S.H. took the property subject to the liens outstanding and (H.S.H.) subsequently paid off many of Maida's obligations, including the taxes owed by him. H.S.H., Inc. did not, however, make any payments on the $7,800 note directly to Appellee Maida, since the Appellees, including Maida, later agreed that the payment of Maida's creditors would satisfy the terms of the note. H.S.H., Inc. did not ever attempt to satisfy any indebtedness resulting from the 1973 judgment in favor of the Estate of Lena Maida. In January of 1976, Appellant Letsos, Independent Executrix of the Estate of Lena Maida, filed this suit alleging that the conveyance to H.S.H., Inc. was made in fraud of the Estate's rights in the property of Salvadore Maida, and that the conveyance was in violation of Arts. 24.02 and 24.03 of the Texas Business and Commerce Code. Trial was to a jury which rendered its decisions on special issues, finding that the transfer of September 2, 1974: 1) did not lack fair consideration, and 2) was not intended to delay or hinder Appellant from obtaining that to which she was entitled, and 3) was not intended to defraud Appellant from obtaining that to which she was entitled. Judgment was rendered on the verdict that the Appellant take nothing.
The trial court placed the burden of proof upon Plaintiff-Appellant Letsos in the submission of all five of the special issues submitted to the jury, and the record does not show that Plaintiff-Appellant made any objection or exception to such placing of the burden of proof in any of such special issues.
Strictly speaking, the jury's answers to such special issues amounted to the following findings, or rather, failures to find, to wit:
(1) In answer to Special Issue No. 1, the jury failed to find that the property transfer in question lacked fair consideration.
*668 (2) In Answer to Special Issue No. 2, the jury failed to find that the said property transfer was intended to delay or hinder the Plaintiff from obtaining that to which she was entitled.
(3) There was no answer to Special Issue No. 3, and none necessary, since it was conditionally submitted upon an affirmative answer to Special Issue No. 2.
(4) In answer to Special Issue No. 4, the jury failed to find that the property transfer in question was intended to defraud Plaintiff as a creditor of Maida, from obtaining that to which she was entitled.
(5) There was no answer to Special Issue No. 5, and none necessary, since it was conditionally submitted upon an affirmative answer to Special Issue No. 4.
Appellant in points of error numbers one and three asserts that the evidence is legally and factually insufficient to sustain the jury's finding that the conveyance "was made for fair consideration." In arguing these points, Appellant asserts that the Defendant-Appellees had the burden of proving that the conveyance was made for fair consideration. Appellant then argues that Appellees failed to meet their burden in that 1) Appellees failed to adduce any evidence of the market value of the property transferred or 2) that the evidence adduced by Appellees relevant to market value was factually insufficient to support the jury's finding. Both of these assertions are predicated on Appellant's primary contention that the Appellees had the burden of proof. The jury finding complained of was in response to Issue No. 1 which was submitted as follows:
"Do you find from a preponderance of the evidence that the reasonable value of the property transferred from Defendant, Maida, to Defendant, H.S.H., Inc., on September 2, 1974, was not made for fair consideration?
"In connection with this Special Issue, you are instructed that fair consideration is defined as that which is equal or reasonably proportioned to the value of that for which it is given on the date of the transfer.
"Answer: `It was not made for fair consideration' or `It was made for fair consideration.'"
The answer of the jury was "It was made for fair consideration." It is clear from the way this issue is worded that the burden of proof was placed on the Plaintiff-Appellant to show that the conveyance lacked fair consideration. The Appellant made no objection or exception to the framing of this issue in the trial court. She has therefore waived her right to appeal claiming that the burden of proof was improperly placed. Rules 272, 274, Texas Rules of Civil Procedure; Southwestern Hotel Co. v. Rogers (El Paso Tex.Civ.App.1944) 183 S.W.2d 751, affirmed 143 Tex. 343, 184 S.W.2d 835; Cartwright v. Minton (Eastland Tex.Civ.App. 1958) 318 S.W.2d 449, NRE. We cannot now for the first time on appeal consider Appellant's contention that the Defendant-Appellees should have had the burden of proof on this issue.
We hold that the evidence does not conclusively establish that there was a lack of fair consideration, and we further hold that the answer of the jury to Special Issue No. 1 is not so against the great weight and preponderance of the evidence as to be manifestly wrong and unjust under the doctrine of In re King's Estate (1951) 150 Tex. 662, 244 S.W.2d 660.
Appellant also contends that the jury's finding in response to Issue No. 1 was prejudiced as a result of the trial court's improper exclusion of evidence. Appellant first tried to establish the market value of the property transferred by introducing into evidence the tax renditions of the subject property submitted by Maida's bookkeeper to the Houston/H.I.S.D. tax assessor in November of 1973. The court admitted this evidence but, in so doing, instructed the jury as follows:
"Plaintiff's Exhibit No. 6 is being admitted by the Court as being binding on the defendant Salvadore Maida and as representing the valuations of the property placed on said property in 1973, I believe it is, by him through his agent York. *669 These figures and valuations that are expressed by Plaintiff's 6 are not binding on the other two defendants H.S.H., Inc. and Stanley Terry."
Appellant argues that the renditions should have been received as "an admission of a party, and/or as a circumstance tending to show the market value of the property," citing Silberstein v. State (Austin Tex.Civ. App.1975) 522 S.W.2d 562, no writ. Appellant suggests that this instruction improperly precluded any consideration of the renditions as affirmative evidence of the market value of the property transferred. We disagree. The trial court's statement of limitation was correct. The tax renditions were hearsay evidence when offered to prove the truth of the evaluations asserted by them. They could, however, be received into evidence under an exception to the hearsay rule, i. e. as an admission of a party, to wit, Salvadore Maida. But admissions of one party to a lawsuit are not admissible against other parties. See McCormick and Ray, Texas Law of Evidence, Sec. 1161 and cases cited therein. It is true that an admission is not only admissible for impeachment purposes but may also be received as affirmative evidence of a material fact. Taylor v. Owen (San Antonio Tex.Civ.App.1956) 290 S.W.2d 771, NRE; In re Marsh (Amarillo Tex.Civ.App. 1961) 344 S.W.2d 251, NRE. The court's instruction expressly stated that the renditions were received as evidence "representing the valuations of the property placed on said property in 1973." The instruction properly, however, noted that the renditions were not admissions of H.S.H., Inc. or Robert Terry.
Appellant also attempted to introduce into evidence the 1973 Harris County property valuation forms, but the trial court properly ruled these inadmissible. These valuations were placed on the property by the tax assessor-collector; they were not sworn to or signed by Maida nor were they signed by his agent. Thus, the valuations could not be construed to be admissions of Maida, who was a total stranger to the statements of value contained in the forms. McLane v. Paschal, 74 Tex. 20, 11 S.W. 837; Jackson v. Goldberg (San Antonio Tex.Civ.App.1926) 283 S.W. 860, no writ; City of Houston v. Priester (Galveston Tex.Civ.App.1957) 302 S.W.2d 948, no writ.
Appellant's last complaint regarding the exclusion of evidence related to Issue No. 1 involves an attempt to establish the value of the property by introducing income tax records prepared for the Houston Shoe Hospital, Inc. in 1972. These records contained information about the cost basis of the transferred property. The trial court properly ruled these records inadmissible as hearsay. Appellant attempted to introduce these records through the testimony of a Mr. Petrov, a Houston CPA, who had prepared the records. There was no testimony that these forms were ever filed, signed, or approved by Mr. Maida, so they would not qualify under an admission exception. McLane v. Paschal; Jackson v. Goldberg; City of Houston v. Priester; all cited supra. Appellant attempted to introduce the records under the business records exception, Art. 3737e, V.A.C.S., but failed to meet the requirements of that exception. Art. 3737e renders such records admissible if:
* * * * * *
"(b) It was the regular course of that business for an employee or representative of such business with personal knowledge of such act, event or condition to make such memorandum or record or to transmit information thereof to be included in such memorandum or record";
* * * * * *
Mr. Petrov testified that these tax records were prepared by him based on information provided by Mr. York, Maida's bookkeeper. Mr. Petrov had no personal knowledge of the facts which formed the basis of the tax statement, and Mr. York was not an employee of Mr. Petrov's firm. Skillern & Sons, Inc. v. Rosen, 359 S.W.2d 298, 305. (Tex.1962).
We agree with the above evidentiary rulings of the trial court and therefore overrule *670 Appellant's points number five, six, and seven.
Appellant's last two points of error relate to the jury's failure to find that the conveyance of property in question was intended to hinder, delay, or defraud the Appellant creditor. Appellant contends that fraudulent intent was proved as a matter of law in this case, there being no evidence to rebut Appellant's evidence; or, in the alternative, the Appellant argues that the jury's adverse answer was clearly against the great weight and preponderance of the evidence. We cannot agree with either of these two points. The testimony was clear that Mr. Maida was a truly harried person, hopelessly in debt. He had lost money consistently since taking over the business in 1963. He testified that his business was in a terrible mess and he simply wanted to get out from under it. He testified that he sought no personal gain other than relief from the day to day pressures of a failing business. Maida testified that he had an agreement at the time of the transfer that the Terrys would pay off his tax indebtedness. Further, the Terrys did subsequently pay off the tax indebtedness and paid other creditors as well. Maida accepted these payments to creditors in satisfaction of the $7800.00 note due him.
The question of whether a conveyance is made with the intent to delay, hinder or defraud creditors is ordinarily a question of fact for a jury, unless the fraud is admitted, or unless the fraudulent intent is apparent on the face of the instrument of conveyance, or unless there is some interest reserved in the property that is inconsistent with the conveyance alleged. Quinn v. Dupree, (Tex.1957) 157 Tex. 441, 303 S.W.2d 769. In our opinion the evidence in this case presented a fact issue for the jury and the evidence was factually sufficient to support the jury's answer. For similar facts, see Williams & Chastain v. Laird (Waco CA 1930) 32 S.W.2d 502, writ refused.
Having carefully considered all of Appellant's points of error, and having found no error in the record, we affirm the judgment of the trial court.
AFFIRMED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1673044/ | 293 S.W.2d 488 (1956)
WHITSON COMPANY, Inc., et al., Petitioners,
v.
BLUFF CREEK OIL COMPANY and R. H. Rucker, Jr., Respondents.
No. A-5286.
Supreme Court of Texas.
June 27, 1956.
Rehearing Denied October 3, 1956.
*489 Hassell & Hassell, Dallas, Stine & Stine, Henrietta, for petitioners.
Robinson, Shipp, Robertson & Barnes, Oklahoma City, Okl., Donald & Donald, T. B. Coffield, Bowie, for respondents.
HICKMAN, Chief Justice.
In the trial court judgment was rendered on the verdict of a jury in favor of Bluff Creek Oil Company and R. H. Rucker, Jr., against Whitson Company, Inc., for $35,000 and $8,000, respectively, for the negligent destruction of an oil well and the resultant loss of the lease upon which the well was drilled. That part of the judgment awarding recovery to Rucker of $8,000 was affirmed by the Court of Civil Appeals, and that part of the judgment in favor of Bluff Creek Oil Company for $35,000 was reversed, and the cause remanded. 278 S.W.2d 339. Both Whitson Company, Inc., hereinafter called Whitson Company, and Bluff Creek Oil Company, hereinafter called Bluff Creek, have filed applications for writs of error, Whitson Company contending that judgment should be rendered in its favor and Bluff Creek contending that the judgment of the trial court should be affirmed.
While there is practically no dispute in the testimony, and only elementary principles of law are involved, still the terms of the contracts forming the basis of the suit are so intricate and unusual that we have experienced difficulty in formulating an understandable statement of the case and are doubtful that we have succeeded in doing so. Our statement will be limited to such facts as are thought to be relevant to the issues presented in the applications.
On January 25, 1949, A. J. Harrell and others executed a mineral lease to R. H. Rucker, Jr., covering 87 acres of land in Montague County, retaining the usual 1/8 royalty. The term of the lease was for one year and as long thereafter as oil or gas or either of them was produced by the lessee. Thereafter, Rucker assigned the lease to Bluff Creek, retaining in himself 1/8 of the production from the lease, free and clear of the cost of drilling and production, the interest retained by him being known in oil circles as a 1/8 overriding royalty. Under the assignment Bluff Creek received an interest of 6/8 of the production. Thereafter, on June 4, 1949, Bluff Creek entered into a contract with White and Webb Drilling Company, by the terms of which the latter agreed to drill a well on the lease to completion, and Bluff Creek assumed certain obligations hereinafter stated. Under that contract drilling was commenced by White and Webb Drilling Company. On June 9, 1949, Bluff Creek and Whitson Company entered into a contract, the terms of which material to this decision were: Whitson Company agreed to assume the obligations of Bluff Creek under its drilling contract with White and Webb, which obligations were to pay the cost of drilling the well, to assign an oil payment to White and Webb, and to deposit $20,000 in a named bank. In consideration Bluff Creek agreed that prior to the completion of the well provided for in the contract it would assign and convey to Whitson Company "the lease and leasehold interest," subject to the terms of the drilling contract and to the reservation of the interest of Bluff Creek. The reserved interest was 1/16 of 6/8 of the oil produced from the well, less the sum payable on account of the oil payment to White and Webb. The contract further provided that when the full cost of drilling and completing the well should have been recovered by Whitson Company out of 15/16 of 6/8 of the production, then the full amount of pipe line runs to 6/8 of the production should be paid to Whitson Company "until it shall have received a further sum equal to the *490 amount theretofore received from the one-sixteenth of six-eights (1/16 of 6/8) by Bluff Creek. When such sum shall have been paid to Whitson Company, the property shall be jointly and equally owned and operated, and income therefrom and expenses of operation shall be borne equally by the parties."
The contract makes reference to an oil payment to White and Webb Drilling Company, but it appears that Whitson Company purchased that, and no issue regarding same is in the case at this time. On August 31, 1949, in compliance with its obligation in the contract of June 9 "to assign and convey to Whitson Company the lease and leasehold interest," Bluff Creek executed and delivered to Whitson Company an instrument styled "Assignment of an Undivided Interest in Oil and Gas Lease." The assignment recited that it assigned to Whitson Company "an undivided fifteen-sixteenths (15/16) of six-eighths (6/8) interest in the proceeds from all oil, gas and other minerals * * *." It provided that Whitson Company should receive that interest until it had been reimbursed for all sums expended in drilling and completing the well and all sums expended in its operation. It further provided that when all those sums had been reimbursed, Whitson Company should be entitled to receive the full 6/8 of the proceeds from the well until it had received a sum equal to that received by Bluff Creek from its overriding royalty of 1/16 of 6/8. When the net runs should thus be equalized, Whitson Company should receive ½ of 6/8 of the proceeds of the minerals produced from the premises and the excess interest assigned to Whitson Company "shall automatically revert to Bluff Creek Oil Company without the necessity of the execution and delivery of additional instruments * * * and the parties hereto shall thereafter own the leasehold estate equally, subject to the overriding royalty interest reserved to R. H. Rucker, Jr."
Thereafter, on October 13, 1949, Bluff Creek executed an instrument reciting the amount which had been expended by Whitson Company and agreeing that after the recovery thereof, plus operating costs, Whitson Company should receive "out of fifteen-thirty-seconds of six-eighths (15/32 of 6/8) the additional sum of $18,577, together with one-half of the operating expenses of the lease during the effective period of this assignment." That instrument contained these provisions:
"It is expressly understood and agreed that payments hereunder shall commence effective immediately upon the payment of the balance of the drilling and operating costs of the Fenoglio well as provided in the assignment heretofore executed, and shall continue until the sum due hereunder shall have paid, without interest.
"The assignment heretofore executed by Bluff Creek to Whitson Company provides for the equalization of payments to the parties respectively, Bluff Creek having reserved 1/16 of 7/8 [sic] as a direct payment to it during the discharge of the obligation for drilling and operating costs, and it is hereby agreed that the equalization of the account and the recovery by Whitson Company of the sums so paid to Bluff Creek shall be deferred until the full and final payment and discharge of the oil payment hereby created.
* * * * * *
"Assignor, Bluff Creek Company, reserves the right at any time to reimburse assignee for all sums expended or advanced by it, as hereinabove provided, and thereupon to become vested with an undivided ½ interest in the oil and gas leasehold estate."
That contract is a recognition by Bluff Creek that it and Whitson Company owned equal interests in 6/8 of the lease. To secure Whitson Company in the payment of an additional indebtedness of $18,577 Bluff Creek assigned to it the proceeds from the sale of 15/32 of 6/8 of the oil, gas *491 and other minerals. By the instrument of August 31, 1949, Whitson Company was assigned a 15/16 of 6/8 interest in the proceeds. To hold that by the later contract that interest was reduced to 15/32 would be to hold that Whitson Company was accepting a smaller share of the proceeds to secure an increased indebtedness. The 15/32 interest assigned by the contract must have been out of Bluff Creek's ½ or 16/32 of 6/8, leaving it but 1/32 thereof.
As we construe that instrument it provides that after all expenditures for developing and operating the lease have been received by Whitson Company from 15/16 of 6/8 of the production, then Whitson Company shall receive 31/32 of the proceeds until it shall have received $18,577, and while receiving 31/32 it shall be liable for only ½ the costs of production, and Bluff Creek shall be liable for the other ½.
Construing all these instruments together, the rights of the parties with respect to the proceeds of the oil produced from the well were as follows: Whitson Company should receive 15/16 of 6/8 of the proceeds and Bluff Creek an overriding royalty of 1/16 of 6/8 until Whitson Company has been paid the unpaid balance of its expenditures for drilling and operating the well in excess of operating costs, which it was stipulated amounted to $34,430.84 at the time the well was destroyed. If the well was still producing when that obligation was discharged, then Whitson Company should receive 31/32 of 6/8 of the proceeds and Bluff Creek 1/32 thereof, each party bearing one-half of the costs of operation and production; these rights to continue until Whitson Company shall have received $18,577. If that obligation should be discharged and the well should still be producing, then Whitson Company should receive the full 6/8 of the proceeds and Bluff Creek receive none of them until Whitson Company should receive above operating costs an amount equal to the entire amount theretofore paid Bluff Creek on its overriding royalty. If the well should still be producing, then the parties would own the leasehold estate equally, subject to the overriding 1/8 royalty owned by Rucker.
From this background we turn to the history of the well. It is disclosed that it was completed in 1949 and produced oil in paying quantities under the direction of Bluff Creek. In the fall of 1951 and January, 1952, the well began producing large quantities of water with the oil. That condition was corrected by Bluff Creek, but when it recurred in April, 1952, its efforts to restore the production failed. The general manager of Bluff Creek testified that Mr. Whitson came to the well when it was in that condition and took over its management and put padlocks on it. Two months later the Bluff Creek manager voluntarily told Whitson to "go in and see what luck they could have." In an effort to bring the well back into production, Whitson caused torpedo jets to be discharged in the well. This did not bring the well back into production, and Whitson caused the casing to be pulled and moved off and abandoned the project, resulting in the termination of the lease.
Bluff Creek and Rucker joined in this suit against Whitson Company and L. R. Whitson, individually, seeking damages for negligent destruction of the well and the loss of the lease. In response to special issues the jury found that Whitson Company was negligent in discharging the particular jets used by it, and that such negligence was the proximate cause of the loss of the well. It assessed Bluff Creek's damages at $50,000, but this was reduced in the judgment to $35,000, which corresponds to the amount alleged in the petition. Rucker's damages were found to be $8,333, but that amount was reduced to $8,000 to correspond with the amount alleged in the petition.
We consider first the application of Bluff Creek. Its contention is that the judgment of the trial court in its favor against Whitson Company for $35,000 should be affirmed. The trial court submitted to the jury the issue of the reasonable *492 cash market value of the 6/8 leasehold estate just prior to the commencement of the last remedial work on the well by Whitson Company. The Court of Civil Appeals held that it was error to permit Bluff Creek to recover the value of the lease without reference to the claims of Whitson Company, and remanded the cause to be submitted at the market value of the lease burdened with the charges of Whitson Company. That court adopted Bluff Creek's view that Whitson Company had a mere option which it never exercised. With that conclusion we cannot agree. Whitson Company fully discharged the obligations which it assumed in its contract with Bluff Creek. It was under no obligation to operate the well, and did not operate it. White and Webb Drilling Company seems to have faded out of the picture, and Bluff Creek became the operator. When Whitson Company fulfilled its obligations under its contract with Bluff Creek it had at least an equitable title to a one-half interest in the oil lease, subject to Rucker's overriding royalty, with a right to appropriate the major portion of the proceeds from Bluff Creek's one-half interest as outlined above.
This is not a suit for title. The lease has terminated. It is not necessary, therefore, for us to determine the exact nature of the interests of the parties thereto. The rights of Whitson Company do not rest upon a determination of whether the instruments conveyed to it a legal title, equitable title, or merely a beneficial interest in the lease. They clearly conveyed an interest in the lease and it was error, as held by the Court of Civil Appeals, to submit the case just as if Whitson Company had no interest in it.
In view of the great complexity of the provisions of these different instruments, their interpretation should not be left to a jury. In submitting this phase of the case on another trial, the court in its charge should construe these instruments as we have construed them above, and call upon the jury to determine the value of Bluff Creek's interest in the well. If the evidence discloses that there was a market value for such an uncertain and indefinite interest, then it would be proper to submit market value. If it should be established that there was no market value for such interest, then actual value should be submitted, based upon estimated future production less the estimated expenses of production.
We consider next the application of Whitson Company. Its contention that judgment should be rendered that Bluff Creek take nothing cannot be sustained. Its position is that the claims of Whitson Company exceeded the value of the leasehold estate as found by the jury, and that therefore they should be offset against that value, leaving no value at all in Bluff Creek. The weakness of that argument lies in the fact that those expenses could not be offset against Bluff Creek's overriding royalty. It matters not how much Whitson Company may have expended in this enterprise. Its claims are chargeable only to a fraction of the production, and Bluff Creek was entitled to an overriding royalty against which no claims for expenses could be charged. Since Whitson Company negligently destroyed that right, it is elementary law that it is liable to Bluff Creek for the value thereof.
Whitson Company also contends that the Court of Civil Appeals erred in affirming the judgment in favor of Rucker for $8,000 as the market value of his 1/8 overriding royalty. The contention is that the jury's findings of the market value was based upon damages growing out of the termination of production from the zones into which the well had been drilled and from Whitson Company's failure to make further exploration and to develop lower horizons. To understand this contention it should be stated that the jury found in its answer to special issues that there were horizons capable of producing oil in paying quantities which were separate and apart from the horizon from which the well had been producing; that by the exercise *493 of ordinary diligence Whitson Company should have known of such other horizons, that it did not test same, and that by the exercise of ordinary diligence it would have tested them. Whitson Company does not contend that Rucker was not entitled to any compensation for the negligent destruction of the well. It recognizes his right to compensation for the loss sustained by the destruction of the sand from which the well had been producing. It does not claim that the trial court erred in any ruling regarding the pleadings or the evidence. It points out no error committed by the trial court in its rulings. Its argument is that "* * * it was the duty of the trial court to measure separately the liability arising from the two acts, of one of which respondent Rucker had no right to complain, and judgment could not be rendered upon a verdict finding damages arising from the combination of the two." No request was made in the trial court for a separate submission of issues. No instructions were requested regarding the factors which the jury might consider in measuring market value. The only objection made by it to the special issue submitting market value other than that Rucker had parted with his interest, which objection is not briefed, was this: "Because said issue does not inquire as to the proper measure of damages." That general objection cannot be considered. If the market value as submitted was not the correct measure of damages, objection should have been made to the issue by Whitson Company pointing out distinctly the grounds of its objections. Rule 274, Texas Rules of Civil Procedure. Having failed to do so, it cannot thereafter be heard to say that the measure of damages as submitted was improper. There is no way for this court to determine that the jury included damages for failure further to develop in its answer to the plain issue calling only for a determination of the market value of Rucker's overriding royalty. We cannot reverse the trial court's judgment on such assumption or surmise.
What has been written has reference only to a lease known as the Fenoglio lease. Another lease, known as the Nabours lease, is involved in the litigation, but the only question presented here with reference to it is the claim of Bluff Creek that the Court of Civil Appeals erred in dissolving the injunction of the trial court restraining Whitson Company from disposing of any property or equipment on that lease and from interfering with its operation. We approve that action of the court and see no reason for writing further on the question.
The judgment of the Court of Civil Appeals is affirmed, but on a retrial the court will be guided by this opinion.
McCALL, J., not sitting. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1114064/ | 652 So.2d 453 (1995)
Willie James WYATT, Appellant,
v.
STATE of Florida, Appellee.
No. 94-0101.
District Court of Appeal of Florida, Fourth District.
March 22, 1995.
Richard L. Jorandby, Public Defender, and David McPherrin, Asst. Public Defender, West Palm Beach, for appellant.
Robert A. Butterworth, Atty. Gen., Tallahassee, and Patricia Ann Ash, Asst. Atty. Gen., West Palm Beach, for appellee.
PER CURIAM.
We affirm appellant's convictions, habitualized sentence, imposition of attorney's fees and costs, and the accompanying lien against appellant.
With respect to the attorney's fees and costs, the state failed to respond to appellant's position that the notice of appeal divested the trial court of jurisdiction and vested exclusive jurisdiction here, and his reliance upon Gatlin v. State, 618 So.2d 765 (Fla. 2d DCA 1993).[1] Nevertheless, we conclude appellant's position is not persuasive in light of Roberts v. Askew, 260 So.2d 492 (Fla. 1972), and Finkelstein v. North Broward Hosp. Dist., 484 So.2d 1241 (Fla. 1986).
Roberts, 260 So.2d at 494, indicates that costs "may be adjudicated after final judgment, *454 after the expiration of the appeal period, during the pendency of an appeal, and even after the appeal has been concluded. However, the motion to tax costs should be made within a reasonable time after the appeal has been concluded." (emphasis added). Thus, Roberts indicates that the filing of a notice of appeal does not preclude the trial court from assessing costs, and presumably also fees, regardless of whether the motion for costs or fees was filed before or after the notice of appeal. See also McGurn v. Scott, 596 So.2d 1042 (Fla. 1992) (discussing Roberts); Amlan, Inc. v. Detroit Diesel Corp., 651 So.2d 701 (Fla. 4th DCA 1995) (noting that filing of appeal does not divest trial court of jurisdiction to rule on previously filed motion for fees and costs).
In Finkelstein, the supreme court concluded "that a post-judgment motion for attorney's fees raises a `collateral and independent claim' which the trial court has continuing jurisdiction to entertain within a reasonable time, notwithstanding that the litigation of the main claim may have been concluded with finality." 484 So.2d at 1243 (citation omitted).[2] No appeal was taken from the final judgment in Finkelstein. Although the final judgment stated that "[c]osts will be taxed at a later date upon appropriate motion," it did not expressly reserve jurisdiction to assess fees. The court determined that such magic words were not critical. Thus, Finkelstein suggests that the failure to expressly reserve jurisdiction does not preclude a later assessment of fees, and also presumably costs. McAskill Publications, Inc. v. Keno Bros. Jewelers, Inc., 647 So.2d 1012 (Fla. 4th DCA 1994), confirms this understanding. See id. at 1012 n. 1 (trial court need not reserve jurisdiction to award fees to prevailing party because "any post-judgment motion for attorney's fee would raise a `collateral and independent claim'" (citing Finkelstein, 484 So.2d at 1243)).
We read Roberts and Finkelstein together to permit the trial court to assess fees and costs after the notice of appeal has been filed, even where the trial court did not expressly reserve jurisdiction to do so.
GLICKSTEIN, STEVENSON and SHAHOOD, JJ., concur.
NOTES
[1] The second district's position is that the filing of the notice of appeal divests the trial court of jurisdiction to assess fees and costs and that fees and costs may only be reassessed on remand if the trial court had reserved jurisdiction to do so at the sentencing hearing. See Sewar v. State, 640 So.2d 1203 (Fla. 2d DCA 1994). Although the Sewar case relied upon Gatlin, the latter relied upon the fourth district's opinion in Gonzalez v. State, 384 So.2d 57 (Fla. 4th DCA 1980). Gonzalez does stand for the general proposition that the filing of a notice of appeal divests the trial court of jurisdiction. Gonzalez, however, did not involve the assessment of costs or fees.
[2] The court distinguished fees to a prevailing party from fees granted in a dissolution case where such fees are intended to equalize the financial positions of the parties and are part of the property distribution, and therefore should be settled in the final judgment. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1915519/ | 961 A.2d 1228 (2008)
John COZZONE, Petitioner
v.
COMMONWEALTH of Pennsylvania, Respondent.
No. 138 EM 2008.
Supreme Court of Pennsylvania.
December 3, 2008.
ORDER
PER CURIAM.
AND NOW, this 3rd day of December, 2008, the Application for Leave to File Original Process is GRANTED, and the Petition for Writ of Mandamus is DENIED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/327149/ | 515 F.2d 94
76 Lab.Cas. P 10,839
In re LA PROVIDENCIA DEVELOPMENT CORPORATION, Petitioner.
Misc. No. 75-8037.
United States Court of Appeals,First Circuit.
Submitted April 7, 1975.Decided May 1, 1975.
Edelmiro Salas Garcia, Miami, Fla., for petitioner upon application.
Before COFFIN, Chief Judge, McENTEE and CAMPBELL, Circuit Judges.
PER CURIAM.
1
Petitioner seeks a writ of mandamus to compel the transmission of the record in this litigation by the clerk of the District Court for the District of Puerto Rico. Petitioner is one of a number of defendants in a suit alleging misuse of union welfare funds. On December 18, 1974, over eight years after the initiation of the suit, the district court filed an extensive opinion and order holding that it had jurisdiction over some of the defendants under 29 U.S.C. § 501, and that in the interests of justice and judicial economy it should exercise pendent jurisdiction over the remaining defendants, including petitioner, permitting plaintiffs to litigate in one court their federal and state claims. Acknowledging the difficulty of the question of jurisdiction, the district court made the proper certification to permit defendants to apply to this court for permission to take an interlocutory appeal pursuant to 28 U.S.C. § 1292(b).
2
Petitioner, instead of filing a petition for permission to appeal with this court, as required by § 1292(b) and Federal Rule of Appellate Procedure 5(a), filed a notice of appeal in the district court. On March 14, 1975, the district court, noting that the proper application for leave to appeal had not been filed, recertified the question of jurisdiction, "in order that the parties not be deprived of a timely appellate decision". In its order the court directed counsel's attention to § 1292(b) and F.R.A.P. 5(a). Incredibly, petitioner once again failed to file an application for leave to appeal with this court, filing instead a new notice of appeal in the district court.1 Petitioner postulates its request for mandamus on the claim that its right to appeal is being obstructed by the failure of the clerk of the district court to transmit the record on appeal.
3
Federal Rule of Appellate Procedure 3(a) provides that "(a)n appeal permitted by law as of right from a district court to a court of appeals shall be taken by filing a notice of appeal with the clerk of the district court . . . . Appeals by permission under 28 U.S.C. § 1292(b) . . . shall be taken in the manner prescribed by Rule 5 . . . ." Generally only those actions of the district court which terminate a litigation, Catlin v. United States, 324 U.S. 229, 65 S.Ct. 631, 89 L.Ed. 911 (1945), or which involve the grant or denial of injunctive relief are appealable to the courts of appeals as of right.2 28 U.S.C. §§ 1291, 1292(a); 9 J. Moore, Federal Practice and Procedure P 110.08. "The foundation of this policy is not in merely technical conceptions of 'finality'. It is one against piecemeal litigation." Catlin v. United States, supra, at 233, 65 S.Ct. at 634.
4
The opinion and order from which petitioner here seeks to appeal is interlocutory, and would normally be appealable only upon the final disposition of the case upon the merits by the district court. Section 1292(b), however, provides a limited exception under which interlocutory orders involving "a controlling question of law as to which there is substantial ground for difference of opinion . . . ." may be certified by the district court for appeal to the court of appeals. "The Court of Appeals may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days . . . ." The statute explicitly provides, as does F.R.A.P. 5(a) for application to the court of appeals because the appeal from an interlocutory order certified by the district court is not one taken as of right, but one which the court of appeals may hear if it so chooses.
5
Counsel, by his refusal to comply with the rules and statutory provisions governing proceedings in this court, has lost the opportunity to take an interlocutory appeal from the district court's opinion and order. This same attorney, in another action, similarly failed to properly file an application with us for leave to appeal an allowance in bankruptcy. There, as here, he sought to convince us that he had acted correctly by the proffer of assertions innocent of any reference to case, statute, rule or treatise. Unfortunately, the latter determine the outcome.
6
Petition denied.
1
Other defendants properly applied to this court for leave to appeal following the district court's March 14 order
2
There are numerous exceptions to the general rule. See 9 J. Moore, Federal Practice and Procedure, P 110.01-110.13 | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/2611945/ | 125 Wash. 2d 345 (1994)
884 P.2d 1326
WHATCOM COUNTY, Appellant,
v.
STEVE BRISBANE, Respondent.
No. 60655-2.
The Supreme Court of Washington, En Banc.
December 8, 1994.
David S. McEachran, Prosecuting Attorney, and Randall J. Watts, Chief Civil Deputy, for appellant.
John M. Groen (Ronald A. Zumbrun and Robin L. Rivett, of counsel) of Pacific Legal Foundation, for respondent.
Catherine W. Smith on behalf of The Washington Environmental Council, North Cascades Audubon Society, Greater Ecosystem Alliance, Point Roberts Heron Preservation Committee, Watershed Defense Fund, and Friends of Chuckanut, amici curiae for appellant.
SMITH, J.
This court granted the motion of Respondent Steve Brisbane[1] to transfer from the Court of Appeals, Division One, to the Supreme Court review of a decision by the Whatcom County Superior Court dismissing on summary judgment a challenge by Whatcom County to a referendum petition to amend portions of a critical areas ordinance adopted by the Whatcom County Council pursuant to the Growth Management Act. We reverse.
STATEMENT OF FACTS
On June 23, 1992, the Whatcom County Council adopted the Temporary Critical Areas Ordinance, ordinance 92-032.[2]*347 Respondent Brisbane (Respondent) conducted a successful referendum campaign to eliminate portions of the ordinance.[3] The referendum was certified by the County Auditor in January 1993 for placement on the November 1993 ballot.[4]
On January 12, 1993, Whatcom County (County) filed a declaratory judgment action in the Whatcom County Superior Court asking the court to declare that the critical areas ordinance was not subject to local referendum.[5] On May 14, 1993, the Whatcom County Superior Court, the Honorable Michael F. Moynihan, granted summary judgment in favor of Respondent Brisbane and dismissed the complaint.[6] The trial court held the critical areas ordinance is subject to local referendum.[7] Whatcom County appealed to the Court of Appeals, Division One. On July 16, 1993, Respondent Brisbane moved to transfer the appeal to this court. The County did not oppose the motion. We granted it on April 6, 1994.
QUESTION PRESENTED
The sole question presented is whether a critical areas ordinance adopted by the Whatcom County Council pursuant to the Growth Management Act is subject to amendment by referendum under the home rule charter of the County.
DISCUSSION
Growth Management Act
The Growth Management Act, RCW 36.70A, was enacted in 1990 to prevent "uncoordinated and unplanned growth" and to encourage "comprehensive land use planning" among the "citizens, communities, local governments, and the private sector ...."[8] Two years later, in 1992, WAC 365-195 was *348 promulgated which, when read in conjunction with the Growth Management Act, similarly operates to "accomplish[] the planning and development regulation requirements of the act."[9]
Under former RCW 36.70A.040(1) any county with "a population of fifty thousand or more and has had its population increase by more than ten percent in the previous ten years ... shall adopt comprehensive land use plans and development regulations".[10] The statute further provides that "[a]ny county ... required to adopt a comprehensive land use plan under subsection (1) ... shall adopt the plan on or before September 1, 1993."[11]
Whatcom County adopted the Temporary Critical Areas Ordinance[12] on June 23, 1992 to "carry out the goals of the Whatcom County Comprehensive Land Use Plan"[13] mandated by RCW 36.70A.040(1) and (3), .050, .060, .170, and .210.
[1] Pursuant to Const. art. 11, § 4 (amend. 21),[14] Whatcom County enacted the most recent version of its home rule *349 charter (Charter) in 1993. Included among the rights of self-governance under the Charter was the right of citizens to reject ordinances passed by the County Council.[15] "[L]ocal governance is generally the province of home rule counties.... However, this principle does not entirely negate the State's ability to successfully challenge home rule county charter rights."[16] This court observed in Snohomish Cy. v. Anderson, supra:
The Washington State Constitution expressly relegates home rule charters to an inferior position vis-a-vis "the Constitution and laws of this state". Const. art. 11, § 4, para. 2. The Henry court ... recognized bounds on charter rights, noting that county home rule was intended to further self-governance in "purely local affairs ... so long as [those exercising their rights to self-governance] abided by the provisions of the constitution and did not run counter to considerations of public policy of broad concern, expressed in general laws."[17]
Under the Growth Management Act, RCW 36.70A, the Legislature used the words "county" or "city" interchangeably with the words "legislative body" of the county or city.[18] Thus, the power to act under the Growth Management Act was delegated to the "county legislative body". This raises a *350 conflict between the language of the Growth Management Act and the language of the Whatcom County Home Rule Charter (1993).
[2] "Referendum rights do not exist when power has been statutorily delegated to the `legislative authority'."[19] "In the context of statutory interpretation, [this court has] previously held that a city's `corporate authority', also referred to as a `legislative authority', means exclusively the mayor and city council. Therefore, a statutory grant of power to a legislative authority does not generally permit delegation to the voters through an initiative or referendum."[20]
Our most recent case involving legislative authority and the right of referendum is Snohomish Cy. v. Anderson.[21] In that case, we considered whether a section of the Growth Management Act, RCW 36.70A.210(2), was subject to referendum and whether the mandatory language of the Growth Management Act conflicted with referendum rights under the Snohomish County Home Rule Charter.[22] The Snohomish County Charter has a provision identical to that of the Whatcom County Charter granting referendum rights to the people. In that case, the people of Snohomish County argued that the words "legislative authority" included their right to exercise referendum powers.[23] This court rejected that argument, stating:
"[L]egislative authority" cannot be carried out by initiative or referendum. For example, the statute directs the "legislative authority" to convene meetings and establish processes. These *351 responsibilities cannot be performed by the exercise of a "yes/no" vote.
Furthermore, the Legislature is presumed to be familiar with judicial decisions of the Supreme Court construing existing statutes and the state constitution. At the time the Legislature enacted RCW 36.70A, case law defined "legislative authority" and comparable terms in statutory contexts to mean the council and/or mayor only, and not to permit referendum rights.[24]
(Citation omitted. Italics ours.)
[3] The purpose of the Growth Management Act, RCW 36.70A, would be frustrated if the people of Whatcom County were permitted by referendum to amend an ordinance adopted to implement the goals of a comprehensive land use plan. Under Anderson, "[p]ermitting the referendum would jeopardize [the] entire state plan [as intended by the Growth Management Act] and thus would extend beyond a matter of local concern."[25] One consequence of such a broad interpretation of the referendum power includes the potential repeal of ordinances required by the Legislature to be enacted for statewide growth management. Also, it would be difficult to balance the various interests contemplated by the Legislature.[26]
[4] Referendum rights are generally matters of local governance and are not mentioned in the Growth Management Act.[27] "Where a statute specifically designates the things or classes of things upon which it operates, an inference arises in law that all things or classes of things omitted from it were intentionally omitted by the legislature.... The absence of any mention of referenda indicates the statute's *352 rejection of referendum rights."[28] But the Growth Management Act does provide a process for public participation in growth management legislation at the county or city level. The people of Whatcom County had a participatory opportunity to voice their concerns prior to adoption of the Temporary Critical Areas Ordinance, ordinance 92-032. RCW 36.70A.140 provides:
Each county and city that is required or chooses to plan under RCW 36.70A.040 shall establish procedures providing for early and continuous public participation in the development and amendment of comprehensive land use plans and development regulations implementing such plans. The procedures shall provide for broad dissemination of proposals and alternatives, opportunity for written comments, public meetings after effective notice, provision for open discussion, communication programs, information services, and consideration of and response to public comments. Errors in exact compliance with the established procedures shall not render the comprehensive land use plan or development regulations invalid if the spirit of the procedures is observed.
(Italics ours.)
Ordinance 92-032 was adopted to satisfy the Whatcom County comprehensive land use plan mandated by the Growth Management Act. The County is correct in its assertion that adoption of the ordinance did not create new policy, but merely pursued a plan already adopted by its legislative body, the County Council. The ordinance is merely execution of a policy already in existence. It specifically provided that it was created to comply with the mandate of the Growth Management Act.[29]
Whatcom County Code art. 2, § 2.20 provides in relevant part:
The County Council shall exercise its legislative power by adoption and enactment of ordinances or resolutions. It shall have the power:
....
*353 (d) To adopt by ordinance comprehensive plans, including improvement plans for the present and future development of the county.
(Italics ours.)
Under the Whatcom County Code, enactment of ordinances is clearly a legislative act. However, the critical areas ordinance in this case is still not subject to referendum. Art. 2, § 2.30 of the Whatcom County Code provides that "[e]very legislative act shall be by ordinance" and that "[n]o ordinance shall be amended unless the new ordinance sets forth each amended section or subsection at full length". Although legislative acts must be by ordinance, which would normally be subject to referendum, the Temporary Critical Areas Ordinance additionally falls within the public health and safety exception to referendum under article 5, section 5.50 of the Whatcom County Code:
The second power reserved by the people is the referendum. It may be ordered on any act, or bill, or ordinance, or any part thereof passed by the County Council except such ordinances as may be necessary for the immediate preservation of the public peace, health or safety or support of the county government and its existing public institutions.
(Italics ours.)
The Whatcom County Council somewhat routinely declared that "enactment of the Temporary Critical Areas Ordinance w[ould] promote the public health, safety and general welfare."[30] But this nevertheless met the requirements for the exception. In addition, the Critical Areas Ordinance was enacted to satisfy the goals required by the Growth Management Act. The immediacy was established by the September 1, 1993 statutory deadline, which preceded the November 3, 1993 referendum election.
[5] Even if the people of Whatcom County did have the power to amend the Critical Areas Ordinance, the amended ordinance would have to be consistent with state law as expressed by the Legislature. This court has determined that the power of referendum is "applicable only where ... *354 [the] procedures do not conflict with the expressed legislative intent."[31] If there are inconsistencies, "the intent of the legislature must govern, and ... conflicting charter provisions must yield to that intent."[32]
Planning Enabling Act
The Planning Enabling Act, RCW 36.70, was enacted "to provide the authority for, and the procedures to be followed in, guiding and regulating the physical development of a county ... through correlating both public and private projects and coordinating their execution with respect to ... assuring the highest standards of environment for living, ... and conserving the highest degree of public health, safety, morals and welfare."[33] The Act provides for creation of departments, commissions and planning agencies, and further describes the procedural functions of each.[34]
The Planning Enabling Act and the Growth Management Act are two related statutes which should be "`... read together to determine legislative purpose to achieve a "harmonious total statutory scheme ... which maintains the integrity of the respective statutes."'"[35] Both statutes can be read consistently and harmoniously to carry out their intended legislative purpose.
The Whatcom County Temporary Critical Areas Ordinance, ordinance 92-032, having been enacted pursuant to legislative mandate under the Growth Management Act, RCW 36.70A, is not subject to referendum.
*355 SUMMARY AND CONCLUSIONS
There is a conflict between the language of the Growth Management Act and provisions of the Whatcom County Home Rule Charter giving the right of referendum to the people of Whatcom County. This court has stated that when there is a conflict between the language of a state statute and the language of a home rule charter, the language of the state statute prevails.
The Whatcom County Home Rule Charter may grant the people the right of referendum over ordinances enacted by the County. However, allowing exercise of that right over ordinances enacted pursuant to the Growth Management Act would run counter to and frustrate the declared purposes of the Act to prevent uncoordinated and unplanned growth and to encourage conservation and wise use of land.
We reverse the Whatcom County Superior Court which granted summary judgment in favor of Respondent Steve Brisbane upholding a referendum amending portions of Whatcom County Ordinance 92-032, the Temporary Critical Areas Ordinance, enacted by the Whatcom County Council pursuant to the Growth Management Act, RCW 36.70A.
ANDERSEN, C.J., and UTTER, BRACHTENBACH, DOLLIVER, DURHAM, GUY, and JOHNSON, JJ., concur. MADSEN, J. (dissenting)
I respectfully dissent and would affirm the Superior Court's order dismissing Whatcom County's challenge to the referendum petition filed in this case.
The majority makes three main points to support its decision to reverse the Superior Court, all of which are legally unsupportable. The majority claims that the wording of the statutory grant of power regarding temporary critical areas ordinances is of no significance; that "continuous public participation" in growth management decisions does not include referenda; and that the ordinance at issue was emergency legislation immune from revision by referendum.
*356 I turn first to the majority's contention that under the Growth Management Act, the Legislature used the words "county" or "city" interchangeably with the words "legislative body" and that, therefore, "the power to act under the Growth Management Act was delegated to the `county legislative body'". Majority, at 349. At issue in this case is not the wording of the entire Growth Management Act, but that of two statutes therein, RCW 36.70A.060 and RCW 36.70A.170. As the County explains, these statutes mandate the passage of temporary critical areas ordinances. RCW 36.70A.060(2) states that "[e]ach county and city shall adopt development regulations that protect critical areas that are required to be designated under RCW 36.70A.170". RCW 36.70A.170(1) provides that "each county, and each city" shall designate critical areas where appropriate. There is no reference to the "county legislative body" in either statute.
The absence of such a reference is key given the Washington case law cited by the majority. As the majority notes, "[A] statutory grant of power to a legislative authority does not generally permit delegation to the voters through an initiative or referendum.'" Majority, at 350 (quoting Citizens for Financially Responsible Gov't v. Spokane, 99 Wash. 2d 339, 344-45, 662 P.2d 845 (1983)). The corollary to this rule is that if the grant of power is to the city or county as a corporate entity, direct legislation in the form of a referendum is permissible. Leonard v. Bothell, 87 Wash. 2d 847, 852-53, 557 P.2d 1306 (1976); Paget v. Logan, 78 Wash. 2d 349, 355, 474 P.2d 247 (1970). Consequently, this court recently found the wording of the statutory grant of power "at the heart" of whether referendum rights were available to challenge a countywide planning policy enacted pursuant to RCW 36.70A.210(2). Snohomish Cy. v. Anderson, 123 Wash. 2d 151, 155, 868 P.2d 116 (1994). In construing this section of the Growth Management Act, the Anderson court found that the statute's reference to the "legislative authority" of a county eliminated referendum rights with regard to countywide planning policies. "Referendum rights do not exist when power has been *357 statutorily delegated to the `legislative authority'." Anderson, at 156 (quoting Neils v. Seattle, 185 Wash. 269, 53 P.2d 848 (1936)).
The Anderson court observed further that the Legislature is presumed to be familiar with judicial decisions of the Supreme Court construing statutory language. Anderson, at 156. "At the time the Legislature enacted RCW 36.70A, case law defined `legislative authority' and comparable terms in statutory contexts to mean the council and/or mayor only, and not to permit referendum rights." Anderson, at 156; see also Leonard, at 854 ("This court should also presume the legislature was aware of the decisions of this court which preclude a referendum election when the legislature delegated the authority to the legislative body and not to the city as a corporate entity.").
Given this precedent, the majority's conclusion that references to "county" and to the "county legislative authority" in the Growth Management Act are interchangeable is, to say the least, surprising. Having assumed that the Legislature knows the consequences of granting authority to a "legislative authority" in a statute, this court also should assume that the Legislature knows the differing consequences of granting authority to a "county". Since the grant of authority to enact critical areas ordinances is to the county under RCW 36.70A.060(2) and RCW 36.70A.170(1)(d), the conclusion must be that the Legislature intended no interference with the referendum rights conferred upon Whatcom County voters by that county's home rule charter.
Part of the majority's confusion may stem from its belief that the elimination of referendum rights in Anderson requires the elimination of referendum rights in this case. Neither the language nor the purpose of the relevant statutes mandates such a result.
As stated above, the statute at issue in Anderson was RCW 36.70A.210, which requires counties to enact planning policies that set forth general goals governing, among other things, the development of urban areas; the siting of public facilities of a countywide or statewide nature; transportation *358 facilities and strategies; and affordable housing. RCW 36.70A.210(3); see Anderson, at 154. RCW 36.70A.210(7) also authorizes multicounty planning policies adopted by two or more counties. The Anderson court recognized that county home rule is intended to further self-governance in purely local affairs so long as those exercising their rights to self-governance do not "run counter to considerations of public policy of broad concern, expressed in general laws.'" Anderson, at 159 (quoting Henry v. Thorne, 92 Wash. 2d 878, 881, 602 P.2d 354 (1979)). The Anderson court understandably concluded that allowing the referendum under challenge would run counter to such considerations, given the broad range of policies required to be included in plans enacted pursuant to RCW 36.70A.210 and the possibility of multicounty plans. "Permitting the referendum would jeopardize an entire state plan and thus would extend beyond a matter of local concern." Anderson, at 159.
By contrast, RCW 36.70A.060(2) is much more limited in scope, and the temporary critical areas ordinances enacted pursuant thereto are purely local in concern. The ordinance at issue is concerned solely with Whatcom County and addresses the development of specific environmental areas and the permit processes relevant thereto. It does not appear that the referendum provisions proposed to the Whatcom County ordinance "would jeopardize an entire state plan". Thus, neither the language nor the intent of the statutes authorizing critical areas ordinances is thwarted by recognizing the applicability of referendum rights.
The majority next points out that Whatcom County voters should have contented themselves with the early participation in the ordinance process authorized by RCW 36.70A.140. This statute provides that each affected county shall establish procedures providing for early and continuous public participation in the development of comprehensive land use plans and of development regulations implementing such plans. These procedures are to provide for, in part, "broad dissemination of proposals and alternatives". RCW 36.70A.140. *359 The majority apparently interprets RCW 36.70A.140 as authorizing "continuous public participation" before, but not after, the enactment of an ordinance, and does not see a referendum as a legitimate means of disseminating alternatives. In a similar vein, the County states that cooperation in comprehensive land use planning is required under the Growth Management Act and "[t]he referendum is not a cooperative or coordinated effort in planning". Br. of Appellant, at 22. Apparently, enactment of a critical areas ordinance with which a significant portion of its population disagrees is an example of a cooperative effort in planning, whereas a referendum seeking to demonstrate that disagreement is not.
More importantly, the County, as well as the majority, misconstrues the nature of referendum rights in discussing public participation. A referendum is not simply an effort to participate in, or contribute to, discussion; rather, the enactment of a referendum measure "is an exercise of the same power of sovereignty as that exercised by the legislature in the passage of a statute". Philip A. Trautman, Initiative and Referendum in Washington: A Survey, 49 Wash. L. Rev. 55, 66 (1973). Initiative and referendum provisions reserve to voters "the fundamental right of a governed people to exercise their inherent and constitutional political power over governmental affairs". Paget, at 352. Therefore, to say that public discussion of the proposed content of an ordinance is somehow equivalent to the right to challenge that ordinance by referendum, and that the public must be contented with such discussion, is a mischaracterization of the significance of the referendum power.
I next disagree with the majority's statement that the critical areas ordinance at issue "is merely execution of a policy already in existence". Majority, at 352. Initially I am concerned because this statement is hard to reconcile with the majority's earlier statement that permitting the referendum would jeopardize the entire state plan. See majority, at 351 (citing Anderson, at 159). The greater issue, however, is the confusion created by the majority's failure both to support its conclusion and to adhere to it.
*360 As stated earlier, the critical areas ordinance at issue here is of lesser magnitude than the countywide planning policy at issue in Anderson. However, I do not see the ordinance as merely execution of a policy already in existence. If viewed in this light, the ordinance presumably would be an administrative rather than legislative action and so not subject to referendum. The rule in Washington is that the referendum power extends only to matters legislative in character and not to merely administrative acts. Heider v. Seattle, 100 Wash. 2d 874, 875, 675 P.2d 597 (1984); Citizens, at 347. Two tests used to distinguish between administrative and legislative matters are as follows:
Actions relating to subjects of a permanent and general character are usually regarded as legislative, and those providing for subjects of a temporary and special character are regarded as administrative.... Another test has been whether the proposition is one to make new law or to execute law already in existence.
(Citation omitted.) Heider, at 876 (quoting Citizens, at 347).
The majority implicitly acknowledges but then ignores this law when it follows its statement that "[t]he ordinance is merely execution of a policy already in existence" (and thus presumably administrative) by stating that enactment of ordinances is a legislative act under the Whatcom County Code. Majority, at 353. Even if the Code did not so state, it would appear that the critical areas ordinance at issue constitutes a legislative act. The ordinance is 145 pages long and clearly establishes new guidelines for evaluating and regulating proposed development in and around critical areas in Whatcom County. Its preamble states that the temporary critical areas ordinance is designed to set standards to protect the public while allowing careful development around critical areas, and that the ordinance seeks to specify the framework that will be applied to define areas considered critical. As such, it appears to be more than an administrative action.
While conceding that the ordinance is a legislative act, the majority maintains that it is not subject to a referendum *361 because the ordinance falls within the public health and safety exception in the Whatcom County Code. As set forth by the majority, article 5, section 5.50 of the code provides as follows:
The second power reserved by the people is the referendum. It may be ordered on any act, or bill, or ordinance, or any part thereof passed by the County Council except such ordinances as may be necessary for the immediate preservation of the public peace, health or safety or support of the county government and its existing public institutions.
(Italics omitted.) Majority, at 353.
The majority then notes that the Whatcom County Council "somewhat routinely" declared that enactment of the Temporary Critical Areas Ordinance would promote the public health, safety and general welfare. Majority, at 353. Without explanation, the majority concludes that "this nevertheless met the requirements for the exception". Majority, at 353. Then, as if anticipating disagreement, the majority explains that the "immediacy" requirement was satisfied "by the September 1, 1993 statutory deadline, which preceded the November 3, 1993 referendum election". Majority, at 353.
There are several problems with this conclusion. In the first place, the statutory deadline for the temporary critical areas ordinance was March 1, 1992. RCW 36.70A.060(2). Whatcom County asked for and received time extensions, and adopted its critical areas ordinance on June 23, 1992. Research has disclosed no deadline of September 1, 1993, that is applicable either to critical areas ordinances or to comprehensive land use plans. If such a deadline does exist, it would appear that adoption of the ordinance in 1992 eliminates any element of immediacy with regard to a 1993 deadline.
Furthermore, if statutory deadlines could be used to meet the "immediacy" requirement, then the power of referendum would be placed in considerable jeopardy and legislative declarations of emergency would be rendered virtually meaningless. This court discussed the purpose of emergent legislation *362 in State ex rel. Gray v. Martin, 29 Wash. 2d 799, 809, 189 P.2d 637 (1948):
The purpose of emergent legislation is to enable the legislative body to provide immediate action in order to prevent or remedy a condition or situation which is of such a nature that it demands immediate attention when to postpone such action would result in serious injury or damage to the people, government, or community directly concerned.
The Gray court cited previous cases upholding or denying legislative declarations of emergency and observed that in some it held that, unless the legislative act is in fact immediately necessary, all other factors are irrelevant, and the legislation will not be upheld as emergent. Gray, at 806. The Gray court also cited cases holding that an emergency does not mean expediency, convenience, or best interest, and that "promotion of the public welfare" is not a criterion by which the court may be guided in determining whether or not an emergency exists. Gray, at 807. Another case stated that, with reference to a legislative declaration of emergency, it would "`be scandalous indeed if the constitutional right of referendum could be thwarted by the mere use of false labels ...'" and that the highly beneficial character of the act does not establish "`that it is necessary for the immediate public peace, health or safety....'" Gray, at 807 (quoting State ex rel. Kennedy v. Reeves, 22 Wash. 2d 677, 681-83, 157 P.2d 721 (1945)).
Other authorities agree that a mere statement that passage of the ordinance is necessary for immediate preservation of public peace may not suffice. 5 Eugene McQuillin, Municipal Corporations § 16.56, at 275 (3d ed. 1989); Trautman, at 75. Here, the temporary critical areas ordinance did not even say that its adoption was necessary for the immediate preservation of the public peace, health, or safety. Rather, it simply stated that its enactment "will promote the public health, safety, and general welfare". Clerk's Papers, at 24. Thus, the county council did not characterize the ordinance as emergency legislation immune from referendum under *363 the county code, nor should this court regard it as such. While highly beneficial, the planned development of critical environmental areas does not qualify as emergency legislation. Thus, it is not excepted from referendum under article 5, section 5.50 of the Whatcom County Code.
Finally, I neither agree nor disagree with the majority's analysis of the Planning Enabling Act because I do not see what conclusion the majority draws from that analysis. The majority cites no provision in the Planning Enabling Act that prevents the exercise of referendum rights. Suffice it to say that I, too, think that the Planning Enabling Act and the Growth Management Act can be read consistently and harmoniously to carry out their intended legislative purpose, and that this purpose is not thwarted by allowing referendum rights with regard to critical areas ordinances.
In conclusion, I note that the content of the referendum is not at issue in this case, and I will not comment on it. What is at issue here is the right of the voters of Whatcom County to challenge an ordinance enacted by their county council. I can see no reason why this court should conclude that the referendum rights granted such voters under the Whatcom County Home Rule Charter are in conflict with the statutes governing passage of critical areas ordinances. Accordingly, I would affirm the Superior Court's grant of summary judgment upholding the referendum amending portions of Whatcom County's temporary critical areas ordinance.
NOTES
[1] In an affidavit Respondent signed his name "Stephen W. Brisbane". Clerk's Papers, at 155.
[2] Clerk's Papers, at 22-25.
[3] Clerk's Papers, at 16.
[4] Clerk's Papers, at 16. Whatcom County voters approved the referendum at the November 3, 1993 election.
[5] Clerk's Papers, at 15-18.
[6] Clerk's Papers, at 7-8.
[7] Clerk's Papers, at 8.
[8] RCW 36.70A.010.
[9] WAC 365-190-020.
[10] RCW 36.70A.040(1) was amended in 1993 and provides in relevant part:
"Each county that has both a population of fifty thousand or more ... shall conform with all of the requirements of this chapter." (Italics ours.)
[11] RCW 36.70A.040(3) was amended in 1993 and provides in relevant part:
"Any county ... required to conform with all of the requirements of this chapter under subsection (1) of this section shall take actions under this chapter as follows: (a) The county legislative authority shall adopt a county-wide planning policy under RCW 36.70A.210; (b) the county ... shall designate critical areas, ... and adopt development regulations... protecting these designated critical areas, under RCW 36.70A.170 and 36.70A.060; (c) the county shall designate and take other actions related to urban growth areas under RCW 36.70A.110; (d) if the county has a population of fifty thousand or more, the county ... shall adopt a comprehensive plan under this chapter and development regulations that are consistent with and implement the comprehensive plan on or before July 1, 1994...." (Italics ours.)
[12] The text of the ordinance consists of approximately 128 pages. The amendments under the referendum struck words almost indiscriminately throughout the ordinance. See Clerk's Papers, at 27-145.
[13] Clerk's Papers, at 27.
[14] Any county may frame a `Home Rule' charter for its own government subject to the Constitution and laws of this state...."
[15] The Whatcom County Code art. 5, § 5.10 (1993) provides in relevant part:
"The people of Whatcom County reserve to themselves the power to make certain proposals, at their option, and to enact or reject them all at the polls, independent of the County Council."
The Whatcom County Code art. 5, § 5.50 (1993) specifically provides for referendum:
"The second power reserved by the people is the referendum. It may be ordered on any act, or bill, or ordinance, or any part thereof passed by the County Council except such ordinances as may be necessary for the immediate preservation of the public peace, health or safety or support of the county government and its existing public institutions. Upon registration and validation of a referendum petition, the measure will be ineffective pending the outcome of the referendum procedure...."
This language closely parallels the language of Const. art. 2, § 1(b) (amend. 72) providing for referendum applicable to state laws.
[16] Snohomish Cy. v. Anderson, 123 Wash. 2d 151, 158, 868 P.2d 116 (1994).
[17] Anderson, at 158 (quoting Henry v. Thorne, 92 Wash. 2d 878, 881, 602 P.2d 354 (1979)).
[18] For example, former RCW 36.70A.040(3) provides:
"Any county or city that is required to adopt a comprehensive land use plan under subsection (1) of this section shall adopt the plan on or before July 1, 1993. Any county or city that is required to adopt a comprehensive land use plan under subsection (2) of this section shall adopt the plan not later than three years from the date the county legislative body takes action as required by subsection (2) of this section." (Italics ours.)
[19] Anderson, at 156.
[20] (Citations omitted.) Citizens for Financially Responsible Gov't v. Spokane, 99 Wash. 2d 339, 344-45, 662 P.2d 845 (1983).
[21] 123 Wash. 2d 151, 868 P.2d 116 (1994).
[22] Anderson, at 155.
[23] Anderson, at 155.
[24] Anderson, at 156 (citing, e.g., State ex rel. Bowen v. Kruegel, 67 Wash. 2d 673, 409 P.2d 458 (1965); State ex rel. Haas v. Pomeroy, 50 Wash. 2d 23, 308 P.2d 684 (1957); Neils v. Seattle, 185 Wash. 269, 53 P.2d 848 (1936)). See also Paget v. Logan, 78 Wash. 2d 349, 474 P.2d 247 (1970) (court distinguished situation where authority is delegated to electorate from that where authority is delegated to "legislative authority". Referendum rights are not permitted in the latter.).
[25] Anderson, at 159.
[26] In RCW 36.70A.010, the Legislature considered and balanced the interests of the "citizens, communities, local governments, and the private sector" in developing the Growth Management Act.
[27] Anderson, at 158-59.
[28] (Italics ours.) Anderson, at 157. One commentator has noted that some "statutes scattered throughout the code authorize the initiative and referendum for particular subjects". Philip A. Trautman, Initiative and Referendum in Washington: A Survey, 49 Wash. L. Rev. 55, 77 (1973).
[29] Clerk's Papers, at 22.
[30] (Italics ours.) Clerk's Papers, at 24.
[31] State ex rel. Guthrie v. Richland, 80 Wash. 2d 382, 387, 494 P.2d 990 (1972).
[32] Guthrie, at 385. See also Seattle Bldg. & Constr. Trades Coun. v. Seattle, 94 Wash. 2d 740, 747, 620 P.2d 82 (1980); State ex rel. Bowen v. Kruegel, 67 Wash. 2d 673, 679, 409 P.2d 458 (1965).
[33] RCW 36.70.010.
[34] RCW 36.70.030; 36.70.040; 36.70.320.
[35] Ellensburg v. State, 118 Wash. 2d 709, 713, 826 P.2d 1081 (1992) (quoting Employco Personnel Servs., Inc. v. Seattle, 117 Wash. 2d 606, 614, 817 P.2d 1373 (1991)). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2611952/ | 20 Kan. App. 2d 90 (1994)
STATE OF KANSAS, Appellee,
v.
PHILLIP BRIAN HOUDYSHELL and FLOYD F. HOUDYSHELL, Appellants.
No. 71,250
Court of Appeals of Kansas.
Opinion filed November 4, 1994.
Gregory G. Lower, of Cassell & Lower, of Wichita, and Dennis D. Webb, of Wichita, for appellant.
Chris O. Concannon, county attorney, and Robert T. Stephan, attorney general, for appellee.
Before BRAZIL, P.J., GERNON, J., and C. FRED LORENTZ, District Judge, assigned.
BRAZIL, J.:
Phillip Brian Houdyshell and his brother Floyd F. Houdyshell appeal from the district court's findings regarding the offense severity levels for their crimes under the Kansas Sentencing Guidelines Act (KSGA), K.S.A. 1993 Supp. 21-4701 et seq. Floyd also appeals from his jury conviction for aggravated battery. We affirm in part, reverse in part, and remand.
The parties were ordered to show cause why this appeal should not be limited to the district court's order on the KSGA sentence it would have imposed. This court noted that it appeared the notice of appeal in this case was not filed within the statutory time limits which would allow the Houdyshells to raise conviction issues. The documents on file indicated sentence was pronounced on July 14, 1993, and a motion to modify was not filed within 120 days. Therefore, the notice of appeal filed February 24, 1994, was beyond the 130-day limitation of K.S.A. 1993 Supp. 22-3608(1) and K.S.A. 1993 Supp. 21-4603(d)(1).
The Houdyshells responded in part by noting that they had filed motions to modify on July 21, 1993, which would extend their time for filing a notice of appeal. These motions were not included at the time of docketing but subsequently have been filed with the Clerk of the Appellate Courts.
State v. Ji, 255 Kan. 101, 108-10, 872 P.2d 748 (1994), held that when the defense files a timely motion to modify, the time for filing a notice of appeal is extended for 10 business days after the district court files its journal entry ruling on the motion to modify.
Once the first motions to modify are considered, this appeal is timely for conviction issues. The Houdyshells were sentenced *92 on July 14, 1993. The defense filed motions to modify on July 21, 1993 7 days into the 120-day time limit. The district court denied these motions and filed a journal entry on February 14, 1994. A notice of appeal for both Houdyshells was filed on February 24, 1994, eight business days later. Therefore, under Ji, the notice of appeal is timely, and this court can consider conviction issues as well as KSGA issues.
The jury found both brothers guilty of aggravated battery.
Floyd argues a rational factfinder could not have found him guilty beyond a reasonable doubt even when the evidence is viewed in the light most favorable to the prosecution. He states there is no evidence that would support a conclusion that he was either directly involved in an aggravated battery or aided and abetted in an aggravated battery. The State asserts Floyd was clearly an aider and abettor to the crime and that this court should not retry the case or reweigh the evidence.
In reviewing the sufficiency of the evidence, this court should look to all of the evidence in the light most favorable to the prosecution and determine whether "a rational factfinder could have found the defendant guilty beyond a reasonable doubt." State v. Graham, 247 Kan. 388, Syl. ¶ 5, 799 P.2d 1003 (1990). Further, this court should not review jury determinations on the credibility of a witness; credibility of a witness is an issue for the factfinder to determine. State v. Wade, 244 Kan. 136, 146, 766 P.2d 811 (1989).
K.S.A. 1993 Supp. 21-3205(1) provides that a person can be "criminally responsible for a crime committed by another if such person intentionally aids, abets, advises, hires, counsels or procures the other to commit the crime." Further,
"[m]ere association with the principals who actually commit the crime or mere presence in the vicinity of the crime are themselves insufficient to establish guilt as an aider and abettor; however, when a person knowingly associates himself with the unlawful venture and participates in a way which indicates he willfully is furthering the success of the venture, such evidence of guilt is sufficient to go to the jury." State v. Dunn, 243 Kan. 414, 429, 758 P.2d 718 (1988).
Taken in the light most favorable to the prosecution, without re-evaluating the credibility of the witnesses, the evidence in this *93 case showed that Floyd grabbed Truman Cross from behind. Phillip punched Cross. Although, there is no evidence Floyd punched Cross or held him while Phillip punched him, when viewed in the light most favorable to the prosecution, the evidence that Floyd grabbed Cross supports an inference that Floyd intentionally aided and abetted Phillip in punching Cross. The aggravated battery conviction is affirmed.
Phillip was sentenced to 5 to 20 years, and Floyd was sentenced to 4 to 12 years. At a subsequent hearing, the court calculated the appropriate offense severity level under KSGA to be a severity level 4 for each brother, thus denying them retroactive application of the KSGA.
K.S.A. 21-3414, the statute under which the Houdyshells were convicted, provides:
"Aggravated battery is the unlawful touching or application of force to the person of another with intent to injure that person or another and which either:
(a) Inflicts great bodily harm upon him; or
(b) Causes any disfigurement or dismemberment to or of his person; or
(c) Is done with a deadly weapon, or in any manner whereby great bodily harm, disfigurement, dismemberment, or death can be inflicted."
K.S.A. 1993 Supp. 21-3414 subdivides aggravated battery into four different offense severity levels. K.S.A. 1993 Supp. 21-3414(a) provides:
"Aggravated battery is:
(1)(A) Intentionally causing great bodily harm to another person or disfigurement of another person; or
(B) intentionally causing bodily harm to another person with a deadly weapon, or in any manner whereby great bodily harm, disfigurement or death can be inflicted; or
(C) intentionally causing physical contact with another person when done in a rude, insulting or angry manner with a deadly weapon, or in any manner whereby great bodily harm, disfigurement or death can be inflicted; or
(2)(A) recklessly causing great bodily harm to another person or disfigurement of another person; or
(B) recklessly causing bodily harm to another person with a deadly weapon, or in any manner whereby great bodily harm, disfigurement or death can be inflicted."
K.S.A. 1993 Supp. 21-3414(b) further specifies:
*94 "Aggravated battery as described in subsection (a)(1)(A) is a severity level 4, person felony. Aggravated battery as described in subsections (a)(1)(B) and (a)(1)(C) is a severity level 7, person felony. Aggravated battery as described in subsection (a)(2)(A) is a severity level 5, person felony. Aggravated battery as described in subsection (a)(2)(B) is a severity level 8, person felony."
The district court noted that in order to impose sentence under the KSGA, somehow it had to adduce what the county attorney would have charged under the new, modified statutes and of what crime the jury would have found the defendants guilty. The court stated it remembered these cases well and found that the evidence showed there "was an intentional causing of great bodily harm by these defendants to ... the victim." Therefore, the court calculated each brother's offense severity level to be a 4.
The Houdyshells argue that the trial court erred in determining their offense severity scores because it, in effect, found that a jury would have convicted them of a more serious crime under the new statutes than the crime with which they were charged. They argue the jury was never required to decide whether they intended to inflict great bodily harm on Cross and therefore it was inappropriate for the district court to find they intended to inflict great bodily harm when determining their offense severity scores. The Houdyshells contend the only way to determine an appropriate offense severity level is to look at the language of the information or complaint upon which a defendant stood trial and determine what offense and offense severity level that crime would convert to under the KSGA.
The State argues that the courts should look to the evidence adduced at trial and keep in mind that defendants are presumed to intend the natural and probable consequences of their acts when determining an appropriate offense severity level. It contends K.S.A. 1993 Supp. 21-3414 was rewritten so a court could rank a defendant's offense severity for aggravated battery based first upon the harm done and, second, upon the defendant's intention. Because the offense severity level is based primarily upon the ultimate harm done to the victim, it was appropriate for the district court in this case to find the Houdyshells' offense severity levels should be the highest available for aggravated battery.
*95 Whether the district court erred in determining the Houdyshells' offense severity levels involves an interpretation of the KSGA. Interpretation of a statute is a question of law. State v. Donlay, 253 Kan. 132, 853 P.2d 680 (1993). Therefore, this court's review of this issue is unlimited, and this court is not bound by the determinations of the district court. Memorial Hospital Ass'n, Inc. v. Knutson, 239 Kan. 663, 668, 722 P.2d 1093 (1986).
K.S.A. 1993 Supp. 21-4724(f) mandates that the district court shall calculate what the appropriate sentence would have been under the KSGA for an offender sentenced after July 1, 1993, for a pre-July 1, 1993, crime. The statute gives no guidance on how a district court should calculate an appropriate offense severity level under the new law. In most circumstances, this calculation should not be a problem because the court can look at the offense of conviction under the old law and simply look to the new statutes to determine what offense severity level that crime is under the new statute. The problem arises in cases where, as in the aggravated battery statute, the statute has been amended effective July 1, 1993, and has been subdivided into different offense severity levels depending on the circumstances of the crime. The district court must determine what offense severity level is appropriate for the crime of conviction.
The Houdyshells were each charged with unlawfully touching or applying force to Cross "with the intent to injure that person and which inflicted great bodily harm upon him or was done in a manner whereby great bodily harm, disfigurement, dismemberment, or death could be inflicted."
Based on the language of the information, the Houdyshells' crime should be considered aggravated battery under K.S.A. 1993 Supp. 21-3414(a)(1)(B) or (C), because the State did not charge the Houdyshells with intentionally causing great bodily harm. Therefore, they would have an offense severity level of 7.
The crime for which the Houdyshells were charged and convicted required the State to prove: (1) intent to injure and (2) great bodily harm was inflicted or could have been inflicted. The information filed against both Houdyshells and the instruction *96 given by the trial court closely followed the language of the former aggravated battery statutes and included both elements.
The severity level 4 version of aggravated battery as calculated by the trial court contained an additional element not included in the former aggravated battery statute: intent to commit serious bodily harm. This additional element was neither alleged nor proven in the Houdyshell cases.
It was error for the trial court to relieve the State of its burden to prove this element of the crime when it calculated the offense severity level as 4 in both cases, thus denying the Houdyshells the right to conversion of sentence under the KSGA.
In any criminal case, the information, complaint, or indictment is "the jurisdictional instrument upon which the accused stands trial." State v. Chatmon, 234 Kan. 197, 204-05, 671 P.2d 531 (1983). If the district court has no jurisdiction over the offense, it has no power to pronounce sentence for that offense. 234 Kan. at 205. If all essential elements of a crime are not charged in a complaint, or the crime is not a lesser included crime of the offense charged, the district court may not impose sentence for the crime not charged. Here, one of the essential elements of a severity level 4 aggravated battery, intent to do serious bodily harm, was not charged; therefore, the district court had no power to calculate the Houdyshells' KSGA sentence as though they had been convicted of a severity level 4 aggravated battery.
Further, in In re Winship, 397 U.S. 358, 364, 25 L. Ed. 2d 368, 90 S. Ct. 1068 (1970), the Supreme Court explicitly held that "the Due Process Clause protects the accused against conviction except upon proof beyond a reasonable doubt of every fact necessary to constitute the crime with which he is charged." Mullaney v. Wilbur, 421 U.S. 684, 44 L. Ed. 2d 508, 95 S. Ct. 1881 (1975), applied the rule from Winship in a sentencing context. In that case, the State considered the crime of homicide one crime but subdivided it into two separate kinds of homicide, murder and manslaughter. Malice was an essential element of murder. The element of malice was implied unless the defendant could show by a preponderance of the evidence that he or she acted in the heat of passion. 421 U.S. at 686. The Court found that the *97 safeguard of Winship, the requirement of proof beyond a reasonable doubt of all elements of the offense including malice, was required because of the large difference in sentencing for the two forms of homicide. 421 U.S. at 698.
In this case as in Mullaney, a crime has been subdivided into separate types of the same crime with the more severe crime having an element not included in the lesser. Due process requires proof beyond a reasonable doubt of every element of the greater type of the crime before a court may sentence a defendant for that crime. Therefore, because the State neither alleged nor was required to prove to the jury intent to do serious bodily harm beyond a reasonable doubt, the district court erred in calculating the Houdyshells' KSGA sentence as a severity level 4 aggravated battery offense.
Floyd Houdyshell's conviction for aggravated battery is affirmed. The trial court's findings regarding the offense severity levels of both defendants are reversed, and the case is remanded for further proceedings. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2345023/ | 716 F. Supp. 84 (1989)
In re AIR CRASH DISASTER NEAR WARSAW, POLAND, ON MAY 9, 1987.
THIS ORDER RELATES TO Filus 87 C 4252.
No. MDL 787. No. 87 C 4252.
United States District Court, E.D. New York.
June 26, 1989.
Kreindler & Kreindler (Milton G. Sincoff and Lori B. Lasson, of counsel), New York City, for plaintiff.
Wolf Popper Ross Wolf & Jones (John Mage and Michael P. Fuchs, of counsel), New York City, for defendant Union of Soviet Socialist Republics.
Condon & Forsyth (Desmond T. Barry, of counsel), New York City, for defendant LOT Polish Airlines.
MEMORANDUM AND ORDER
NICKERSON, District Judge.
Plaintiff brought this action against LOT Polish Airlines (LOT) and the Union of Soviet Socialist Republics by its agencies or instrumentalities (the Soviet defendant). Plaintiff sues as administratrix of the estates of her husband and of her daughter, both of whom died in the crash of a jet plane operated by LOT and manufactured and sold to it by the Soviet defendant.
The crash occurred on May 9, 1987 soon after the aircraft took off from Warsaw, Poland for a flight to Kennedy Airport, New York. According to plaintiff, both passengers purchased round-trip tickets in the United States from LOT or its agent and were returning to New York.
The complaint says that two of the aircraft's engines failed, causing a fire that led to the crash, and that LOT was negligent and committed willful misconduct in the operation, maintenance, and repair of the engines.
Plaintiff claims that the Soviet defendant sold the aircraft to LOT (presumably in Poland or the Union of Soviet Socialist Republics) along with manuals and instructions *85 for operating, servicing, and overhauling the engines; that the Soviet defendant was negligent in the design, manufacture, assembly, inspection, and servicing of the aircraft and its engines; and that it negligently gave inadequate warnings and instructions for safe operation, maintenance, repair, inspection, and overhaul to LOT and failed to warn LOT and plaintiff's decedents that the aircraft and its engines were defective and unairworthy.
The complaint invoked the court's jurisdiction under 28 U.S.C. § 1330(a), which provides, in pertinent part, that federal district courts shall have jurisdiction of a non-jury civil action against "a foreign state," as defined in 28 U.S.C. § 1603(a), "as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity" under 28 U.S.C. §§ 1605-1607 or under an international agreement.
After plaintiff moved for the entry of a default judgment against the Soviet defendant, and it in turn moved to dismiss the case because the court had no subject matter jurisdiction under 28 U.S.C. § 1330(a), plaintiff served interrogatories relating to the motion to dismiss. The defendant objected, and this court referred the matter to Magistrate John L. Caden for a decision. The Magistrate overruled the objections.
The court has before it the appeal from the magistrate's order. The Soviet defendant urges that this court has no subject matter jurisdiction under 28 U.S.C. § 1330.
That section was added as a part of the Foreign Sovereign Immunities Act of 1976 (the Act), the other parts of which are codified at 28 U.S.C. §§ 1602-1611. The Act was adopted in response to a concern that there were no comprehensive statutory provisions to inform parties when they could sue on a legal claim against a foreign state and no firm standards as to when a foreign state might validly assert the defense of foreign immunity. H.Rep. No. 1487, 94th Congress, 2d Session, 7 (1976), reprinted in 1976 U.S.Code Cong. & Admin.News, at 6604, 6605 (herein House Report). Prior to adoption of the Act the ultimate determination of whether to recognize foreign sovereign immunity in court rested with the Department of State. Id. at 8-9. See also Ex Parte Peru, 318 U.S. 578, 63 S. Ct. 793, 87 L. Ed. 1014 (1943); Republic of Mexico v. Hoffman, 324 U.S. 30, 65 S. Ct. 530, 89 L. Ed. 729 (1945). As a result, a private claimant against a foreign state faced considerable uncertainty as to whether the claim would be decided "on the basis of nonlegal considerations through the foreign government's intervention with the Department of State." House Report, supra, at 9, U.S.Code Cong. & Admin. News 1976, p. 6607.
In the Act Congress set standards and left sovereign immunity decisions pursuant to those standards exclusively to the courts, thereby discontinuing the practice of judicial deference to "suggestions of immunity" from the Department of State. Id., at 12.
Congress accomplished its purpose by specifying the categories of cases in which a foreign state (defined in 28 U.S.C. § 1603 to include its agents and instrumentalities) might be sued. The Act provides in 28 U.S.C. § 1604 that a foreign state "shall be immune from the jurisdiction" of the courts, federal and state, except in the classes of cases spelled out in 28 U.S.C. §§ 1605 to 1607. For purposes of the present case the two pertinent categories are set forth in 28 U.S.C. § 1605(a)(2). So far as relevant that subsection provides:
(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case
. . . . .
(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere....
The court assumes without deciding that the Soviet defendant and its instrumentalities constitute a "foreign state" as defined in 28 U.S.C. § 1603 and considers the application of § 1605(a)(2).
*86 Plaintiff argues that this case falls into both of the two separate and self-contained categories described in § 1605(a)(2).
Plaintiff says the action comes within the first clause as an "action" "based upon a commercial activity carried on in the United States." The "activity" to which plaintiff points consists of regular flights of the Soviet airline Aeroflot to and from Moscow and the United States, Aeroflot's maintenance of an office here, and an advertisement in the Wall Street Journal by Aviaexport USSR reciting that it supplies aircraft and engines and other equipment for such aircraft and for servicing and repair of aircraft.
No doubt Aeroflot's regular operation of its business here is "commercial activity carried on in the United States" within the meaning of the first clause of 28 U.S.C. § 1605(a)(2). Presumably such activities would be enough to show that a defendant was doing sufficient "business" to satisfy due process and subject the defendant's person to the jurisdiction of the court even in an action raising claims that do not arise from those activities. But in the first clause of § 1605(a)(2) Congress did not exercise its full constitutional power and grant this court subject matter jurisdiction over every case against a foreign state over which personal jurisdiction could be obtained. The clause restricted subject matter jurisdiction to an "action based upon" the commercial activity.
This action is not "based upon" the Soviet defendant's activity in the United States. The business conducted by Aeroflot here and the placing of an advertisement in the Wall Street Journal have no connection to the Soviet defendant's alleged negligence said to have caused the crash. Plaintiff's decedents had no dealings or contact with Aeroflot's business or with the advertisement. The negligent acts outside the United States were not an "integral part" of Aeroflot's business here or of the advertisement. There is no "nexus" between the cause of action asserted by plaintiff and the commercial "activity" here. See Barkanic v. CAAC, 822 F.2d 11, 13 (2d Cir.), cert. denied, ___ U.S. ___, 108 S. Ct. 453, 98 L. Ed. 2d 393 (1987); Harris v. VAO Intourist Moscow, 481 F. Supp. 1056, 1060-61 (E.D.N.Y.1979); Castillo v. Shipping Corp. of India, 606 F. Supp. 497 (S.D.N.Y. 1985). The first clause of 28 U.S.C. § 1605(a)(2) is therefore inapplicable.
Plaintiff also urges that the second clause of 28 U.S.C. § 1605(a)(2) applies, claiming that the action is "based" "upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere." Plaintiff contends that the "act" performed here by the Soviet defendant was its "failure to warn" LOT and plaintiff's decedents that the aircraft and its engines were defective and unairworthy.
Although, as noted above, Congress did not in the Act exercise its full constitutional power to give federal district courts subject matter jurisdiction over any case where personal jurisdiction could be obtained, Congress did make subject matter jurisdiction dependant on factors usually relevant to personal jurisdiction. House Report, supra, at 13-14. The House Report states that the "immunity provisions" in the Act "prescribe the necessary contacts which must exist before our courts can exercise personal jurisdiction." Id. Indeed, the language used by Congress was "patterned after the long-arm statute Congress enacted for the District of Columbia." House Report, supra, at 13, U.S. Code Cong. & Admin.News 1976, p. 6612. Congress thus assumed that each of the activities upon which a claim must be "based" under § 1605(a)(2) would itself be enough to subject a defendant to personal jurisdiction.
By making in the second clause of § 1605(a)(2) the "act" performed here in connection with commercial activity elsewhere the "act" upon which the claim must be "based," Congress intended that the word "act" be interpreted in the same sense as it has in determining personal jurisdiction. Therefore, decisions determining whether a "failure to warn" is itself a sufficient basis for long-arm jurisdiction are pertinent in deciding whether Congress intended a mere "failure to warn" to be *87 considered an "act" on which a withholding of sovereign immunity should be based.
The House Report makes clear that the claim must "arise" from a "specific act" performed in the United States and adds:
it should be noted that the acts (or omissions) encompassed in this category are limited to those which in and of themselves are sufficient to form the basis of a cause of action.
House Report, supra, at 19, U.S.Code Cong. & Admin.News 1976, p. 6618. An example the House Report gives of the kind of "act" contemplated is "an act in the United States that violates U.S. securities laws or regulations." Id.
While the House Report adverts to "omissions," the reference is plainly to omissions in connection with the type of "act" such as one "that violates U.S. securities laws or regulations." Several such laws and regulations make it a fraud to omit to state a material fact necessary to make statements made, under the circumstances, not misleading. See, e.g., Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10(b)-5 of the Rules of the Securities and Exchange Commission.
Thus, the "omissions" mentioned in the House Report should in fairness be taken to mean omissions in connection with some specific "act" to which the second clause of § 1605(a)(2) refers. There is no such "act" in this case.
The court in Four Corners Helicopters, Inc. v. Turbomeca, S.A., 677 F. Supp. 1096, 1099 (D.Colo.1988), reached a similar conclusion, holding that a failure to warn was insufficient to give the court subject matter jurisdiction under the Act over a foreign manufacturer of an aircraft that crashed in the United States, albeit the court did not articulate its reasons for so holding.
Moreover, it is hard to see how a failure to act can be deemed an "act." Certainly mere failure to warn by a defendant does not "furnish the minimum contact" needed to confer jurisdiction. Several courts have so held. Chlebda v. H.E. Fortna & Bro., Inc., 609 F.2d 1022, 1023-24 (1st Cir.1979); Carty v. Beech Aircraft Corp., 679 F.2d 1051, 1060-65 (3d Cir.1982) (involving Virgin Islands statute giving personal jurisdiction over a person "causing tortious injury by an act or omission in this territory"). Since the Act makes the mere performance of a single "act" performed here the act on which the claim must be based, these cases are persuasive authority for reading the second clause of § 1602(a)(2) to require an "act" and not merely a failure to warn.
This court decides that the Soviet defendant is immune from the jurisdiction of this court. To the extent that Bland v. Union of Soviet Socialist Republics, 17 Av.Cas. (CCH) 17, 430 (E.D.N.Y.1982), and Gayda v. Union of Soviet Socialist Republics, 10 Av.Cas. (CCH) 17, 634 (E.D.N.Y.1987), are inconsistent the court respectfully declines to follow them.
The complaint against the Soviet defendant is dismissed.
Pursuant to Rule 54(b) of the Federal Rules of Civil Procedure the court directs the entry of a final judgment dismissing the complaint as to the Soviet defendant; the court determines that there is no just reason for delay.
So ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1471648/ | 303 S.W.2d 769 (1957)
Merlin QUINN et al., Petitioners,
v.
Jake DUPREE, Respondent.
No. A-5905.
Supreme Court of Texas.
June 19, 1957.
Rehearing Denied July 17, 1957.
*771 Albert B. Tarbutton, Jr., Lone Star, for Lone Star Steel Co.
C. M. Winkle, Pittsburg, for First Nat'l Bank of Pittsburg, Texas.
Florence, Florence & Garrison, Gilmer, Woodrow H. Edwards, Mt. Vernon, for Quinn.
Fulton, Hancock & McClain, Gilmer, for respondent.
PER CURIAM.
This is a controversy between creditors over money which accrued to their debtor, Merlin Quinn, under his contract to haul ore for Lone Star Steel Company. On November 14, 1953, Jake Dupree, respondent, recovered judgment against Quinn for $5,464.80. There is a credit of $2,000 on the judgment, and the balance unpaid thereon is $3,464.80. On January 6, 1954, Quinn executed to the Pittsburg National Bank an assignment which is set out in full in the opinion of the Court of Civil Appeals. After reciting that the assignor has a contract to haul ore for Lone Star, is indebted to the bank for trucks, accessories and borrowed money, and may become indebted to it in various sums thereafter, and that the bank has requested additional security for the indebtedness, the instrument provides that "* * * I, Merlin Quinn, for and in consideration of securing my indebtedness due the * * * Bank * * * as of this date, as well as in order to secure the payment of any indebtedness I may hereafter owe to the * * * Bank * * * do hereby unconditionally transfer, assign and set over to the * * * Bank * * * any and all sums of money that may be due and owing to me by Lone Star Steel Company under and by virtue of my contract with it * * * and hereby authorize and direct Lone Star Steel Company * * * to forward any and all sums of money due and payable to me to the * * * Bank * *."
On March 6, 1954, and again on April 5, 1955, respondent sued out writs of garnishment against Lone Star, which answered that it had $1,963.20 when the first writ was served, and $3,084.91 at the time the second writ was served, that had accrued under its contract with Quinn and which was payable to the bank under the assignment. The bank intervened, claiming a right to recover the amount Quinn owed it at the time. Quinn also answered and denied respondent's right to any of the money. Respondent controverted the garnishee's answers, and attacked the assignment on a number of grounds, which will be discussed later in the opinion. The Government asserted a claim of $923.20 for unpaid transportation taxes owing by Quinn.
After a trial to the court without the intervention of a jury, judgment was entered allocating the $3,084.91 as follows: (1) $923.20 plus interest to the Government; (2) $1,274.18 plus interest to the bank; (3) $125 to the garnishee as its attorney's fees; (4) court costs; and (5) the balance to respondent. All parties recognize that the $923.20 owing to the Government is a preference claim. The Court of Civil Appeals concluded that the assignment is void for a number of reasons, and modified the judgment of the trial court so as to allow the bank no recovery out of the fund in controversy. 290 S.W.2d 329. The bank, Quinn and Lone Star are petitioners in this Court, but the main dispute is between the *772 bank and respondent and turns on the validity of the assignment.
We shall assume, as the parties seem to do, that the assignment was intended to cover money thereafter accruing, as well as any then owing, to Quinn under his contract with Lone Star. The Court of Civil Appeals held as a matter of law that the attempted assignment was void because: (1) there was no consideration therefor; (2) it was given with intent to delay, hinder and defraud creditors; and (3) the debtor never lost control of the funds. Petitioners attack each of these holdings by an appropriate point of error.
A brief statement of the evidence is necessary. When Quinn gave the assignment, he owed the bank an overdraft of $46.17 and a balance of $2,974.22 on notes secured by chattel mortgages on trucks and equipment. After the assignment was executed, the bank made him three additional loans aggregating $1,764.35 and from time to time carried overdrafts ranging from less than $50 to more than $150. Each of the additional loans was secured by a chattel mortgage. Two of these were paid prior to the trial, and the security for the third has been sold and the proceeds applied on the note. The total amount owing by Quinn to the bank at the time of trial was $1,274.18, and the bank has not foreclosed its other chattel mortgages.
Between the time of the assignment and the service of the writ of garnishment, the bank received $3,799.04 from Lone Star that had accrued under Quinn's hauling contract. $347.02 of this amount was applied on Quinn's indebtedness to the bank, and the remaining $3,452.02 was either paid to Quinn in cash or deposited to his credit. The funds were received by the bank in seven different checks over a period of about three months. In some instances the payments then due by Quinn to the bank were deducted from the money received and the balance was paid or credited to him. At other times the entire amount was turned over to the debtor, who then gave the bank his check for the payments due. On one occasion there was nothing due the bank and the entire check was delivered to and retained by Quinn.
The vice-president of the bank testified that at the time the assignment was made he did not consider the bank's security sufficient to take care of the indebtedness; that Quinn was being pressed by the bank to clean up his indebtedness or give further security; that the debtor requested the bank to carry an overdraft, saying that his equipment was old and the tires playing out, and that it looked like it wouldn't pay off; that Quinn was told that the bank would help him carry on his operations and if necessary extend the time on his chattel mortgages provided he would assign to the bank his funds from Lone Star; and that the making of further loans was contemplated by the bank and Quinn when the assignment was taken.
On the question of consideration respondent cites First State Bank of Aransas Pass v. Fuson, Tex.Civ.App., 185 S.W. 1042 (no writ). The creditor there had a written assignment but sought to recover by virtue of a prior oral agreement to assign. After observing that the oral agreement was merged in the written instrument, the court went on to say that there was no extension of the debt and consequently no consideration for the assignment. Since the assignee apparently was permitted to recover all that he was entitled to receive under the written assignment, the latter statement probably had reference to the oral agreement.
However that may be, the assignment here was executed as collateral security for indebtedness then or thereafter owing to the bank by Quinn. A pre-existing liability is sufficient consideration to support a mortgage given as security therefor, and there need not be a new consideration at the time of making the mortgage. See 59 C.J.S. Mortgages § 91, p. 136. The satisfaction of an antecedent debt is also deemed a valuable consideration *773 within the meaning of our statutes on fraudulent conveyances. See Adams v. Williams, 112 Tex. 469, 248 S.W. 673; Chauncey v. Gambill, Tex.Civ.App., 126 S.W.2d 775 (writ dis. judg. cor.); Mewhinney Mercantile Co. v. Goodnight, Tex. Civ.App., 135 S.W.2d 230 (no writ). It seems clear that Quinn's pre-existing indebtedness to the bank as well as the loans subsequently made to him are sufficient consideration to support the assignment.
The Court of Civil Appeals based its holding primarily upon the proposition that Quinn never lost control of the money. It is generally held that an attempted assignment is fraudulent in law and void if there is any reservation by the assignor of dominion over the subject matter that is inconsistent with an effective disposition of title or creation of a lien. The right of control may be reserved in the instrument of assignment, or by an agreement in pais, oral or written, or may be deduced from the acts and conduct of the parties notwithstanding a written agreement expressly excluding it. See Mitchell v. Scott, Tex.Civ.App., 14 S.W.2d 916 (no writ); Wilson v. Poland, Tex.Civ.App., 14 S.W.2d 890 (no writ); Benedict v. Ratner, 268 U.S. 353, 45 S. Ct. 566, 69 L. Ed. 991; Lee v. State Bank & Trust Co., 2 Cir., 38 F.2d 45. The cases make it clear, however, that this doctrine applies only when the power of dominion over the subject matter of the assignment is reserved to the assignor by the agreement of the parties.
Where the reservation is established by the terms of the instrument or by the uncontradicted evidence, the assignment may be held void as a matter of law. But here there was no express reservation of control by Quinn, and there is no direct evidence of an agreement or understanding to that effect. Respondent argues that it can be deduced from the conduct of the parties in permitting the debtor to have most of the money received by the bank from Lone Star, but this is an inference which can be drawn only by the trier of fact.
The judgment of the trial court upholds the assignment, and no findings of fact were requested or filed. It must be presumed then that the trial court resolved in the bank's favor every issue of fact raised by the evidence, and we must view the evidence in the light most favorable to these findings, disregarding all that is contrary thereto. North East Texas Motor Lines v. Dickson, 148 Tex. 35, 219 S.W.2d 795, 11 A.L.R. 2d 1065. The mere fact that the assignee of a chose in action collects and then permits the assignor to have part of the money does not establish conclusively that there was a prior understanding that this would be done or that the assignor had the right to direct the application of the money. If Blue v. Herkimer National Bank, 2 Cir., 30 F.2d 256, holds to the contrary, we do not regard the decision as sound. The vice-president of the bank testified that he was told by Quinn that the money was needed to pay salaries and operating expenses, and that the debtor could not have stayed in business if the bank had retained and applied on his indebtedness all money received from Lone Star. On the record in this case, the trial court was entitled to conclude, as it evidently did, that the money was not released to Quinn because of a prior agreement between the parties that this would be done, but that the bank permitted the debtor to have the funds simply as a matter of grace to enable him to stay in business. There is no basis then for applying the rule of the cases mentioned above.
The Court of Civil Appeals also held as a matter of law that the assignment was made with intent to hinder, delay and defraud creditors. Respondent points to the following circumstances as badges of fraud: (1) the admission of the vice-president of the bank that Quinn was insolvent when the assignment was taken; (2) the amount that will have passed through the hands of the bank under the holding of the trial court is disproportionate to the amount owed; (3) the surrender to the debtor of most of the funds received under *774 the assignment; (4) the execution of the assignment less than sixty days after respondent obtained his judgment; and (5) the failure of the bank to foreclose all of the chattel mortgages securing its indebtedness.
Every payment of a debt by an insolvent, whether made in money or property, tends in a popular sense to hinder, delay or defraud other creditors in the collection of their respective debts. In the same sense, the taking of a lien on part of an insolvent's property to secure a debt necessarily has the effect of hindering other creditors in the enforcement of payment of their debts by a sale of the entire interest in the property on which the lien is given. In the absence of a law declaring preferences invalid, however, every debtor has the right to pay or secure one or more of his just debts with any property he has, provided that no more property is transferred than is reasonably necessary to pay or secure the debt. A mere intention to prefer one creditor over the other thus will not vitiate the transaction, and the conveyance or security instrument will not be held void as to creditors unless it was executed with fraudulent intent or amounts to a fraud in law. See Ellis v. Valentine & Son, 65 Tex. 532; Adams v. Williams, 112 Tex. 469, 248 S.W. 673.
Whether a conveyance or lien instrument was made with intent to defraud creditors is ordinarily a question for the jury or the court passing on the fact. See King v. Russell, 40 Tex. 124; Kerr v. Hutchins, 46 Tex. 384. And the burden of proving fraudulent intent was on the respondent. Tillman v. Heller, 78 Tex. 597, 14 S.W. 700, 11 L.R.A. 628, 22 Am. St. Rep. 77. As pointed out in Van Hook v. Walton, 28 Tex. 59, if fraudulent intent is only to be deduced from facts and circumstances which the law considers as mere badges of fraud and not fraud per se, these must be submitted to the trier of fact, which draws the inference as to the fairness or fraudulent character of the transaction. There appears to be little doubt that the evidence in this case would support a finding that the assignment was made with fraudulent intent, but it cannot be said that such intent has been established as a matter of law.
The record does not show that the property covered by the bank's chattel mortgages is exempt from forced sale, and there is no basis for saying that the assignment appropriates to the bank's debts property which would otherwise be subject to the claims of creditors and frees property which they cannot reach. Nor do we think that the case falls within the rule announced in Gallagher v. Goldfrank, 75 Tex. 562, 12 S.W. 964. It was there said that while a creditor may take a mortgage upon his debtor's property to secure his debt even though the latter may be in failing circumstances, if at the same time he advances his debtor a sum of money and leaves it subject to the latter's control and attempts to secure its repayment in the same transaction, the mortgage is fraudulent in law and void.
The difference between the decision last cited and the present case is this: There the effect of the transaction was to place beyond the reach of creditors existing property which otherwise could have been subjected to the payment of their claims. Quinn's assignment recites that under his contract with Lone Star he is to receive $0.38 per long ton of ore hauled. The contract itself had little or no value, and the only property which could be subjected to claims of creditors would be the amounts owing to Quinn for services performed thereunder. There is no evidence to indicate that the amounts loaned to Quinn after the assignment and the money he was allowed to take out of the funds received from Lone Star were more than was reasonably necessary to enable him to continue operations under the contract. Where the subject matter of the assignment is money payable under a continuing contract of this character, it should not be said that the transaction is fraudulent per *775 se simply because the creditor continues to advance to his debtor enough money to perform his obligations under the contract. This may be the only way the debtor can expect to reap any benefit from the contract and thereby increase the assets available for paying his creditors.
This disposes of all of the grounds upon which the Court of Civil Appeals reversed the judgment of the trial court. Quinn argues that the latter court erred in upholding the assignment merely to the point where the bank suffers no loss. We assume he means that the entire fund should be paid to the bank so it may deliver any surplus to him. There is, of course, no merit in this contention. The assignment was given as security for the payment of his debts to the bank. Any balance remaining after payment of same belongs to him and is subject to the claims of his creditors. Petitioners' remaining points, which challenge the propriety of docketing the two garnishment proceedings under the same number and say that respondent should recover nothing because he contended in the trial court that Quinn had no interest in the suit, present no reversible error and are accordingly overruled.
The judgment of the Court of Civil Appeals is reversed, and the judgment of the trial court is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1131322/ | 496 So. 2d 668 (1986)
Larry Shelton HENTZ
v.
STATE of Mississippi.
No. 56831.
Supreme Court of Mississippi.
October 15, 1986.
*669 Jack R. Jones, III, Taylor, Jones, Alexander, Greenlee, Seale & Ryan, Southaven, for appellant.
Edwin Lloyd Pittman, Atty. Gen. by H.M. Ray, Sp. Asst. Atty. Gen., Jackson, for appellee.
En Banc.
GRIFFIN, Justice, for the Court:
This matter is before the Court on a finding of direct contempt, under Mississippi Code Annotated § 9-1-17 (1972), and summary punishment therefor. The appellant appeared as a defense witness in criminal cause No. 4151 in the Circuit Court of DeSoto County on June 27, 1984, to give testimony on behalf of the defendant, John Tailor Gullett, III, who was being tried for perjury. The appellant testified on June 27th, and a formal contempt citation was entered by the court on the following day. He was found to be in contempt on twenty-seven occasions during the course of his testimony for refusing to answer questions after being so ordered by the court. However, he was sentenced on only six, which six the record does not reveal, to thirty days on each for a total sentence of 180 days.
The background for this cause would interest authors of murder mystery novels. One James Williamson was killed and/or murdered apparently in Panola County. The record in this cause does not reveal the locus delicti. Participants charged in the capital murder of Williamson were the appellant, Larry Shelton Hentz, Williamson's wife "Cookie", and Owen Lee Harden referred to by the appellant as "Lee". Also participating or at least having guilty knowledge of the activities of the participants was the appellant's brother, Roger.
*670 The record here reveals that Harden, the appellant and Roger were incarcerated in several jails over North Mississippi extending from Hernando to Tupelo and Aberdeen, with involuntary visits to the Oxford jail in between. Where they were incarcerated together we are unable to determine from the record. Roger apparently made a deal with the prosecutors and agreed to be a state's witness in the prosecution of the other three. It is the state's theory, supported by evidence in the record, that Cookie planned the death of her husband, that she and the appellant were at least friendly enough to enjoy each other's company in motel rooms, and that she solicited his assistance in the murder of her husband. The appellant contacted Lee to perform the dastardly act. Also to render assistance in driving an automobile, just how this was to assist we do not know, was Roger.
Lee came on for trial in DeSoto County several counties in the Circuit District were the site of the various trials. Roger was called by the state apparently to testify concerning the conduct of his confederates in the Williamson murder. Gullett had occupied jail cells with the Hentz brothers, being incarcerated for some purpose other than the Williamson murder, and was offered as a defense witness. Gullett's indictment for perjury is not made a part of the record, but it is apparent that he was indicted because of testimony he gave on behalf of Harden wherein he stated that Roger, when a cellmate, said that he was wholly responsible for the murder of Williamson. The district attorney and the grand jury of DeSoto County apparently were not impressed.
In the meantime, the appellant's trial for capital murder came on to be heard in Tate County. During the course of this trial in November, 1983, he pled guilty after a reduction of the charge from capital murder to murder, and was sentenced to life imprisonment as a non-habitual offender. On May 14, 1984, he filed a "Petition for Writ of Habeas Corpus or, in the Alternative, Motion to Withdraw Guilty Plea", in the Tate County action. A copy of this document was made a part of this record by the defense.
As stated, he was called as a witness for Gullett on June 27, 1984. Prior to taking the stand, the court thoroughly instructed appellant as to all of the hazards that appearing as a witness presented, including contempt citation on a question-by-question basis, and appointed the public defender to be with him during the course of his testimony. The court also took a lengthy recess in order to allow a conference between appellant and his counsel. Counsel advised the appellant against testifying but nevertheless he took the stand on Gullett's behalf, and freely and voluntarily told that his brother, Roger, had lied on numerous occasions and, while he did not hear his brother tell Gullett that he, Roger, was responsible for Williamson's death, Roger himself told him that he had informed Gullett that he was the one responsible. Suffice it to say that his testimony on direct related to who killed Williamson.
The state believing, as did the trial judge and as does this Court, that the gate had been thrown wide open, asked on cross-examination question after question concerning the appellant's activities in the murder of Williamson, including statements given to investigating officers. Appellant acknowledged understanding the questions but on each he "pled the Fifth", even though advised by the Court that he must answer the question or be in contempt.
The appellant refused to answer the following series of questions:
Isn't it true that you told the officers that you asked Lee Harden to do the job for you?
Isn't it true that you told Cookie that you could get someone from out-of-state to kill James Williamson?
Isn't it true that you told the officers that sometime during January or February that you and Cookie had a little disagreement and you didn't discuss the murder for about a month?
Isn't it true that you told the officers that during the month of February that you and Cookie and Lee Harden went to *671 Arkansas for Lee Harden to meet Cookie's cousin?
Isn't it true that on Sunday, the 22nd day of March, that you told the officers that you and Cookie met in the motel room in Grenada?
Isn't it true that you told the officers that Cookie said that everything is ready, the insurance was taken care of, everything was ready to go, and Cookie asked you to get in contact with the man that was to commit the murder?
Isn't it true that you told the officers that at approximately 4:00 or 4:30 that morning Cookie was to go outside and feed the dogs so the killer could sneak into the house?
And that the murderer was suppose to come in through the back door and go to the bathroom and he was suppose to hide and wait in the bathroom until Cookie left the house. Is that what you told the officers?
Now, did you tell the officers that Lee Harden had a 12 guage [sic] shotgun and a gallon of gas and he was to pour the gasoline, shoot him, pour the gasoline in the room where he was and then go through the house lighting the curtains and then go on out the backdoor. Did you tell the officers that?
Did you tell the officers that Cookie and Lee didn't get along?
Did you tell the officers that Cookie treated Lee like a dog?
Did you tell the officers that Lee was to get $10,000.00 out of it?
Did you tell the officers that Lee Harden didn't collect his $10,000.00, that you would give Lee Harden $400.00 or $500.00 at a time or $200.00 or $300.00 at a time, that you couldn't recall how much money you had given Lee Harden?
Did you tell the officers that it would be hard for you to estimate how much money you gave Lee Harden but that it wasn't near $10,000.00?
Did you tell the officers that Roger Lynn was suppose to drive the car?
Did you tell the officers that Roger Lynn wasn't suppose to get anything out of it?
Did you tell the officers that you and Cookie had discussed killing Mrs. Mable Williamson, the 90 year old mother of James Williamson?
Did you tell the officers the reason you and Cookie discussed killing Mrs. Mable Williamson was because the land surrounding the home upon which Cookie and James lived, Mrs. Mable had a life estate in it, Cookie couldn't get any income from it?
Mr. Hentz, it is true that you and Cookie Williamson planned the murder of James Williamson, isn't it?
It is true that you recruited Owen Lee Harden to be the man to pull the trigger and burn down the house of James Williamson, isn't it?
Is it true that you recruited your younger brother, Roger Lynn Hentz, to drive one of the vehicles.
Several times during the course of his testimony the trial court did advise the appellant that he was in contempt of court. When he left the stand, which was apparently late in the day inasmuch as the record does show that there was a lunch recess at a previous time, the judge stated that he wanted the defendant "brought back into the court for these contempt matters". He was brought back the next day and, after he and his counsel were afforded opportunity to speak, which they did, punishment was imposed for six incidents.
The appellant makes no assertion that the cross examination was on immaterial matters; therefore, this issue is not before us. However, we point out that the questions were all directly related, as admitted by the defendant, to the murder of James Williamson. Appellant attempted to help a co-defendant by testifying that his brother was a liar. He wrote his mother that Gullett had not hurt Roger, inasmuch as Roger had a deal with the district attorney. At various points in the record, it is apparent that he was pleased with the testimony of Gullett inasmuch as it assisted his friend, *672 Harden therefore, bias. Also prior statements in his plea were totally inconsistent with his brother's alleged statement that he alone was responsible for the death of Williamson. All of these matters were proper to be considered by the jury in Gullett's trial in determining whether or not Gullett's statement was a fabrication constituting perjury.
Mississippi Code Annotated § 13-1-13 (1972) provides as follows:
Any witness may be examined touching his interest in the cause or his conviction of any crime, and his answers may be contradicted, and his interest or his conviction of a crime established by other evidence. A witness shall not be excused from answering any material and relevant question, unless the answer would expose him to criminal prosecution or penalty. (emphasis added)
Requiring the defendant here to answer the questions did not expose him to criminal prosecution for the murder of Williamson. He had already pled guilty. His Petition for Writ of Habeas Corpus or, in the Alternative, to Withdraw Guilty Plea came months after the term of court expired wherein he had pled and sentence had been entered. The petition must be considered as one under the Post-conviction Collateral Relief Act. It is interesting to note that the petition alleges that a plea bargain agreement was violated because he was charged with grand larceny as a habitual offender in Lafayette County. There is now outstanding an instanter capias on that charge. Assuming the allegation to be true, the state could not prosecute him for the grand larceny and it does not affect the verity of the plea to murder. The Constitutional Fifth Amendment privilege is intended to protect the witness and has no proper application when the witness is not in danger of prosecution or conviction. State v. Milam, 210 Miss. 13, 48 So. 2d 594 (1950), suggestion of error overruled 210 Miss. 26, 49 So. 2d 806 (1951).
9 A.L.R. 3d 994 cites United States v. Gernie (1958, CA2 NY) 252 F.2d 664, cert. den. 356 U.S. 968, 78 S. Ct. 1006, 2 L. Ed. 2d 1073, reh. den. 357 U.S. 944, 78 S. Ct. 1383, 2 L. Ed. 2d 1558 in which the following is said:
[T]he defendants were tried on charges of violating the narcotics laws. Also involved was one Harell, who prior to the trial pleaded guilty to transactions in narcotics and received a 5-year sentence. Thereafter the government called Harell as a witness for the prosecution on trial. He answered several questions, but finally invoked his privilege of self-incrimination and refused to testify further. His refusal was sustained, and the trial judge instructed the jury that the action of the witness was not to be considered by them against the defendants. Subsequently convicted, the defendants unsuccessfully contended on appeal that it was error for the government to call Harell to the stand when it had reason to know that he would refuse to testify under the Fifth Amendment. It was held not only that the government had the right to call the witness, but also that the latter could have been compelled to give testimony. The court mentioned that the judge below should have instructed the witness to testify, since he had already pleaded guilty and could not further incriminate himself.
In the supplement of the same text we find the following:
Also supporting view that plea of guilty constitutes waiver of privilege against self-incrimination:
US-Boykin v. Alabama, [1969] 395 U.S. 238, 23 L. Ed. 2d 274, 89 S. Ct. 1709;
U.S. v. Wells (CA9 [1969] Ariz) 430 F2d 225; U.S. v. Berlin (CA7 [1970] Ill) 437 F2d 901; U.S. v. Karger (CA1 [1971] Mass) 439 F2d 1108, cert den 403 U.S. 919, 29 LEd2d 696, 91 SCt 2230; U.S. v. Ready (CA4 [1972] Va) 460 F2d 1238; U.S. v. Escandar (CA5 [1972] Fla) 465 F2d 438; Davis v. U.S. (CA3 [1972] Pa) 470 F2d 1128; Sieling v. Eyman (CA9 [1973] Ariz) 478 F2d 211; United States v. Jerry (CA3 [1973] Pa) 487 F2d 600; Todd v. Lockhart (CA8 [1974] Ark) 490 F2d 626; *673 United States v. Fleming (CA7 [1974] Ill) 504 F2d 1045; Griffith v. Wyrick (CA8 [1975] Mo) 527 F2d 109; United States v. Damiano ([1978] CA6 Ohio) 579 F2d 1001.
We are further of the opinion that when the defendant voluntarily took the stand he waived his right to remain silent and that it was proper to require him to answer questions relevant to the issue involved.
In Autry v. State, 230 Miss. 421, 92 So. 2d 856 (1957), the defendant testified in his own behalf, and was then cross examined. After redirect, the defense rested. The state, though, had not rested and in rebuttal recalled the defendant. Objection was made under the Fifth Amendment to the Constitution of the United States and Section 26 of the Mississippi Constitution. The Court, in passing on the matter, had the following to say:
We do not know from the record whether Autry was still in the witness chair or had taken a seat beside his counsel when the State first requested permission to further examine him. However, we do not think that matters. The State had not closed its case. The State had the right to examine him, as a matter of procedure, by cross-examination or to lay a predicate, subject to limitations, in the sound discretion of the trial judge. It is not claimed here by Autry that, as a matter of procedure, the action was not justified. The argument is that Autry's constitutional rights were violated. Amend. V of the Constitution of the United States provides that no person "* * * shall be compelled in any criminal case to be a witness against himself." Article 3, Section 26, Mississippi Constitution of 1890, contains a provision that in criminal prosecutions an accused "shall not be compelled to give evidence against himself." However, it seems to be recognized by all of the courts that this immunity can be waived by the accused, and that he does so when he takes the stand and testifies on the merits of the case. The rule is stated in this language in 58 Am.Jur., "Witnesses", p. 80, section 96:
"An accused may waive his constitutional immunity from giving testimony against himself by offering himself as a witness. By electing to testify, the accused subjects himself to cross-examination and impeachment, and makes permissible comment by the prosecuting attorney upon his testimony. When he voluntarily takes the witness stand in his own behalf, he waives his constitutional privilege of not answering proper questions that may tend to convict him of the crime for which he is on trial, and, as has frequently been stated, he subjects himself to the same rules that govern other witnesses, and further, he subjects himself to cross-examination and impeachment to the same extent as any other witness in the same situation.
The constitutional rule against self-incrimination does not limit the cross-examination of an accused testifying in his own behalf, except that he may not be required to state facts constituting an independent crime, unless the answer to the question also tends to convict him of the offense charged or bears on any issue involved in the case. His voluntary offer of testimony upon any fact is a waiver as to all other relevant facts because of the necessary connection between them all. Under this rule the accused by taking the witness stand in his own behalf waives the constitutional guaranty against compulsory self-crimination not only as to matters about which he has given testimony in chief, but also concerning any matter pertinent to the issue on trial regardless of the extent of the direct examination, and cannot then refuse to testify to any fact which would be competent evidence in the case if proved by any other witness. * * *
"The waiver by the accused is not partial. Having once cast aside the cloak of immunity, he may not resume it at will *674 whenever cross-examination may be inconvenient or embarrassing."
92 So.2d at 861-62.
Autry is cited with approval in Chatman v. State, 244 Miss. 659, 145 So. 2d 707 (1962); Sanders v. State, 260 So. 2d 466 (Miss. 1972); Jones v. State, 381 So. 2d 983 (Miss. 1980); Cooley v. State, 391 So. 2d 614 (Miss. 1980). It is apparent that the rule announced in Autry remains the law in this state. Therefore, when the appellant voluntarily took the stand, testifying on the matter in connection with the truthfulness of his brother's statement, all of which was intertwined with the death of James Williamson, he waived his Fifth Amendment right and was subject to cross-examination on all relevant and material matters.
Basic fairness dictates that we so hold. In 1951, in Musselwhite v. State, 212 Miss. 526, 54 So. 2d 911, (1951), this Court recognized the unfairness of allowing a witness to tell only his version, and stated:
[W]here a witness in his direct examination voluntarily opens an account of a transaction, he will, on cross-examination, be compelled to complete the narrative notwithstanding his claim of privilege from testifying. He will not be allowed to state some facts as to a transaction and afterwards refuse to give the details as to related facts. 58 Am.Jur., Witnesses, Secs. 94-95; 8 Wigmore, Evidence, Sec. 2276. The opposite rule would permit a witness to give a biased and one sided version of a transaction.
More troublesome is the matter of punishment. Mississippi Code Annotated § 9-1-17 (1972) reads as follows:
The supreme, circuit, chancery and county courts shall have power to fine and imprison any person guilty of contempt of the court while sitting, but the fine shall not exceed one hundred dollars for each offense, nor shall the imprisonment continue longer than thirty days. If any witness refuse to be sworn or to give evidence, or if any officer or person refuse to obey or perform any rules, order, or judgment of the court, such court shall have power to fine and imprison such officer or person until he shall give evidence, or until the rule, order, or judgment shall be complied with. (emphasis added)
It is apparent that the trial court found the appellant guilty of direct criminal contempt under the first part of the above quoted section and ordered summary punishment. Even though punishment was not imposed until the day following the conclusion of the trial, we find nothing wrong with this procedure. There was no undue delay. The defendant had been advised of his rights and of the procedure concerning contempt before he took the stand. He was also advised on occasion during the course of his cross examination that he was in contempt. It is held that punishment for contempt may be withheld until the conclusion of the trial. The United States Supreme Court approved this procedure in Taylor v. Hayes, 418 U.S. 488, 94 S. Ct. 2697, 41 L. Ed. 2d 897 (1974), in an opinion by Justice White. (The case was reversed on other grounds). Undue delay is not tolerated, but waiting until the conclusion of the trial does not violate the tolerance.
Judge Griffith, in Mississippi Chancery Practice § 666 (2d ed. 1940), defined the two classes of contempt provided by the above statute, as follows:
[T]hese classes are: (1) Those prosecuted to preserve the power and vindicate the dignity of the court, and to punish for disobedience of its orders; and (2) those instituted to preserve and enforce the rights of private parties to suits. In the first the punishment is for a past offense and must be suffered; in the second the contemnor can discharge himself by paying the costs and expenses and doing what he had previously refused to do. Approximately these two classes are distinguished as criminal and civil, but the same act which constitutes a civil contempt may be also of the other class and vice versa. Criminal contempts are of two kinds, direct and constructive. The direct contempt is such disorderly, contemptuous or insolent behavior, *675 committed during the session of the court and in its view and presence or so immediately in its environs, as interferes with the conduct of the public business and with the orderly administration of justice or tends to impair the respect due to the authority of the judicial tribunal; and of course, the behavior mentioned may consist of contemptuous language used as well as of other contemptuous acts. A constructive contempt is an act done, beyond the presence of the court, which tends to obstruct, interrupt, prevent, embarrass, belittle, degrade or corrupt the administration of justice. These direct and constructive contempts are offenses against organized society, are therefore of a nature which requires punitive treatment, and the punishment as to the direct contempt is definitely prescribed in the statute above quoted. (footnotes omitted) (emphasis added).
Judge Robertson reiterated the same rule as recently as February of this year, in Cook v. State, 483 So. 2d 371 (Miss. 1986):
A criminal contempt is conduct that is directed against the dignity and authority of the court, or a judge acting judicially. It arises from an act obstructing the administration of justice which tends to bring the court into disrepute or disrespect. State v. Wingo, 221 Miss. 542, 73 So. 2d 107 (1954); see also Gadson v. Gadson, 434 So. 2d 1345, 1349 (1983). The essence of the offense is that the defendant wilfully, maliciously and contumaciously refused to comply with a decree of the court. Langford v. Langford, 253 Miss. 483, 485, 176 So. 2d 266, 267 (1965).
Cook at 374.
The appellant, by refusing to answer, placed himself in contempt of court. However, the judgment before us is not sufficiently clear and explicit to warrant us in affirming, reversing, annulling or modifying it. Ex Parte Redmond, 156 Miss. 582, 126 So. 485 (1930). The judge simply stated that he found the defendant in contempt twenty-seven times for refusing to answer questions, and punished him for six acts. We do not know which six. While the proceeding is a summary one and the judge may act upon that which he personally knows is direct contempt, the judgment of conviction should contain material facts known to the court constituting the contempt. In rendering the judgment and making up the record, the causes for such contempt should be separately stated so as to constitute res adjudicata. Redmond, supra.
We are, therefore, of the opinion that this case should be remanded so that the record of the judgment of contempt may be fully developed. This was the procedure in Redmond, supra. In doing so, we remind the lower court, as it is apparently aware, that any sentence totaling more than six months, even though they be for separate citations, can not be imposed absent a jury trial. Taylor v. Hayes, supra.
CONVICTION AFFIRMED. REMANDED FOR PROCEEDINGS IN ACCORD WITH THIS OPINION.
WALKER, C.J., ROY NOBLE LEE and HAWKINS, P.JJ., and ANDERSON, J., concur.
PRATHER, DAN M. LEE, ROBERTSON and SULLIVAN, JJ., dissent.
PRATHER, Justice, dissenting.
I respectfully dissent to that portion of the court's majority opinion regarding the defendant's assertion of his privilege against self-incrimination. As a witness Hentz was entitled to assert this constitutional right.
The law on this proposition is well established. Article 3, Section 26 of the Mississippi Constitution of 1890 provides that "[i]n all criminal prosecutions the accused ... shall not be compelled to give evidence against himself." Likewise, the United States Constitution, Fifth Amendment, provides that "[n]o person... shall be compelled in any criminal case to be a witness against himself... ."
*676 Both constitutional provisions guarantee the privilege against self-incrimination to a witness, as well as an accused. Haralson v. State, 314 So. 2d 722 (Miss. 1975). Additionally, Miss. Code Ann. § 13-1-13 (1972) guarantees that a witness shall not be required to answer a question where "the answer would expose him to criminal prosecution or penalty."
An accused or witness may waive his constitutional privilege against self-incrimination when he voluntarily takes the stand and testifies on the merits of the case. Autry v. State, 230 Miss. 421, 92 So. 2d 856 (1957). A waiver is made unless the privilege is claimed. State v. Myers, 244 Miss. 778, 146 So. 2d 334 (1962). The privilege also extends to any civil or criminal proceeding, formal or informal, where the answers might incriminate him in future criminal proceedings. Lefkowitz v. Turley, 414 U.S. 70, 94 S. Ct. 316, 38 L. Ed. 2d 274 (1973).
This appeal addresses two questions about the privilege against self-incrimination:
(1) Was the defense witness entitled to claim the privilege against questions regarding details of a crime to which he pled guilty; and
(2) If he was entitled to claim the privilege under those circumstances, did this witness waive the privilege by answering some of the questions.
I.
The record here reveals that Larry Hentz pled guilty after plea bargain, to the murder of James Williamson. Thereafter, Larry Hentz filed a petition for writ of habeas corpus, or in the alternative, a motion to withdraw his guilty plea alleging the state violated the agreement to dismiss a larceny charge against him upon his plea of guilty to murder. The petition to set aside his guilty plea was pending at the time Hentz testified as a defense witness in the Gullett trial. As a witness Hentz testified to the fact that he was convicted for Williamson's murder, but he invoked the Fifth Amendments to questions addressed to the details of the crime from which he was attempting to withdraw his guilty plea. (See Exhibit A attached) Appellant argues that he has a constitutional right to protect himself from self-incrimination since he may stand trial for capital murder in the event the court allows him to withdraw his former guilty plea.
The majority opinion today holds that a constitutional privilege afforded by the Fifth Amendment has no proper application when the witness is not in danger of prosecution after his actual conviction. Citing State v. Milam, 210 Mill. 13, 48 So. 2d 594, Suggestion of Error Overruled, 210 Miss. 26, 49 So. 2d 806 (1950).
I respectfully disagree. The privilege should apply where, as here, the witness is challenging his guilty plea upon which the conviction is based. Hentz's Fifth Amendment rights were valid and outstanding; he could exercise them and refuse to testify based upon this constitutional guarantee.
This position has been taken by other courts. In King v. State, 353 So. 2d 180 (Fla.Dist.Ct. 1977), Dale King was adjudged guilty of direct criminal contempt for refusing to testify as a prosecution witness in the trial of a co-defendant after testifying in his own trial. The Court held:
King was found guilty on October 9, 1976, of charges growing out of the same incident that he now claims privilege. A notice of appeal from his conviction was timely filed on November 18, 1976. On January 5, 1977, King was called to testify as a prosecution witness against his codefendants. At that time, his appeal was pending and his rights under the Fifth Amendment to the United States Constitution were valid and outstanding. See Mills v. United States, 281 F.2d 736 (4th Cir.1960); and cf. Salem v. State, 305 So. 2d 23 (Fla. 3d DCA 1974); Saunders v. State, 319 So. 2d 118 (Fla. 1st DCA 1975); and United States v. Wilcox, 450 F.2d 1131 (5th Cir. 1971).
Additionally, the witness Hentz was advised by his attorney that "there were possibly cases pending against him, or may be pending against him in the future, by way *677 of possible pleas being set aside and so forth." With such warning to the witness, his privilege should be more guarded. Ultimately the determination of what is incriminating has to rest with the witness, not the judge. Mason v. United States, 244 U.S. 362, 37 S. Ct. 621, 61 L. Ed. 1198 (1917). The general law on this point is discussed in 81 Am.Jur.2d, Witnesses § 52.
A witness may not arbitrarily refuse to testify without existence in fact of a real danger, and the court is first charged with the responsibility of determining whether that real danger exists. The court must be able to discern from the character of the question and the other facts adduced in the case some tangible and substantial probability that the answer of the witness might help to convict him of a crime. It has been laid down that when a witness refuses to answer a question for the alleged reason that his answer would incriminate him, his answer is not conclusive with respect to the incriminating character of the evidence sought to be elicited, and he may be required to answer if, by any inquiry which does not invade his immunity, it is made to appear to the trial judge that his answer would not have the tendency claimed by him.
.....
A witness interposing a claim of privilege against self-incrimination is not required to prove the hazard of criminal prosecution, because otherwise he would be compelled to surrender the very protection which the privilege is designed to guarantee.
.....
But if it appears that any direct answer to a question would have a tendency to incriminate the witness, and if a disclosure of any facts or circumstances to show how the answer would affect him would destroy the protection afforded by the law, the witness is the sole and exclusive judge of whether the answer on his part would in actuality have a tendency to incriminate him. (Emphasis added)
I submit that Hentz was entitled to assert his privilege against self-incrimination under these facts.
II.
The remaining question addresses whether Hentz waived his privilege by answering some questions directed toward the details of the crime. In my view the record does not show any waiver. The majority opinion recites some questions of the prosecutor. Attached to this dissenting opinion as Exhibit A are other questions quoted from this record. Clearly a witness may waive his privilege as indicated in Musselwhite v. State, 212 Miss. 526, 539, 54 So. 2d 911, 915 (1951), wherein this Court stated in dicta:
Where a witness in his direct examination voluntarily opens an account of a transaction, he will, on cross-examination, be compelled to complete the narrative notwithstanding his claim of privilege from testifying. He will not be allowed to state some facts as to a transaction and afterwards refused to give the details as to related facts. 58 Am.Jur. Witnesses § 94-95; 8 Wigmore, Evidence, § 276. The opposite rule would permit a witness to give a biased and one-sided version of a transaction.
However, this record does not reflect a waiver. For these reasons, I would reverse and render this conviction and discharge the defendant.
DAN M. LEE, ROBERTSON and SULLIVAN, JJ., join this dissent.
EXHIBIT A
On cross-examination, the following question was asked:
Q. Do you want to tell the jury what was found in your possession when you were transported to the Lafayette County Jail?
A. I take the Fifth on that.
Q. Mr. Hentz, is it a fact that you were found with hacksaw blades when you arrived at the Lafayette County Jail for you to try to escape to escape prosecution *678 of the murder of James Williamson?
A. No sir.
Q. That's not true.
A. I never tried to escape.
Q. Did they find hacksaw blades.
A. I plead the Fifth.
Assistant District Attorney:
Mr., Your Honor, I ask the court to direct the witness to answer the question.
COURT: Ask it again Mr. Kelly.
Q. Is it a fact that when you were transported from the DeSoto County Jail to Lafayette County Jail in July of 1983 that when you were searched at the Lafayette County Jail, that you had hacksaw blades in your possession?
A. I take the Fifth on that.
THE COURT: Mr. Hentz I order you to answer that question. You may confer with your attorney.
A. I'm still going to take the Fifth.
THE COURT: You are not going to answer that question, is that correct Mr. Hentz?
A. WITNESS: That is right.
THE COURT: I am compelled then to find you in contempt of court.
The prosecution questioned Hentz further:
Q. You told the jury you got high in jail.
A. Yes sir.
Q. What did you get high on?
A. Marijuana
* * * * * *
Q. I see, you just used your money to roll dope and smoke it up. By the way, is that against the law.
A. Sure it's against the law.
Q. Are you admitting to that?
A. I admit to the law.
(R. 42-45).
The prosecution then questioned Hentz as to his plea of guilty to the murder of Williamson. Hentz testified: "It was plead guilty or get the gas chamber." Hentz stated, "I pled guilty to that charge to keep from going to the gas chamber... . I definitely wasn't guilty." (R. 47)
Appellant was then questioned with respect to his previous plea of guilty for the murder of James Williamson as follows:
BY THE STATE: Now, you plead guilty to the murder of James Williamson in the Circuit Court of Tate County, didn't you?
(At this point in the proceedings, there is a conference between the witness and his attorney.)
BY THE WITNESS: Based on the circumstances, I take the Fifth.
BY THE COURT: Mr. Hentz, I am compelled to direct you to answer that question. You have already been convicted on that charge.
BY THE WITNESS: All right. Yes, sir.
BY THE STATE: After you pleaded guilty in Tate County, you were interviewed by Mr. Jimmy Dees and Mr. Jay Clark and Mr. Thomas McCloud from the Mississippi Highway Patrol, weren't you?
BY THE WITNESS: Yes, sir.
BY THE STATE: And you gave them a statement relating to your involvement in the death of James Williamson, didn't you?
BY THE WITNESS: No, sir.
BY THE STATE: You did not.
BY THE WITNESS: I gave them a statement.
BY THE STATE: And it didn't involve you in the murder of James Williamson at all?
BY THE WITNESS: I didn't give them any statement I gave them a statement of what they wanted to hear.
BY THE STATE: Oh, you lied to them.
BY THE WITNESS: I am going to have to plead the Fifth on this.
BY THE COURT: At this point, Mr. Hentz, I must direct you to answer that question.
BY THE WITNESS: All right.
(R. 52-53)
*679 BY THE STATE: After you plead guilty to murder of James Williamson in the Circuit Court of Tate County, you were interviewed by three officers of the Mississippi Highway Patrol. Those officers were Jay Clark, Jimmy Dees and Thomas McCloud.
BY THE WITNESS: Right.
BY THE STATE: And in that statement you admitted the part, or parts, you played in the killing and murdering of James Williamson.
BY THE WITNESS: I plead the Fifth on that.
ASSISTANT DISTRICT ATTORNEY (Mr. Kelly): Your Honor, I request the Court to direct the witness to answer that question.
BY THE COURT: You must answer the question, Mr. Hentz. That was not the question as far as whether or not you plead guilty but whether or not you made any statements to those named individuals, Highway Patrol Investigators. Did you understand the question?
BY THE WITNESS: Yes, sir. Yeah, I made a statement.
(R. 54)
BY THE STATE: ... Isn't it a fact, Mr. Hentz, that you told those three officers that you met Cookie when your daddy sent you to her house to collect some gravel tickets because Cookie and her husband, James, owed you for the gravel. That this was probably around the first of October and then after several visits back and forth between you and Cookie and Mr. Williamson, you and Cookie got together at a motel in Grenada called the Hill Top. It was probably in December of 1981 and that was the first time that anything happened or was mentioned about killing James Williamson.
(At this point in the proceedings, there was a conference between the witness and his attorney.)
BY THE WITNESS: Based on the circumstances, I am going to plead the Fifth on all those questions.
BY THE STATE: That's true, that's what you told them, isn't it?
BY THE WITNESS: I said I plead the Fifth to all those questions.
BY THE COURT: Again, Mr. Hentz, I must direct you to answer that question. Do you still plead the Fifth?
BY THE WITNESS: Yes, sir.
BY THE COURT: I am compelled then to find you in contempt of court.
(R. 55, 56)
BY THE STATE: Mr. Hentz, isn't it also true that you told those same three officers that Cookie had talked to someone before you about killing James Williamson?
BY THE WITNESS: I plead the Fifth.
BY THE STATE: Did you understand the question?
BY THE WITNESS: Yeah, I understand everything.
BY THE COURT: I have to direct then that you answer the question.
BY THE WITNESS: I have got a motion to get the case brought back up and don't want to talk about it.
BY THE STATE: Isn't it true you told those three officers that it would cost Cookie $10,000.00 for her to have James Williamson killed?
BY THE WITNESS: I plead the Fifth.
BY THE STATE: Do you understand the question?
BY THE WITNESS: I plead the Fifth.
BY THE COURT: I will have to find you in contempt then.
(R. 56)
BY THE STATE: Isn't it true that you told those three officers Cookie wouldn't have to get the hold [sic] $10,000.00 at one time. She could pay it a little at a time.
BY THE WITNESS: I plead the Fifth.
BY THE STATE: Did you understand the question?
BY THE WITNESS: I plead the Fifth.
(R. 57)
The State then asked the following series of questions, each of which Appellant acknowledged *680 that he understood and to each of which he "plead the Fifth" (R. 57-61):
Isn't it true you told the officers that you asked Lee Harden to do the job for you?
Isn't it true that you told Cookie that you could get someone from out-of-state to kill James Williamson?
Isn't it true that you told the officers that sometime during January or February that you and Cookie had a little disagreement and you didn't discuss the murder for about a month?:
Isn't it true that you told the officers that during the month of February that you and Cookie and Lee Harden went to Arkansas for Lee Harden to meet Cookie's cousin?
Isn't it true that on Sunday, the 22nd day of March, that you told the officers that you and Cookie met in the motel room in Grenada?
Isn't it true that you told the officers that Cookie said that everything is ready, the insurance was taken care of, everything was ready to go, and Cookie asked you to get in contact with the man that was to commit the murder?
Isn't it true that you told the officers that at approximately 4:00 or 4:30 that morning Cookie was to go outside and feed the dogs so the killer could sneak into the house?
And that the murderer was suppose to come in through the back door and go to the bathroom and he was suppose to hide and wait in the bathroom until Cookie left the house. Is that what you told the officers?
Now, did you tell the officers that Lee Harden had a 12 guage [sic] shotgun and a gallon of gas and he was to pour the gasoline, shoot him, pour the gasoline in the room where he was and then go through the house lighting the curtains and then go on out the backdoor. Did you tell the officers that?
Did you tell the officers that Cookie and Lee didn't get along?
Did you tell the officers that Cookie treated Lee like a dog?
Did you tell the officers that Lee was to get $10,000.00 out of it?
Did you tell the officers that Lee Harden didn't collect his $10,000.00, that you would give Lee Harden $400.00 or $500.00 at a time or $200.00 or $300.00 at a time, that you couldn't recall how much money you had given Lee Harden?
Did you tell the officers that it would be hard for you to estimate how much money you gave Lee Harden but that it wasn't near $10,000.00?
Did you tell the officers that Roger Lynn was suppose to drive the car?
Did you tell the officers that Roger Lynn wasn't suppose to get anything out of it?
Did you tell the officers that you and Cookie had discussed killing Mrs. Mable Williamson, the 90 year old mother of James Williamson?
Did you tell the officers the reason you and Cookie discussed killing Mrs. Mable Williamson was because the land surrounding the home upon which Cookie and James lived, Mrs. Mable had a life estate in it, Cookie couldn't get any income from it?
Mr. Hentz, it is true that you and Cookie Williamson planned the murder of James Williamson, isn't it?
It is true that you recruited Owen Lee Harden to be the man to pull the trigger and burn down the house of James Williamson, isn't it?
Is it true that you recruited your younger brother, Roger Lynn Hentz, to drive one of the vehicles.
(R. 57-61)
Upon being asked whether Roger Lynn was "solely responsible for the murder of James Williamson," appellant responded, "I don't really want to get into that." (R. 83). Appellant was then questioned and responded as follows:
BY THE STATE: Well, do you deny you participated in the murder of James Williamson.
BY THE WITNESS: Yeah.
*681 BY THE STATE: Do you deny that you told Thomas McCloud that you participated in the murder of James Williamson?
BY THE WITNESS: I am going to have to start taking the Fifth on that.
BY THE STATE: Do you deny that you told Thomas McCloud that you got $1100.00 from Cookie in order to pay off Owen Lee Harden so he could go to Carolina?
BY THE WITNESS: I plead the Fifth on that.
ASSISTANT DISTRICT ATTORNEY (Mr. Kelly): Your Honor, I request you direct the witness to answer the question.
BY THE COURT: The last two questions, Mr. Hentz, you are hereby directed to answer. Is it still your statement that you will not answer?
BY THE WITNESS: I plead the Fifth.
BY THE COURT: You will be held in contempt of court.
(R. 83-84) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2386113/ | 885 S.W.2d 167 (1994)
Mario ALVARADO, et al., Appellants,
v.
HYUNDAI MOTOR COMPANY, et al., Appellees.
No. 04-91-00208-CV.
Court of Appeals of Texas, San Antonio.
March 14, 1994.
Rehearing Denied July 25, 1994.
*168 Steve T. Hastings, Allison & Huerta, Corpus Christi, Christa Brown, Austin, for appellants.
Eduardo Roberto Rodriguez, Rodriguez, Colvin & Chaney, Brownsville, Ruth Greenfield Malinas, Frank Montalvo, David M. Prichard, Ball & Weed, P.C., San Antonio, David M. Heilbron, Leslie G. Landau, McCutchen, Doyle, Brown & Enersen, San Francisco, CA, David E. Keltner, Haynes and Boone, L.L.P., Fort Worth, Thomas H. Crofts, Jr., Crofts, Callaway & Jefferson, San Antonio, Armando X. Lopez, Laredo, Lee Casstevens, Wood, Burney, Cohn & Bradley, Corpus Christi, for appellees.
Before GARCIA and REEVES,[1] JJ.
ON APPELLEES' MOTION FOR REHEARING
GARCIA, Justice.
Appellees' motion for rehearing en banc and motion for rehearing are denied. Our opinion of September 30, 1993, is withdrawn and the following is substituted.
Appellants, Mario Alvarado, Fidel Alvarado, Jr. and Alicia Alvarado, individually and as next friends of Fidel Alvarado, III, a minor, appeal the partial summary judgment entered in favor of appellees, Hyundai Motor Company, Hyundai Motor America, Inc., and Port City Hyundai, Inc. (Hyundai). Appellants also complain that the trial court improperly modified their nonsuit order by dismissing "with prejudice" the part of their case determined by the partial summary judgment. Hyundai contends that appellants' motion for nonsuit was untimely and therefore, the trial court properly dismissed the claims decided by the partial summary judgment with prejudice. In addition, Hyundai maintains that the effect of the nonsuit was to make the partial summary judgment final, and the trial court properly granted its partial summary judgment. We reverse and render.
In 1989, appellants filed a products liability suit against Hyundai following an automobile rollover accident in which one of the appellants was ejected from the car and sustained serious injuries. In their petition, appellants alleged that the 1988 Hyundai Excel was defectively designed and unreasonably dangerous because: 1) the front seats were not *169 equipped with seat belts (manual lap belts); 2) Hyundai failed to give adequate warnings of increased dangers to which front seat passengers were exposed; and 3) Hyundai failed to give adequate instructions for the use of the front seat restraint system in the vehicle. Appellants also alleged that Hyundai was negligent in failing to equip the vehicle with a seat belt, failing to adequately test the restraint system, failing to warn of the increased risk of harm, and failing to instruct on the use of the restraint system.
Hyundai filed a motion for partial summary judgment asserting that the following allegations were preempted by federal law:
(1) the Hyundai vehicle was defective and unreasonably dangerous in that the front seats of the vehicle were not equipped with seat belts;
(2) defendant failed to give adequate warnings of increased danger to which passengers were exposed;
(3) each defendant was negligent in failing to equip the vehicle in question with a seat belt;
(4) each defendant was negligent in failing to adequately design and test a safer alternative; and
(5) each defendant was negligent in failing to warn of the increased risk of harm posed by the vehicle.
On December 17, 1990, the trial judge announced in open court that defendants' motion was granted. Thereafter, on January 8, 1991, the trial judge signed an order granting defendants'/appellees' motion for partial summary judgment. On January 30, 1991, the appellants filed their motion for nonsuit. The trial court entered the order granting the nonsuit the same day and dismissed the cause "without prejudice to Plaintiffs' refiling." On February 25, 1991, appellees filed a motion to modify the order granting the nonsuit, and after a hearing, the court modified its previous nonsuit order to provide that "the claims adjudicated in the summary judgment are dismissed with prejudice to refiling." Appellants bring forth five points of error contending the trial court erred in modifying the nonsuit order and in granting the partial summary judgment.
In point of error one, appellants claim the trial court erred in modifying the nonsuit order to state "with prejudice." Appellants maintain that the plaintiffs' right to take a nonsuit is absolute and unqualified as long as the defendant has not made a claim for affirmative relief. Appellants acknowledge that a plaintiff no longer has the right to take a nonsuit after a final summary judgment has been entered, and that a nonsuit may no longer be taken as to a particular party when the summary judgment completely disposes of that party. However, appellants argue that they had a right to take a nonsuit in this case because the partial summary judgment was interlocutory in nature, and the voluntary nonsuit effectively erased all interlocutory orders. Appellants also maintain that the trial court lacked jurisdiction to modify the nonsuit order because once a nonsuit is taken, the trial court loses jurisdiction of the entire case except to render an order of dismissal without prejudice.
Hyundai responds that the plaintiff has a right to a nonsuit only if the motion is timely.[2] Hyundai maintains that the nonsuit was untimely as to the issues adjudicated by the summary judgment because the nonsuit came after the motion for summary judgment motion had been filed and granted. Therefore, the trial court was correct in granting the untimely nonsuit motion with prejudice. Hyundai agrees that a partial summary judgment is an interlocutory order, but it is interlocutory only for appeal purposes. Hyundai contends that unless the trial court sets the summary judgment aside or the judgment is reversed on appeal, no further action on the issues determined by the partial summary judgment can be taken. Hyundai maintains that to allow a nonsuit after the rendition of a partial summary judgment would render Rule 166a(e) meaningless unless the successful movant secured a severance.
*170 The rule concerning voluntary dismissal or nonsuit is now contained in rule 162 of the Texas Rules of Civil Procedure.[3] The rule provides:
At any time before the plaintiff has introduced all of his evidence other than rebuttal evidence, the plaintiff may dismiss a case, or take a non-suit, which shall be entered in the minutes. Notice of the dismissal or non-suit shall be served in accordance with Rule 21a on any party who has answered or has been served with process without necessity of court order.
Any dismissal pursuant to this rule shall not prejudice the right of an adverse party to be heard on a pending claim for affirmative relief or excuse the payment of all costs taxed by the clerk. A dismissal under this rule shall have no effect on any motion for sanctions, attorney's fees or other costs, pending at the time of dismissal, as determined by the court.
TEX.R.CIV.P. 162. The rule is designed to allow a plaintiff to avoid unexpected emergencies. 5 Roy W. McDonald, Texas Civil Practice § 27:39 (John S. Covell ed., 1992). The importance of the right to nonsuit was discussed by our supreme court in Hoodless v. Winter, 80 Tex. 638, 16 S.W. 427 (1891), as follows:
The right of a plaintiff to take a nonsuit upon his own cause of action was considered of sufficient importance by the legislature to be given express recognition. Owing to unexpected contingencies that may occur during a trial, it is a privilege which it may become necessary for the most careful and diligent litigant to exercise, and it is important that the substance, and not the shadow alone, of the right shall be preserved.
Id. 16 S.W. at 428. The current supreme court has recently reconfirmed the importance of the rule by stating that the plaintiff's right to a nonsuit is "important and firmly rooted in the jurisprudence of our state," and rule 162 is to be liberally construed in favor of that right. Aetna Casualty & Sur. Co. v. Specia, 849 S.W.2d 805, 806 (Tex.1993, orig. proceeding). The plaintiff's right to take a nonsuit, at any time before he has introduced all of his evidence other than rebuttal evidence, has been described as unqualified and absolute unless the defendant has filed pleadings seeking affirmative relief prior to the filing of the nonsuit. BHP Petroleum Co., Inc. v. Millard, 800 S.W.2d 838, 840 (Tex. 1990, orig. proceeding); Greenberg v. Brookshire, 640 S.W.2d 870, 872 (Tex.1982); KT Bolt Mfg. Co. v. Texas Electric Coops., Inc., 837 S.W.2d 273, 275 (Tex.App.Beaumont 1992, writ denied). In the case before us, Hyundai had not filed any pleadings seeking affirmative relief prior to the appellants' filing of the nonsuit. Hyundai did file and had been granted a partial summary judgment.
In the context of summary judgment proceedings, courts have held that the plaintiff has a right to a nonsuit at any time prior to the announcement by the trial court of its decision to grant the summary judgment. Taliaferro v. Smith, 804 S.W.2d 548, 550 (Tex.App.Houston [14th Dist.] 1991, no writ); Extended Servs. Program, Inc. v. First Extended Serv. Corp., 601 S.W.2d 469, *171 471 (Tex.Civ.App.Dallas 1980, writ ref'd n.r.e.); Collins v. Waldo, 291 S.W.2d 360, 362 (Tex.Civ.App.Eastland 1956, no writ). This "judicial announcement" rule was contained in the original version of rule 164 which set different deadlines for taking a nonsuit based on whether a jury or bench trial was held. The rule allowed a nonsuit at any time before the jury retired or at any time before the decision was announced when the case was tried to the judge. Smith v. Columbian Carbon Co., 145 Tex. 478, 198 S.W.2d 727 (1947). Although rule 162 no longer contains the judicial pronouncement language, it is still being applied in the context of summary judgment proceedings. See Taliaferro, 804 S.W.2d at 550 (in summary judgment proceeding plaintiff may take nonsuit any time prior to court rendering judgment). Hyundai contends that the judicial pronouncement rule should apply to its partial summary judgment because summary judgment practice does not fit within the parameters of rule 162. In support of its assertion, Hyundai argues that the analysis applied by the court in Extended Servs. Program, Inc. v. First Extended Serv. Corp., 601 S.W.2d 469 (Tex.Civ.App.Dallas 1980, writ ref'd n.r.e.), is the correct one.
In Extended Servs. Program, the plaintiff filed a motion for nonsuit five days after the hearing on the motion for summary judgment was held but before the summary judgment was granted. Id. at 470. The trial court denied the nonsuit motion and later entered a partial summary judgment in favor of the defendant. The defendant took a nonsuit as to its counterclaim, and the summary judgment became final. On appeal, the defendant contended that the summary judgment proceeding was a trial for the purposes of rule 164 and the nonsuit was properly denied. Id. at 471. The court disagreed with defendant's proposition because rule 164 gave the plaintiff the right to take a nonsuit until the time he had rested his case. Thus, the court concluded, rule 164 applied only to a trial on the merits and was not capable of being applied to summary judgment proceedings. Another reason given by the court for its conclusion was that the rule referred to rebuttal evidence which has no place in the summary judgment proceeding. Id. The court held that rule 164 granted the plaintiff "the right to take a nonsuit during the pendency of the trial judge's ruling on a motion for summary judgment, and that rule 164 does not apply to summary judgment proceedings." Id. Contra Mainland Sav. Ass'n v. Wilson, 545 S.W.2d 491, 493 (Tex.Civ. App.Houston [1st Dist.] 1976, writ ref'd n.r.e.) (summary judgment has been treated and considered as a trial); Collins v. Waldo, 291 S.W.2d 360 (Tex.Civ.App.Eastland 1956, no writ) (summary judgment proceeding considered a trial for purposes of applying nonsuit rule).
In the context of partial summary judgments, we have found only two cases concerning a partial summary judgment followed by a nonsuit as to the entire cause of action. Homeright Co. v. Exchange Warehouses, Inc., 526 S.W.2d 241 (Tex.Civ.App.Tyler 1975, writ ref'd n.r.e.); Collins v. Waldo, 291 S.W.2d 360 (Tex.Civ.App.Eastland 1956, no writ). In Collins, the plaintiff filed suit against three defendants. Two of the defendants, R.R. and Robert Waldo, filed a motion for summary judgment. After the hearing on the motion, the court sent a letter to both sides announcing that the defendants' motion for summary judgment would be granted. Id. at 361. Thereafter, the plaintiff filed a motion for permission to take a nonsuit without prejudice as to all defendants. The court allowed the nonsuit without prejudice as to the third defendant but denied nonsuit without prejudice as to the Waldos. On appeal, the appellant argued that the rule required the nonsuit to be taken before the decision was announced which meant before the judgment was rendered. Id. at 362. The judgment had not been entered or announced in open court at the time plaintiff filed her motion for nonsuit. The appellant argued that the decision by the judge, via the mail, was not a rendition or entry of judgment, and she was not precluded from taking a nonsuit without prejudice. The court disagreed by stating that the rule provided for a nonsuit to be taken before the decision is announced. The court was of the opinion *172 that the decision had been announced before the plaintiff sought to take the nonsuit. Id.[4]
In Homeright, the defendant/appellee moved for a partial summary judgment which the court sustained, and the remaining issues were set for trial. Homeright Co. v. Exchange Warehouses, Inc., 526 S.W.2d 241, 243 (Tex.Civ.App.Tyler 1975, writ ref'd n.r.e.). On the day trial was to begin, the plaintiff/appellant took a voluntary nonsuit without a final and appealable judgment being entered. Three days later, the appellant filed a new petition in another district court. The appellee was successful in transferring the case back to the original court and thereafter, filed a motion to dismiss with prejudice. Id. The court granted appellee's motion, and appellant appealed. The appellees argued that the doctrine of res judicata applied because the trial court granted its partial summary judgment limiting liability. However, the court noted that the partial summary judgment was interlocutory, and because the appellant nonsuited its cause of action in the first suit without a severance of the other issues between the parties, the partial summary judgement never became final and was nonappealable. Id. at 244.
In the case before us, we do not have a final summary judgment as to the entire case as the court had in Extended Servs. The partial summary judgment at issue here merely disposed of some of the issues as did the partial summary judgment in Homeright. Moreover, authority exists which holds that a voluntary nonsuit has the effect of "wiping out any interlocutory orders made in the case." Ault v. Mulanax, 724 S.W.2d 824, 828 (Tex.App.Texarkana 1986, orig. proceeding). Relying on Ault, appellants suggest that a nonsuit may be used to nullify a partial or interlocutory summary judgment[5] rendered prior to the filing of a nonsuit motion because the judgment is interlocutory. We agree.
In Ault, the trial court announced, after a hearing concerning the conservatorship of the children involved, that the husband would be the managing conservator. Following that ruling, the wife filed a motion for nonsuit pursuant to rule 164 of the Texas Rules of Civil Procedure. Ault, 724 S.W.2d at 827. The record was clear that both sides had rested on the issue of managing conservatorship but not as to all the other issues remaining in the case at the time the petitioner filed her motion for a nonsuit. Thus, the court held that it could not be construed as a time when "plaintiff had introduced all of his evidence other than rebuttal evidence" as provided by the rule, and the interlocutory order appointing the husband as managing conservator was wiped out by the voluntary nonsuit. Id. at 828.
Likewise in the instant case, the trial court rendered a partial or interlocutory summary judgment prior to the appellants' filing of their nonsuit motion. Although the issues determined by the partial summary judgment are considered final and will not be further litigated at trial, the partial summary judgment is interlocutory, not appealable, and contemplates the necessity for a conventional trial to be held as to some remaining issues or parties. Martin v. First Republic Bank, 799 S.W.2d 482, 488-89 (Tex.App. Fort Worth 1990, writ denied); Texas United Ins. Co. v. Burt Ford Enters., Inc., 703 S.W.2d 828, 832 (Tex.App.Tyler 1986, no writ); City of Houston v. Socony Mobil Oil Co., 421 S.W.2d 427, 430 (Tex.Civ.App. Houston [1st Dist.] 1967, writ ref'd n.r.e.). We find, therefore, that the appellant's situation is analogous to that in Ault. We agree *173 that the court heard all the evidence as to the issues adjudicated by the partial summary judgment, but the nonsuit was taken at a time before the appellants had introduced "all of their evidence other than rebuttal evidence"[6] and before a judicial pronouncement had been made on the entire case. See Verret v. Verret, 570 S.W.2d 138, 140 (Tex. Civ.App.Houston [1st Dist.] 1978, no writ) (party not entitled to dismiss or take nonsuit after rendition of final judgment). Furthermore, as in Homeright, the record does not indicate that the interlocutory summary judgment ever became final.
The record reflects that three days after the trial judge announced in open court that he would grant Hyundai's partial summary judgment motion, appellants filed a motion for leave to file their third amended petition. The trial judge signed the order granting the partial summary judgment on January 8, and ten days later, he denied appellants' motion for leave to file their third amended petition. Thereafter, the appellants filed their motion for nonsuit as to the entire case. Had the appellants moved to nonsuit only the remaining issues or had Hyundai obtained a severance, the partial summary judgment would have become final. Chase Manhattan Bank, N.A. v. Lindsay, 787 S.W.2d 51, 53 (Tex. 1990); H.B. Zachry Co. v. Thibodeaux, 364 S.W.2d 192, 193 (Tex.1963); Krenek v. Texstar North America, Inc., 787 S.W.2d 566, 569 (Tex.App.Corpus Christi 1990, writ denied). However, the record does not reflect that a severance of the issues was ever obtained.
The record does show that appellants were faced with very serious consequences because of the partial summary judgment and the denial for leave to file their amended petition. Often, in these types situations, the privilege of the nonsuit is important. For example, in Molinar v. Plains Ins. Co., 660 S.W.2d 845 (Tex.App.Amarillo 1983, no writ), the plaintiff voluntarily took a nonsuit upon the revelation that he had assigned to a nonlitigant the right of recovery upon which he had based his cause of action. Id. at 849. The nonsuit effected a termination of those matters without an adjudication of their merits and, as to them, returned the litigants to the positions they occupied before plaintiff invoked the court's jurisdiction. Thus, the court's rulings on the interlocutory matters, being dependent upon the vitality of the pleaded causes of action, were nullified by his nonsuit. Also, in Orion Invs., Inc. v. Dunaway & Assocs., Inc., 760 S.W.2d 371, 373 (Tex.App.Fort Worth 1988, writ denied), the court found that the plaintiff was not acting in bad faith because it exercised its well-established right to take a nonsuit to avoid deemed admissions.[7] The court noted that a "plaintiff can hardly be expected to take a non-suit when its case is progressing in a satisfactory manner towards judgment." Id. at 374. Moreover, a defendant cannot force a plaintiff to continue the litigation or force the plaintiff to continue the case against the plaintiff's own best interests. Progressive Ins. Companies v. Hartman, 788 S.W.2d 424, 426-27 (Tex.App.Dallas 1990, orig. proceeding); Ex parte Helle, 477 S.W.2d 379, 384 (Tex.Civ.App.Corpus Christi 1972, no writ); see Aetna Casualty & Surety Co. v. Specia, 849 S.W.2d 805, 807 (Tex.1993) (after nonsuit, sanction against plaintiff excluding witnesses for failure to timely supplement nullified); Sawyer v. Millard, 849 S.W.2d 808 (Tex.1993) (sanction against plaintiff for failure to timely designate expert witnesses under order granting motion to compel responses to interrogatories did not survive nonsuit).
The appellants in this case are seeking a nonsuit to avoid the effects of the *174 interlocutory summary judgment. As previously discussed, the plaintiff's right to a nonsuit is absolute and unqualified upon timely motion as long as a claim for affirmative relief has not been made by the defendant. Progressive Ins. Companies v. Hartman, 788 S.W.2d 424, 426 (Tex.App.Dallas 1990, orig. proceeding); see Michol O'Connor, O'Connor's Texas Rules Civil Trial ch. 5 § 4 (1992) (if plaintiff has absolute right to nonsuit, defendant should not bother to object or file response). Hyundai made no claim for affirmative relief in this case. Rule 162 provides that "at any time before the plaintiff has introduced all of his evidence other than rebuttal, the plaintiff may ... take a nonsuit," and the rule is to be construed liberally in favor of that right. Tex. R.Civ.P. 162; Progressive Ins., 788 S.W.2d at 426. Because only a partial summary judgment was granted, appellants had not introduced all of their evidence prior to taking the nonsuit. Even if rule 162 does not apply to summary judgments, there was no judicial pronouncement as to the entire case before the appellants filed their motion for nonsuit. See Verret v. Verret, 570 S.W.2d 138, 140 (Tex.Civ.App.Houston [1st Dist.] 1978, no writ) (party not entitled to dismiss or take nonsuit after rendition of final judgment); Corder v. Corder, 189 S.W.2d 100, 102 (Tex. Civ.App.El Paso 1945, writ ref'd) ("before decision is announced" means before judgment rendered; plaintiff had right to nonsuit before judge could finish sentence to announce judgment on entire case); Texarkana Bus Co., Inc. v. Moton, 147 S.W.2d 517, 518 (Tex.Civ.App.Eastland 1941, no writ) (plaintiff could not take nonsuit after whole suit determined against plaintiff). Therefore, under either analysis, the motion was timely.
Upon timely motion, the nonsuit is effective at the moment it is filed and effects an immediate dismissal of the entire lawsuit. Merrill Lynch Relocation Management, Inc. v. Powell, 824 S.W.2d 804, 806 (Tex.App. Houston [14th Dist.] 1992, orig. proceeding). Consequently, the trial judge merely performs a ministerial act in granting the nonsuit.[8]Shadowbrook Apartments v. Abu-Ahmad, 783 S.W.2d 210, 211 (Tex.1990); Greenberg v. Brookshire, 640 S.W.2d 870, 872 (Tex. 1982). The taking of a nonsuit does not prejudice the parties from seeking the same relief in a subsequent suit. Ashpole v. Millard, 778 S.W.2d 169, 171 (Tex.App.Houston [1st Dist.] 1989, orig. proceeding); see Aetna Casualty & Surety Co. v. Specia, 849 S.W.2d 805, 806 (Tex.1993) (subject to certain conditions, plaintiff taking nonsuit not precluded from filing subsequent suit seeking same relief); O'Brien v. Stanzel, 603 S.W.2d 826, 828 (right to nonsuit without prejudice to refiling absolute when motion timely). The nonsuit or dismissal is not an adjudication of the rights of the parties but merely places them in the position they were in as if suit had never been filed. Crofts v. Court of Civil Appeals, 362 S.W.2d 101, 103 (Tex. 1962); Ashpole v. Millard, 778 S.W.2d 169, 171 (Tex.App.Houston [1st Dist.] 1989, orig. proceeding). Moreover, once the case is dismissed voluntarily, no further action may be had in that case,[9] and any further action must be taken by instituting a suit de novo unless the trial court grants a motion to reinstate.[10]Id.; see Missouri Pacific R.R. *175 Co. v. Whitaker, 815 S.W.2d 348, 349 n. 2 (Tex.App.Tyler 1991, orig. proceeding) (trial court retains plenary power to entertain motion for reinstatement following nonsuit).
Accordingly, we hold the appellants' motion for nonsuit was timely. As required by rule 162, the appellants filed their motion prior to the time that they had introduced all of their evidence other than rebuttal evidence and before a judicial pronouncement had been made on the entire case. Upon a timely motion for nonsuit, the appellants' right thereto is absolute and unqualified, and the trial court has no discretion to dismiss a part of the suit with prejudice. Therefore, the dismissal in this case should have been without prejudice. Having so held, we need not address the remaining points of error. The judgment of the trial court is reversed and rendered.
PEEPLES, Justice, dissenting, on Denial of Appellee's Motion for Rehearing En Banc.
The panel opinion completely undermines rule 166a's authorization of partial summary judgments by holding that even after a partial summary judgment as to some claims the plaintiff may take a nonsuit without prejudice and refile the entire case. Rule 162 was not meant to be used in this way, as its opening sentence shows: "At any time before the plaintiff has introduced all of his evidence other than rebuttal evidence, the plaintiff may dismiss a case, or take a non-suit...." Tex.R.Civ.P. 162. The notion of the plaintiff "introducing all his evidence" except rebuttal evidence is utterly foreign to summary judgment hearings, in which the nonmovant plaintiff has no burden to present evidence at all unless the movant defendant has disproved an element as a matter of law. There should be no right to nonsuit without prejudice after a partial summary judgment.
The plaintiff had no right to take the nonsuit after the court granted the summary judgment; the court therefore had plenary jurisdiction to set aside the nonsuit order and modify it to dismiss the case with prejudice.
I respectfully dissent from the court's failure to grant en banc rehearing.
NOTES
[1] Assigned to this case by the Chief Justice of the Supreme Court of Texas pursuant to Tex.Gov't Code Ann. § 74.003(b) (Vernon 1988).
[2] In its amended motion for rehearing, Hyundai states that it "has never disputed that plaintiffs had the `right' to take a nonsuit." Hyundai contends the appellants' nonsuit was untimely and should be "with prejudice."
[3] The original rule concerning nonsuits was as follows:
At any time before the jury has retired, the plaintiff may take a non-suit, but he shall not thereby prejudice the right of an adverse party to be heard on his claim for affirmative relief. When the case is tried by the judge, such non-suit may be taken at any time before the decision is announced.
In 1975, rule 164 was amended to read as follows:
Upon the trial of any case at any time before plaintiff has rested his case, i.e., has introduced all of his evidence other than rebuttal evidence, the plaintiff may take a non-suit, but he shall not thereby prejudice the right of an adverse party to be heard on his claim for affirmative relief.
In 1984, the rule regarding nonsuits was found at rule 162 and read as follows:
The plaintiff may dismiss a case upon filing a notice of dismissal, which shall be entered in the minutes. A copy of the notice shall be served in accordance with Rule 21a on any party who has answered or has been served with process.
In 1988, rule 162 was again amended. The purpose of the amendment was "to fix a definite time after which a party may not voluntarily dismiss or non-suit the cause of action. In addition, these amendments will not disturb any pending motions for sanctions or attorney's fees that were filed before the motion for non-suit or dismissal." Tex.R.Civ.P.Ann. 162 cmt. (Vernon Supp.1993).
[4] Contra Smith v. Columbian Carbon Co., 145 Tex. 478, 198 S.W.2d 727 (1947) (fact that counsel for plaintiff knew what court's decision would be when court convened did not cut off right to take non-suit as long as decision not announced in open court).
[5] Rule 166a(b) provides that "[a] party against whom a claim ... is asserted ... may, at any time, move ... for a summary judgment in his favor as to all or any part thereof." Tex.R.Civ.P. 166a(b). Although this procedure is commonly referred to as a partial summary judgment, the term is a misnomer because there is no "judgment." DAVID HITTNER, LYNNE LIBERATO, & BRUCE RAMAGE, SUMMARY JUDGMENTS AND DEFAULTS IN THE STATE COURT OF TEXAS 7 (Rutter Group 1992). Unless the court orders a severance, the remaining claims must still be tried before a judgment is entered. Id. at 8. A partial summary judgment does not terminate the action, as a summary judgment would, but is merely an interlocutory order.
[6] The instant case is unlike the situation in O-Brien v. Stanzel, 603 S.W.2d 826, 828 (Tex.1980), wherein the court found that the nonsuit may not be used to prevent a final judgment after an announcement of ready, the selection of a jury, and the evidence of all the witnesses heard in a week-long trial.
[7] The issuance of a temporary injunction also does not prevent a plaintiff from taking a nonsuit. General Land Office v. Oxy U.S.A., Inc., 789 S.W.2d 569, 571 (Tex.1990). Once the injunction is granted and an appeal therefrom is perfected, the trial court loses jurisdiction over the injunction but not of the underlying case which is pending. Once the trial court grants the nonsuit, the temporary injunction ceases to exist, and the appeal becomes moot. Id.
[8] A ministerial act is defined as "[o]ne which a person or board performs in a given state of facts in a prescribed manner in obedience to the mandate of legal authority without regard to or the exercise of his or their own judgment upon the propriety of the act being done." BLACK'S LAW DICTIONARY 899 (5th ed. 1979).
[9] We recognize that the court may have authority to amend the nonsuit order if the defendant has asserted a claim for affirmative relief prior to the nonsuit. State v. Approximately $2,000,000.00 in United States Currency, 822 S.W.2d 721, 726-27 (Tex.App.Houston [1st Dist.] 1991, no writ).
[10] An application by the plaintiff to reinstate the cause of action which has been voluntarily nonsuited is directed to the sound discretion of the trial court. McClendon v. State Farm Mut. Automobile Ins. Co., 796 S.W.2d 229, 233 (Tex.App. El Paso 1990, writ denied). If reinstatement is granted, the case is returned to the docket as if it had not been dismissed. A refusal to reinstate the case is proper and not an abuse of discretion when the application fails to show that the plaintiff "was coerced by an erroneous ruling of the court, or was misled by the court, or was improvident in the light of newly discovered evidence (which is made known to the court), or that there is other substantial good cause to set aside the dismissal." 5 ROY MCDONALD, TEXAS CIVIL PRACTICE § 27:42 (John S. H, ed. 1992). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1001162/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 99-7368
HARRY GOODMAN,
Plaintiff - Appellant,
versus
CORPORAL SAL; CORPORAL MILES; LOWRY, in his
official and individual capacity; GRAHAM
SMITH, Officer; JOHN DOE, Shift Supervisor;
CORPORAL DAVIS; JOHN LAMBERT, Administrator;
NURSE MCDOUGALL; FLORENCE COUNTY DETENTION
CENTER,
Defendants - Appellees.
Appeal from the United States District Court for the District of
South Carolina, at Florence. G. Ross Anderson, Jr., District Judge.
(CA-98-1761-4-13BF)
Submitted: February 29, 2000 Decided: March 20, 2000
Before WIDENER, MURNAGHAN, and MICHAEL, Circuit Judges.
Affirmed by unpublished per curiam opinion.
Harry Goodman, Appellant Pro Se. Robert Thomas King, WILLCOX,
BUYCK & WILLIAMS, P.A., Florence, South Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Harry Goodman appeals the district court’s order denying
relief on his 42 U.S.C.A. § 1983 (West Supp. 1999) complaint. We
have reviewed the record and the district court’s opinion accepting
the magistrate judge’s recommendation and find no reversible error.
Accordingly, we affirm on the reasoning of the district court. See
Goodman v. Sal, No. CA-98-1761-4-13BF (D.S.C. Sept. 27, 1999). 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. The motion for
appointment of counsel is denied.
AFFIRMED
2 | 01-03-2023 | 07-04-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2081586/ | 882 A.2d 1006 (2005)
IN RE T.T.
No. 482 MAL (2005)
Supreme Court of Pennsylvania
September 9, 2005.
Disposition of petition for allowance of appeals. Denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2984663/ | February 25, 2014
JUDGMENT
The Fourteenth Court of Appeals
SONFIELD & SONFIELD, P.C., ROBERT L. SONFIELD, ROBERT C.
RHODES AND WILLIAM E. MCILWAIN, Appellants
NO. 14-13-00249-CV V.
DIGERATI TECHNOLOGIES, INC., Appellee
________________________________
Today the Court heard the parties’ joint motion to dismiss the appeal from
the judgment signed by the court below on March 4, 2013. Having considered the
motion and found it meritorious, we order the appeal DISMISSED.
We further order that each party shall pay its costs by reason of this appeal.
We further order that mandate be issued immediately.
We further order this decision certified below for observance. | 01-03-2023 | 09-22-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/3101880/ | COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-13-00093-CR
Giles Altman Jenerette § From the 371st District Court
§ of Tarrant County (1195519W)
v. § June 13, 2013
§ Per Curiam
The State of Texas § (nfp)
JUDGMENT
This court has considered the record on appeal in this case and holds that
the appeal should be dismissed. It is ordered that the appeal is dismissed for
want of jurisdiction.
SECOND DISTRICT COURT OF APPEALS
PER CURIAM | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1723035/ | 649 So. 2d 455 (1994)
Shawn McGOLDRICK, et ux., Plaintiffs-Appellants
v.
LOU ANA FOODS, INC., et al., Defendants-Appellees.
No. 94-400.
Court of Appeal of Louisiana, Third Circuit.
November 2, 1994.
*457 Marshall J. Stockstill, Lafayette, for Shawn McGoldrick et ux.
William M. Bass, Lafayette, Bryan David Fisher, Baton Rouge, for Lou Ana Foods, Inc. et al.
Robert Murray Mahony, Mark A. Marionneaux, Lafayette, for Aguillard Enterprises.
Katherine Marie Loos, Lafayette, for Ins. Co. of North America.
Before THIBODEAUX, COOKS and SAUNDERS, JJ.
THIBODEAUX, Judge.
Third party defendant, Aguillard Enterprises, appeals a summary judgment in favor of defendant-third party plaintiff, Lou Ana Foods, Inc., in connection with a service agreement entered into between those parties.
The service agreement contained various indemnity provisions for claims made by Aguillard employees while they were performing work at Lou Ana's Opelousas location.
An Aguillard employee, Shawn McGoldrick, and his wife brought personal injury claims against Lou Ana for injuries suffered on Lou Ana's premises while in the course and scope of his employment with Aguillard. Lou Ana filed a third party demand against Aguillard, asserting that it was entitled to indemnification for all losses, costs, and expenses associated with McGoldrick's suit against Lou Ana. Lou Ana also requested that Aguillard tender insurance coverage to it according to the terms of the service agreement. The service agreement is reproduced in its entirety in Appendix "A."
For the following reasons, we amend and affirm.
ISSUES
The issues before us are: 1) whether the trial judge properly applied the rules of contract interpretation in granting Lou Ana's motion for summary judgment based upon the service agreement entered into by both parties; and, 2) whether the service agreement is an adhesionary contract, requiring a trial to determine whether Aguillard possessed bargaining power equal to that of Lou Ana and truly consented to the terms of the service agreement.
FACTS
On November 6, 1989, McGoldrick was employed by Aguillard as a welder's helper at Lou Ana's Opelousas, Louisiana facility. Pursuant to a service agreement entered into by Lou Ana and Aguillard dated May 18, 1989, Aguillard was performing services at that location when McGoldrick was allegedly injured. According to McGoldrick's petition, he was injured while changing the tubing in a tank located on Lou Ana's premises. McGoldrick and his wife filed suit against Lou Ana alleging that his injuries were the result of Lou Ana's "sole, combined and/or solidary fault, vicarious liability, strict liability and/or negligence of Defendant(s) and/or joint tortfeasor(s) and/or his/its/their or as principal(s), employer(s), agent(s), representative(s), servant(s), employee(s), associate(s), parent(s), subsidiary(ies), lessor(s), lessee(s) and/or insurer(s)."
Aguillard claims that McGoldrick's original petition alleged that only Lou Ana was at fault in causing his injuries and that the provisions of the service agreement do not provide indemnity for Lou Ana's sole negligence. Additionally, it argues that the contract is ambiguous and should be interpreted against Lou Ana and that it is a contract of adhesion for which summary judgment is inappropriate.
Lou Ana contends that a reading of the service agreement in its entirety demonstrates *458 that the clear intent of the parties was that Aguillard, as contractor, would bear the risk of injury to its employees while engaged in the performance of the terms of the service agreement at the Lou Ana Opelousas facility.
LAW AND DISCUSSION
I. Summary Judgment
Preliminarily, it should be noted that appellate courts review summary judgments de novo under the same criteria that governs the trial judge's consideration of whether a summary judgment is appropriate. Schroeder v. Board of Sup'rs of Louisiana State University, 591 So. 2d 342 (La.1991). Consequently, no deference is given to any finding of fact made by a trial court.
II. Contract Interpretation
Aguillard contends that the McGoldricks' petition alleges that Lou Ana was solely responsible for their injuries and that the service agreement does not provide for indemnity to Lou Ana due to injuries of Aguillard employees that occur due to Lou Ana's sole negligence. Aguillard also claims that the trial judge erred in interpreting the indemnification provisions of the service agreement in favor of Lou Ana. Aguillard further claims that it should be entitled to its day in court to determine if it consented to the terms of the service agreement because the agreement is Lou Ana's standard printed form, prepared by Lou Ana for adherence by Aguillard. It is, therefore, a contract of adhesion and issues of fact exist as to whether Aguillard consented to its terms.
The law of contracts in Louisiana is very specific. The initial inquiry should be whether the words of the contract clearly and explicitly set forth the intent of the parties, which limits the interpretation of a contract to the internal language of the contract itself.
La.Civ.Code art. 2046 provides:
When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties' intent.
Where the language of a contract is clear and unambiguous, it must be interpreted solely by reference to the four corners of that document. Weeks v. T.L. James & Co., Inc., 626 So. 2d 420 (La.App. 3d Cir.1993), writ denied, 630 So. 2d 794 (1994). The agreement in this case is the law between the parties, and no further interpretation may be made in search of the parties' intent when the words of the contract are clear, explicit and lead to no absurd consequences and is not contrary to good morals or public policy. Id.; First National Bank of Commerce v. City of New Orleans, 555 So. 2d 1345 (La. 1990); Massachusetts Mutual Life Ins. Co. v. Nails, 549 So. 2d 826 (La.1989). The courts are obligated to give legal effect to such contracts according to the true intent of the parties. Evangeline Parish School Board v. Energy Contracting Services, Inc., 617 So. 2d 1259 (La.App. 3d Cir.), writ denied, 624 So. 2d 1228 (La.1993). When a clause in a contract is clear and unambiguous, the letter of the clause should not be disregarded under the pretext of pursuing its spirit. Id. It will not be presumed by the court that parties make use of words in their contracts to which no meaning is attached by them. Weeks v. T.L. James & Co., Inc., supra. John Bailey Contractor, Inc. v. State, through DOTD, 439 So. 2d 1055 (La.1983) teaches that parties to a contract will not be imputed with using language that is meaningless or without effect. When doubt exists as to the true sense of the words or phrases, each contract provision must be explained by reference to other provisions, words, or phrases used in the same contract. La.Civ. Code art. 2050; First National Bank of Commerce v. City of New Orleans, supra. When the contract is a standard form contract, a provision in a contract should be interpreted against the party who furnished its text only in cases of doubt that cannot be otherwise resolved. La.Civ.Code art. 2056; Miguez & Leckband v. Holston's Ambulance Service, Inc., 614 So. 2d 150 (La.App. 3d Cir. 1993). Furthermore, in contracts of indemnity, the intent to indemnify another for its negligence can be taken from the contract as a whole. DeWoody v. Citgo Petroleum Corp., 595 So. 2d 395 (La.App. 3d Cir.1992). Only when an unequivocal intention to so *459 indemnify cannot be found after interpreting each contractual provision in light of the whole contract and general rules of contractual interpretation, the court will presume that the parties did not intend to hold indemnitee harmless for such liability. Id.
The supreme court in Perkins v. Rubicon, 563 So. 2d 258 (La.1990) concludes that when the contract under consideration by the court is one of indemnity, whereby the indemnitee is indemnified against consequences of his or her own negligence, it is to be strictly construed, and the contract will not be construed to indemnify the indemnitee against losses resulting to him or her through the indemnitee's negligent acts unless that intention is expressed in unequivocal terms. See also, May v. Acadiana Regional Airport, 562 So. 2d 47 (La.App. 3d Cir.1990). However, just because indemnity agreements are to be strictly construed, it does not follow that such clauses are to be disregarded, but the agreement must be given the effect intended by the parties. McNeal v. Wyeth-Scott, Inc., 415 So. 2d 568 (La.App. 3d Cir.1982). Furthermore, strict construction of indemnity agreements does not mandate nugatory interpretation since, when the clause is susceptible of two interpretations, it must be considered in that sense in which it may have some effect. Id.
Both Lou Ana and Aguillard argue that the explicit language of the contract supports their position. Applying the law as set forth above to the indemnity agreement involved, it becomes clear that the trial judge's interpretation was correct. The indemnification provisions are located under section 7.0 of the agreement. Subparagraph 7.2(a) provides that Aguillard is to "indemnify... Lou Ana from all losses, costs, and expenses ...of alleged or actual legal liabilities... for personal injuries, illnesses... founded upon occurrences (including ... the concurrent negligence or strict liability of whatever nature of CONTRACTOR and LOU ANA).... unless the ... injury, etc. are determined finally by the highest court of competent jurisdiction to be caused wholly by LOU ANA'S sole negligence." (Emphasis theirs). Also, in section (b) of subparagraph 7.2, the agreement provides for the indemnification for claims of Aguillard's employees. Essentially, (b) provides the same as (a) except that in the last sentence of (b) in the indented paragraph as to Aguillard being relieved of its obligation to indemnify Lou Ana in cases of Lou Ana's sole negligence, it fails, at first glance, to explain what is meant by "sole negligence" as in 7.2(a), where it provides that indemnity is not owed by Aguillard if the "highest court of competent jurisdiction" determines the injury was caused by Lou Ana's sole negligence.
Aguillard argues that under 7.2(a) and (b) of the service agreement, it is clearly not responsible for indemnification or defense of Lou Ana for claims against Lou Ana consisting of Lou Ana's "sole negligence." We agree with this argument. However, in 7.2(a), the contract requires the court to determine Lou Ana's "sole negligence" as opposed to allegations in an injured employee's petition. Aguillard attacks Lou Ana's attempt to incorporate the stipulation of 7.2(a), regarding its release from the obligation to indemnify Lou Ana when the highest court determines that an injury was caused by Lou Ana's sole negligence, with the sole negligence proviso of 7.2(b) which, as stated above, does not explain what is meant by "sole negligence." Aguillard asserts that "sole negligence" of 7.2(b) is determined by the allegations of the employee's petition. We disagree. It was not error for the trial judge and Lou Ana to construe the provisions of 7.2(a) and 7.2(b) of the indemnity section of the contract together. In fact, the rules of contractual interpretation requires the court to explain doubtful provisions with reference to other provisions, words or phrases used in the same contract. La.Civ.Code art. 2050; First National Bank of Commerce v. City of New Orleans, supra; Weeks v. T.L. James & Co., Inc., supra. Not only are 7.2(a) and (b) in the same contract, they appear in the same section of the contract. Only when an indemnity provision in a contract makes no express provision for indemnification against consequences of indemnitee's negligence, and an unequivocal intention to so indemnify cannot be found after interpreting each contractual provision in light of the whole contract and general rules *460 of contractual interpretation, may the court presume that the parties did not intend to hold indemnitee harmless for such liability. DeWoody v. Citgo Petroleum Corp., supra. We find that the language of the service agreement, when viewed as a whole, is specific enough to encompass the negligence of the indemnitee, subject to the one narrow exception where the indemnitee's negligence is found by the highest court of competent jurisdiction to be the sole cause of the accident.
III. Contract of Adhesion
Aguillard contends that the trial judge erred by failing to apply the defense of "contract of adhesion." Golz v. Children's Bureau of New Orleans, Inc., 326 So. 2d 865 (La.1976), broadly defines a contract of adhesion as, "a standard contract, usually in printed form, prepared by a party of superior bargaining power for adherence or rejection by the weaker party. Often in small print, these contracts sometimes raise a question as to whether or not the weaker party actually consented to the terms." Aguillard suggests that the contract is an adhesion contract because the document it signed was prepared by Lou Ana. It is the sophistication and educational levels, and not the commerciality of the parties involved in the contract, that are the primary considerations in determining whether a contract is one of adhesion. In this case, both parties are commercial enterprises and we could reasonably conclude that Aguillard was well aware of contracting practices and possessed the sophistication to enter into a service agreement. The contract in question is a three page instrument and the "sole negligence" clause in the indemnity section is not printed in small lettering, but is printed in the same size as the other lettering in the contract. Furthermore, Carroll Aguillard, president of Aguillard, signed the service agreement. The law does not compel people to read or to inform themselves of the contents of an instrument which they may choose to sign, but it holds them to the consequences, in the same manner and to the same extent as though they had exercised those rights. Dugas v. Modular Quarters, Inc., 561 So. 2d 192 (La.App. 3d Cir.1990). In Billingsley v. Bach Energy Corp., 588 So. 2d 786 (La.App. 2d Cir.1991), our brethren in the second circuit stated that a court cannot undermine a contract simply because it was a bad deal for one of the parties. As unfortunate as the result may be for Aguillard due to the narrow exception to its indemnity obligation, we agree. This court recently stated in Weeks v. T.L. James & Co., Inc., supra, and in Evangeline Parish School Board v. Energy Contracting Services, Inc., supra, that a court is not to be concerned with the wisdom or folly of a contract and that it cannot annul or amend it simply to avoid supposed hardship arising therefrom. Its duty is confined to the ascertainment of the limits of the rights and obligations of the contracting parties as they have defined them for themselves. We find no error in the trial judge's conclusion that the service agreement is not a contract of adhesion.
After a thorough review of the record and service agreement, we can find no reason why the indemnification clause with its attendant exception for Lou Ana's sole negligence, should not be enforced. The clause appears in lettering that is the same size as the rest of the contract and in clear and unambiguous language. Likewise, paragraph 6.0 in its entirety, specifically subsection (e), pertaining to insurance coverage, is clear and unambiguous and states: "All of the Insurance Coverages required of CONTRACTOR... except workmen's compensation, shall name the Company, its divisions, affiliates, parent or subsidiary companies and any of their officers, directors, employees and agents as Additional Insureds." (Emphasis added). Subsection (g) of 6.0 dictates that the insurance policies cannot be cancelled without 30 days prior notice to Lou Ana. Subsection (h) of 6.0 further requires Aguillard to furnish Lou Ana with proof that the insurances were obtained and remain in force. We agree that Aguillard failed to comply with the insurance requirements as clearly stated in the service agreement. Inasmuch as Lou Ana is exposed to potential liability in the McGoldricks' lawsuit for damages against it, for which it will neither be defended nor insured, we find that Aguillard breached its *461 contract with Lou Ana and is liable for the damages arising therefrom. It is now impossible for Aguillard to "procure" insurance coverage for a past occurrence. To the extent that the trial court ordered this act, it was incorrect and the judgment will be amended accordingly.
CONCLUSION
Accordingly, we amend and affirm the trial court's grant of Lou Ana's motion for summary judgment. The judgment is amended to delete the requirement that Aguillard procure or tender insurance coverage because of the futility of such an act. However, because of Aguillard's breach of its contractual obligations, it must now assume the insurer's responsibility and provide the coverage agreed upon.
Third party defendant and appellant, Aguillard Enterprises, is assessed with the costs of this appeal.
AMENDED AND, AS AMENDED, AFFIRMED.
*462 APPENDIX A
*463
*464 | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1904226/ | 889 F. Supp. 60 (1995)
ONE SYLVAN ROAD NORTH ASSOCIATES, Plaintiff,
v.
LARK INTERNATIONAL, LTD., Defendant.
No. 3:95cv400(DJS).
United States District Court, D. Connecticut.
June 22, 1995.
*61 Janine M. Becker, Willinger, Shepro, Tower & Bucci, Bridgeport, CT, for plaintiff One Sylvan Road North Associates, a Conn. Gen. Partnership.
James R. Hawkins, II, Patrick J. McHugh, Finn, Dixon & Herling, Stamford, CT, for defendant Lark Intern. Ltd.
MEMORANDUM OPINION AND ORDER
SQUATRITO, District Judge.
I. INTRODUCTION
This cause is now before the court on the motion to remand filed by Plaintiff, One Sylvan Road North Associates ("Sylvan"), on March 24, 1995. 28 U.S.C. § 1441(a). Document # 5.
Sylvan originally filed this action against Defendant, Lark International Limited ("Lark"), in the Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Norwalk (Housing Session) on April 6, 1994. It alleges breach of a lease agreement and seeks possession of the premises in question. Lark removed the case to this court for a second time on March 7, 1995. It maintains that the court has diversity jurisdiction. 28 U.S.C. § 1332.
For the reasons stated below, the motion to remand is granted.
II. BACKGROUND
Sylvan is a Connecticut general partnership with its principal place of business in Connecticut. Notice of Removal ¶ 10. Lark is a corporation organized under the laws of the British Crown Colony of Hong Kong with its principal place of business in Hong Kong. Id.
On or about August 1, 1986, Sylvan entered into a written lease agreement with Lindblad Travel ("Lindblad") for the use and occupancy of the premises located at One Sylvan Road North or 232 Post Road West, Westport, Connecticut.[1] Lark's Memorandum at 2. On that same date, Sylvan and Lark entered into a written guarantee. Compl. (First Count) ¶ 2. Under the terms of the agreement, Lark guaranteed Lindblad's payment of rents and additional rents as required under the lease. Id. ¶ 3. Lindblad *62 then allegedly defaulted under the terms of the lease. Id. ¶ 4.
On or about October 4, 1993, Sylvan and Lark entered into a written modification agreement. Id. ¶ 5. On or about November 29, 1993, Sylvan and Lark entered into a second modification agreement. Id. ¶ 6. Under the terms of the lease and subsequent agreements Lark obtained an option to purchase the premises in question, which are valued at in excess of $2,000,00.00. Lark's Memorandum at 4.
On February 16, 1994, Sylvan provided Lark with a written notice of default, claiming that Lark had failed to pay the February 1994 rent. Id. ¶¶ 9-10. On March 9, 1994, Sylvan served on Lark a Notice to Quit requiring that the premises be vacated. Id. ¶ 11. Nevertheless, Lark continued to claim a right to possession and a right to exercise the option. Id. ¶ 12.
On April 6, 1994, Sylvan commenced a summary process action in state court. Lark removed the case to federal district court on April 21, 1994. In a Ruling filed on August 17, 1994, United States District Judge Alfred V. Covello ("Judge Covello") granted Sylvan's first motion to remand based on a finding that the court did not have subject matter jurisdiction. In sum, he concluded that only possession of the premises was at issue and that, therefore, the amount in controversy did not exceed $50,000.00. One Sylvan Rd. Assocs. v. Lark Int'l Ltd., Civil No. 3:94-CV-655(AVC), slip op. at 4-5 (D.Conn. Aug. 17, 1994).
Subsequently, the case proceeded to trial in state court. Prior the completion of the trial, however, Lark removed the action to this court for a second time. This motion followed.
III. STANDARD OF REVIEW
On a motion to remand, the court construes all factual allegations in favor of the party seeking the remand. Metropolitan Property & Cas. Ins. Co. v. J.C. Penney Cas. Ins. Co., 780 F. Supp. 885, 887 (D.Conn.1991) (citations omitted). See R.G. Barry Corp. v. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d Cir.1979). Moreover, it is well settled that defendants, as the parties removing the action to federal court, have the burden of establishing federal jurisdiction. Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S. Ct. 35, 37, 66 L. Ed. 144 (1921); Sullivan v. First Affiliated Secur., Inc., 813 F.2d 1368, 1371 (9th Cir.), cert. denied, 484 U.S. 850, 108 S. Ct. 150, 98 L. Ed. 2d 106 (1987); Metropolitan, 780 F.Supp. at 889 (citations omitted).
IV. DISCUSSION
Lark argues remand is inappropriate because (1) a subsequent ruling by a state court judge concluded, unlike Judge Covello's ruling, that the option would be affected by the outcome of this case and therefore, the amount in controversy is in excess of $50,000.00 and (2) testimony and evidence in the subsequent state court proceedings reveal that Sylvan is in fact seeking damages in excess of $50,000.00. The court does not agree.
A. Re-Removal
The court's analysis begins by recognizing that a decision to remand for lack of subject matter jurisdiction may not be appealed. 28 U.S.C. § 1447(d); Hamilton v. Aetna Life & Cas. Co., 5 F.3d 642, 644 (2d Cir.1993) (per curiam), cert. denied, ___ U.S. ___, 114 S. Ct. 1100, 127 L. Ed. 2d 413 (1994). It is axiomatic that remanding a case to state court terminates the jurisdiction of a federal district court over that case. Courts have construed 28 U.S.C. § 1447(d) as prohibiting appeals of remand orders as well as reconsiderations by district courts of their own remands based on the same grounds as the initial removal. In re La Providencia Dev. Corp., 406 F.2d 251, 253 (1st Cir.1969) ("The district court has one shot, right or wrong."). Therefore, the court cannot engage in a review of Judge Covello's prior ruling.
Nevertheless, the fact that a case was initially removed and remanded does not in of itself preclude removal a second time around. A defendant who fails in an attempt to remove on the initial pleadings can file a second removal petition when subsequent pleadings or events reveal a new and different ground for removal. Fritzlen v. Boatmen's Bank, 212 U.S. 364, 372-73, 29 S.Ct. *63 366, 369-70, 53 L. Ed. 551 (1909); Powers v. Chesapeake & Ohio Ry. Co., 169 U.S. 92, 102, 18 S. Ct. 264, 267-68, 42 L. Ed. 673 (1898); FDIC v. Santiago Plaza, 598 F.2d 634, 636 (1st Cir.1979); Employers Ins. of Wausau v. Certain Underwriters at Lloyds, 787 F. Supp. 165, 169 (W.D.Wis.1992).
The second paragraph of 28 U.S.C. § 1446(b) is designed to allow a defendant to remove a state action when it was not originally removable as stated by plaintiff's initial complaint, but has become removable due to the filing in state court of "an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable."[2] By adding the second paragraph of § 1446(b), Congress "`intended that a party be permitted successive removals.'" Feller v. National Enquirer, 555 F. Supp. 1114, 1116-17 (N.D.Ohio 1982) (citation omitted).
B. Lark's Arguments
In its first argument, Lark maintains that "subsequent actions of the state court alone may justify the denial of a motion to remand the re-removal." Lark's Memorandum at 10. Specifically, it contends that a state judge's conclusion that the instant lawsuit will affect Lark's ability to exercise its option establishes that the amount in controversy is in excess of $50,000.00.[3] In support of its argument, Lark cites Central of Ga. Ry. Co. v. Riegel Textile Corp., 426 F.2d 935 (5th Cir. 1970) and Doe v. American Red Cross, 14 F.3d 196 (3rd Cir.1993).
In Central, an employee filed a Federal Employers' Liability Act ("FELA") claim against his employer, Central of Georgia Railway Co. ("Central"), in Alabama state court. Central filed a third-party complaint against Riegal Textile Corporation ("Riegal"), claiming indemnity under the terms of a track agreement. Riegal removed the case to the federal district court for the Northern District of Alabama, alleging diversity jurisdiction between it and the employer. The district court granted motions to remand by the employee and Central.
Back in state court the employee moved to strike the third party complaint on grounds that it unduly prejudiced his claim. The state court severed the third party complaint for trial purposes and set the original action for trial. Once again Riegel removed the case to federal court under 28 U.S.C. § 1441(c).[4] The district court granted the employee's motion to remand the FELA case, but denied Central's motion and retained jurisdiction over the indemnity claim. It then certified the case for interlocutory appeal.
The Fifth Circuit affirmed the district court's conclusion that removal was appropriate under § 1441(c). The court, per Judge Godbold, concluded that "[w]here removal would not have the effect of defeating plaintiff's choice of forum, federal courts should recognize that a party in Riegel's position is as much a `defendant' as if an original action had been brought against him." Central, 426 F.2d at 938.
In Doe, the American Red Cross ("Red Cross") and its affiliates were sued in Pennsylvania state court by plaintiffs claiming *64 that they had contracted Acquired Immune Deficiency Syndrome ("AIDS") through contaminated blood transfusions and that their injuries were caused by negligence on the part of the Red Cross. The Red Cross removed the cases to the federal district court in the Eastern District of Pennsylvania. The cases were remanded to state court without prejudice to defendants' right to petition for re-removal should the case law of the jurisdiction change during the life span of the case, stating that removal would be proper.
Subsequently, in American National Red Cross v. S.G., 505 U.S. 247, 112 S. Ct. 2465, 120 L. Ed. 2d 201 (1992), the Supreme Court held that 36 U.S.C. § 2, the "sue and be sued" provision in the Red Cross' congressional charter, conferred original jurisdiction on federal courts. Id. 257, 112 S. Ct. at 2472. In an interlocutory appeal, the Third Circuit addressed the issue of whether S.G. authorized the re-removal of a state court action against the Red Cross under 28 U.S.C. § 1446(b). It concluded that the S.G. opinion was an "order" addressed to the Red Cross as contemplated by § 1446(b). Doe, 14 F.3d at 198. Re-removal was, therefore, appropriate because the Red Cross was a critical party in the S.G. case, and had filed a timely notice of removal after receiving an "order" from the Court. Id.
Although Lark is correct that Central and Doe support the proposition that subsequent actions can justify re-removal, the court concludes that the state court's ruling in the present case does not provide a sufficient basis for finding subject matter jurisdiction. Unlike Central and Doe, there has not been a substantial change in the nature of the instant case since it was last in this court. The state court judge's ruling, within the jurisdictional context, is merely a "second opinion" on the financial ramifications of the case. It does not provide a new basis upon which to establish jurisdiction.
To exercise jurisdiction based on this "second opinion" would amount to de facto appellate review, which is barred by 28 U.S.C. § 1447(d). Moreover, to exercise jurisdiction based on a subsequent state court decision on an issue previously ruled on by the federal district court without a material change in the pleadings would destroy the finality of an order to remand and the Congressional policy of not permitting interruption of the litigation of the merits of a removed case by prolonged litigation of jurisdictional questions. O'Bryan v. Chandler, 496 F.2d 403, 412 (10th Cir.) (citation omitted), cert. denied, 419 U.S. 986, 95 S. Ct. 245, 42 L. Ed. 2d 194 (1974).
Lark's second argument is no more persuasive than its first. In it, Lark contends that subsequent testimony and evidence indicate that Sylvan is seeking rents in excess of $50,000.00 and would like to have the option terminated. Lark's Memorandum at 11-17. In support of this argument, Lark first points to Sylvan's introduction, at the state court trial, of a tenant ledger reflecting rental payments from 1986 through 1994. It also points to correspondences introduced by Sylvan which address the issue of unpaid rent for November and December of 1992. These unpaid rents combined with the February rent are in excess of $50,000.00. Lark further directs the court to the testimony of Mr. Schinella ("Schinella") of Sylvan, who testified that Sylvan wanted to "get rid of Lark's option." Lark's Ex. N at 71-73. Finally, it maintains that it has initiated the process of exercising the option.
Lark argues that the introduction of the ledger and correspondences at trial "conclusively establishes that Plaintiff's civil action involves an alleged default for failure to pay rent in November and December 1992 and from February through October 1994, an amount of at least $118,125.00." Lark's Memorandum at 12 (emphasis omitted).
A review of the transcript of the state court hearing in question reveals, however, that Sylvan did not commence this action to recover unpaid rents in excess of $50,000.00. First, Sylvan's counsel, Mr. Shepro ("Shepro") stated that under the Complaint his client was not seeking and could not recover for any unpaid rent other than the February 1994 rent.[5] Moreover, Schinella later testified *65 that in the present action Sylvan's claim was exclusively based on the default of the February rent. Id. at 53.
Although Sylvan has introduced evidence and testimony in the state court proceeding that could be used in proving a case for the recovery of additional unpaid rents, its Complaint seeks only possession and its attorney has conceded that it is bound by its pleadings. Therefore, Lark has not established that the amount in controversy is in excess of $50,000.00 or that the termination of the option is at issue. Its new evidence and testimony do not present a different set of facts which establish a new ground for removal. O'Bryan, 496 F.2d at 410.
Thus, Lark's second argument, like its first, requires this court to engage in a de facto appellate review of Judge Covello's previous remand order. Such review is not available. 28 U.S.C. § 1447(d). Absent a showing that the posture of the case has so changed that it is substantially a new case, Feller, 555 F.Supp. at 1119, this court must defer to Judge Covello's prior ruling as well as the allegations within the Complaint.
CONCLUSION
For the foregoing reasons, Sylvan's motion to remand [Doc. # 5] is GRANTED. Accordingly, this case is hereby REMANDED to the Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Norwalk (Housing Session). The Clerk of the court is DIRECTED to take the necessary action to effect the remand. So ordered.
NOTES
[1] The court notes that there appears to be some confusion on the location of the premises. On the one hand, the Complaint alleges that the premises are located in Fairfield. Compl. (First Count) ¶ 1. On the other hand, Lark's Memorandum, the lease, and the modification agreements state that the premises are in Westport. Lark's Memorandum at 2; Lark's Ex. B ¶ 1; Lark's Ex. C at 1; Lark's Ex. D at 1.
[2] Paragraph 2 of 28 U.S.C. § 1446(b) states:
If the case stated by the initial pleadings is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may be first ascertained that the case is one which is or has become removable, except that a case may not be removed on the basis of jurisdiction conferred by section 1332 of this title more than 1 year after commencement of the action.
[3] In a Memorandum of Decision dated February 21, 1995, Superior Court Judge Kevin Tierney articulated the reasoning behind his September 13, 1994 denial of Lark's motion to dismiss. As part of his analysis he concluded that:
[t]his lawsuit will determine the rights of the parties as to future occupancy and the right of the defendant to exercise its option to purchase the property. The option price is $2,700,000 and this amount is sufficient to affect even the largest business entities.
Lark's Ex. H. at 10.
[4] 28 U.S.C. § 1441(c) reads:
Whenever a separate and independent claim or cause of action within the jurisdiction conferred by section 1331 of this title is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters in which State law predominates.
[5] During the hearing, Shepro stated:
MR. SHEPRO: It's irrelevant what Mr. Schinella may say on the stand is his present claim. We're bound by the pleadings; count one specifically refers to February 1, 1994, the second count refers to annual rent. They have to pay additional rent which I didn't get into, so we're waiving additional rent claim. And count three incorporates paragraph nine, again, of the first count, which talk about February 1 rent. So it's irrelevant. If this witness wants to say that I'm claiming that the $28,000 wasn't paid for November and December, that's not part of the case.
. . . . .
MR. SHEPRO: It's due, but it's not part of this case.
Sylvan's Ex. K at 52. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2235819/ | 929 N.E.2d 172 (2006)
367 Ill. App.3d 1100
IN RE MARRIAGE OF KUKULSKI.
No. 2-06-0195.
Appellate Court of Illinois, Second District.
November 1, 2006.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/840278/ | 744 N.W.2d 143 (2008)
PEOPLE of the State of Michigan, Plaintiff-Appellee,
v.
Carl Michael SCOTT-PARKIN, Defendant-Appellant.
Docket No. 135002. COA No. 279315.
Supreme Court of Michigan.
February 19, 2008.
On order of the Court, the motion for reconsideration of this Court's November 29, 2007 order is considered, and it is DENIED, because it does not appear that the order was entered erroneously. | 01-03-2023 | 03-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2371635/ | 902 S.W.2d 162 (1995)
Dennis Wayne PERRY, Appellant,
v.
The STATE of Texas, Appellee.
No. 01-95-00048-CR.
Court of Appeals of Texas, Houston (1st Dist.).
June 15, 1995.
Discretionary Review Refused September 20, 1995.
Charles Brown, Houston, for appellant.
John B. Holmes, Jr., Calvin A. Hartmann, Devon Ward, Houston, for appellee.
Before HUTSON-DUNN, MIRABAL, and HEDGES, JJ.
OPINION
MIRABAL, Justice.
Appellant Dennis Wayne Perry pled guilty to possession of a controlled substance. The trial court found two enhancement paragraphs *163 true, and assessed punishment at 30-years confinement. We affirm.
In a single point of error, appellant asserts the trial court erred in overruling his motion for new trial. Pointing to the legislature's recent amendments to the 1973 penal code, as well as revisions in the Health & Safety Code, appellant argues that the trial court incorrectly assessed his punishment. He maintains that, after he committed the offense but before he was tried, the legislature reclassified the offense from a second degree felony to a state jail felony and, therefore, he is entitled to be sentenced accordingly.
The 1993 amendments to the Health and Safety Code established a new offense classification for possession of certain amounts of controlled substances, and now provides that possession of less than one gram is a "state jail felony." TEX.HEALTH & SAFETY CODE ANN. § 481.115(b) (Vernon Supp.1995). The legislature also amended the penal code to provide punishment guidelines for state jail felonies. See Tex.Penal Code Ann. § 12.35 (Vernon 1994). These amendments apply, however, only to offenses committed on or after September 1, 1994.[1] In amending the Health and Safety Code, the legislature specifically provided that "an offense committed before the effective date of this article is covered by the law in effect when the offense was committed, and the former law is continued in effect for that purpose." Act of May 29, 1993, 73rd Leg., R.S., ch. 900, sec. 2.08(b), 1993 Tex.Gen.Laws 3586, 3714.
It is undisputed that appellant committed the offense on August 20, 1994, prior to the effective date of the amendments. At the time appellant committed the offense, it was classified as a second degree felony,[2] and his punishment was subject to enhancement for prior felony offenses.[3] The trial court properly assessed punishment within the range provided by the laws in effect at the time of the offense. Accord Wilson v. State, 899 S.W.2d 36 (Tex.App.Amarillo, 1995, n.w.h.) (not yet reported).
We overrule appellant's sole point of error and affirm the judgment.
NOTES
[1] The effective date of the amendments was September 1, 1994. Act of May 29, 1993, 73rd Leg., R.S., ch. 900, sec. 2.09, 1993 Tex.Gen.Laws 3586, 3714; Act of May 29, 1993, 73rd Leg., R.S., ch. 900, § 1.01, 1993 Tex.Gen.Laws 3686, 3603; Act of May 29, 1993, 73rd Leg., R.S., ch. 900, § 4.01, 1993 Tex.Gen.Laws 3586, 3731.
[2] Act of May 16, 1989, 71st Leg., R.S., ch. 678, § 1, 1989 Tex.Gen.Laws 2230, 2936, amended by Act of May 29, 1993, 73rd Leg., R.S., ch. 900, § 2.02, 1993 Tex.Gen.Laws 3586, 3706.
[3] TEX.PENAL CODE ANN. § 12.42(d) (Vernon 1994). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1391450/ | 102 Ariz. 241 (1967)
428 P.2d 98
Oscar SANDOVAL and Financial Indemnity Company, Appellants and Cross-Appellees,
v.
Chester A. CHENOWETH, Appellee and Cross-Appellant.
No. 7890-PR.
Supreme Court of Arizona. In Banc.
May 25, 1967.
Rehearing Denied July 6, 1967.
*242 O'Connor, Anderson, Westover, Killingsworth & Beshears, by John P. Otto, Phoenix, for appellants and cross-appellees.
Gibbons, Kinney & Tipton, by Charles A. Ditsch, and Leland Featherman, Phoenix, for appellee and cross-appellant.
Samuel Langerman, Phoenix, for amicus curiae American Trial Lawyers Assn.
McFARLAND, Vice Chief Justice:
Chester A. Chenoweth has petitioned for and been granted review of the decision of the Arizona Court of Appeals in the case of Sandoval v. Chenoweth, 2 Ariz. App. 553, 410 P.2d 671.
*243 For purposes of convenience plaintiff in the trial court, Chester A. Chenoweth, will be hereinafter referred to as plaintiff; the defendant, Oscar Sandoval, as defendant; and defendant's insurer, Financial Indemnity Co., will be referred to as Financial.
This action arises out of an automobile accident which occurred on August 22, 1960, in which it is alleged that defendant ran a red light and collided with plaintiff's automobile, causing plaintiff injury and damages in the amount of $35,000. Defendant notified his insurer, Financial, of the accident, and thereafter, plaintiff and Financial's adjusters negotiated at length in order to effect a settlement of plaintiff's claims. The attempts at settlement failed, and plaintiff brought suit. Defendant was served with process on April 4th, 1961, but did not notify Financial. On May 10, 1961, default judgment was entered against defendant in the sum of $35,000. A writ of garnishment in this amount was served on Financial on July 27, 1961. Although it is alleged that plaintiff told the adjusters he was going to sue, it is undisputed that Financial had no notice of the filing of the suit until after the default judgment was entered.
In the subsequent garnishment action Financial defended on the ground that defendant had breached the conditions of his policy in that he had failed to notify Financial of the filing of the suit, and therefore Financial owed defendant nothing.
The policy condition provided as follows:
"* * * If claim is made or suit is brought against the Insured, the Insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representatives."
On cross motions for summary judgment the trial court granted summary judgment in favor of plaintiff in the amount of $5,000. The trial court then granted summary judgment against plaintiff and in favor of Financial for all sums in excess of $5,000. In so doing, the court must necessarily have determined that the "policy defense" of failure of notice of suit is not available to an insurer, under the Financial Responsibility Law, A.R.S. § 28-1101, et seq.
As both plaintiff and Financial have appealed from the Superior Court, we will treat Financial's appeal first, and deal with plaintiff's cross appeal later in this opinion.
Financial contends the trial court erred for the reason that the provisions of the Arizona Financial Responsibility Act are not applicable in the instant case.
The holding of the trial court has been buttressed by the subsequent decision and opinion of this court in Jenkins v. Mayflower Insurance Exchange, 93 Ariz. 287, 380 P.2d 145, wherein we held in a unanimous opinion that the "omnibus clause" is a part of every motor vehicle liability policy, by whatever name it may be called. In so holding we refused to consider distinctions between the terms "motor vehicle liability policy," "automobile liability policy" or "policy of insurance." The Mayflower case was founded on our holding in Schecter v. Killingsworth, 93 Ariz. 273, 380 P.2d 136, wherein we said:
"The Financial Responsibility Act has for its principal purpose the protection of the public using the highways from financial hardship which may result from the use of automobiles by financially irresponsible persons." 93 Ariz. at 280, 380 P.2d at 140
In Schecter v. Killingsworth, supra, we further stated that the primary purpose of the Financial Responsibility Act was "the providing of security against uncompensated damages arising from operation of motor vehicles on our highways." The foregoing statements were quoted and relied upon in Jenkins v. Mayflower, supra, and the two cases, when read in conjunction, fully express the public policy of this state in regard to judicial implementation of the Financial Responsibility Act. The holding of Jenkins v. Mayflower that a restrictive endorsement negating coverage could not be relied on by the insurer where it conflicted with the coverage required by the omnibus clause read into every automobile *244 liability policy by the Financial Responsibility Act, was reiterated by this court in Pacific Indemnity Co. v. Hamman Wholesale Lumber and Supply Co., Inc., 95 Ariz. 362, 390 P.2d 897.
Counsel for Financial ask that we overrule Jenkins v. Mayflower. The cases cited do not differ in reason nor authority from those cited and considered by this court in arriving at our decision. Jenkins v. Mayflower, supra, 93 Ariz. at 290, 380 P.2d at 147. Our decision in that case was arrived at after mature consideration. The result is just and equitable, as it alleviates to a large degree the suffering and injustice rendered an innocent injured party by the assertion of an insurer's defense based on a technicality over which he had no control.
Counsel and amicus urge in behalf of plaintiff that several attempts have been made to change the effect of the Mayflower decision by legislative enactment and that the Legislature has refused to act. We do not feel this to be grounds for either reaffirming or overruling Mayflower. However, we do recognize that if the law is to be changed, the objectives of the Financial Responsibility Law as interpreted in Schecter v. Killingsworth and Mayflower should be changed by the Legislature.
The Supreme Court of California in Interinsurance Exchange Of Automobile Club of Southern California v. Ohio Casualty Insurance Company, 58 Cal. 2d 142, 23 Cal. Rptr. 592, 373 P.2d 640, subsequent to a legislative amendment making their financial responsibility law even more akin to that of this state, re-affirmed the rule of public policy announced in Wildman v. Government Employees' Ins. Co., 48 Cal. 2d 31, 307 P.2d 359, cited in Mayflower. In doing so, the court stated:
"* * * [T]he entire automobile financial responsibility law must be liberally construed to foster its main objective of giving `monetary protection to that ever changing and tragically large group of persons who while lawfully using the highways themselves suffer grave injury through the negligent use of those highways by others.' To hold that the 1957 legislation abrogated the rule of Wildman, would violate this rule of liberal construction and would be contrary to the trend indicated in recent legislative and judicial determinations involving the Vehicle Code. * * *" 373 P.2d at 646.
In the absence of any showing of injustice or a legislative change of public policy, we find no reason to depart from the established law of the state and the doctrine of stare decisis. The social and economic problems arising from the ever mounting casualty rate on our streets and highways are even more persuasive today than at the time of the enactment of the financial responsibility law or the decision in Mayflower.
Our holding in Jenkins v. Mayflower Insurance Exchange is reaffirmed.
Under the rule expressed in Mayflower, the provisions of the Financial Responsibility Law are applicable to the facts of the instant case whether or not the policy would be technically classed as a "certified" policy. A.R.S. § 28-1170 expressly states as follows:
"F. Every motor vehicle liability policy shall be subject to the following provisions which need not be contained therein:
"1. The liability of the insurance carrier with respect to the insurance required by this chapter shall become absolute when injury or damage covered by the motor vehicle liability policy occurs. The policy may not be cancelled or annulled as to such liability by an agreement between the insurance carrier and the insured after the occurrence of the injury or damage, and no statement made by the insured or on his behalf and no violation of the policy shall defeat or void the policy." (Emphasis added.)
In the light of the Mayflower decision, the foregoing statutory provision is controlling in the instant case.
*245 Financial contends, however, that the effect of this statute, when applied to the facts of the instant case, will result in a denial of due process violative of Art. II, § 4, of the Arizona Constitution, A.R.S. and of the Fourteenth Amendment of the Constitution of the United States of America. The elements of due process in regard to notice and right to a hearing have previously been set forth by this court in Phoenix Metals Corporation v. Roth, 79 Ariz. 106, 284 P.2d 645, as follows:
"`The essential elements of due process of law are notice and an opportunity to be heard and to defend in an orderly proceeding adapted to the nature of the case before a tribunal having jurisdiction of the cause. * * *'" 79 Ariz. at 109, 284 P.2d at 647
In the instant case, Financial was notified of the claim against them but was not notified that suit had been filed against defendant. Default judgment was entered on May 10th, 1961, and counsel for Financial first learned of the default judgment on or about May 29th, 1961, when Financial's adjusters forwarded a letter from plaintiff's counsel.
It was not until August 9, 1961, more than nine weeks after being informed of the suit, that a motion was made to set aside the default. The motion to set aside was denied on September 27, 1961. After Financial was notified of the default judgment, but before it filed the motion to have it set aside, garnishment proceedings were instituted against Financial.
It seems to be settled that after recovering a judgment against an insured under a liability policy, the injured third person may collect such judgment by instituting garnishment proceedings against the liability insurer. Michel v. American Fire & Casualty Co., 5 Cir., 82 F.2d 583; Brandon v. St. Paul Mercury Indemnity Co., 132 Kan. 68, 294 P. 881, 83 A.L.R. 673; 22 Appleman, Insurance Law and Practice, § 14565. Financial points out that in this situation the rendition of judgment against the insured serves a dual purpose; that it not only creates a judgment debt in favor of the injured party, but at the same time it creates a debt under the insurance contract between the judgment debtor and his insurer; and that for this reason, the insurer should have a right to defend against the default judgment.
Financial's remedy, however, is not to attempt to relitigate the facts of the original suit in the subsequent garnishment action, as this is merely an ancillary proceeding to subject the indebtedness to satisfaction of a judgment. Weir v. Galbraith, 92 Ariz. 279, 376 P.2d 396. If the insurance company can show statutory grounds to set aside the default, its remedy is to move to have the default judgment set aside, as was done in the instant case.
The grounds on which a judgment may be set aside are set forth in Rule 60(c). Arizona Rules of Civil Procedure, 16 A.R.S.
At the time that Financial filed its motion to set aside the default judgment, Rule 60(c) was more restrictive than in its present form. However, it did set forth grounds under which the court, in its discretion, might have granted relief from the judgment. The motion to set aside a default judgment must be made within a reasonable time. While the court did not state its reasons for denying the motion, the record shows the motion was not made until nine weeks after Financial was informed of the default judgment. The trial court could have found that it was not made within a reasonable time. Under these facts we cannot say the trial court abused its discretion in failing to grant the motion. Postal Benefit Insurance Co. v. Johnson, 64 Ariz. 25, 165 P.2d 173; Lewis v. Cunningham, 10 Ariz. 158, 85 P. 244; Rule 60(c), Arizona Rules of Civil Procedure, 16 A.R.S.
In light of the foregoing facts, Financial has not been deprived of its constitutional right of due process of law, as the Financial Responsibility Law was in effect at the time of the issuance of this *246 policy, and its counterpart in California had been interpreted in accord with our subsequent decision in Mayflower. Wildman v. Government Employees Ins. Co., supra.
PLAINTIFF'S CROSS-APPEAL
Plaintiff contends the trial court erred in granting summary judgment in favor of Financial and against plaintiff for all sums in excess of five thousand dollars.
This judgment was based on the trial court's interpretation of A.R.S. § 28-1170, subsections B and G. At the time of the lower court's determination, these sections provided as follows:
"B. The owner's policy of liability insurance must comply with the following requirements:
* * * * * *
"2. It shall insure the person named therein and any other person, as insured, using the motor vehicle or motor vehicles with the express or implied permission of the named insured, against loss from the liability imposed by law for damages arising out of the ownership, maintenance or use of the motor vehicle or motor vehicles within the United States or the Dominion of Canada, subject to limits exclusive of interest and costs, with respect to each motor vehicle as follows:
"(a) Five thousand dollars because of bodily injury to or death of one person in any one accident.
* * * * * *
"(c) One thousand dollars because of injury to or destruction of property of others in any one accident.
* * * * * *
"G. A policy which grants the coverage required for a motor vehicle liability policy may also grant lawful coverage in excess of or in addition to the coverage specified for a motor vehicle liability policy and the excess or additional coverage shall not be subject to the provisions of this chapter. With respect to a policy which grants the excess or additional coverage the term `motor vehicle liability policy' shall apply only to that part of the coverage which is required by this section."
This court has been previously inclined to follow California in its judicial interpretation of the Financial Responsibility Act. The courts of that state have previously passed on this in Globe Indemnity Co. v. Universal Underwriters Insurance Co., 201 Cal. App. 2d 9, 20 Cal. Rptr. 73, wherein it was said:
"Since appellants fail to sustain their first major position that the policy did not cover the permissive user we turn to the second basic argument that the trial court erred in affording Moore coverage to the full limits of the policy. We believe that Moore assumes the status of an insured under the policy and hence receives its whole protection. Moore thus becomes an additional insured under the policy and obtains its protection as much as the `partner, employee, director or stockholder' who is specifically named in the policy's `Definition of Insured.' Since the limitations of paragraph 8 do not affect the situation, and since the policy itself contains no differentiations as to those insured or the amounts of the protection, we find no basis for curtailment of Moore's coverage.
"Despite appellants' criticism of the Supreme Court's language in Continental Cas. Co. v. Phoenix Const. Co. (1956) 46 Cal. 2d 423, 296 P.2d 801, 57 A.L.R. 2d 914, we believe it is both apt and pertinent to this case. There the court held that one Mason, the driver of the equipment involved was a `"managing employee"' (p. 433, 296 P.2d p. 807) within the omnibus clause of the policy. The policy contained this provision: `"Financial Responsibility Laws. Such insurance as is afforded by this policy shall comply with the provisions of the motor vehicle financial responsibility law of any state or province which shall be applicable with respect to any such liability arising out of the existence, ownership, *247 maintenance or use of any automobile during the policy period, to the extent of the coverage and limits of liability [as] required by such law." (Italics added.)' (P. 433, 296 P.2d p. 807.) The court held that compliance with Vehicle Code section 415 did not work a reduction of the limits of the policy to the minimum which the section permitted. The court said `Here we have the seemingly explicit provision of section 415 of the Vehicle Code that "A `motor vehicle liability policy,' as used in this code means a policy * * *, which policy shall meet the following requirements: * * * (2) Such policy shall insure the person named therein and any other person using or responsible for the use of said motor vehicle * * * with the * * * permission of said assured," and coupled with that are the provisions of the Highway Carriers Act * * * declaring that the coverage provided "shall comply with the provisions of the motor vehicle financial responsibility law * * * which shall be applicable with respect to any such liability arising out of the existence * * * or use of any automobile * * * to the extent of the coverage and limits of liability required by such law." (Italics added.) That language cannot properly be construed to mean minimum coverage or minimum limits; rather, it must be interpreted as providing full or maximum coverage in both aspects insofar as encompassed by the law and not exceeding the clear limitations of the contract.' (P. 438, 296 P.2d p. 810.)
"As respondent points out, since the Universal policy did not set up different provisions for omnibus insureds, the fact that Mason, `unlike Moore, became an omnibus insured through an interpretation of a policy definition' does not differentiate the cases. The point is that once Moore became an insured by operation of law, and once Mason became an assured by application of the policy, they both were protected to the full limits of the policy. * * *"
The Ninth Circuit of the United States Court of Appeals in Truck Insurance Exchange v. American Surety Co. of New York, 9 Cir., 338 F.2d 811, has succinctly stated the California view on this point as follows:
"1. Appellant contends that since its liability arises by operation of law, due to the requirements of § 16451 of the California Vehicle Code, and that since that section only requires coverage to the extent of $10,000, its liability should be limited to that amount.
"California law, as evidence by Globe Indemnity Co. v. Universal Underwriters Ins. Co., 201 Cal. App. 2d 9, 20 Cal. Rptr. 73 (Dist.Ct.App. 1962), is to the contrary."
In Mayflower we refused to consider artful distinctions between the terms "motor vehicle liability policy," "automobile liability policy," or "policy of insurance." The same reasoning applies in regard to the limitation of liability under A.R.S. § 28-1170, subsection G, supra. There being no distinction between the terms, the second sentence of subsection G is ineffectual to limit coverage to the minimum amount required. Therefore, the trial court erred in granting summary judgment in favor of Financial for all sums in excess of five thousand dollars.
For the foregoing reasons, the judgment of the lower court is affirmed in part, reversed in part, and remanded with directions to enter judgment for the plaintiff in the amount of the debt which is owing to defendant under the policy. The decision of the Court of Appeals is vacated.
STRUCKMEYER, UDALL and LOCKWOOD, JJ., concur.
BERNSTEIN, Chief Justice (dissenting).
In our recent decision of Carpenter v. Superior Court, 101 Ariz. 565, 422 P.2d 129, I dissented from the majority of the court *248 because of my belief that a reexamination by this court of the continuing validity of our holding in the case of Jenkins v. Mayflower Insurance Exchange, 93 Ariz. 287, 380 P.2d 145 had been improperly avoided. It was my opinion then, as it is now, that the Mayflower case had been erroneously decided and that it should be overruled. Carpenter v. Superior Court, supra, 101 Ariz. p. 572, 422 P.2d 129 (dissenting opinion).
In the present cause the majority now has taken the opportunity to reconsider the Mayflower decision, and has decided it should be reaffirmed. For reasons set forth in my dissent in Carpenter, I cannot concur with the majority's continuing support of Mayflower.
The majority has chosen to again term as "artful" those distinctions which lay at the very heart of A.R.S. Title 28, Chapter 7, Articles 3 and 4, and in this manner, to again ignore the master plan of the Financial Responsibility Law as well as obvious legislative intent. In doing so, the majority risks hypocrisy in suggesting that a change of the law as enunciated in Mayflower is a matter for the legislature rather than the judiciary. For as I stated in Carpenter, the failure to exercise necessary judicial restraint in the face of a strictly legislative matter constituted the condemning defect in our Mayflower decision. The doctrine of judicial restraint in such matters is a constant limitation on the power of the courts and is not to be stored in legal moth balls for selective use only. I cannot agree that it would be a violation of this doctrine to now overrule a case in which the principle had been previously violated. To the contrary, it simply would be a matter of correcting a past wrong.
Further, I must disagree with the majority's conclusion that the trial court could properly find that Financial Indemnity Company had failed to make a motion to set aside the default judgment within a "reasonable" time. The majority apparently overlooks the fact that the Mayflower decision, which permits a judicial "policy" consideration to vary the plain import of the Financial Responsibility Law, was not handed down until approximately two years after the default judgment presently in question was granted (i.e. March, 1963). Therefore, in 1961, Financial Indemnity Company had every reason to believe that its contractual policy defense constituted a complete defense in any ensuing garnishment proceeding brought against them by the plaintiff and that as a result there was no reason for Financial Indemnity Company to feel a need to set aside the default judgment. To say that our Mayflower decision was a surprise to both the members of the legal profession and the insurance companies of this state is, perhaps, to put it mildly.
It is my opinion that the Mayflower decision should be overruled and that judgment should be entered in favor of Financial Indemnity Company. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/4561335/ | 08/28/2020
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
Assigned on Briefs August 3, 2020
IN RE TRINITY H.
Appeal from the Juvenile Court for Macon County
No. 2019-JV-203 Ken Witcher, Judge
No. M2020-00440-COA-R3-PT
This appeal concerns the termination of a father’s parental rights. The Tennessee
Department of Children’s Services (“DCS”) filed a petition in the Juvenile Court for Macon
County (“the Juvenile Court”) seeking to terminate the parental rights of James H.
(“Father”) to his minor daughter Trinity H. (“the Child”). After a trial, the Juvenile Court
entered an order terminating Father’s parental rights on the grounds of wanton disregard,
severe child abuse, and failure to manifest an ability and willingness to assume custody.
The Juvenile Court found also that termination of Father’s parental rights is in the Child’s
best interest. Father appeals. With respect to wanton disregard, the Juvenile Court found
only that Father committed criminal acts resulting in his incarceration, which by itself is
insufficient to establish the ground. We, therefore, vacate the ground of wanton disregard.
However, we find that the other two grounds were proven by clear and convincing evidence
and, by the same standard, that termination of Father’s parental rights is in the Child’s best
interest. We vacate, in part, and affirm, as modified.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Juvenile Court
Vacated, in Part, and Affirmed, as Modified
D. MICHAEL SWINEY, C.J., delivered the opinion of the court, in which ANDY D. BENNETT
and CARMA DENNIS MCGEE, JJ., joined.
Michael J. Rocco, Sparta, Tennessee, for the appellant, James H.
Herbert H. Slatery, III, Attorney General and Reporter, and Amber L. Seymour, Assistant
Attorney General, for the Tennessee Department of Children’s Services.
OPINION
Background
In March 2019, the Juvenile Court entered an order finding that Father committed
severe child abuse against two of the Child’s siblings stemming from Father’s failure to
protect these children from drug exposure while their mother was pregnant. The Juvenile
Court found, in part: “[S]pecifically that [Father] made admissions that he knew the mother
was using opiates, he has spent extended periods of time in jail with the reasons based upon
drug use, and while the children lived with him the children were exposed to the drugs that
[the children] had in their system; therefore, he knowingly failed to protect the [children]
from abuse.”
The Child, subject of this present appeal, was born in June 2019. DCS received a
referral that she, too, was drug-exposed. The Child tested positive for amphetamine and
methamphetamine. On June 11, 2019, the Child was removed into DCS custody. On June
27, 2019, Father was arrested and charged with probation violation, possession of a
Schedule II controlled substance, possession of a Schedule VI controlled substance, and
possession of drug paraphernalia. On November 7, 2019, the Child was adjudicated
dependent and neglected due to her drug exposure and Father’s lack of housing.
On November 25, 2019, DCS filed a petition in the Juvenile Court seeking to
terminate Father’s parental rights.1 DCS alleged grounds of abandonment by wanton
disregard, severe child abuse, and failure to manifest an ability and willingness to assume
custody. The petition was tried in February 2020.
Before hearing testimony, the Juvenile Court noted Father’s absence. Father had
been released from jail the day before trial. The Juvenile Court stated that, at a December
court appearance, it personally had informed Father of his February court date. Father’s
counsel stated that he had not heard from Father since his last court date and asked for a
continuance, which was denied. Trial proceeded, and DCS called two witnesses to testify.
Father called none.
First to testify was Lindsay Kenyon (“Ms. Kenyon”), the Child’s case manager.
According to Ms. Kenyon, Father committed crimes knowing that he would end up in jail
and thus be unable to parent the Child. In February 2019, Father pled guilty to assault and
violation of probation. In June 2019, he was arrested again. Ms. Kenyon testified:
“[Father] has not completed anything identified on the permanency plan. It’s unknown
1
The Child’s mother surrendered her parental rights to the Child. This appeal concerns only Father’s
parental rights.
-2-
about his drug abuse or continuation of, he’s not had any alcohol and drug treatment. His
mental health has been a concern with domestic violence issues and no mental health
treatment.” Ms. Kenyon testified further: “To my knowledge, [Father] does not have
housing or a way to support himself or the child.”
Continuing her testimony, Ms. Kenyon stated that Father saw the Child in the
hospital and later saw a photograph of the Child. Ms. Kenyon testified that in August 2019,
Father was advised of and given a copy of the criteria and procedure for termination of
parental rights. In January 2020, Ms. Kenyon visited Father in jail and gave him another
copy, as well. Asked whether Father had made any adjustment of circumstance, Ms.
Kenyon stated that he had not: “Because of his incarceration. Also, he has not maintained
a relationship with the child, his mental health, his alcohol and drug, his housing, parenting
ability, and his income.” When asked about DCS’s efforts, Ms. Kenyon testified:
In the jail, we’re very limited. I did meet with him at the jail at least every
three months to go over the permanency plan with him. We discussed if he
were to get out for him to contact me within 24 hours, I would set up his
visitation, and also set up the identified assessments. The assessment that we
identify that he need [SIC], the full psychological, I don’t know of any
providers that would come into the jail. We have looked into that.
Ms. Kenyon stated that there was no meaningful relationship between Father and
the Child. Ms. Kenyon testified, on the other hand, that the Child was “very much” bonded
with her foster family. Ms. Kenyon stated that she was not aware of Father ever having
addressed his substance abuse issues. When asked why she believed Father required
mental health treatment, Ms. Kenyon answered: “Because there’s a long history with the
Department of Children’s Services in his previous case with the other children in which he
did not seek the help that he needed. He did have a mental health assessment in that
previous case, and he never followed up on the recommendations.” As to whether Father
had ever shown any genuine interest in the Child, Ms. Kenyon stated: “During the times
that I met with him at the jail, he spoke verbally of wanting to get to know her, and when
he got out, he would like a chance to parent her, but other than just verbal communication,
no.”
On cross-examination, Ms. Kenyon acknowledged that Father had only 16 or 17
days out of jail to work on his permanency plan. Ms. Kenyon acknowledged also that the
severe child abuse finding was based not on conduct against the Child, but rather her
siblings. Asked if Father could complete his permanency plan requirements while in jail,
Ms. Kenyon stated: “Not that I’m aware of.” Ms. Kenyon testified:
-3-
A mental health assessment, he could have while he was in jail; however, he
had already previously had a mental health assessment. We identified that
that obviously did not help in the last case, so we felt like he needed a full
psychological in which they do more extensive testing, such as IQ. And so,
we do not have an assessor who could do a full psychological assessment on
him to come to the jail.
Ms. Kenyon testified also that Father had inquired about making video calls to the
Child. In the following exchange, Ms. Kenyon was asked about the relatively short amount
of time between the date the Child entered DCS custody and the date DCS filed its petition
to terminate parental rights:
Q. Okay. And we’ve already established that the child entered custody on
June the 11th, correct?
A. Yes.
Q. Okay. So, that means that the TPR petition was filed roughly five months
after the case opened, correct?
A. Yes.
Q. Okay. How long does DCS typically allow parents to work a permanency
plan prior to filing TPRs?
A. I know that we provide reasonable efforts for four months; however, in
some severe abuse cases, we file earlier than that.
Q. But isn’t it also true that the child typically has to be in the foster home
for six months prior to adoption?
A. Yes.
Q. Okay. So, then the TPR was filed prior to that six-month mark?
A. Yes.
Next and last to testify was Jennifer R. (“Foster Mother”), the Child’s maternal great
aunt and foster mother. Foster Mother testified that she wanted to adopt the Child. When
asked how she felt about the Child, Foster Mother testified: “I love her to death. She’s part
of my family.” According to Foster Mother, the Child called her “Ma-ma” and her husband
“Da-da.” Foster Mother testified that she had a strong bond with the Child and that the
Child needs permanency.
In February 2020, the Juvenile Court entered an order terminating Father’s parental
rights to the Child. The Juvenile Court found that all three grounds for termination alleged
by DCS had been proven by clear and convincing evidence: abandonment by wanton
disregard, severe child abuse, and failure to manifest an ability and willingness to assume
custody. The Juvenile Court found also by clear and convincing evidence that termination
-4-
of Father’s parental rights is in the Child’s best interest. In its order, the Juvenile Court
stated, in part, as follows:
The Court found all of the State’s witnesses to be credible.
The Court finds that the State of Tennessee, Department of Children’s
Services has proven by clear and convincing evidence that grounds for
termination of parental rights exist based upon the following findings of fact.
The State has alleged three grounds for termination of parental rights,
the first of which is abandonment by wanton disregard. Tenn. Code Ann. §
36-1-113(g)(1) sets out abandonment as a ground for termination of parental
rights and abandonment is defined at Tenn. Code Ann. § 36-1-102(1)(A)(iv)
as a parent is incarcerated at the time of the institution of the action or
proceeding to declare a child abandoned. The proof has shown that [Father]
was incarcerated when the petition to terminate parental rights was filed on
November 25, 2019. He was incarcerated from June 27, 2019 until
yesterday, February 3, 2020. Then the statute goes on to say that the parent
has either failed to visit or failed to support, has engaged in conduct prior to
incarceration that exhibits a wanton disregard for the welfare of the child.
The Court finds that the State has established this ground of
abandonment by wanton disregard prior to incarceration. [Father]
voluntarily committed the criminal acts that he engaged in with the result that
he was incarcerated. His incarceration made him unavailable to parent his
child, showing a wanton disregard for the welfare of his child.
The second ground alleged by the State is found at Tenn. Code Ann.
§ 36-1-113(g)(4), and states that the parent has been found to have committed
severe child abuse under any prior order of a court. The State has submitted
a certified copy of the decree in the case involving [B. H.] and [P. D.]. That
is exhibit number nine filed on March 1, 2019. That order stated that the
Court finds by clear and convincing evidence that the children, [B. H.] and
[P. D.], are victims of sever[e] child abuse as defined by Tenn. Code Ann. §
37-1-102. It goes on more specifically and sets out that the children tested
positive for various drugs and finds that [Father] made admissions that he
knew that the mother was using opiates. Therefore, the order clearly
establishes that [Father] committed severe child abuse upon two other
children that are siblings to the child in question. So the Court finds that
ground is established by clear and convincing evidence.
The third ground alleged is failure to manifest an ability and
willingness to assume custody found at Tenn. Code Ann. § 36-1-113(g)(14).
The Court finds, based upon the proof, that the state has established that
ground by clear and convincing evidence. [Father] basically has done
nothing to show an ability or willingness to assume legal and physical
-5-
custody of the child and placing the child in his custody would pose a risk of
substantial harm to the physical or psychological welfare of the child.
The Court finds that the State of Tennessee, Department of Children’s
Services has proven by clear and convincing evidence that termination of
parental rights is in the best interest of the [child] based upon the following
findings of fact.
Tenn. Code Ann. § 36-1-113(i) requires that the Court look at all of
the best interest factors listed. The first factor is whether the parent has made
an adjustment of circumstances to make it safe and in the child’s best interest
to be in the parent’s home. [Father] has done nothing, he has been in jail the
whole time that the child has been in foster care. He has no home for this
child to go to. This factor weighs in favor of terminating parental rights.
As to the second factor, whether the parent has made a lasting
adjustment, the proof is that [Father] has done nothing but stay in jail for the
entire time that the child has been in foster care. This factor weighs in favor
of terminating parental rights.
The third factor deals with visitation. The proof is that the father has
had no visitation with the child. This factor weighs in favor of terminating
parental rights.
The fourth factor looks to whether there is a meaningful relationship
between the father and the child. The Court finds that there is no relationship
between the father and the child. This factor weighs in favor of terminating
parental rights.
The fifth factor considers the effect a change in caretakers would have
on the child. The proof is that the child is in a good and loving home. The
child is very bonded to the foster parents. Changing caretakers at this point
would have a very detrimental effect on this child. This factor weighs in
favor of terminating parental rights.
The sixth factor considers whether the parent has shown neglect or
abuse toward the child or other children in the family or household. The
Court has already found that the father committed severe child abuse towards
the child’s siblings. This factor weighs in favor of terminating parental
rights.
The seventh factor looks to the whether the parent’s home is healthy
and safe. The father was released from jail yesterday and he has not provided
any proof to anyone that he has a home for the child. This factor weighs in
favor of terminating parental rights.
The eighth factor looks at whether the parent’s mental or emotional
status would be detrimental to the child. There has been testimony that the
father needs mental health treatment that he has not yet received. This factor
weighs in favor of terminating parental rights.
-6-
The last factor is whether the parent has paid child support. The proof
is that the father has paid no child support. This factor weighs in favor of
terminating parental rights.
Thus the Court finds that the Tennessee Department of Children’s
Services has proven by clear and convincing evidence that grounds for
termination of parental rights exist and has proven by clear and convincing
evidence that it is in the best interest of the child that all the parental rights
of [Father] to [the Child] be forever terminated; and therefore the complete
custody, control, and guardianship of said child be awarded to the State of
Tennessee, Department of Children’s Services, with the right to place said
child for adoption and to consent to said adoption in loco parentis.
Father timely appealed to this Court.
Discussion
Although not stated exactly as such, Father raises the following issues on appeal: 1)
whether the Juvenile Court erred in finding the ground of abandonment by wanton
disregard; 2) whether the Juvenile Court erred in finding the ground of failure to manifest
an ability and willingness to assume custody; and, 3) whether the Juvenile Court erred in
finding that termination of Father’s parental rights is in the Child’s best interest.
As our Supreme Court has instructed regarding the standard of review in parental
rights termination cases:
A parent’s right to the care and custody of her child is among the
oldest of the judicially recognized fundamental liberty interests protected by
the Due Process Clauses of the federal and state constitutions.2 Troxel v.
Granville, 530 U.S. 57, 65, 120 S. Ct. 2054, 147 L. Ed. 2d 49 (2000); Stanley
v. Illinois, 405 U.S. 645, 651, 92 S. Ct. 1208, 31 L. Ed. 2d 551 (1972); In re
Angela E., 303 S.W.3d 240, 250 (Tenn. 2010); In re Adoption of Female
Child, 896 S.W.2d 546, 547-48 (Tenn. 1995); Hawk v. Hawk, 855 S.W.2d
573, 578-79 (Tenn. 1993). But parental rights, although fundamental and
constitutionally protected, are not absolute. In re Angela E., 303 S.W.3d at
250. “‘[T]he [S]tate as parens patriae has a special duty to protect minors .
. . .’ Tennessee law, thus, upholds the [S]tate’s authority as parens patriae
2
U.S. Const. amend. XIV § 1 (“[N]or shall any State deprive any person of life, liberty, or property, without
due process of law . . . .”). Similarly, article 1, section 8 of the Tennessee Constitution states “[t]hat no
man shall be taken or imprisoned, or disseized of his freehold, liberties or privileges, or outlawed, or exiled,
or in any manner destroyed or deprived of his life, liberty or property, but by the judgment of his peers or
the law of the land.”
-7-
when interference with parenting is necessary to prevent serious harm to a
child.” Hawk, 855 S.W.2d at 580 (quoting In re Hamilton, 657 S.W.2d 425,
429 (Tenn. Ct. App. 1983)); see also Santosky v. Kramer, 455 U.S. 745, 747,
102 S. Ct. 1388, 71 L. Ed. 2d 599 (1982); In re Angela E., 303 S.W.3d at 250.
“When the State initiates a parental rights termination proceeding, it seeks
not merely to infringe that fundamental liberty interest, but to end it.”
Santosky, 455 U.S. at 759, 102 S. Ct. 1388. “Few consequences of judicial
action are so grave as the severance of natural family ties.” Id. at 787, 102
S.Ct. 1388; see also M.L.B. v. S.L.J., 519 U.S. 102, 119, 117 S. Ct. 555, 136
L. Ed. 2d 473 (1996). The parental rights at stake are “far more precious than
any property right.” Santosky, 455 U.S. at 758-59, 102 S. Ct. 1388.
Termination of parental rights has the legal effect of reducing the parent to
the role of a complete stranger and of “severing forever all legal rights and
obligations of the parent or guardian of the child.” Tenn. Code Ann. § 36-1-
113(l)(1); see also Santosky, 455 U.S. at 759, 102 S. Ct. 1388 (recognizing
that a decision terminating parental rights is “final and irrevocable”). In light
of the interests and consequences at stake, parents are constitutionally
entitled to “fundamentally fair procedures” in termination proceedings.
Santosky, 455 U.S. at 754, 102 S. Ct. 1388; see also Lassiter v. Dep’t of Soc.
Servs. of Durham Cnty., N.C., 452 U.S. 18, 27, 101 S. Ct. 2153, 68 L. Ed. 2d
640 (1981) (discussing the due process right of parents to fundamentally fair
procedures).
Among the constitutionally mandated “fundamentally fair
procedures” is a heightened standard of proof – clear and convincing
evidence. Santosky, 455 U.S. at 769, 102 S. Ct. 1388. This standard
minimizes the risk of unnecessary or erroneous governmental interference
with fundamental parental rights. Id.; In re Bernard T., 319 S.W.3d 586, 596
(Tenn. 2010). “Clear and convincing evidence enables the fact-finder to
form a firm belief or conviction regarding the truth of the facts, and
eliminates any serious or substantial doubt about the correctness of these
factual findings.” In re Bernard T., 319 S.W.3d at 596 (citations omitted).
The clear-and-convincing-evidence standard ensures that the facts are
established as highly probable, rather than as simply more probable than not.
In re Audrey S., 182 S.W.3d 838, 861 (Tenn. Ct. App. 2005); In re M.A.R.,
183 S.W.3d 652, 660 (Tenn. Ct. App. 2005).
Tennessee statutes governing parental termination proceedings
incorporate this constitutionally mandated standard of proof. Tennessee
Code Annotated section 36-1-113(c) provides:
-8-
Termination of parental or guardianship rights must be based
upon:
(1) A finding by the court by clear and convincing evidence that
the grounds for termination of parental or guardianship rights
have been established; and
(2) That termination of the parent’s or guardian’s rights is in the
best interests of the child.
This statute requires the State to establish by clear and convincing proof that
at least one of the enumerated statutory grounds3 for termination exists and
that termination is in the child’s best interests. In re Angela E., 303 S.W.3d
at 250; In re F.R.R., III, 193 S.W.3d 528, 530 (Tenn. 2006); In re Valentine,
79 S.W.3d 539, 546 (Tenn. 2002). “The best interests analysis is separate
from and subsequent to the determination that there is clear and convincing
evidence of grounds for termination.” In re Angela E., 303 S.W.3d at 254.
Although several factors relevant to the best interests analysis are statutorily
enumerated,4 the list is illustrative, not exclusive. The parties are free to offer
proof of other relevant factors. In re Audrey S., 182 S.W.3d at 878. The trial
court must then determine whether the combined weight of the facts
“amount[s] to clear and convincing evidence that termination is in the child’s
best interest.” In re Kaliyah S., 455 S.W.3d 533, 555 (Tenn. 2015). These
requirements ensure that each parent receives the constitutionally required
“individualized determination that a parent is either unfit or will cause
substantial harm to his or her child before the fundamental right to the care
and custody of the child can be taken away.” In re Swanson, 2 S.W.3d 180,
188 (Tenn. 1999).
Furthermore, other statutes impose certain requirements upon trial
courts hearing termination petitions. A trial court must “ensure that the
hearing on the petition takes place within six (6) months of the date that the
petition is filed, unless the court determines an extension is in the best
interests of the child.” Tenn. Code Ann. § 36-1-113(k). A trial court must
“enter an order that makes specific findings of fact and conclusions of law
within thirty (30) days of the conclusion of the hearing.” Id. This portion of
the statute requires a trial court to make “findings of fact and conclusions of
law as to whether clear and convincing evidence establishes the existence of
each of the grounds asserted for terminating [parental] rights.” In re Angela
3
Tenn. Code Ann. § 36-1-113(g)(1)-(13).
4
Tenn. Code Ann. § 36-1-113(i).
-9-
E., 303 S.W.3d at 255. “Should the trial court conclude that clear and
convincing evidence of ground(s) for termination does exist, then the trial
court must also make a written finding whether clear and convincing
evidence establishes that termination of [parental] rights is in the [child’s]
best interests.” Id. If the trial court’s best interests analysis “is based on
additional factual findings besides the ones made in conjunction with the
grounds for termination, the trial court must also include these findings in the
written order.” Id. Appellate courts “may not conduct de novo review of the
termination decision in the absence of such findings.” Id. (citing Adoption
Place, Inc. v. Doe, 273 S.W.3d 142, 151 & n.15 (Tenn. Ct. App. 2007)).
B. Standards of Appellate Review
An appellate court reviews a trial court’s findings of fact in
termination proceedings using the standard of review in Tenn. R. App. P.
13(d). In re Bernard T., 319 S.W.3d at 596; In re Angela E., 303 S.W.3d at
246. Under Rule 13(d), appellate courts review factual findings de novo on
the record and accord these findings a presumption of correctness unless the
evidence preponderates otherwise. In re Bernard T., 319 S.W.3d at 596; In
re M.L.P., 281 S.W.3d 387, 393 (Tenn. 2009); In re Adoption of A.M.H., 215
S.W.3d 793, 809 (Tenn. 2007). In light of the heightened burden of proof in
termination proceedings, however, the reviewing court must make its own
determination as to whether the facts, either as found by the trial court or as
supported by a preponderance of the evidence, amount to clear and
convincing evidence of the elements necessary to terminate parental rights.
In re Bernard T., 319 S.W.3d at 596-97. The trial court’s ruling that the
evidence sufficiently supports termination of parental rights is a conclusion
of law, which appellate courts review de novo with no presumption of
correctness. In re M.L.P., 281 S.W.3d at 393 (quoting In re Adoption of
A.M.H., 215 S.W.3d at 810). Additionally, all other questions of law in
parental termination appeals, as in other appeals, are reviewed de novo with
no presumption of correctness. In re Angela E., 303 S.W.3d at 246.
In re Carrington H., 483 S.W.3d 507, 521-24 (Tenn. 2016) (footnotes in original but
renumbered). Clear and convincing evidence supporting any single ground will justify a
termination order. E.g., In re Valentine, 79 S.W.3d 539, 546 (Tenn. 2002).
Father has not challenged one of the grounds found against him—that of severe
child abuse. Our Supreme Court, however, has instructed “that in an appeal from an order
terminating parental rights the Court of Appeals must review the trial court’s findings as
to each ground for termination and as to whether termination is in the child’s best interests,
-10-
regardless of whether the parent challenges these findings on appeal.” In re Carrington
H., 483 S.W.3d at 525-26 (footnote omitted). Therefore, we will review the ground of
severe child abuse, as well.
We first address whether the Juvenile Court erred in finding the ground of wanton
disregard. Wanton disregard is a type of abandonment. Tenn. Code Ann. § 36-1-113 states,
as pertinent:
(g) Initiation of termination of parental or guardianship rights may be based
upon any of the grounds listed in this subsection (g). The following grounds
are cumulative and nonexclusive, so that listing conditions, acts or omissions
in one ground does not prevent them from coming within another ground:
(1) Abandonment by the parent or guardian, as defined in § 36-1-102, has
occurred; …
Tenn. Code Ann. § 36-1-113(g)(1) (Supp. 2019).5
Tenn. Code Ann. § 36-1-102 sets forth the relevant definition of abandonment as
follows:
As used in this part, unless the context otherwise requires:
(1)(A) For purposes of terminating the parental or guardian rights of a parent
or parents or a guardian or guardians of a child to that child in order to make
that child available for adoption, “abandonment” means that:
***
(iv) A parent or guardian is incarcerated at the time of the institution of an
action or proceeding to declare a child to be an abandoned child, or the parent
or guardian has been incarcerated during all or part of the four (4) months
immediately preceding the institution of such action or proceeding, and either
has failed to visit or has failed to support or has failed to make reasonable
payments toward the support of the child for four (4) consecutive months
immediately preceding such parent’s or guardian’s incarceration, or the
parent or guardian has engaged in conduct prior to incarceration that exhibits
a wanton disregard for the welfare of the child….
5
DCS filed its petition on November 25, 2019. We apply the version of the statute, and the others cited
herein, as they were in effect on that date.
-11-
Tenn. Code Ann. § 36-1-102(1)(A)(iv) (Supp. 2019).
In In re Audrey S., this Court discussed and elaborated upon what sort of conduct
constitutes wanton disregard:
Tenn. Code Ann. § 36-1-102(1)(A)(iv) also reflects the commonsense
notion that parental incarceration is a strong indicator that there may be
problems in the home that threaten the welfare of the child. Incarceration
severely compromises a parent’s ability to perform his or her parental duties.
A parent’s decision to engage in conduct that carries with it the risk of
incarceration is itself indicative that the parent may not be fit to care for the
child. Taxonomy of Children’s Rights, 11 WM. & MARY BILL RTS. J. at 958.
However, parental incarceration is not an infallible predictor of parental
unfitness. Accordingly, Tenn. Code Ann. § 36-1-102(1)(A)(iv)’s second test
for abandonment does not make incarceration alone a ground for the
termination of parental rights. An incarcerated or recently incarcerated
parent can be found guilty of abandonment only if the court finds, by clear
and convincing evidence, that the parent’s pre-incarceration conduct
displayed a wanton disregard for the welfare of the child. Thus, the parent’s
incarceration serves only as a triggering mechanism that allows the court to
take a closer look at the child’s situation to determine whether the parental
behavior that resulted in incarceration is part of a broader pattern of conduct
that renders the parent unfit or poses a risk of substantial harm to the welfare
of the child.
***
We have repeatedly held that probation violations, repeated incarceration,
criminal behavior, substance abuse, and the failure to provide adequate
support or supervision for a child can, alone or in combination, constitute
conduct that exhibits a wanton disregard for the welfare of a child. See, e.g.,
State Dep’t of Children’s Servs. v. J.M.F., No. E2003-03081-COA-R3-PT,
2005 WL 94465, at *7-8 (Tenn. Ct. App. Jan.11, 2005), perm. app. denied
(Tenn. Mar. 21, 2005); In re C. LaC., No. M2003-02164-COA-R3-PT, 2004
WL 533937, at *7 (Tenn. Ct. App. Mar. 17, 2004) (No Tenn. R. App. P. 11
application filed); In re C.T.S., 156 S.W.3d 18, 25 (Tenn. Ct. App. 2004); In
re C.W.W., 37 S.W.3d at 474-75.
In re Audrey S., 182 S.W.3d 838, 866-68 (Tenn. Ct. App. 2005) (footnote omitted).
-12-
In his appellate brief, Father points out correctly that incarceration alone is an
insufficient basis for establishing the ground of wanton disregard. To recap, the Juvenile
Court found as to this ground: “[Father] voluntarily committed the criminal acts that he
engaged in with the result that he was incarcerated. His incarceration made him
unavailable to parent his child, showing a wanton disregard for the welfare of his child.”
Father would appear to have a good point as to the insufficiency of the Juvenile Court’s
findings as to this ground.
Nevertheless, DCS points to the case of In re Chyna L.M.D., No. E2012-00661-
COA-R3-PT, 2012 WL 3776699 (Tenn. Ct. App. Aug. 31, 2012), Rule 11 appl. perm.
appeal denied Nov. 14, 2012 for the proposition that a parent’s voluntary behavior that
leads to incarceration, and thus unavailability to parent, can form a basis for finding wanton
disregard. In In re Chyna L.M.D., a father facing prison was under consideration for
Enhanced Probation and the Community Alternatives to Prison Program (CAPP). Id. at
*2. However, the father behaved in a such a way at a court appearance that his offers were
withdrawn. Id. The trial court, in finding the ground of wanton disregard, stated in part:
6. [Father] may not have known that his girlfriend was pregnant with his
child prior to his arrest for violation of probation in March 2009. He certainly
knew that this was possible. He was well aware of the natural consequences
of unprotected sex and the likely outcome. On July 1, 2009, the day of his
hearing in Criminal Court, he certainly knew that [the Child’s mother] was
carrying his child. He remembers talking to the infant and patting the child
while “in the mother’s stomach.” He knew that he was facing a sentence of
more than seven years imprisonment (taking into account his previous jail
credits) and that any opportunity he might have to participate in raising his
child depended upon remaining in the community. He nevertheless behaved
in such a manner that he lost his acceptance into Enhanced Probation, he lost
his acceptance into CAPP, and he was sent directly [to] prison.
In re Chyna L.M.D., 2012 WL 3776699, at *2. On appeal to this Court, the father
challenged the trial court’s finding of wanton disregard. Id. at *3. In affirming, we stated:
The Trial Court found by clear and convincing evidence that Father
had exhibited a wanton disregard for the welfare of the Child when he
behaved in a manner during a court hearing that caused him to lose his
acceptance into CAPP and resulted in his being sent back to prison. The
evidence in the record on appeal shows that Father was out on probation prior
to the birth of the Child. The evidence also shows that Father violated his
probation, but was offered an alternative to being sent back to prison, which
would have allowed Father to remain in the community where he could
-13-
participate in the Child’s life. The record further reveals that Father’s own
actions taken while Father knew that the Child’s mother was pregnant with
his baby insured that the offer of enhanced probation would be withdrawn
and that Father would be sent back to prison. Such behavior exhibits a
wanton disregard for the welfare of the Child. The evidence does not
preponderate against the Trial Court’s finding by clear and convincing
evidence that grounds existed to terminate Father’s parental rights to the
Child pursuant to Tenn. Code Ann. § 36-1-113(g)(1) and § 36-1-
102(1)(A)(iv).
In re Chyna L.M.D., 2012 WL 3776699, at *5.
DCS is correct in that probation violations, criminal behavior, getting incarcerated
repeatedly, substance abuse, and other such conduct may give rise to wanton disregard. In
fact, we can well visualize a scenario where a parent’s one-time conduct is so egregious
that it could, by itself, constitute wanton disregard. However, we have cautioned that it is
necessary for courts to “to avoid making incarceration solely on its own into a de facto
ground for termination” as our General Assembly “has not deemed it appropriate to make
incarceration solely by itself a ground for termination.” In re Jonathan F., No. E2014-
01181-COA-R3-PT, 2015 WL 739638, at *13 (Tenn. Ct. App. Feb. 20, 2015), no appl.
perm. appeal filed. Although we made those statements in In re Jonathan F. as part of a
discussion about noncompliance with a permanency plan, they apply to wanton disregard,
as well.
In In re Chyna L.M.D., the trial court made specific factual findings as to how the
father’s behavior prior to his incarceration exhibited wanton disregard for the child’s
welfare. Here, the Juvenile Court made no specific findings. It found merely that Father
became incarcerated. We do not even know the status of his criminal charges. Here, as
opposed to the situation in In re Chyna L.M.D., the Juvenile Court’s findings as to wanton
disregard are based solely and exclusively on Father’s incarceration, without any additional
finding. Tennessee law requires more to sustain the ground of wanton disregard than just
incarceration. If a parent’s actions resulting in incarceration always are sufficient to show
wanton disregard, our General Assembly would just need to say incarceration alone is a
ground for termination of parental rights. It has not done so. This being so, we vacate the
ground of wanton disregard.
Although not raised by Father, we next address whether the Juvenile Court erred in
finding the ground of severe child abuse. This ground is defined as follows: “The parent
or guardian has been found to have committed severe child abuse, as defined in § 37-1-
102, under any prior order of a court or is found by the court hearing the petition to
terminate parental rights or the petition for adoption to have committed severe child abuse
-14-
against any child[.]” Tenn. Code Ann. § 36-1-113(g)(4) (Supp. 2019). In a March 2019
order, the Juvenile Court found that Father committed severe child abuse, as defined at
Tenn. Code Ann. § 37-1-102, against two of the Child’s siblings for failure to protect them
from their mother’s drug exposure. We have previously determined that a prior finding by
a juvenile court in dependency and neglect proceedings can be res judicata in parental rights
termination proceedings. See In re Dakota C.R., 404 S.W.3d 484, 497 (Tenn. Ct. App.
2012). In those cases, the doctrine of res judicata prevents the issue from being re-litigated
in the subsequent parental rights termination proceeding. Id. The record contains no hint
that Father ever appealed the finding of severe child abuse. Father did not challenge the
finality or validity of the order finding severe child abuse either in the proceedings below
or on appeal. We find, as did the Juvenile Court, that the ground of severe child abuse was
proven by clear and convincing evidence.
The third issue we address is whether the Juvenile Court erred in finding the ground
of failure to manifest an ability and willingness to assume custody. This ground is defined
as follows: “A parent or guardian has failed to manifest, by act or omission, an ability and
willingness to personally assume legal and physical custody or financial responsibility of
the child, and placing the child in the person’s legal and physical custody would pose a risk
of substantial harm to the physical or psychological welfare of the child[.]” Tenn. Code
Ann. § 36-1-113(g)(14) (Supp. 2019). One panel of this Court has held that, to withstand
the first prong of this ground, a parent must manifest both ability and willingness to assume
legal and physical custody or financial responsibility of a child, not just one of the two.
See In re Amynn K., No. E2017-01866-COA-R3-PT, 2018 WL 3058280, at *12-14 (Tenn.
Ct. App. June 20, 2018), no appl. perm. appeal filed. Another panel of this Court has held
to the contrary, interpreting the statute to instead mean that a petitioner has to prove both
inability and unwillingness. See In re Ayden S., No. M2017-01185-COA-R3-PT, 2018 WL
2447044, at *7 (Tenn. Ct. App. May 31, 2018), no appl. perm. appeal filed. A split of
authority has since emerged.
Father appears to concede inability. However, Father asserts that he has manifested
willingness. Father argues that “he demonstrated a willingness to assume custody in that
he made the maximum effort to establish a relationship with [the Child] given the
circumstances of his incarceration and his inability to work the permanency plan put into
place for [the Child].” We note, first, that the ground of noncompliance with the
permanency plan neither was alleged nor found against Father. To that extent, Father is
pushing on an open door. As to Father’s “maximum effort,” from this record it appears to
consist of making some inquiries about video calls that led nowhere and saying that he
would like a chance to assume custody of the Child. However, mere words are a poor
substitute for actions. As this Court stated in In re Amynn K. with regard to willingness,
“Father’s actions, including his continued criminal activity and his failure to financially
support the Child, raise doubt as to Father’s actual willingness to assume custody or
-15-
financial responsibility for the Child.” 2018 WL 3058280, at *15 (emphasis added). Here,
the Juvenile Court found that “[Father] basically has done nothing to show an ability or
willingness to assume legal and physical custody of the child….” Upon a careful review
of the record, the evidence does not preponderate against this finding. Indeed, Father did
not show up for trial even though he was released from jail and had notice of the
proceedings. We need not contend with the In re Amynn K./In re Ayden S. split of authority
because here, Father manifested neither the ability nor willingness to personally assume
legal and physical custody or financial responsibility of the Child.
The second prong of this ground requires us to determine whether “placing the child
in the person’s legal and physical custody would pose a risk of substantial harm to the
physical or psychological welfare of the child[.]” Tenn. Code Ann. § 36-1-113(g)(14)
(Supp. 2019). The evidence reflects that Father has unresolved substance abuse and mental
health issues. In addition, Father was found to have committed severe child abuse against
two of the Child’s siblings. Meanwhile, the Child is well-bonded in her foster family. The
Child has no relationship to speak of with Father. To remove the Child from a stable
environment and return her to Father’s custody poses a risk of substantial harm to the
Child’s physical as well as psychological welfare. We find, as did the Juvenile Court, that
the ground of failure to manifest an ability and willingness to assume custody was proven
by clear and convincing evidence.
The fourth and final issue we address is whether the Juvenile Court erred in finding
that termination of Father’s parental rights is in the Child’s best interest. The best interest
factors are set forth by statute as follows:
(i) In determining whether termination of parental or guardianship rights is
in the best interest of the child pursuant to this part, the court shall consider,
but is not limited to, the following:
(1) Whether the parent or guardian has made such an adjustment of
circumstance, conduct, or conditions as to make it safe and in the child’s best
interest to be in the home of the parent or guardian;
(2) Whether the parent or guardian has failed to effect a lasting adjustment
after reasonable efforts by available social services agencies for such
duration of time that lasting adjustment does not reasonably appear possible;
(3) Whether the parent or guardian has maintained regular visitation or other
contact with the child;
(4) Whether a meaningful relationship has otherwise been established
between the parent or guardian and the child;
(5) The effect a change of caretakers and physical environment is likely to
have on the child’s emotional, psychological and medical condition;
-16-
(6) Whether the parent or guardian, or other person residing with the parent
or guardian, has shown brutality, physical, sexual, emotional or
psychological abuse, or neglect toward the child, or another child or adult in
the family or household;
(7) Whether the physical environment of the parent’s or guardian’s home is
healthy and safe, whether there is criminal activity in the home, or whether
there is such use of alcohol, controlled substances or controlled substance
analogues as may render the parent or guardian consistently unable to care
for the child in a safe and stable manner;
(8) Whether the parent’s or guardian’s mental and/or emotional status would
be detrimental to the child or prevent the parent or guardian from effectively
providing safe and stable care and supervision for the child; or
(9) Whether the parent or guardian has paid child support consistent with the
child support guidelines promulgated by the department pursuant to § 36-5-
101.
Tenn. Code Ann. § 36-1-113(i) (Supp. 2019).
Father argues that the Juvenile Court erred in its best interest analysis. Father states,
for instance, that he could not forge a relationship with the Child because of his
incarceration. However, the record largely is bereft of any actions on Father’s part to be a
parent, even bearing in mind the limits imposed by his incarceration. He did nothing of
substance. Father concedes that the Child is in a loving home but disputes how significant
a change of caretaker would be given the Child’s young age. However, we disagree with
Father’s speculation that no significant consequences would be had from removing the
Child from what undisputedly is a safe and loving home.
Perhaps the most crucial concern with respect to best interest is the fact that Father
was found to have committed severe child abuse against two of the Child’s siblings, which
stemmed from Father’s failure to protect them from drug exposure. That the underlying
conduct occurred against the Child’s siblings rather than the Child does not mean the Child
somehow would not face comparable danger were she to be placed in Father’s custody and
care, as the testimony from trial reflects that Father has not rectified his substance abuse or
mental health issues. Father’s substance abuse and mental health issues certainly are
relevant in considering the Child’s best interest, as is Father’s proclivity for going to jail.
The Juvenile Court made detailed findings in consideration of the statutory best interest
factors. Upon our careful review of the record, the evidence does not preponderate against
any of the relevant findings. We find, as did the Juvenile Court, the evidence to be clear
and convincing that termination of Father’s parental rights is in the Child’s best interest.
-17-
Conclusion
The judgment of the Juvenile Court is vacated, in part, and affirmed, as modified,
resulting in our affirming the termination of Father’s parental rights, and this cause is
remanded to the Juvenile Court for collection of the costs below. The costs on appeal are
assessed against the Appellant, James H., and his surety, if any.
______________________________________
D. MICHAEL SWINEY, CHIEF JUDGE
-18- | 01-03-2023 | 08-28-2020 |
https://www.courtlistener.com/api/rest/v3/opinions/2380877/ | 476 S.W.2d 278 (1972)
The MEMBERS MUTUAL INSURANCE COMPANY, Petitioner,
v.
Sam S. CUTAIA, Respondent.
No. B-2511.
Supreme Court of Texas.
February 2, 1972.
Rehearing Denied March 8, 1972.
Sewell, Junell & Riggs, Gordon A. Holloway, Houston, for petitioner.
Law Offices of Horace F. Brown, Harry L. Tindall, Houston, for respondent.
GREENHILL, Justice.
The opinion and judgment of the Court of Civil Appeals in this case are in conflict with the substance of the opinions of this Court in New Amsterdam Casualty Co. v. Hamblen, 144 Tex. 306, 190 S.W.2d 56 (1945); and Klein v. Century Lloyds, 154 Tex. 160, 275 S.W.2d 95 (1955). We granted a writ of error to consider whether to overrule Hamblen and Klein, and have determined not to do so. While an injustice has apparently resulted in this particular case, the matter of rewriting the insurance provisions in question is properly within the prerogative of the State Board of Insurance or the Legislature. Accordingly, the judgments of the courts below must be reversed.
As stated in the opinion of the Court of Civil Appeals in this case, 460 S.W.2d 493, Smith was insured by Members Mutual Insurance Company. The policy of insurance expressly provided certain conditions. Among the conditions were those which required Smith to give notice of any accident and to forward any suit papers immediately to the company. Only the condition regarding the forwarding of suit papers is involved. The policy further provided that "no action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy...." There is no provision in the policy that failure to comply with the conditions precedent would be excused if no harm or prejudice were suffered by the insurer; and such a provision would have to be inserted into the policy by implication.
Smith had an automobile accident with Mr. Cutaia, also insured by Members Mutual. The insurance company had actual knowledge of the accident within two days. Later in the same month Cutaia sued Smith, and Smith was promptly served with citation. Smith never did forward the citation to his insurance company. An investigation was begun by an independent claims agency. When the agency learned *279 that Smith had not complied with the condition as to forwarding the suit papers, it ceased its work. Some five months after the accident, the insurance company obtained from Smith a written statement, a non-waiver agreement, that nothing theretofore, or thereafter, done about the matter would constitute a waiver of the company's rights under the policy. The investigation was completed.
The insurance company then furnished Smith the defense of the suit. Judgment was against Smith, but the insurance company refused to pay Cutaia because of the breach of the condition precedent by Smith as to the forwarding of the suit papers.
Cutaia then brought this suit against Members Mutual to recover on the policy of Smith. The insurance company relied upon the breach of the condition precedent and the holdings of this court in Hamblen and Klein that harm or prejudice to the insurer from the failure to comply with the conditions was immaterial. The facts of the case were stipulated, and the insurance company stipulated that it had not been harmed by the failure to forward the suit papers.
Trial was to the court without a jury resulting in a judgment for Cutaia. The Court of Civil Appeals affirmed.
There can be no doubt that this Court in Hamblen and Klein held that the notice and forwarding of suit papers were conditions precedent to liability. In Hamblen, the jury found that the insurer suffered no harm and was not prevented from making any defense of the suit. This Court held, in effect, that when the condition precedent to liability was breached, liability on the claim was discharged, and harm (or lack of it) resulting from the breach was immaterial. The holding is repeated in Klein. Speaking through Chief Justice Hickman, this Court said:
"It is unquestioned that the provisions of the policy quoted above and relied upon by respondent [the insurance company] as defenses to this cause of action are conditions precedent to the right of Gunter [the insured person] to recover. If he did not meet those conditions, he would not have been heard to assert that respondent [the insurance company] was not injured by his failure to do so, or that he should be entitled to recover on equitable grounds. His right to recover at all would have been determined solely by the terms of his policy, and petitioners' [the claimants'] right must be measured by the same standard." 275 S.W.2d at 96.
There are two opinions by the courts of civil appeals which indicate that harm is material, and that in the absence of harm, recovery may be had. Olgin v. Employers Mutual Casualty Co., Tex.Civ.App., 228 S.W.2d 552 (1950, writ ref., n. r. e.); and Century Lloyds v. Barnett, Tex.Civ.App., 259 S.W.2d 768 (1953, writ refused). Both of these cases were decided before Klein, and Barnett was cited in a dissent in Klein.
There may be a question as to soundness of the holding in Klein that the failure to give notice for 32 days was, as a matter of law, a failure to give notice as soon as practicable. But the holding of Klein that the policy provision in question was a condition precedent to liability was in line with the great weight of authority at that time, and this view is still the majority view. The opinion of the Court of Civil Appeals in this case so stated. Others agree. 2 Long, Law of Liability Insurance (1971) 13-45; Comment, 23 Baylor L. Rev. 419 at 427 (1971). And, after all, this is what the contract says.
This Court again stated in Womack v. Allstate Ins. Co., 156 Tex. 467, 296 S.W.2d 233 (1956) that as a general rule, the failure of the insured to comply with the conditions of the policy requiring notice of accident and notice of claim of suit will relieve the company of liability to an injured third party. Womack held that there had been a waiver by the company in that case. There is no waiver here. The company here proceeded under a plainly-worded *280 non-waiver agreement, and the validity or efficacy of the non-waiver agreement is not questioned here.
We are, therefore, faced with plain wording of the contract and the holdings of this Court; and we are also faced with facts which show an apparent injustice. The problem then arises as to whether, or what, changes should be made, and by whom. Should this Court overrule its former decisions and say that provisions in the policy are not conditions precedent to liability? Or should we imply into the policy a provision that failure to comply with the condition precedent will be excused if no harm or prejudice is shown? Or should we enforce the provisions as written and call the matter to the attention of those who, for the public, are charged with prescribing policy, forms as well as with the approval or disapproval of the provisions of the policy?
The question is discussed by Robert Keeton in his recent book, Insurance Law, Basic Text (1971), § 7.1(b). He writes at page 441:
"A requirement of prejudice as a prerequisite to an insurer's taking advantage of rights based on violation or nonfulfillment of a policy provision concerning claims processing is ordinarily not expressed in the policy itself. Unless it can be said to be implied in fact, which seems a highly dubious theory in most instances, its recognition, in some contexts at least, by a majority of courts is a form of judicial regulation giving rise to rights at variance with policy provisions. This occurs, for example, when the decision on a liability insurer's defense of breach of the assistance and cooperation clause is conditioned on prejudice to the insurer. When the burden is placed on the insurer to prove prejudice, the practical impact of the regulatory doctrine is very substantial. When the burden is placed on the policyholder to prove that the insurer was not prejudiced, the impact of the doctrine is less severe but still significant.
"Another common example of such judicial regulation occurs when a court that purportedly enforces a rigid time limit for presenting a claim introduces a great degree of flexibility into the standard for enforcement by holding that a transgression of the limit defeats the claim only if prejudicial to the insurer.
"There are wide variations in the standards used in different cases to determine what constitutes prejudice to an insurer." (emphasis added)
The matter of whether prejudice is material and under what circumstances the failure to comply with conditions precedent will be excused has been handled by legislation in some states, presumably after public hearings so that all sides may be heard. In some states, a rebuttable statutory presumption arises that any delay has been prejudicial to the insurer. 13 Couch on Insurance (2d) 715, § 49.126. The statutes of Wisconsin provide that failure to give timely notice does not preclude liability if the insurer was not injured or prejudiced by delay, and the burden of proof to show lack of prejudice is upon the person claiming under the policy. 25 Wis.Stat. Ann., Section 204.34(3); 2 Long, Law of Liability Insurance, 13-53, § 13.20; Calhoun v. Western Casualty & Surety Co., 260 Wis. 34, 49 N.W.2d 911 (1951); Allen v. Ross, 38 Wis. 2d 209, 156 N.W.2d 434 (1968).
A Maryland statute places the burden of proof of harm or prejudice upon the insurance company. The statute reads,
"Where any insurer seeks to disclaim coverage on any policy of liability insurance issued by it, on the ground that the insured or anyone claiming the benefits of the policy through the insured has breached the policy by failing to cooperate with the insurer or by not giving requisite notice to the insurer, such disclaimer shall be effective only if the insurer establishes, by a preponderance of affirmative evidence that such lack of cooperation or notice has resulted in actual prejudice to the insurer." Md. *281 Stat.Ann., Insurance Code, Art. 48A, § 482.
We recognize the apparent injustice which results in this particular case, and we share some of the impatience which naturally arises when a reasonable provision or condition in an insurance policy is used by the insurance company to defeat what appears to be a valid claim. Such action might be calculated to result in an over reaction by the courts.
Our conclusion is, however, that on balance it is better policy for the contracts of insurance to be changed by the public body charged with their supervision, the State Board of Insurance, or by the Legislature, rather than for this Court to insert a provision that violations of conditions precedent will be excused if no harm results from their violation.
The judgments of the courts below are reversed, and judgment is here rendered that the plaintiff take nothing.
REAVLEY, Justice (dissenting).
I agree with the opinion of the court of civil appeals. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1439296/ | 635 F. Supp. 1281 (1986)
QUAKER STATE MUSHROOM COMPANY, INC., a Pennsylvania corporation, Plaintiff,
v.
DOMINICK'S FINER FOODS, INC., OF ILLINOIS, a Delaware corporation, licensed to do business in Illinois, Defendant.
No. 85 C 4515.
United States District Court, N.D. Illinois, E.D.
May 22, 1986.
*1282 Charles N. Brusso/Gene Moskowitz/Thomas M. Gearhart, Charles N. Brusso & Associates, Chicago, Ill., for plaintiff.
Vincent J. Getzendanner, Madigan, Stanner, Kahn, Bonifacic & Getzendanner, Chicago, Ill., for defendant.
MEMORANDUM OPINION AND ORDER
ASPEN, District Judge:
Quaker State Mushroom Co. ("Quaker State"), a Pennsylvania corporation, has filed this diversity breach of contract complaint charging that Dominick's Finer Foods, Inc. ("Dominick's"), a Delaware corporation doing business in Illinois, failed to pay the agreed price for four orders of canned mushrooms. The parties have completed discovery, and Quaker State has filed a motion for summary judgment. For the reasons stated below, Quaker State's motion for summary judgment is denied.
I. THE FACTS
It is undisputed that in late March of 1982, Joseph Tercha, the vice president of Quaker State, signed a document provided by Dominick's entitled "Corporate Presentation Worksheet." The worksheet set forth the terms upon which Quaker State would sell mushrooms to Dominick's. Paragraph 41 of the worksheet stated that "the above agreement is intended to be in effect for a period of 1 year." The worksheet also provided that Quaker State must give Dominick's thirty days notice before raising mushroom prices. The agreement did not contain a renewal clause. There is no evidence in the record that the parties renewed the agreement after it expired in March 1983.
About eight months after the terms in the worksheet expired, Dominick's ordered four shipments of mushrooms from Quaker State. It is undisputed that Dominick's placed these orders on October 23, 1983, November 9, 1983, and twice on December 2, 1983. The parties, however, disagree as to the manner in which Dominick's submitted the purchase orders. Quaker State insists that Gregg Otto ("Otto"), Dominick's' purchasing agent, personally placed these orders over the telephone. Dominick's, however, denies that Otto phoned in the orders. Rather, Dominick's contends that Otto internally transmitted information regarding the purchase orders through Dominick's' computer system and thereafter directed computer printouts to a secretary who then mailed these printouts to Quaker State. These printouts stated the price that Quaker State had set in February 1983. Quaker State avers that it did not receive Dominick's' written confirmations.
After Dominick's had placed its first purchase order, Quaker State recognized that it lacked inventory to fill the order. Quaker State promptly mailed a notice of price increase to Dominick's, dated November 10, 1983, which states that "[t]his list of prices is in effect and supersedes all previous quotations. Prices are subject to change without notice. All orders are subject to final confirmation of this office." Dominick's has acknowledged that it received this notice shortly after November 10.[1]
After receiving Quaker State's price increase notice, Dominick's accepted delivery of mushrooms from Quaker State four times. Quaker State's invoices which were included in the shipments demanded the prices contained in the November 10 price increase notice. Dominick's, however, paid for the mushroom orders in accordance with the prices that were in effect before the November 10, 1983 notice. Dominick's made the lower payments based upon a theory that, pursuant to the thirty-day notice in the corporate presentation worksheet, the prices in Quaker State's November 10, 1983 price increase letter were not *1283 effective for orders placed before December 10, 1983.
II. DISCUSSION
Quaker State seeks the difference between the prices that Dominick's paid for the four mushroom shipments and the prices contained in the November 10, 1983 price increase notice. Summary judgment in favor of Quaker State can be granted only if it can show that "there is no genuine issue as to any material fact and that [it] is entitled to judgment as a matter of law." Fed.Civ.P. 56(c). All of the evidence, as well as the reasonable inferences from the evidence, must be construed in a light most favorable to Dominick's, the party opposing the summary judgment motion. See, e.g., Big O Tire Dealers, Inc. v. Big O Warehouse, 741 F.2d 160, 163 (7th Cir. 1984). The burden of proving the nonexistence of a genuine factual issue falls upon Quaker State. Korf v. Ball State Univ., 726 F.2d 1222, 1226 (7th Cir.1984). If Quaker State meets its burden, then the burden shifts to Dominick's to demonstrate the existence of a genuine issue of material fact. Big O, 741 F.2d at 163. The mere submission of naked pleadings or assertions will not satisfy this burden. Id.
At the outset, we must reject Dominick's contention that the "corporate presentation worksheet" bears on this case. Although we are skeptical of Quaker State's argument that the worksheet did not consititute a contract, we need not decide the issue since the worksheet is irrelevant to the transactions at issue. On its face, the terms of the worksheet, assuming it was a contract, expired approximately eight months before Dominick's placed the orders which form the basis for this suit. The intent of the parties, as embodied in the worksheet, clearly demonstrates that the parties agreed that the terms of the worksheet would only apply for one year, after which the agreement would expire. Neither party manifested an intent to renew the terms set forth in the agreement, and in the absence of an agreement to renew, the terms of the expired contract cannot govern the dealings of the parties. See Korody Marine Corp. v. Minerals & Chemicals Phillip Corp., 300 F.2d 124, 125 (2d Cir.1962) (per curiam); Andersen v. Waco Scaffold & Equip. Co., 485 P.2d 1091, 1094 (Or.1971).
Nonetheless, Dominick's argues that even if the agreement had expired, the course of dealings between the parties required Quaker State to give Dominick's thirty days notice increasing prices. See Ill.Rev.Stat. ch. 26 para. 1-205(1) (1983).[2] Dominick's has not alleged any facts or cited any authority to establish that Quaker State implicitly agreed to give Dominick's thirty days notice prior to raising its prices. Moreover, Quaker State has demonstrated that the notice of price increase *1284 provision in the worksheet was the only instance during the course of the parties' dealings in which Quaker State was required to provide Dominick's with thirty days notice prior to raising its prices.[3] On the basis of the single corporate presentation worksheet, we cannot conclude that the parties had an implicit understanding that Quaker State had to give Dominick's thirty days notice before raising its prices. The outcome might be different if Dominick's could produce more evidence on this issue, but on the basis of the record now before us, we must agree with Quaker State's contention that the four transactions precipitating this lawsuit must be analyzed as individual contracts.
We also agree with Quaker State that these four transactions should be placed in two categories, the two preceding Quaker State's November 10 notice and the two following. The parties characterize the first two differently. Quaker State calls the October 26 and November 9 purchase orders "offers," in which Dominick's proposed to buy the mushrooms at the old price. Dominick's agrees. But Quaker State says that the November 10 notice of a price increase was a counter-offer which rejected Dominick's offer. Quaker State concludes that Dominick's accepted this counter-offer when it accepted shipment of these goods, even though it knew about the November 10 notice and the corresponding invoices in the shipment.
Quaker State's theory rests on its characterization of the November 10 price notice as a "counter-offer." This description is inaccurate. If detailed enough, a price quotation can amount to an offer creating the power of acceptance. See, e.g., Idaho Power Co. v. Westinghouse Electric Corp., 596 F.2d 924, 925 (9th Cir. 1979); NASCO, Inc. v. Dahltron Corp., 74 Ill.App.3d 302, 307, 30 Ill. Dec. 242, 247, 392 N.E.2d 1110, 1115 (2d Dist.1979). But to do so, the offer must intend that the contract exist upon acceptance of the offer; that is, it must reasonably appear from the price quotation that assent to that quotation is all that is needed to ripen the offer into a contract. See McCarty v. Verson Allsteel Press Co., 89 Ill.App.3d 498, 507-08, 44 Ill. Dec. 570, 577, 411 N.E.2d 936, 943 (1st Dist.1980). A price quotation that is subject to the seller's confirmation is not an offer since the buyer's assent will not consummate the contract. Id. at 508, 44 Ill.Dec. at 577, 411 N.E.2d at 943; West Penn Power Co. v. Bethlehem Steel Corp., 348 A.2d 144, 152 (Pa.Super.1975).[4] Because the November 10 price quotation letter said that the prices listed there were subject to change without notice and that all orders were subject to Quaker State's confirmation, this quotation was not an offer. To illustrate this, suppose that after receiving this November 10 list, Dominick's sent a purchase order for the higher price listed in the notice. Would this have created a contract binding both parties? Clearly not. Quaker State had made Dominick's purchase order subject to its own confirmation. Quaker State could have decided not to confirm, perhaps because of an increase in its costs in the interim. Such a purchase order, not the price, would constitute the offer creating the power of acceptance. McCarty, 89 Ill.App.3d at 508, 44 Ill.Dec. at 577, 411 N.E.2d at 943.
Indeed, Quaker State's own conduct reveals that in actual practice it does not view its price quotations as "offers." Its last price quotation memorandum, dated February 3, 1983, contained the same language about "confirmation" as the later November 10 notice. The parties agree that this memorandum listed the prices in effect before November 10. If Quaker *1285 State really viewed its price lists as "offers," and believed that a purchase order sent in response to this list could be an acceptance, Quaker State would have to admit that Dominick's created a contract at the old price when it sent its two purchase orders, based on the February 3 price list, before November 10. The fact that Quaker State responded by issuing the new November 10 list raising its prices shows that it took its "final confirmation" language seriously, that its lists are not offers, but are invitations to place offers at the listed prices, subject to confirmation or modification. If the February 3, 1983 list is not intended as an offer, which it was not, then neither is the identically worded November 10 list.
In short, we reject Quaker State's argument that the November 10 list was an offer. It follows that Dominick's acceptance of the goods is not necessarily an acceptance at the higher price. However, Dominick's wrongly concludes from this that Quaker State's shipment of the mushrooms necessarily amounted to an acceptance of Dominick's original purchase order at the lower price. Dominick's argument implicitly assumes that because the November 10 list was not a counter-offer, it should be ignored, leaving Dominick's own offer intact. While it was not an offer in its own right, the November 10 notice quite clearly rejected Dominick's offer. It cannot reasonably be read as anything other than a refusal to assent to the old price. Since a rejection terminates the power of acceptance, see, e.g., Restatement (Second) of Contracts, § 38 (1981), we cannot accept Dominick's theory that a contract was created at the lower price when Quaker State shipped the mushrooms.
Having rejected both side's theories, we are left with the problem of how to properly analyze the above facts. It is clear that the parties intended to have a contract, acted as if they had a contract, but had not agreed upon a price for the goods. The UCC has several provisions which are relevant to such a situation. Conduct by the parties which recognizes the existence of a contract may sometimes suffice to create the contract. See UCC § 2-204(1).[5] This may be so even if one or more terms of a contract are indefinite, so long as the parties intended to create a contract and an appropriate remedy can be given. See § 2-204(3).[6] If the parties act in a way which recognizes the existence of a contract, one may exist even though the writings of the parties do not otherwise establish a contract; the terms of such a contract are those upon which the writing agree, along with other terms implied by law under the UCC. See § 2-207(3).[7] From these provisions, it is possible to conclude that the parties had an enforceable contract, since their conduct in many ways recognized the existence of one. Sellers usually do not ship and buyers do not receive goods unless they think they have struck a deal.
However, even under the UCC's liberal terms, to conclude there was a contract, it is necessary to resolve the dispute over the price of the mushrooms. To do so, we turn to § 2-305(1):
(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if
*1286 (a) nothing is said as to price; or
(b) the price is left to be agreed by the parties and they fail to agree; or
(c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.
None of the three subsections apply to this case. This is not a case where the parties said nothing about price; where the parties left the price to be agreed upon later; or where the parties left the price to be determined by an outside agent. This case falls within 2-305(4), which reads:
(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.
Under the above facts it is likely, if not certain, that the parties "intended not to be bound unless the price be fixed or agreed." At a minimum, there is a factual issue on this point, which we must resolve against Quaker State. Cf. Western Industries, Inc. v. Newcor Canada, 739 F.2d 1198, 1205 (7th Cir.1984) (where inconsistent writings must be analyzed with other evidence, jury is to decide whether or when a contract was made). As such, despite the other liberal UCC provisions cited above which generally support creation of contracts, § 2-305(4) commands that in this situation of no assent as to price, no contract exists. Thus, under that section, Dominick's would be bound to return the mushrooms and get a refund, or if it cannot do so, pay the reasonable value of the mushrooms at time of delivery. We assume it can only do the latter since the mushrooms have no doubt been sold or destroyed in the two-and-a-half years since they were ordered. At present a factual issue exists as to what price is "reasonable." Quaker State anticipated this situation and submitted an affidavit of one of its officers stating that its price is reasonable. While this statement may be relevant as to price, such a self-serving statement does not suffice to meet Quaker State's burden of showing no genuine issue exists as to that fact.
To summarize, we hold that when we look to the exchange of purchase orders and price list we must conclude either that no contract was created as to the two orders Dominick's placed before November 10, 1983 or that a genuine factual dispute exists as to this issue; that Dominick's will likely owe Quaker State a reasonable price for those goods; and, if so, that a genuine factual issue exists as to what that price was on the day of delivery. It follows that summary judgment must be denied as to those two orders.
The same result obtains with respect to the two orders which Dominick's placed after November 10. Under our above analysis, the November 10 price list constituted not an offer but an invitation to place an order at the new price. Dominick's placed an order on December 2. The parties dispute whether Dominick's sent written confirmation of this order. Resolving this dispute as we must in Dominick's favor, we find that Dominick's sent written confirmation of a purchase order at the lower price, which Quaker State says it never received. Under this scenario, Quaker State's shipment, which would have been an acceptance if Dominick's had sent an order at the higher price, see UCC § 2-206(1)(b), does not amount to an acceptance since it is based on such fundamentally different terms than those proposed in the purchase orders; that is, the shipment cannot be viewed as an objective manifestation of mutual assent to Dominick's price terms, even under the liberal provisions of § 2-207(1). See McCarty, 89 Ill.App.3d at 507-08, 44 Ill.Dec. at 578-79, 411 N.E.2d at 944-45; cf. § 2-305(4) (discussed above) (no contract where parties cannot agree about price and they intend not to be bound without such agreement). Nor do we view Dominick's acceptance of the shipment as acceptance of an offer to purchase them at the higher price, in light of all the other objective indications that Dominick's did *1287 not assent to that price. Thus, we once again find this case thrust into § 2-305(4), with the result that under the above factual scenario there was no contract and Dominick's is liable for the reasonable value of the goods at the time of delivery. Once again this value cannot be resolved on summary judgment on this record.
For the above reasons, Quaker State's motion for summary judgment is denied. We note in conclusion that this contract dispute involves only some $19,000. Our analysis above indicates that the price that is really in dispute is probably the "reasonable" one, that is, the market price. Given the present situation, there is no reason this case should not settle. Indeed, a simple case of this small magnitude should never have mushroomed into full-blown litigation. Had the parties simply split the difference initially, they probably would have been not much worse off than they are now, after having had to pay lawyers fees and other costs to conduct discovery and brief summary judgment motions. A trial in this case would be an economic absurdity. Accordingly, the parties are hereby ordered to meet before the next status hearing to discuss settlement.[8] Failing a resolution, they should consider whether they can agree to prompt and final arbitration. If there is no settlement or agreement to arbitrate, trial counsel and representatives of the parties who have authority to settle this case shall appear at the next status call, which is hereby reset for June 20, 1986, at 11:00 a.m. The parties shall also file their joint pretrial order in open court at such time. It is so ordered.
NOTES
[1] Quaker State asked Otto some questions at his deposition which imply that it believes that one of its officers spoke with someone at Dominick's, perhaps Otto, about the price increase. However, it presented no evidence about such a conversation, so we have disregarded it.
[2] Ill.Rev.Stat. ch. 26, para. 1-205(1) defines a course of dealing as "a sequence of previous conduct between the parties ... which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct."
The parties have assumed that Illinois law controls this diversity suit. The question is largely academic, since both Illinois and Pennsylvaniathe only two states with a significant interest in this suit have adopted the Uniform Commercial Code. So far as we know, their interpretations of the relevant Code sections are not in conflict, so this is a "false conflict" situation. If we were to do a choice of law analysis we would apply Illinois' choice of law rules. See Klaxon v. Stentor Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). We recently held that Illinois courts now generally apply the "most significant relationship test" spelled out in the Second Restatement of Conflicts. See Wonderlic Agency, Inc. v. Acceleration Corp., 624 F. Supp. 801, 803-04 (N.D.Ill.1985). The relevant provision of the Restatement is § 191, which covers contracts for the sale of goods and which says that where the parties have not agreed on the issue the law of the place of delivery generally controls. This is usually the place of shipment, i.e., the seller's state, but this conclusion depends on the intent of the parties. See § 191 Commend d. The parties did not discuss this issue and from the record before us, we could not determine whether Pennsylvania or Illinois was the "place of delivery." However, in light of the "false conflict" issue and the uniformity of the Code, we have assumed for convenience that Illinois was the place of delivery and that its law governs this case, although we have turned to other states' interpretations in a few places as well.
[3] Once during the year that the terms of the corporate presentation worksheet were in effect, Quaker State raised its prices. Dominick's did not place any orders within thirty days after Quaker State effectuated the price increase.
[4] If there is a "subject to confirmation" clause, but also a clause saying "all quotations are for immediate acceptance," a price quotation might amount to an offer. See Nasco, 74 Ill.App.3d at 307, 30 Ill.Dec. at 247, 392 N.E.2d at 1115 (dictum). However, since there was no "acceptance" clause in this case, McCarty and not Nasco controls.
[5] Section 2-204(1) states:
(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
[6] Section 2-204(3) reads:
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
[7] Section 2-207(3) reads:
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
[8] Perhaps a fair settlement would be for Dominick's to pay the old price for the two orders it placed before the November 10 increase and the new price for the two orders it placed afterward. This is merely an idea for the parties to consider, not a recommendation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1550073/ | 97 F.2d 973 (1938)
MINERS SAV. BANK OF PITTSTON, PA.,
v.
JOYCE et al.
UNITED STATES
v.
SAME.
ROBERTSON et al.
v.
SAME.
Nos. 6302, 6307, 6310.
Circuit Court of Appeals, Third Circuit.
April 14, 1938.
*974 *975 W. L. Pace, of Pittston, Pa., for Miners Sav. Bank of Pittston, Pa.
James W. Morris, Asst. Atty. Gen., Sewall Key and Clarence E. Dawson, Sp. Assts. to Atty. Gen., Frederick V. Follmer, U. S. Atty., of Scranton, Pa., and Herman F. Reich, Asst. U. S. Atty., of Sunbury, Pa., for the United States.
R. L. Levy, of Scranton, Pa., for Nelson Robertson.
John P. Kelly, W. J. Fitzgerald, and Edward J. Kelly, all of Scranton, Pa. (Kelly, Fitzgerald & Kelly, of Scranton, Pa., of counsel), for appellees.
Leo W. White, W. H. Gillespie, and Frank M. Flanagan, all of Pittston, Pa., and R. L. Coughlin, of Wilkes-Barre, Pa., amici curiae.
Before BUFFINGTON and BIGGS, Circuit Judges, and MARIS, District Judge.
MARIS, District Judge.
On June 30, 1934 the Howell & King Company filed a debtor's petition under section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207 and note, in the District Court for the Middle District of Pennsylvania. On the same day the court appointed P. F. Joyce trustee and on October 2, 1934, C. Raymond Bensinger and Peter Noll were appointed additional trustees. The trustees were authorized to continue the business of the debtor. In accordance with its practice the court referred the proceeding to David Rosenthal, Esq., one of the referees in bankruptcy, as special master.
On June 19, 1935, the court entered a decree directing the trustees of the debtor to liquidate the estate and to make public sale of the assets and on the same day referred the case to David Rosenthal, Esq., as referee. Upon an appeal from that decree this court on August 30, 1935, by agreement and with the consent of the parties, ordered the trustees to proceed to cause the assets of the debtor and bankrupt to be liquidated, to sell all the said assets free and discharged of all liens, which were to be transferred to the proceeds. The order further provided that should the Miners Savings Bank of Pittston, Pa., the mortgagee and trustee for bondholders, or any holders of bonds secured by the mortgage, become the purchasers, it or they, "after the payment to said Trustees in cash at the time and in the manner provided by terms of sale on bid of an amount not exceeding $55,000.00," might deliver to the trustees bonds to be credited on account of the balance due on the bid. On October 14, 1935, pursuant to the order of this court, the trustees sold all of the real and personal property of the bankrupt at public sale as an entirety to the attorney for the Miners Savings Bank of Pittston, Pa., as mortgagee, for $55,000, which sale was confirmed absolutely on October 25, 1935.
On December 9, 1935, the trustees filed their first and final account and on July 30, 1936, pursuant to order of the court, they filed a restated account. Exceptions were filed to the account and to the order of distribution made by the referee. Upon review these exceptions were disposed of by the court below in an opinion filed November 17, 1936. In re Howell & King Co., D.C., 16 F. Supp. 984. From the decree confirming the account and awarding distribution of the balance shown thereby, which was entered pursuant to that opinion, appeals have been taken by the Miners Savings Bank of Pittston, Pa., as mortgagee and trustee for bondholders, by the United States of America, as a tax claimant, and by Nelson Robertson and others, as wage claimants. Each appeal raises distinct questions and we will, therefore, consider each separately.
Appeal of Miners Savings Bank of Pittston, Pa., Mortgagee and Trustee for Bondholders (No. 6302).
This appeal by the holder of the first mortgage upon the debtor's real estate and plant in turn raises a number of questions which require separate discussion. The first is raised by the second assignment of *976 error and relates to the refusal of the court to allow the costs of the prior appeal, amounting to $45, to be paid out of the estate as an expense of administration. The court evidently overlooked the provision contained in the prior order of this court entered August 30, 1935, which directed that the cost in connection with the former appeal should be paid by the appellees, the trustees of the debtor. These costs should have been allowed as an expense of administration.
The next question arises under the third, fifth, sixth, and seventh assignments of error and relates to the amount of compensation allowed to the trustees of the debtor by the court below. As we have seen, the court on June 19, 1935, ordered the trustees to liquidate the estate and referred the matter to a referee in bankruptcy. The provisions of subdivision (k) of section 77B, 11 U.S.C.A. § 207(k), therefore, applied to the liquidation from that time. In re Collins Hosiery Mills, D.C., 18 F. Supp. 89. It follows under the terms of that subdivision that the compensation of the trustees of the debtor, both in the reorganization proceeding prior to June 19, 1935, and in the liquidation proceeding thereafter, must be limited to the amounts specified in section 48 of the Bankruptcy Act, as amended, 11 U.S.C.A. § 76. Callaghan v. Reconstruction Finance Corp., 297 U.S. 464, 56 S. Ct. 519, 80 L. Ed. 804. In that case Mr. Justice Stone said on this point (297 U.S. 464, at page 469, 56 S. Ct. 519, 521, 80 L. Ed. 804): "Where the attempted reorganization results in liquidation, sections 40, 48 [11 U.S.C.A. §§ 68, 76], regulating the fees of referees, receivers and trustees in bankruptcy, are incorporated by reference in Section 77B (k), 11 U.S.C.A. § 207(k), and are likewise made to control the fees of such officers in the reorganization proceedings."
It is conceded that the compensation allowed the trustees by the court below exceeded the amounts allowable under section 48, 11 U.S.C.A. § 76. Their compensation must, therefore, be reduced to the amount fixed by the statute.
The next question is raised by the fourth and eighth assignments of error which refer to the compensation allowed by the court below to the special master and referee. David Rosenthal, Esq., referee in bankruptcy, was appointed special master during the pendency of the reorganization proceeding and on June 19, 1935, the liquidation proceedings were referred to him as referee. For his services as special master he is entitled to such reasonable compensation as the court may fix, Section 77B, subd. (c) (11), 11 U.S.C.A. § 207(c) (11). In this case the first and final account of the trustees which was confirmed by the court shows that payment of $2,000 to Mr. Rosenthal "on account of fees." While $1,475 of this was actually paid to him after June 19, 1935, when his services as special master ceased, $1,000 of it appears to have been allowed to him by the court on January 24, 1935, and it was all claimed by him as special master. The sum does not seem to us to be unreasonable for his services as special master and we are satisfied that it should not be disturbed.
In addition the court below in the decree appealed from allowed him $1,000 more as referee. This allowance cannot be sustained since his fees as referee in a liquidation proceeding under subdivision (k) of section 77B, 11 U.S.C.A. § 207(k), are limited to the amount allowed by section 40, 11 U.S.C.A. § 68, and the sum allowed was conceded to exceed that amount. His allowance must, therefore, be recomputed under that section. Callaghan v. Reconstruction Finance Corp., 297 U.S. 464, 471, 56 S. Ct. 519, 522, 80 L. Ed. 804.
The ninth assignment of error relates to the finding by the court below that a minimum sale price for the property of the debtor was fixed at the request of the mortgagee. It is clear from an examination of the order of sale entered by this court on August 30, 1935, by agreement of the parties that no minimum sale price was fixed. Nor do we find in the record any evidence which would sustain a finding that such a minimum sale price was requested by this appellant.
The tenth assignment of error refers to the failure of the trustees in their account to segregate the proceeds of the sale of the debtor's property and to state separately the disbursements made therefrom. We think that the trustees should be required to state separately the proceeds of the sale and the disbursements made therefrom. The order of sale directed the liens on the property sold to be transferred to the proceeds of the sale. This made it imperative, if the rights of the *977 lienholders were to be protected, to segregate the proceeds of the sale and to state an account of the proceeds separately. The failure of the trustees to do so in practical effect made it impossible for the court below to carry out the direction of the decree of sale entered by this court which transferred the liens on the property to the proceeds of the sale and authorized the lienholders to make their claims against the proceeds. It is impossible from the account as stated to determine whether the balance in the hands of the trustees was actually derived from the proceeds of the sale or from some other source. The account must, therefore, be restated.
The first assignment of error complains of the refusal of the court below to apply the proceeds from the sale of the debtor's property and the rentals collected from its real estate to the payment of administration expenses to the exclusion of the claim of appellant as mortgagee having a lien upon the fund. In considering this question it must of course be conceded that section 67d of the Bankruptcy Act, as amended, 11 U.S.C.A. § 107(d), protects the lien of the mortgagee in this case upon the property of the debtor. When the property was sold clear of liens the mortgagee's lien was expressly transferred to the fund realized from the sale. The question raised by this assignment is whether under the circumstances the mortgagee is entitled to have paid to it the entire proceeds of the sale remaining after the payment of the costs of the sale and the prior tax liens or whether it must also be postponed to the payment of the administration expenses which the court below directed to be paid out of the fund.
While there is authority for the proposition that one who has a lien on the property of a bankrupt is entitled to be paid in full out of the proceeds of the liened property subject only to prior liens and a contribution to the expense of administering the bankrupt estate not in excess of what it would have cost to foreclose the lien, Odendahl v. Pokorny Realty Co., 5 Cir., 76 F.2d 271, we think the true rule to be that, where a trustee sells a bankrupt's property free of liens, with the consent of the lienholders, the latter are chargeable not only with the actual costs of sale but also with expenses reasonably incurred in the preservation of the property, Virginia Securities Corporation v. Patrick Orchards, 4 Cir., 20 F.2d 78, and with the trustee's and referee's commissions payable with respect to the proceeds of the sale, Tawney v. Clemson, 4 Cir., 81 F.2d 300, but with no other expenses of administration, except with their consent, express or implied, In re Torchia, 3 Cir., 188 F. 207.
Where, as here, the business of the debtor was carried on prior to the sale in the hope of reorganization the lienholder's forbearance in not foreclosing its lien, which enabled the business to be thus carried on in the mortgaged property, was obviously for the benefit of the debtor and its general creditors. The fact that the mortgagee did not press for foreclosure but consented to permit the business to be carried on in the mortgaged property should not be held to penalize it by postponing its lien to the expenses of operating the business, since to so hold would be to place a penalty upon a lien creditor for its forbearance and for the consideration which it has shown for general creditors. This of course is not to say that the lienholder should not bear the reasonable expenses of preserving the property, which expenses were clearly for its benefit.
We conclude that the proceeds of the sale of the mortgaged property, as well as the net rents received therefrom after the deduction of expenses applicable thereto, should be devoted to the payment of the costs of sale, the commissions of the trustees and the referee applicable thereto, and the reasonable expenses of preserving the property, and that the balance thereof should be applied to the payment of the liens in the order of their priority, including the lien of the mortgage.
Appeal of the United States of America (No. 6307).
This appeal raises the question whether the claim of the United States for taxes was a lien on the fund derived from the sale of the debtor's property or whether it was otherwise entitled to payment out of that fund on a parity with other tax claims. The county, city, school, and poor taxes were first liens upon the real estate under the Pennsylvania Act of May 16, 1923, P.L. 207, § 2, 53 P.S.Pa. § 2022. The state taxes were first liens upon all the debtor's property under the Pennsylvania Act of April 9, 1929, P.L. 343, § 1401, 72 P.S. § 1401. The taxes were, *978 therefore, all first liens upon the proceeds of the sale under the terms of the decree of sale, which transferred the liens to the fund. On the other hand the tax claimed by the United States was not a lien on the property valid as against the mortgagee, whose claim against the balance of the proceeds of the sale we have held should be allowed, since notice of the government's lien was not, in accordance with section 3186, Rev.St., as amended, 26 U.S.C.A. §§ 1560-1567, filed in the office of the prothonotary of Luzerne county as authorized by the Pennsylvania Act of May 1, 1929, P.L. 1215, 74 P.S.Pa. § 141 et seq.
Section 67d of the Bankruptcy Act, as amended, 11 U.S.C.A. § 107(d), which provides that liens given or accepted in good faith shall not be affected by anything in the act, applies to tax liens, In re Brannon, 5 Cir., 62 F.2d 959, certiorari denied, Ryan v. City of Dallas, 289 U.S. 742, 53 S. Ct. 692, 77 L. Ed. 1489; Dunn v. Interstate Bond Co., 5 Cir., 68 F.2d 364, certiorari denied 292 U.S. 645, 54 S. Ct. 779, 78 L. Ed. 1496; Ingram v. Coos County, Or., 9 Cir., 71 F.2d 889; In re Ivel Displays, Inc., 2 Cir., 74 F.2d 702, and such liens are payable in bankruptcy out of the proceeds of the sale of the property subject to the liens ahead of claims having priority under section 64, 11 U.S.C.A. § 104. This is for the reason that section 64 lays down the priorities for paying out the net balance of the funds derived from the liquidation of the bankrupt's property which remains after all special liens and incumbrances have been provided for, In re Brannon, supra, and does not refer to lien debts. Richmond v. Bird, 249 U.S. 174, 39 S. Ct. 186, 63 L. Ed. 543; In re Cardwell, D.C., 52 F.2d 158; U. S. Fidelity & Guaranty Co. v. Sweeney, 8 Cir., 80 F.2d 235. In this case the only claim of the United States to priority is under section 64, however. It is obvious that the liens against the proceeds of the sale of the debtor's property, when the lien of the mortgage is included, far exceed the fund. There is, therefore, nothing left to distribute under section 64 and the court properly refused to award any portion of the fund to the United States upon its claim.
Appeal of Nelson Robertson and Others (No. 6310).
This appeal involves the right of certain wage claimants to distribution out of the fund. They contend that the real and personal property of the debtor was sold as an entirety and since an admixture of the funds derived from both classes of property took place the tax liens applicable to the real estate only were lost and the claimants are, therefore, relegated to their priorities under section 64, which gives wage claimants priority over taxes. We think that this contention is unsound. While it may be admitted that the local tax liens were against the real estate only, their right against the proceeds of the sale of the real estate was preserved by the order of sale and they were, therefore, not required to except to the order confirming the sale of the real and personal property as an entirety nor were they prejudiced thereby. Geo. Carroll & Bro. Co. v. Young, 3 Cir., 119 F. 576; In re Benz, 3 Cir., 218 F. 50; First Savings & Banking Co. v. Kilmer, 4 Cir., 263 F. 497; In re Wilkes, 2 Cir., 55 F.2d 224. The court below found that the fund in the hands of the trustees was produced by the real estate and that the amount realized from the personalty was nominal. We think that the record supports this finding but even if it were otherwise the tax claimants would be entitled to have a determination by the referee of the proportion of the fund derived from sale of the property which was applicable to the real estate.
It was suggested at the argument that such a determination would show that a substantial part of the fund was derived from the sale of the personalty and that the wage claimants had a lien on this property which under the decree of sale they are entitled to enforce against its proceeds. It is clear, however, that under the law of Pennsylvania the wage claimants do not have a lien in the true sense but merely a priority in the distribution of the proceeds of a judicial sale, Wilkinson v. Patton, 162 Pa. 12, 29 A. 293; Mettfett v. Mohn, 171 Pa. 395, 33 A. 367; In re Curran's Restaurant & Baking Co., D.C., 11 F. Supp. 8, and then only if notice in writing of their claims is given before the sale to the officers making the same, 43 P.S.Pa. § 222. So far as appears no such notice was here given. It follows that even if a part of the fund before the court was derived from the sale of the personalty the wage claimants would not be entitled to distribution out of it ahead of the commonwealth of Pennsylvania, which has a lien on the entire *979 property of the debtor, or the mortgagee, which has a lien on substantially all of the property, both real and personal, since it constituted an industrial plant and was, therefore, real estate subject to the lien of the mortgage under Pennsylvania law. Titus v. Poland Coal Co., 275 Pa. 431, 119 A. 540; Com. Trust Co. of Pittsburgh v. Harkins, 312 Pa. 402, 167 A. 278.
Consequently, even upon the theory that because of an admixture of funds derived from the sale of real and personal property the local tax claims should be held to have lost their liens, the balance of the mixed fund would still be distributable to the commonwealth and to the mortgagee. It follows that the action of the court below in refusing to award any part of the fund to the wage claimants was right.
The appeals of the United States of America (No. 6307) and of Nelson Robertson and others (No. 6310) are dismissed. The appeal of Miners Savings Bank of Pittston, Pa., (No. 6302) is sustained, the decree appealed from is reversed to the extent indicated in this opinion, and the case is remanded to the court below, with instructions to direct the restatement of the trustees' account and to take further proceeding thereupon not inconsistent herewith. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1584784/ | 641 So. 2d 69 (1994)
John H. FARO, Petitioner,
v.
Robert V. ROMANI and Farish, et al., Respondents.
No. 82725.
Supreme Court of Florida.
July 7, 1994.
Rehearing Denied August 25, 1994.
John Beranek of Aurell, Radey, Hinkle, Thomas & Beranek, Tallahassee, Walter G. Campbell of Krupnick, Campbell, Malone, Roselli, Buser & Slama, P.A., Ft. Lauderdale, and Amanda K. Esquibel and Eileen L. Tilghman of Tilghman & Esquibel, P.A., Miami, for petitioner.
S. Emory Rogers of Farish, Farish & Romani, West Palm Beach, for respondents.
C. Rufus Pennington, III of Margol & Pennington, P.A., Jacksonville, amicus curiae for The Academy of Florida Trial Lawyers.
Daniel S. Pearson of Holland & Knight, Miami, amicus curiae for Searcy, Denney, Scarola, Barnhart & Shipley, P.A.
McDONALD, Senior Justice.
We review Faro v. Romani, 629 So. 2d 872 (Fla. 4th DCA 1993), in which the district court certified the following question of great public importance:
WHETHER IN AN ACTION ON A CHARGING LIEN, A TRIER OF FACT MAY CONCLUDE ON DISPUTED EVIDENCE THAT COUNSEL IS ENTITLED TO COMPENSATION FOR SERVICES RENDERED, NOTWITHSTANDING *70 THE CONTINGENCY OF THE FEE CONTRACT, WHERE COUNSEL IS FOUND TO HAVE JUSTIFICATION AND GOOD CAUSE FOR WITHDRAWING APART FROM, OR IN ADDITION TO, DISAGREEMENTS OVER SETTLEMENT NEGOTIATIONS?
Id. at 873. We have jurisdiction pursuant to article V, section 3(b)(4) of the Florida Constitution. We answer the certified question with a qualified affirmative, but also find that there was insufficient evidence of justification and good cause to warrant a fee in this case.
John Faro, who suffered from a mental disability after he was injured in an automobile accident, retained attorney Robert Romani to represent him in his claim against Amica Mutual Insurance Company. Faro, himself a lawyer, entered into a contingency fee agreement with Romani and the firm of Farish, Farish, and Romani. The agreement contained the following provision:
Said suit or claim shall not be in any manner settled or compromised without the consent and to the mutual satisfaction of both parties to this agreement. However, if at any time in the opinion of the attorneys a reasonable offer of settlement is made, the client(s) agree(s) to consider the recommendation of the attorneys.
As part of the agreement, Faro also agreed to pay the costs of the litigation and to pay Romani thirty percent of any recovery.
Before the case went to trial, Romani filed a motion to withdraw as counsel based on "irreconcilable differences" that arose between him and Faro.[*] Over the objection of Faro, the trial court granted the motion to withdraw. With some difficulty, Faro obtained new counsel and settled his claim for $750,000. Subsequently, Romani sought to impose an attorney's charging lien for the fees and costs which accrued from his representation of Faro. The trial court ordered Faro to pay the amount of $180,000 based on "quantum meruit and the contractual agreement of the parties." On appeal, the district court affirmed the trial court's order, and held that the trial court did not abuse its discretion in calculating the amount of the award. The district court also held that the trial court was not required to make specific findings in support of the award.
The district court certified the issue to this Court because of the "potential for conflicts between clients and counsel, and the potential for confusion in applying rule 4-1.5 of the Rules of Professional Conduct regulating The Florida Bar." Id. at 873. Initially, we point out that the nature of the attorney-client relationship requires an analysis that differs from the principles of compensation that are applicable in other contractual relationships. In Rosenberg v. Levin, 409 So. 2d 1016 (Fla. 1982), this Court held that a lawyer discharged without cause can recover the reasonable value of his services on the basis of quantum meruit, but such recovery is limited to the maximum fee set out in the contract for legal services. We have not ruled whether an attorney who voluntarily withdraws in a contingent fee case before the happening of the contingency is entitled to a fee.
Rule Regulating The Florida Bar 4-1.16(b) sets forth the following circumstances under which an attorney may withdraw from representation:
(1) the client persists in a course of action involving the lawyer's services that the lawyer reasonably believes is criminal or fraudulent;
(2) the client has used the lawyer's services to perpetrate a crime or fraud;
(3) a client insists upon pursuing an objective that the lawyer considers repugnant or imprudent;
(4) the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer's services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled;
(5) the representation will result in an unreasonable financial burden on the lawyer *71 or has been rendered unreasonably difficult by the client; or
(6) other good cause for withdrawal exists.
Rule 4-1.16(a) also mandates that an attorney withdraw if the representation will result in violation of the Rules of Professional Conduct or law. As noted in the comment to the rule, the spirit of Rule 4-1.16 presumes that an attorney will follow the representation to completion unless withdrawal is necessitated by one of the conditions set forth above. The existence of grounds for withdrawal does not always translate into an attorney's right to be paid for work performed.
In The Florida Bar v. Hollander, 607 So. 2d 412 (Fla. 1992), we held that "any contingency fee contract which permits the attorney to withdraw from representation without fault on the part of the client or other just reason, and purports to allow the attorney to collect a fee for services already rendered would be unenforceable and unethical." Id. at 415. Although the contingency fee agreement in the instant case does not include the types of clauses that were included in the Hollander agreement, the attorney in the instant case is seeking to recover fees for services already rendered. In the instant case, Romani agreed to represent Faro on a contingency basis. The contingency, of course, was recovery in the lawsuit from Amica Mutual Insurance Company. Once Romani voluntarily withdrew from representation, the contingency agreement, like the attorney-client relationship, was terminated.
We hold that when an attorney withdraws from representation upon his own volition, and the contingency has not occurred, the attorney forfeits all rights to compensation. We approve Kay v. Home Depot, Inc., 623 So. 2d 764 (Fla. 5th DCA 1993) review denied, 632 So. 2d 1026 (Fla. 1994), and follow Beaumont v. J.H. Hamlen & Son, 190 Ark. 630, 81 S.W.2d 24 (1935). We further hold, however, that if the client's conduct makes the attorney's continued performance of the contract either legally impossible or would cause the attorney to violate an ethical rule of the Rules Regulating The Florida Bar, that attorney may be entitled to a fee when the contingency of an award occurs.
The record in this case cannot support a finding that Faro breached the attorney contract or legally caused it to be breached. Nor does it support a finding that his conduct placed Romani in an ethical dilemma. Romani abandoned his right to any compensation when he withdrew from his contingent fee contract, and thus is not entitled to recover a fee.
We do not address the merits of the other issues presented by the parties and by the district court's opinion, as those issues will be resolved in similar pending cases.
We quash the decision under review and remand with instructions to discharge Romani's lien.
It is so ordered.
GRIMES, C.J., and OVERTON, SHAW, KOGAN and HARDING, JJ., concur.
NOTES
[*] This followed Faro's rejection of an offer to settle for $600,000 which Romani had strongly recommended that Faro accept. Romani was also disturbed at Faro's inference that he might not be adequately prepared and apprehensive of a possible malpractice claim if Faro's expectation of a much larger verdict was not realized. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1647979/ | 870 F. Supp. 1293 (1992)
In re TEXAS EASTERN TRANSMISSION CORPORATION PCB CONTAMINATION INSURANCE COVERAGE LITIGATION.
MDL No. 764.
United States District Court, E.D. Pennsylvania.
July 9, 1992.
*1294 *1295 *1296 *1297 *1298 Peter J. Nickles, Coleman S. Hicks, Covington & Burling, Washington, DC, for Texas Eastern Transmission Corp.
Lawrence E. Carr, Jr., Margaret H. Warner, Carr, Goodson & Lee, P.C., Washington, DC, for Fidelity and Cas. Co. of New York, Boston Old Colony Ins. Co.
Mary Ann D'Amato, Robert M. Flannery, Mendes & Mount, New York City, for Certain Underwriters at Lloyd's of London, Ins. Co. of Ireland.
Regina A. Mapes, White & Williams, Philadelphia, PA, for Insurance Co. of North America.
Stephen Sonderby, Haskell & Perrin, Chicago, IL, for Continental Cas. Co.
Ignatius John Melito, Siff, Rosen & Parker, P.C., New York City, for First State Ins. Co.
Leonard L. Rivkin, John L. Rivkin, Erica Garay, Rivkin, Radler, Bayh, Hart & Kremer, Uniondale, NY, John C. Sullivan, Manta & Welge, Philadelphia, PA, for Associated Elec. & Gas Ins. Services, Ltd.
Stephen Cuyler, Michael J. Jones, Cuyler, Burk & Matthews, Morristown, NJ, for Employers Mut. Ins. Co.
Karen L. Douglas, Merlo, Chapello & Douglas, Ltd., Chicago, IL, for Prudential Reinsurance Co.
Edward M. Dunham, Jr., Miller Marvin Dunham Doering & Schreiber, Philadelphia, PA, for Aetna Cas. & Sur. Co.
David Richman, Pamela Ullman, Pepper, Hamilton & Scheetz, Philadelphia, PA, for The Home Ins. Co.
Marjorie Mintzer, Sheft & Sheft, New York City, Mitchell S. Pinsly, Margolis, Edelstein, Scherlis, Sarowitz & Kraemer, Philadelphia, PA, for American Home Assur. Co., Highlands Ins. Group, Ins. Co. of the State of Pennsylvania, Lexington Ins. Co., Ranger Ins. Co., Republic Ins. Co., Stonewall Underwriters, Inc.
Lorraine M. Armenti, McElroy, Deutsch & Mulvaney, Morristown, NJ, Thomas C. DeLorenzo, Marshall, Dennehey, Warner, Coleman & Goggin, Philadelphia, PA, for Intern. Ins. Co.
Lise Luborsky, Duane, Morris & Heckscher, Philadelphia, PA, for Pennsylvania Ins. Guar. Ass'n.
K. Thomas Shahriari, Gilberg & Kurent, Washington, DC, James M. Prahler, Partenheimer & Didomenicis, Philadelphia, PA, for Nat. Sur. Corp.
TABLE OF CONTENTS
I. Introduction page 1300
II. Procedural History page 1300
III. Summary Judgment Standard page 1301
IV. Motions to Strike page 1302
A. Motion to Strike Texas Eastern's Motion for Summary Judgment page 1302
B. Motion to Strike Certain Evidence Offered by Texas Eastern in
Support of its Motion for Summary Judgment page 1302
*1299
C. Supplemental Motion to Strike page 1303
V. Choice of Law page 1305
VI. Governing Principles of Insurance Law page 1306
A. Texas Rules of Insurance Contract Construction page 1306
B. Texas Rules Concerning the Burden of Proof page 1306
VII. Imputation of Employee Knowledge page 1307
VIII. Facts page 1308
A. Preliminary Issues page 1308
B. Factual Background page 1308
1. Texas Eastern's Corporate History page 1309
2. Texas Eastern's Operational History page 1309
3. Texas Eastern's Knowledge of PCBs in its Lubricant page 1310
4. The Change-Out Program page 1313
5. Tracking Environmental Legislation page 1313
6. PCB Contamination in the Natural Gas Pipeline page 1314
7. PCB Cleanup page 1315
8. The Results of Weston's Survey page 1315
9. Texas Eastern's Problems Become Public Knowledge page 1317
10. Texas Eastern's Negotiations with EPA page 1318
11. Texas Eastern's Notice to its CGL Carriers page 1319
IX. Occurrence page 1320
A. The Policy Language page 1320
B. Texas Law page 1320
C. The Applicable Facts page 1323
1. Knowledge that the Lubricant was Escaping into the Environment page 1324
2. Knowledge that the Lubricant Contained PCBs page 1327
D. The Alternative Theory of an Occurrence page 1328
X. Damages page 1329
A. Equitable Relief as Damages page 1330
B. Compliance Costs as Property and/or Bodily Injury Damage page 1334
C. Civil Fines and Penalties page 1335
1. Choice of LawFines and Penalties page 1335
2. New Jersey Fines page 1338
3. Pennsylvania Fines page 1338
4. EPA Fines page 1339
XI. Owned Property Exclusion page 1339
XII. Pollution Exclusion page 1345
XIII. Late Notice page 1350
A. The Policy Terms page 1351
B. Accrual of Texas Eastern's Obligation to Notify its CGL Insurers page 1351
1. 1981 page 1351
2. 1982 page 1352
3. 1983 page 1352
4. 1984 page 1352
5. 1985 page 1353
6. 1986 page 1354
7. 1987 page 1355
C. Texas Law page 1356
D. The Applicable Facts page 1358
E. Prejudice page 1361
XIV. Duty to Defend page 1364
A. The Policy Language page 1364
B. Texas Law page 1364
*1300 OPINION
VanARTSDALEN, Senior District Judge.
I. INTRODUCTION
Texas Eastern Transmission Corporation (Texas Eastern), the owner-operator of a natural gas pipeline system extending from natural gas well fields in Texas, Louisiana, and the Gulf of Mexico to the New York metropolitan area, brought suit against approximately twenty-one insurance companies[1] (the Carriers) that provided Texas Eastern with primary and excess comprehensive general liability (CGL) insurance coverage between 1958 and the present.[2] Texas Eastern seeks to recover the expense that it will incur in the governmentally mandated environmental cleanup of polychlorinated biphenyl[3] (PCB) contamination at multiple locations on Texas Eastern's property along the transmission line. The total costs are estimated to exceed $750 million. After more than two years of discovery, the parties have now filed cross-motions for summary judgment.
II. PROCEDURAL HISTORY
The present litigation consolidates three lawsuits, each seeking declaratory judgment as to the respective duties and liabilities of the Carriers to defend and/or indemnify Texas Eastern against claims and settlements made by and with the United States Environmental Protection Agency (EPA), various state agencies, and private parties.[4]
On December 11, 1987, Fidelity & Casualty Company of New York (Fidelity or F & C), Texas Eastern's primary CGL carrier throughout all relevant periods, filed Case No. 87-2925T against Texas Eastern in the United States District Court for the Northern District of Texas (Northern District action). The Northern District action was a diversity case establishing federal subject-matter jurisdiction pursuant to 28 U.S.C. § 1332.
On March 11, 1988, Associated Electric & Gas Insurance Services Limited (Aegis) and National Surety Corporation filed Civil Action No. 88-2126 in the United States District Court for the Eastern District of Pennsylvania (Eastern District action) against Texas Eastern, F & C, and Texas Eastern's other CGL insurers. Jurisdiction was based on 28 U.S.C. §§ 1330(a), 1603(a), and 1605(a)(2) of the Foreign Sovereign Immunities Act (FSIA), because one of the insurers, the Insurance Company of Ireland (one of the London Market Insurers), was an instrumentality of a foreign state.
On March 21, 1988, Texas Eastern filed an action in Texas state court, in Houston (Texas state court action), against all of its insurers.[5] The Texas state court action was removed to the United States District Court for the Southern District of Texas on the basis of the FSIA and was docketed in that court as Civil Action No. 88-1910.
In May 1988, the Northern District action was transferred by the Judicial Panel on *1301 Multidistrict Litigation to this court for consolidation for pretrial purposes with the Eastern District action, pursuant to 28 U.S.C. § 1407; the case was docketed in the Eastern District of Pennsylvania as Civil Action No. 88-5039. The cases were then designated "Texas Eastern Transmission Corporation, PCB Contamination Insurance Coverage Litigation, Case Number MDL 764." In July 1988, the United States District Court for the Southern District of Texas transferred the action pending before it to this district, where it was docketed as Civil Action No. 88-5707. The grounds for the transfer were not stated, but presumably the transfer was based on 28 U.S.C. § 1404(a). That case has been consolidated for all purposes with MDL 764. (MDL 764 Order No. 4, Document No. 23.)
After extensive (and perhaps exhaustive) discovery, the parties filed cross-motions for either partial or total summary judgment. Texas Eastern moved for partial summary judgment on six major issues seeking the following legal rulings: (1) the pollution exclusion in its insurance policies does not bar coverage for long-term pollution; (2) all of its insurance policies were triggered due to the latent nature of the PCB contamination; (3) the Carriers' defenses of late notice and misrepresentation should be stricken; (4) the cleanup costs it has and will incur are recoverable as "damages"; (5) F & C breached its duty to defend Texas Eastern in the underlying lawsuits; and (6) the underlying lawsuits asserted claims for bodily injury, property damage, and personal injury.
The Carriers moved jointly for partial or complete summary judgment on the following issues seeking the following legal rulings: (1) no insurable occurrence ever accrued; (2) the costs incurred by Texas Eastern were not incurred as "damages" because of bodily injury or property damage; (3) Texas Eastern provided late notice of its claims to all Carriers; (4) civil fines and penalties are not insurable as "damages"; (5) the owned property exclusion in Texas Eastern's insurance policies bars coverage for damage to Texas Eastern's own property; and (6) the pollution exclusion in Texas Eastern's insurance policies bars coverage for all costs incurred to remediate the PCB contamination. In addition, twelve of the Carriers individually filed separate motions for partial or total summary judgment in which some of the other Carriers joined. Finally, the Carriers jointly filed several motions to strike exhibits offered by Texas Eastern in support of its motion for summary judgment.
I held hearings on the summary judgment motions on January 13, 14, and 15, 1992. After consideration of the briefs and the arguments made during the hearings, I have reached numerous conclusions and decisions which are hereafter set forth. I have decided most, but not all, of the issues raised. I have determined that all of the Carriers are entitled to summary judgement on all claims against them because of Texas Eastern's late notice. Other primary issues have been decided in order to avoid extensive further appeals and litigation in the event that a different result occurs on appeal.[6]
III. SUMMARY JUDGEMENT STANDARD
A court shall grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Williams v. Borough of West Chester, 891 F.2d 458, 463-64 (3d Cir.1989). In a motion for summary judgment, the court may examine evidence beyond the pleadings. The court must always consider the evidence, and the inferences therefrom, in the light most favorable to the nonmoving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S. Ct. 993, 994, 8 L. Ed. 2d 176 (1962); Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir.1987).
The initial burden is on the moving party to demonstrate the absence of a genuine issue of material fact. First Nat'l Bank v. *1302 Lincoln Nat'l Life Ins. Co., 824 F.2d 277, 280 (3d Cir.1987). Once the moving party has satisfied this burden, the nonmoving party must demonstrate that genuine disputes exist concerning each essential element of its case on which it bears the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 2552-53, 91 L. Ed. 2d 265 (1986). For a dispute to be "genuine," a reasonable jury must be able to return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). If the nonmoving party's evidence is "`merely colorable' or is `not significantly probative,' summary judgment may be granted" in favor of the moving party. Equimark Commercial Fin. Co. v. C.I.T. Fin. Servs. Corp., 812 F.2d 141, 144 (3d Cir.1987) (quoting Anderson, 477 U.S. at 249-50, 106 S.Ct. at 2510-11). In essence, it is my duty to determine whether the nonmoving party has submitted evidence which "presents a sufficient disagreement to require submission to a jury or whether [the evidence] is so one-sided that [the moving party] must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. at 2512.
I have gone to great lengths to give Texas Eastern the benefit of every doubt in interpreting the thousands of pages of record evidence submitted by all parties. I have taken this course because the Carriers' summary judgment motion heavily relies on factual findings, while Texas Eastern's summary judgment motion, by its own admission, relies more on interpretations of the law than on express factual findings. In the interest of fairness, I have made extensive findings concerning the "undisputed facts." See infra part VIII.[7]
IV. MOTIONS TO STRIKE
A. Motion to Strike Texas Eastern's Motion for Summary Judgment
The Carriers contend that Texas Eastern's motion for summary judgment is merely a request for hypothetical legal rulings calculated to induce me to reveal my position on particular legal disputes and thereby enable Texas Eastern to better prepare its case for trial. As an example, the Carriers cite Texas Eastern's motion for partial summary judgment on the issue of whether gradual discharge, dispersal, release, or escape of pollutants can be "sudden and accidental" within the meaning of a pollution exclusion clause. In the Carriers' view, Texas Eastern's motion is more appropriate to a Rule 16 conference or a motion in limine, where evidentiary rulings are appropriately requested and received.
Texas Eastern responds that seeking legal rulings which narrow the issues for trial are entirely proper in Rule 56 motions, and that its motion need not necessarily allow the court to pronounce final judgment on a particular claim, as long as the court's decision finally disposes of at least some portion of that claim. In addition, Texas Eastern asserts that it need not proffer substantial factual support for its summary judgment motion because it primarily focuses on legal issues which are matters of law for the court to decide and, thus, do not require an extensive factual background.
Federal Rule of Civil Procedure 56(a) expressly entitles a party to move for summary judgment "in the party's favor upon all [claims] or any part thereof." In my view, Rule 56 is broad enough to allow Texas Eastern to move for summary judgment on issues which are crucially important to this litigation, and about which no factual dispute exists. The interpretation of insurance policy language is just such an issue. The Carriers' motion to strike will therefore be denied.
B. Motion to Strike Certain Evidence Offered by Texas Eastern in Support of its Motion for Summary Judgment
The Carriers have also moved to strike certain evidence relied on by Texas Eastern to support its motion for summary judgment. First, the Carriers move to strike exhibits 8-31, 47, [4]8, and 50 offered by Texas Eastern in the Declaration of Laird Hart. Exhibits *1303 8-18 are private third-party complaints filed against Texas Eastern, alleging injuries arising out of PCB contamination, not specifically identified in Texas Eastern's First Amended Complaint. They were the subject of Texas Eastern's motion for leave to file a Second Amended Complaint which I held in abeyance. (Order No. 42, Document No. 443.) In a memorandum and order filed contemporaneously with this opinion, I have denied Texas Eastern's motion for leave to amend its complaint and therefore conclude that evidence of the private third-party complaints is not properly before me. Exhibits 8-18 will therefore be stricken.
Exhibits 19-27 present a more difficult question. Texas Eastern has offered evidence of the drafting history of one form of a pollution exclusion used in many of the insurance policies at issue in this litigation.[8] For the reasons set forth in my discussion of the "Pollution Exclusion" issue, infra part XII, I have decided that consideration of this evidence is permissible under Texas law and, thus, the Carriers' motion to strike exhibits 19-31 will be denied.
Exhibits 47 and 48 are excerpts from the depositions of Texas Eastern expert witnesses John A. Cherry and Bradford S. Cushing. The Carriers object to this evidence on the ground that the excerpts are insufficient to allow me to determine the experts' qualifications, or the facts and data upon which the opinions are based. Additionally, the Carriers believe that this evidence sets forth mere conclusions and does not offer any evidence of the experts' thought processes or rationale. Texas Eastern has responded by providing some of the deposition transcript missing from its initial proffer. (See TApp.[9] 222; TApp. 223.) I am satisfied that when considered together with the additional deposition testimony, this evidence is properly before the court and the motion to strike will therefore be denied.
Exhibit 50 consists of two affidavits sworn by Karen Hammerstrom, an EPA employee, which were submitted in support of EPA's enforcement action against Texas Eastern. Texas Eastern relies heavily on these affidavits to prove that at least some of its response costs are the direct result of actual or threatened third-party harm to property or persons. Although the affidavits were not created specifically for this litigation, they appear to be reliable and relevant, and appear to satisfy the requirements of Federal Rule of Civil Procedure 56(e). As such, they are properly before me. The Carriers' motion to strike the Hammerstrom Affidavits will therefore be denied.
Second, the Carriers object to any reliance on Texas Eastern's "Statement of General Background Facts" filed contemporaneously with, and in support of, its motion for summary judgment because, in general, it does not cite to record evidence. It is settled law that all evidence relied upon in deciding a motion for summary judgment must be reducible to admissible evidence. Texas Eastern admitted at oral argument that its "Statement of General Background Facts" was not "admissible evidence" and, as such, I have not relied on it in deciding these motions for summary judgment. The Carriers' motion to strike Texas Eastern's "Statement of General Background Facts" will therefore be granted.
C. Supplemental Motion to Strike
The Carriers have moved to strike certain additional evidence offered by Texas Eastern. First, the Carriers seek to strike paragraphs 4, 5, 7, and 8 of the Declaration of H. Douglas Church, located at TApp. 191, on the ground that the information contained therein is not based on Mr. Church's personal knowledge. The information in these paragraphs relates to Texas Eastern's historical practices concerning PCB use and containment. The Carriers contend that Mr. Church cannot have personal knowledge of events which occurred before 1985, the date *1304 when he first became responsible for dealing with Texas Eastern's PCB-related problems.
Texas Eastern responds that although Mr. Church does not have first-hand personal knowledge of all the events to which he attested, he acquired personal knowledge by reviewing relevant documents and discussing the issues with senior management[10] and other personnel from Texas Eastern's Operations, Engineering, Environmental, and Legal departments. (Church Decl., TApp. 191 at ¶ 4.) The Carriers have in turn challenged the quality of Mr. Church's efforts to "get up to speed" on these important issues. (Ins.' Reply in Supp. of Suppl.Mot. to Strike at 4-5.)
Federal Rule of Evidence 602 prohibits a witness from testifying about an issue unless the witness has personal knowledge of the matter. The Carriers complain that Mr. Church's knowledge cannot be personal to him because it was acquired from third parties. This argument proves too much. All perception is inferential to some degree. As the Seventh Circuit recently noted:
Knowledge acquired through others may still be personal knowledge within the meaning of Fed.R.Evid. 602, rather than hearsay, which is the repetition of a statement made by someone else.... Such a statement is different from a statement of personal knowledge merely based, as most knowledge is based, on information obtained from other people.
Agfa-Gevaert, A.G. v. A.B. Dick Co., 879 F.2d 1518, 1523 (7th Cir.1989).
Mr. Church acknowledges that he relied on various sources to acquire his knowledge of the events to which he attests. He does not, however, offer his statement solely on the authority of those statements, but rather vouches for the statements' truth himself. Mr. Church's alleged reliance on documents distinguishes this case from one in which a declarant relies solely on the "say-so" of third parties. See, e.g., Kaczmarek v. Allied Chem. Corp., 836 F.2d 1055, 1060-61 (7th Cir.1987). I conclude that the Church Declaration is sufficiently based on personal knowledge and is therefore admissible evidence that can be relied on in deciding these motions for summary judgment.
Next, the Carriers have moved to strike paragraphs 6 and 8 of the Declaration of Steve L. Horton, found at TApp. 194. In paragraph 6, Mr. Horton states that after discussions with environmental representatives of other pipeline companies, it is his understanding that no other pipeline company has been required by EPA or any state authority to install the same source control equipment that Texas Eastern is required to install under the terms of the EPA Consent Decree. (Horton Decl., TApp. 194 at ¶ 6.) The Carriers and Texas Eastern agree that this statement is hearsay if it is offered to prove the truth of the matter, that is, that no other company has, in fact, been required to install the above-mentioned source control equipment.
Texas Eastern contends that this evidence is being offered only to establish what Steve Horton, Texas Eastern's Vice President of Environmental Affairs, believed other companies have been required to do. Without ruling on the relevance of Mr. Horton's opinion, I will deny the motion to strike; however, Mr. Horton's statement is admissible only to establish what he believed has been the practice in the industry.
In Paragraph 8, Mr. Horton states that the residual value of a computer and software, purchased by Texas Eastern exclusively to help carry out the required activities under the Consent Decree, will be little or none when the activities are completed. (Horton Decl., TApp. 194 at ¶ 8.) The Consent Decree involves a ten-year cleanup program. (App. 385 at 16.) Thus, Mr. Horton is merely stating that in his opinion, a computer purchased today will have little value ten years from now.
*1305 The Carriers believe that Texas Eastern should offer expert testimony on this issue, or at least lay testimony of someone with expertise in the computer industry. Given the nature of this testimony, I believe that Mr. Horton's duties make him sufficiently knowledgeable about the computer and the work to which it is committed so as to permit his lay testimony to be admitted under Federal Rule of Civil Procedure 701. Of course, the fact that he is not an expert in this area may affect the persuasiveness of his testimony.
The Carriers also move to strike the excerpts of the deposition testimony of Texas Eastern expert Davis L. Ford concerning Texas Eastern's waste management practices. (TApp. 31; TApp. 206.) The grounds for striking the testimony are the same as those asserted in the Carriers' original motion to strike the deposition testimony of experts Cushing and Cherry. Texas Eastern has supplemented its offer with additional deposition testimony sufficient to allow its admission as evidence. (See TE's Opp'n to Suppl.Mot. to Strike at 13-14; Ex. F.) The Carriers' argument that the subject matter of Mr. Ford's testimony is not helpful because it fails to consider Texas Eastern's PCB use goes to the weight, not the sufficiency, of the evidence.[11]
Finally, the Carriers move to strike TApp. 127 and 129. These exhibits are part of the evidence offered by Texas Eastern concerning circumstances surrounding the drafting of the pollution exclusion which appears in a number of the insurance policies at issue in this case. Having decided that consideration of such evidence is proper under Texas law to help determine whether the term "sudden" is, or is not, ambiguous, I conclude that the evidence is properly before me. For all of these reasons, the Carriers' supplemental motion to strike will be denied in its entirety.
V. CHOICE OF LAW
The parties agree that Texas law applies[12] to all of the issues in this multidistrict litigation except those concerning the insurability of civil fines and penalties, where the Carriers contend that the law of the state which imposed the fine or penalty should apply. I will address the choice of law issue regarding civil fines and penalties in my discussion of that issue. (See infra part X.C.1.) Otherwise, Texas law will be applied throughout this opinion.
It is axiomatic that the decisions of a state's highest court are the ultimate authority regarding state law. Connecticut Mut. Life Ins. Co. v. Wyman, 718 F.2d 63, 65 (3d Cir.1983). If the state's highest court has not ruled on the issue in question, it is my duty to predict how the state court would rule. Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165, 1167 (3d Cir.1981). In making these predictions, I have relied, to the best of my ability, on lower Texas state court decisions, well-reasoned authority from other jurisdictions, and other relevant sources.
With respect to my use of sources other than the Texas Supreme Court, I have relied first on lower court decisions from the Texas state courts. Intermediate state court decisions are presumptive evidence of state law. Commercial Union Ins. Co. v. Bituminous Casualty Corp., 851 F.2d 98, 100 (3d Cir.1988). As the Third Circuit recently stated:
Although we are not bound in a diversity case to follow decisions of a state intermediate appellate court, we are instructed that such decisions are "not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise." *1306 Northern Ins. Co. v. Aardvark Assocs., Inc., 942 F.2d 189, 193 (3d Cir.1991) (quoting West v. American Tel. & Tel. Co., 311 U.S. 223, 237, 61 S. Ct. 179, 183, 85 L. Ed. 139 (1940)).
I have also relied on decisions from other jurisdictions, as well as other miscellaneous sources, to aid in my predictions in instances where the lower courts have either (1) not decided an issue, or (2) have decided an issue with insufficient rationale to be a good indicator of what the Texas Supreme Court would conclude if faced with a similar question. Although I cannot guarantee that I have predicted correctly, I have relied on my own understanding of the law, and on the insurance and contract principles which Texas courts have historically considered important, to reach the conclusions which follow.
VI. GOVERNING PRINCIPLES OF INSURANCE LAW
A. Texas Rules of Insurance Contract Construction
Under Texas law, insurance policies are governed by the same rules of construction which apply to contracts generally. National Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.1991); Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex.1987); Garrison v. Fielding Reinsurance, Inc., 765 S.W.2d 536, 538 (Tex.Ct.App. 1989) (writ denied). "When terms of an insurance policy are unambiguous, they are to be given their plain, ordinary and generally accepted meaning unless the instrument itself shows that the terms have been used in a technical or different sense." Garrison, 765 S.W.2d at 538.
When the terms of an insurance policy are ambiguous, a court should apply the construction that favors the insured and permits recovery. Yancey v. Floyd West & Co., 755 S.W.2d 914, 918 (Tex.Ct.App.1988) (writ denied). A term is ambiguous when the language of a policy is susceptible to more than one reasonable construction. Yancey, 755 S.W.2d at 918. "Where the clause of the insurance policy subject to dispute involves exceptions or limitations on the insurer's liability under the policy, even more stringent construction than usual is required." Id. (citing Glover v. National Ins. Underwriters, 545 S.W.2d 755, 761 (Tex.1977)). The court must adopt the insured's construction of an exclusionary clause "as long as that construction is not unreasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties' intent." Hudson Energy Co., 811 S.W.2d at 555. However, courts should refrain from creating an ambiguity where none exists. Yancey, 755 S.W.2d at 918. In this regard, "a policy which is otherwise clear is not rendered ambiguous simply because it requires the insured to read the policy thoroughly and carefully." LaBatt Co. v. Hartford Lloyd's Ins. Co., 776 S.W.2d 795, 800 (Tex.Ct.App.1989). Additionally, mere disagreement over the interpretation of an instrument does not make it ambiguous. Cohen v. Rains, 769 S.W.2d 380, 389 (Tex.Ct. App.1989) (writ denied). Indeed, a court must avoid a construction of the policy which renders a portion of the contract meaningless. Liberty Mut. Ins. Co. v. American Employers Ins. Co., 556 S.W.2d 242, 245 (Tex.1977); Ideal Mut. Ins. Co. v. Last Days Evangelical Ass'n, Inc., 783 F.2d 1234, 1238 (5th Cir.1986). If no ambiguity exists, parol evidence is inadmissible to create an ambiguity. Entzminger v. Provident Life & Accident Ins. Co., 652 S.W.2d 533, 537 (Tex.Ct. App.1983). However, in determining whether a contract term is ambiguous, a court should consider the contract terms in light of the surrounding circumstances. Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726, 731-32 (Tex.1981).
B. Texas Rules Concerning the Burden of Proof
Pursuant to Texas law, the insured bears the burden of establishing that the claimed loss is within the coverage of the policy. Employers Casualty Co. v. Block, 744 S.W.2d 940, 944 (Tex.1988). The insured also bears the burden of proving that it complied with all conditions precedent to coverage. Trevino v. Allstate Ins. Co., 651 S.W.2d 8, 11 (Tex.Ct.App.1983) (writ refused n.r.e.).
Texas law also requires the insured to prove that the loss does not fall within an exclusion or exception where the insurer *1307 pleads such exclusion or exception to coverage. Sherman v. Provident Am. Ins. Co., 421 S.W.2d 652, 654 (Tex.1967); American Home Assurance Co. v. Brandt, 778 S.W.2d 141, 143 (Tex.Ct.App.1989) (writ denied); Britt v. Cambridge Mut. Fire Ins. Co., 717 S.W.2d 476, 482 (Tex.Ct.App.1986) (writ refused n.r.e.). I recognize that this is a minority rule, but it appears to be the settled law in Texas.[13] Finally, if it is determined that the policy provides coverage for only a portion of the insured's loss, the burden of apportioning the damages between covered and noncovered losses is on the insured. Winn v. Continental Casualty Co., 494 S.W.2d 601, 606 (Tex.Civ.App.1973).
VII. IMPUTATION OF EMPLOYEE KNOWLEDGE
When individual parties are involved in litigation, the determination of what a party knew or intended is rarely a simple matter. Engaging in a post hoc analysis of what an individual was thinking requires powers of clairvoyance which most mortals do not possess. This difficult task is even more formidable when a corporate party is involved. A corporation operates solely through its individual employees. The employees' knowledge and intentions must therefore ordinarily be deemed the knowledge and intentions of the corporation. As Judge Dalton observed:
A corporation can only act through its employees and, consequently, the acts of its employees, within the scope of their employment, constitute the acts of the corporation. Likewise, knowledge acquired by employees within the scope of their employment is imputed to the corporation. In consequence, a corporation cannot plead innocence by asserting that the information obtained by several employees was not acquired by any one individual employee who then would have comprehended its full import. Rather, the corporation is considered to have acquired the collective knowledge of its employees and is held responsible for their failure to act accordingly.
United States v. T.I.M.E.D.C., Inc., 381 F. Supp. 730, 738 (W.D.Va.1974). When dealing with a corporation as large as Texas Eastern, imputation requires an inquiry into the minds of literally thousands of people, and in this case, spanning a time period of three to four decades.
The difficulty of this task does not relieve the parties (or me) of the duty to attempt to reconstruct what Texas Eastern "knew" at the relevant times. If a corporation were able to escape this imputation of knowledge, it would always be in a position to limit its liability by professing corporate ignorance. At the other extreme, the imputation of every bit of knowledge known to each individual employee from the Chief Executive Officer to the most recently hired recruit would likely paralyze a corporation as upper level management attempted to keep informed of all information known to all of the corporation's employees.
Cognizant of this dilemma, courts have created a compromise approach which limits the information imputed to the corporation to that which was learned in the course of an employee's employment-related activities, and which is known by an employee of a sufficient level of corporate responsibility to justify charging the corporation with that knowledge. Texas law is in accord with this approach. Texas Eastern is a corporation and each employee is an agent for the corporation. In accordance with Texas agency law, knowledge which an employee or other agent acquires in the course of employment is imputed to the principal. Green Tree Acceptance, Inc. v. Holmes, 803 S.W.2d 458, 460 (Tex.Ct.App.1991) (writ denied). Texas law makes it clear that this rule of imputation does not depend upon whether the principal actually shares the agent's knowledge, Williams v. Jennings, 755 S.W.2d 874, 883 (Tex.Ct.App.1988) (writ denied), because a principal should not be entitled to the benefits of the agent's services without being *1308 charged with the agent's knowledge. Wellington Oil Co. v. Maffi, 150 S.W.2d 60, 63 (Tex.1941).
Texas Eastern is thus charged with the knowledge of its employees as long as that knowledge was gained in the course of the individual employee's employment-related activities. Of course, not all of Texas Eastern's employees will have knowledge of particular events, but this does not prevent the corporation from being charged with the knowledge of those who do.
Texas Eastern has raised an objection to being charged with the collective knowledge of its many employees for the purpose of determining the intent of the corporation. In Kern Oil & Refining Co. v. Tenneco Oil Co., 792 F.2d 1380, 1386-87 (9th Cir.1986), cert. denied, 480 U.S. 906, 107 S. Ct. 1349, 94 L. Ed. 2d 520 (1987), the court concluded that under Texas law, a corporation's subjective intent could not be established by imputing the collective knowledge of its employees. In Tenneco, the court reviewed a district court's determination that an overpayment of money was recoverable by the payor corporation, because it was made based on a mistake of fact, and thus was involuntarily made.
Under Texas law, if a party to a contract makes an overpayment, even though it is under no legal obligation to do so, it cannot recover the money if it was voluntarily paid with full knowledge of the relevant facts. Tenneco, 792 F.2d at 1386. The payee argued that the corporate party could not claim that its payment was made under a mistake of fact when its employees collectively knew all of the relevant facts. The Ninth Circuit concluded that the collective knowledge could not be imputed because Texas law required that the overpayment be truly voluntary, that is, done intentionally or purposefully or by choice of one's own accord or by the free exercise of the will; the collective knowledge was insufficient to charge the corporation with this action. Id.
It is apparent to me that the Tenneco court assumed that Texas law required the corporation to subjectively intend to make the overpayment. Tenneco is distinguishable from the present litigation because, as will be explained in this opinion, Texas insurance law is not concerned with the subjective intentions of the insured, but with the objective ones. In an objective analysis, the focus of the inquiry is what the corporation is likely to have known, and not necessarily what the corporation in fact intended. Under these circumstances, I believe the Texas Supreme court would require the corporation to be charged with the collective knowledge of its employees.[14]
As I previously observed, information known to corporate employees should not be blindly imputed to the corporation. An inquiry should be made as to whether the employee had a sufficient level of corporate responsibility to justify charging the corporation with that particular bit of knowledge. I do not understand this requirement to mean that an employee must have climbed to a particular rung on the corporate ladder, as Texas Eastern has argued, before an employee's knowledge will be imputed. Rather, I believe this to mean that the knowledge must be substantially related to the task which the corporation has assigned the employee to perform. Therefore, information known to an employee which relates to the performance of the employee's job will be imputed to Texas Eastern.
VIII. FACTS
A. Preliminary Issues
Both Texas Eastern and the Carriers have submitted versions of the "undisputed" facts. The Carriers initially filed the "Insurers' Statement of Material Facts As To Which No Genuine Issue Exists" (SOF). Texas Eastern responded to the Carriers' filing with "Texas Eastern's Response To The Insurers' Statement Of Material Facts As To Which No Genuine Issue Exists" *1309 (TRSOF), in which Texas Eastern either disputed the Carriers' assertions or admitted them. Texas Eastern contemporaneously filed its own version of the material facts in "Texas Eastern Statement Of Facts" (TSOF). Finally, the Carriers' filed a response to the TRSOF.
The Carriers' response to the TRSOF raised several important issues. First, the Carriers objected to the filing of the TSOF after Texas Eastern had filed its motion for summary judgment. In the Carriers' view, Texas Eastern bore the initial burden of "identifying those portions of the `pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any,' which it believe[d] demonstrate the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S.Ct. at 2553. By failing to meet this burden in its initial filing, the Carriers contend that Texas Eastern gained an unfair advantage by waiting until the Carriers had "tipped their hand before it too committed itself." (Ins.' Reply to TRSOF at 2 n. 1.)
The Carriers are clearly correct in their assertion that a party seeking summary judgment must file, in support of its motion, a statement of the facts which is supported by record evidence. However, this is not a case where a party has failed to file such a statement, but one in which a party has failed to file its statement contemporaneously with its original motion.
Texas Eastern filed a response to the SOF, and its own TSOF, on September 9, 1991, almost two months after its initial filing of the summary judgment motion, filed on July 12, 1991. There is no dispute that taken together, the TRSOF and the TSOF satisfy the Celotex requirement of identifying those portions of the pleadings which Texas Eastern believes demonstrate the absence or existence of a genuine issue of material fact.
In light of the voluminous filings in this case, I conclude that while it would have been more appropriate for Texas Eastern to have filed its statement of facts with its summary judgment motion, the Carriers have not been significantly prejudiced by Texas Eastern's late filing. All of the filings in this case were made pursuant to a Case Management Order, which clearly sets forth the timetable for opposition and reply briefs. Texas Eastern filed its statement and response well within the allowable time. For these reasons, I will consider both the TRSOF and the TSOF in the disposition of these motions.[15]
The second issue raised by the Carriers in their reply brief is the sufficiency of the record evidence upon which Texas Eastern relies to "dispute" many of the Carriers' factual assertions. Having reviewed Texas Eastern's responses, I conclude that the Carriers have raised numerous meritorious objections. Because many of the factual assertions are immaterial to my decision on the pending motions, I will not restate each of these objections in detail.
In the factual section which follows, I have set forth what I conclude to be the "undisputed" facts. These facts will be relied upon in deciding the cross-motions for summary judgment. Many of the facts have been admitted by Texas Eastern or by the Carriers. Some of the facts, however, have been disputed by the parties, but after a thorough investigation of the record evidence, the disputes have been found not to be "genuine." The facts below reflect many of the Carriers' above-mentioned objections. In many instances, but not all, I will discuss the reasons for my conclusion that no genuine dispute exists.
B. Factual Background[16]
1. Texas Eastern's Corporate History
Texas Eastern was incorporated in Delaware on January 30, 1947. In that year, it *1310 acquired the War Emergency Pipeline from the United States Government and converted it from liquid service to a natural gas pipeline system. (TRSOF ¶ 1.)
The Texas Eastern Corporation was incorporated in Delaware in 1976. It was incorporated as the parent holding company of Texas Eastern and other subsidiaries. In 1989, the Texas Eastern Corporation was acquired by Panhandle Eastern Corporation. The real party in interest in this litigation is Texas Eastern, not its parent holding company or any of the unidentified subsidiaries, and I will refer solely to Texas Eastern in this opinion.
By 1987, Texas Eastern operated a natural gas transmission network which included as its primary operation a pipeline approximately 9,500 miles in length from supply areas in Texas, Louisiana, and the Gulf of Mexico to the New York Metropolitan area.[17] (TRSOF ¶ 5.) Approximately 65 stations at various locations along the pipeline system used turbine-driven centrifugal compressors to increase the pressure of the natural gas being transmitted. (TRSOF ¶ 2.)
2. Texas Eastern's Operational History
In late 1957 or early 1958, Texas Eastern identified a problem with the lubricating oil used at its centrifugal compressor stations. It was suspected that the extreme heat of the turbines caused the oil to ignite; the ignitions caused a number of dangerous fires. (TSOF ¶¶ 4, 5.) In response to the fires, Texas Eastern conducted an extensive study of commercially available fire-resistant lubricants and, in 1958, selected Monsanto Chemical Corporation's (Monsanto) OS-81[18] as a replacement. (TRSOF ¶¶ 6, 8.) The lubricant (apparently almost all PCB) had PCB concentrations of approximately 88%-90%. (TRSOF ¶ 13.)
Texas Eastern immediately began installing the new lubricant in some of its turbine-driven centrifugal compressors. (TRSOF ¶¶ 17, 18.) By 1970, Texas Eastern had installed the lubricant in 24 compressor units, at 19 compressor stations, located in approximately 8 or 9 states. (TRSOF ¶ 19.)
Texas Eastern used the Monsanto lubricant in its centrifugal compressors as both a lubricant and a seal oil. (TRSOF ¶ 31.) As a seal oil, the lubricant provided a pressurized seal against the natural gas compressed inside the compressor cases, which prevented the natural gas from escaping into the atmosphere. (TRSOF ¶ 32.) The centrifugal compressors were designed as "closed systems" and should therefore have operated without a noticeable leakage of oil. (TRSOF ¶ 35; TSOF ¶¶ 31-33.) Texas Eastern was aware, however, that the lubricating oil was "used" or "consumed" by the compressors, thereby requiring a routine replacement of the oil. (TRSOF ¶¶ 37, 38.) Texas Eastern prepared and maintained a "Compressor Department Annual Report" which detailed the amount of lubricant consumption at each compressor station. (TRSOF ¶ 37.)[19]
*1311 The parties vigorously dispute the reason for the large consumption of the lubricant oil. Texas Eastern contends that many senior employees believed that most of the lost lubricant was simply vaporized by the extreme heat of the turbine-driven centrifugal compressors, in the same way that oil is consumed in an automobile. (TSOF ¶ 31.) The Carriers concede that some of Texas Eastern's employees may have believed that lubricant was being consumed in this manner. However, the Carriers have produced evidence which establishes that key Texas Eastern personnel were aware that the compressor system was designed in a manner that all but guaranteed that some lubricant would leak out of the compressors, come into contact with the natural gas, and enter into the pipeline.[20]
For example, Texas Eastern's Superintendent of Compressor Stations, E.C. Riall, testified that he was aware, at the time he was working for Texas Eastern, that the passage of some amount of lubricant into the compressor case was "an inherent design of centrifugal compressors." (Dep. of Eugene Riall, App. 56 at 186). See also App. 14 at 358-59 (deposition testimony of Texas Eastern's Assistant Chief Engineer, Conrad W. Marvin, stating that Texas Eastern understood that the seal oil leaked as early as 1949).
There were occasional accidents and malfunctions involving the compressor unit systems, which explains how some of the lubricant was lost; the vaporizing of lubricant provides a second potential explanation. These explanations are insufficient, however, to explain the disappearance of the majority of the used lubricant, and Texas Eastern has offered insufficient evidence to refute the testimony of its own employees. Those Texas Eastern employees who testified that they understood that the seal oil system was not working perfectly and that a significant amount of lubricant was thereby lost, must therefore be believed.[21]
Texas Eastern's contention that the compressor seal systems were designed as "closed systems" with no leakage or "consumption" of lubricant oil is immaterial because there is no credible evidence which tends to establish that all Texas Eastern employees were working under this assumption or, more importantly, that this assumption was correct. Texas Eastern's reliance on the fact that its senior management was unaware of the extent of the seal oil failures, and the amount of oil which leaked into the pipeline, is equally unavailing. Texas Eastern's managers, charged with running the individual compressor stations, knew that lubricant oil was escaping down the pipeline and Texas Eastern is therefore charged with that knowledge. Texas Eastern cannot hide behind its senior management's ignorance of the basic aspects of its compressor stations' daily operations. For all of these reasons, there is no material dispute that Texas Eastern was aware, for many years, that some of the lubricant oil was escaping from the turbine-compressors and entering the natural gas pipeline.
The centrifugal compressors operating on Texas Eastern's natural gas pipeline were routinely started-up and shut-down during the course of normal pipeline operation. (TRSOF ¶ 48.) During start-up, the compressor was purged of air and pressurized, and natural gas present in the compressor case was vented to the atmosphere through the compressor vent stacks. (TRSOF ¶ 49.) During shut-down, the compressor case was depressurized and the natural gas within the compressor case was again vented to the atmosphere. (TRSOF ¶ 50.)
During start-up, any lubricant present in the compressor case was vented into the environment from the compressor vent *1312 stacks along with the air and natural gas. During shut-down, any lubricant present in the compressor case was similarly vented along with the natural gas. Although the parties disagree as to whether Texas Eastern was aware at the times relevant to this litigation that lubricant was being vented and lost into the environment in this manner, they do agree that at least some of Texas Eastern's operational employees understood that lubricant was sometimes being vented into the air (and settling on the ground) along with the natural gas. (TRSOF ¶ 54.)
Pipeline liquids, consisting of hydrocarbon distillates[22] and water, routinely entered Texas Eastern's natural gas pipeline. (TRSOF ¶ 57.) The lubricant that escaped from the compressor cases and entered the pipeline mixed with those fluids already present in the pipeline. From the time it began operations in 1947, Texas Eastern used its compressor stations as sites for the collection, removal, storage, and disposal of those pipeline liquids.[23] (TRSOF ¶ 56.) Texas Eastern primarily used two methods for the removal of pipeline liquids: gas/liquid separation equipment (scrubbers and strainers) and cylindrical devices known as "scrapers" or "pigs."[24] (TRSOF ¶ 63.)
The liquids accumulated by scrubbers, strainers, scrapers, and pigs were routinely[25] discharged into unlined earthen pits at the compressor stations.[26] (TRSOF ¶¶ 71, 77; TSOF ¶ 74.) The PCB-based lubricant, carried along in the pipeline liquids, was thereby discharged into the unlined earthen pits. (TRSOF ¶ 73.)
Texas Eastern used its pits to collect, contain, and prevent the escape of pipeline liquids to other areas including neighboring third-party property. (TSOF ¶ 74.) The pipeline liquids were generally burned, but in some cases were hauled away, or were applied by Texas Eastern employees to kill weeds or control dust on dirt roads.[27] (TSOF ¶ 75; TRSOF ¶¶ 84-86, 101, 106.) Texas Eastern personnel understood that some of the liquids were absorbed into the ground, but it is disputed whether this was an intended method of disposal or simply a fact about which Texas Eastern was aware. (See App. 113 at XXXXXXXXX; App. 118 at XXXXXXXXX; App. 119 at XXXXXXXXX All three Effluent Discharge Survey reports indicating that absorption of pipeline liquids was known to occur.)
The pits proved to be imperfect containment vessels, however, and during the period between 1958 and 1976, Texas Eastern was aware of instances where pipeline liquids escaped from the pits and migrated onto other *1313 areas of Texas Eastern's property or the property owned by neighboring third parties. (SOF ¶¶ 114-152; TSOF ¶¶ 52-62.) In 1973, Texas Eastern voluntarily conducted an "Effluent Discharge Survey" of all compressor station facilities. (TRSOF ¶ 132.) The purpose of the study was to identify potential problem areas by soliciting information from each compressor station location that had, or may have had, effluent discharges, particularly those that may have had liquids drain off Texas Eastern's own property. (TRSOF ¶ 133.)
The survey results indicated that some of the lubricant used in the compressors was migrating from Texas Eastern's property to the property of third parties. (TRSOF ¶¶ 135, 137, 143-45.) These instances were considered isolated occurrences and were generally remedied once Texas Eastern was made aware of their existence. The survey also establishes that Texas Eastern was fully aware of both potential and actual occurrences of off-site migration of pipeline liquids, and once Texas Eastern understood that the pipeline liquids contained PCBs, Texas Eastern should have been aware of the potential for off-site PCB migration.
Although Texas Eastern personnel were warned of the potential for overflow from the pits due to rainfall, and were instructed to guard against it, Texas Eastern was aware that overflows occasionally occurred. (TRSOF ¶ 147.) Texas Eastern was also aware of the potential for movement of the pipeline liquids from the compressor stations to other property from various sources, including the earthen pits and the pig receivers. (TRSOF ¶ 151.) In 1975, Texas Eastern drafted a "Water Pollution Prevention and Control Plan" for the purpose of controlling this undesirable spread of pipeline liquids. (TRSOF ¶¶ 150-51, 231-32.)
3. Texas Eastern's Knowledge of PCBs in its Lubricant
In February 1970, Monsanto sent correspondence to its customers alerting them to an increasing concern over the adverse environmental impact of Monsanto's PCB-containing products and Monsanto's intention to reformulate those products. (SOF ¶ 183.) Monsanto recommended that PCBs no longer be used in applications which would lead either directly or indirectly to the contamination of food and water supplies for humans or animals. (TRSOF ¶ 184; TSOF ¶ 12.) Following its own advice, Monsanto terminated its sale of certain products containing PCBs to certain of its customers.
After informing its customers of the decision to terminate the sale of certain products, however, Monsanto published a promotional booklet about Turbinol-153, stating that it had a history of safe use as both a lubricant and control fluid in commercial pipeline gas turbines. (TSOF ¶ 14; App. 27 at 2.) Texas Eastern was aware of this booklet. (TSOF ¶ 14.) On January 7, 1972, however, Monsanto proposed that Texas Eastern sign a hold harmless agreement promising to indemnify Monsanto for any future liability arising out of the sale of Turbinol-153 after January 15, 1972. (TRSOF ¶ 187; App. 186.) Monsanto further informed Texas Eastern that because Turbinol contained "major amounts" of certain polychlorinated biphenyl products (PCBs), it would no longer sell any Turbinol to Texas Eastern after June 30, 1972. (TRSOF ¶ 189; App. 186.)
Texas Eastern elected not to sign the hold harmless agreement, but it did attempt to purchase Monsanto's remaining stock of lubricant oil available for sale before the January 15, 1972 deadline. (App. 190.) Monsanto apparently refused to sell Texas Eastern any more PCB-based lubricant. (Id.) In May 1972, Texas Eastern began a program referred to as the "phase-out" or "change-out" program to replace the PCB-based lubricant with non-PCB-based oil. (TRSOF ¶ 199.)
4. The Change-Out Program
Because Turbinol-153 and the replacement oil were compatible, the change-out program did not necessarily require Texas Eastern to flush the turbine driven compressors of the PCB-based lubricant and replace it with non-PCB-based oil. (App. 194 at 3.) Complete flushing was advisable from an ecological standpoint, however, presumably because anything less would have resulted in Texas Eastern's continued use of a lubricant containing *1314 PCBs. On April 12, 1972, Texas Eastern chose the replacement for Monsanto's Turbinol-153. (App. 214 at 2.) In May 1972, Texas Eastern began installation of the replacement lubricant. (Id.)[28]
The speed with which Texas Eastern conducted its change-out program is a subject of dispute between the parties. The Carriers contend that the speed depended upon the rate of consumption of the PCB-based oil in the turbine compressor units. (SOF ¶ 203.) Texas Eastern responds that it intended to convert its compressors to non-PCB-based lubricants as quickly as possible, but that it was restrained by the technical difficulty of the change-out and the difficulty of finding an appropriate replacement lubricant. (TSOF ¶¶ 21-26.)
Ultimately, the rate at which Texas Eastern completed the change-out probably depended on all of these factors. There can be no dispute, however, that Texas Eastern was, at least initially, concerned with utilizing as much of its remaining inventory of Turbinol-153 as it could. (Dep. of Walter Woods, App. 42 at 754-59; App. 195 at XXXXXXXXX.) To achieve this end, Texas Eastern made its change-out decisions based, at least in part, on the lubricant consumption rates of various compressor stations choosing to change those compressor stations with higher consumption rates last. (App. 203; Dep. of Eugene Riall, App. 56 at 109-12; App. 200.)
As early as August 1972, Texas Eastern was aware of evidence indicating that a break-down product of the Monsanto Oil was in the compressor units and the pipeline, contaminating the non-PCB-based replacement lubricant. (App. 213.) In July 1976, Texas Eastern's testing confirmed that some of the replacement lubricant was contaminated with PCBs. (TRSOF ¶ 223.) In the same year, one Texas Eastern employee wrote a memorandum in which he indicated that he understood that using the PCB lubricant meant that the oil was being spread throughout the entire pipeline system. (App. 211.) This evidence indicates that Texas Eastern was on notice, during this time period, that the change-out program had not completely solved its PCB lubricant problems.
Throughout the change-out program, Texas Eastern continued to dump pipeline liquids into the unlined earthen pits at its compressor stations. Texas Eastern was aware that the amount of liquids accumulating in its pits was increasing and raised some concerns as to whether the pits were adequate containment vessels. (App. 221.) One explanation for this increase is that Texas Eastern's management discouraged burning in the disposal pits as early as 1972, (App. 220 at XXXXXXXXX), and implemented a formal "no burn" policy in 1975. (App. 221; TRSOF ¶ 235.) This required Texas Eastern to rely more heavily on evaporation and siphoning to reduce the amount of liquid in the pits. (App. 221)
By July 11, 1975, Texas Eastern's Operating Department abandoned the policy of disposing pipeline liquids into the unlined pits in order to comply with environmental regulations being established by the various states in which Texas Eastern operated. (App. 223.) Subsequently, Texas Eastern commenced a program to install diffuser tanks at the compressor stations to replace the unlined earthen pits as the receptacles for the pipeline liquids. The replacement program was substantially completed by 1985. (TRSOF ¶ 237.) After a pit was replaced by a diffuser tank, the pit was backfilled by pushing in the surrounding berm with a bulldozer and grading the area to its natural contours. (App. 165 at 12.)
5. Tracking Environmental Legislation
In the early 1970s, PCBs became generally known as a potential hazard to human health and the environment. Not surprisingly, Congress and numerous state legislatures moved to regulate the uses of the toxic substance. Texas Eastern was aware of this legislative activity. (TRSOF ¶¶ 241-47.) Acting pursuant to the authority granted it by the Toxic *1315 Substances Control Act (TSCA),[29] EPA promulgated a final rule on May 31, 1979, which, inter alia, prohibited the use of PCBs in concentrations above 50 parts per million (ppm), except in totally enclosed systems. (App. 279, 44 Fed.Reg. 31544.) The rule, however, authorized the continued use of PCBs above the 50 ppm limit in natural gas pipeline compressors until May 1, 1980, in systems which were not totally enclosed. (App. 279, 44 Fed.Reg. 31551.)
In September 1978, Texas Eastern understood that it was impermissible to dispose of liquid mixtures of PCBs in excess of 500 ppm in landfills. (App. 236.) The only permissible disposal method was to incinerate the waste in an EPA approved incineration facility. (TRSOF ¶ 250; App. 236.) Employees at Texas Eastern were also aware of EPA requirements regarding PCB storage facilities. (TRSOF ¶ 254; App. 237.) With these rules in mind, Texas Eastern constructed and used storage buildings, at various compressor stations, to store drums containing the PCB-based lubricant. (TRSOF ¶ 255.) Due to the danger of storing large amounts of petroleum oil on its property, Texas Eastern advised its first-party property insurers, in December 1978, about the storage buildings, but did not give notice to its third-party liability carriers. (App. 242; App. 245; TRSOF ¶ 258.)
6. PCB Contamination in the Natural Gas Pipeline
In January 1981, Texas Eastern learned that PCBs were detected in a Long Island residential gas meter. (TRSOF ¶ 263.) A subsequent investigation by Texas Eastern, in a 36 location sampling program, conclusively revealed that Texas Eastern's pipeline liquids were contaminated with PCBs. (App. 276.) The Brooklyn Union Gas Company informed Texas Eastern that it would seek, from Texas Eastern, reimbursement of the costs incurred for cleaning up the PCB contamination, (App. 267), and Texas Eastern provided notice of these claims to Aegis, its excess liability carrier, (TApp. 148), but not to its other third-party liability insurance carriers. (TRSOF ¶ 266.)
As a result of Texas Eastern's testing and the discovery of PCBs in its pipeline liquids, Texas Eastern met with EPA officials, on March 27, 1981, to discuss Texas Eastern's remedial plans. (App. 277.) According to a Texas Eastern internal memorandum, Texas Eastern's Vice President of Operations, F.L. Cohagan, told EPA's John Seitz that Texas Eastern planned to test all of its pipeline liquids for PCBs before disposal, and that Texas Eastern would use accumulator tanks (instead of open pits) for collecting liquids at the compressor stations. (Id.) J. Clifton Williams, Texas Eastern's Director of Technical Services, testified at his deposition that Mr. Cohagan also explained to Mr. Seitz that the pits would continue to be used until all of the accumulator tanks had been installed. (Dep. of J. Clifton Williams, TApp. 7 at 644-48, 659-60.)
By letter dated May 27, 1981, EPA informed Texas Eastern that it was establishing a four-part program to reduce the risk from PCBs in gas pipeline systems: (1) to ensure the proper handling of PCBs removed from the pipeline, (2) to obtain information on ways to prevent further movement of PCBs into other systems, (3) to implement the best option identified in step two, and (4) to obtain information on the possible methods for removing any remaining PCBs from the system. (App. 282.) Subsequently, Texas Eastern sent its response to EPA's letter outlining its proposed plan for handling the PCB liquids in its pipeline. (App. 281.) Texas Eastern and EPA agreed upon a plan for the cleanup in late 1981 or early 1982. (TRSOF ¶ 284.)
7. PCB Cleanup
On July 23, 1982, EPA instituted an enforcement proceeding against Texas Eastern pursuant to the Toxic Substances Control Act alleging that Texas Eastern was using PCBs in violation of 15 U.S.C. § 2614(1) & 40 C.F.R. § 761.20(a). (App. 287.) The gravamen of the violation was Texas Eastern's continued use of compressor fluids containing PCB concentrations exceeding 50 ppm in its turbine driven compressors. (Id.) On August *1316 3, 1982, Texas Eastern entered into a Consent Order, Consent Agreement, and Compliance Schedule with EPA addressing the use of lubricant contaminated with PCBs in its pipeline system. (App. 288; App. 289; App. 290.) Texas Eastern did not provide notice of these activities to its third-party liability carriers.
The agreements, both formal and informal, entered into by Texas Eastern and EPA did not cover the remediation of the unlined earthen pits. Texas Eastern does not dispute the fact that at some of its compressor stations, Texas Eastern continued to use the pits to "dispose," or at a minimum, to "temporarily store," (TSOF ¶ 86), pipeline liquids known by Texas Eastern to be contaminated with residual PCBs. In fact, Texas Eastern admits that it was necessary to continue using the pits until appropriate accumulator tanks could be installed at all of the compressor station sites known to contain contaminated lubricant, pipeline liquids, or both. (Dep. of J. Clifton Williams, TApp. 7 at 644-48, 659-60.)
For example, as of August 27, 1982, Texas Eastern's St. Francisville, Louisiana station received pipeline liquids into its pits containing PCBs in a concentration ranging from 7 ppm to 2700 ppm. (App. 293.) In addition, sampling in pits on its Transwestern Pipeline System (a wholly owned subsidiary of Texas Eastern) in Corona, New Mexico made Texas Eastern aware that PCBs were present at those sites and had migrated into the soil from an unlined earthen pit. (TRSOF ¶ 298.) Although Texas Eastern contends that it was not aware of any off-site migration of the PCBs, the estimated cost of "decontamination" at the Corona compressor station alone was in excess of $500,000. (App. 298.) After Texas Eastern attempted to remediate the Corona site in 1983, it was apparent to Texas Eastern employees responsible for the remediation attempt that the PCBs had migrated from the lubricant into the sides and bottom of the disposal pit. (TRSOF ¶ 298.)
As Texas Eastern gradually stopped discharging pipeline liquids into its pits, it routinely backfilled them with earthen fill. (App. 165 at 12.) At Texas Eastern's St. Francisville, Louisiana; Union Church, Mississippi; and Clinton, Mississippi stations Texas Eastern closed the pits by (1) skimming the oil off the surface of the pipeline liquids and carting it away for incineration, (2) draining the water out of the pit and filtering it for low level PCB contamination, (3) solidifying PCB sludge by mixing it with fly-ash, and (4) installing a plastic cover to prevent any percolation through the solidified mass. (App. 305.) The pits were then marked so that they could be easily located at a later date. (App. 2 at 88-89.)
On November 29, 1984, EPA Region 9 issued a civil administrative complaint against the Transwestern Pipeline Company (Transwestern) for improperly marking, storing, and disposing of PCB-laden waste oils into unlined earthen pits in Arizona. (App. 307.) At this time, Texas Eastern was completing, or had completed, the sale of Transwestern to Houston Natural Gas (HNG). (Dep. of Bolivar Andrews, App. 309 at 159-61.) In April 1985, Transwestern entered into a Consent Agreement and Final Order with EPA. (App. 306.) Around this time, Texas Eastern entered into an agreement with HNG to amend the contract of sale so that Texas Eastern would bear some financial responsibility for the costs of remediating PCBs from pits in the Transwestern System. (App. 311.) Texas Eastern did not provide notice of this agreement to its third-party liability carriers.
As a result of the Transwestern Complaint, Texas Eastern undertook a survey of its pit use along its entire pipeline system. (TRSOF ¶ 312.) In August 1985, EPA issued a Notice of Non-Compliance to Texas Eastern's Delmont, Pennsylvania compressor station for violations of TSCA regulations concerning the marking, storage, disposal, and record keeping of PCBs. (App. 317.) A subsequent meeting was held with EPA on August 29, 1985, and Texas Eastern advised EPA that it was preparing to close the earthen pits formerly used to contain PCB-laden pipeline liquids at stations where the pits had been replaced by liquid separators and/or accumulator bottles. (App. 319.) EPA advised Texas Eastern that it should submit information regarding the location, site, predominant usage, current status, and closure *1317 date of some of the pits. (TRSOF ¶ 320.) Presumably, Texas Eastern then understood that it could no longer use the pits to hold, even temporarily, any pipeline liquids containing more than 50 ppm of PCBs.
Texas Eastern admits that it realized, by late 1985, that it would have to formulate a remediation plan for the unlined earthen pits something it had previously believed to be unnecessary. (Dep. of Howard Homeyer, App. 315 at 134.) To facilitate the creation of the plan, Texas Eastern hired Roy F. Weston, Inc. (Weston), a national environmental consulting firm, to determine the nature and extent of the PCB contamination around the pits. (App. 323.) Simultaneously, Henry H. King, President of Texas Eastern, consulted with Steve Mulliken, Director of Texas Eastern's Risk Management Department, regarding the possibility of insurance coverage for the earthen pit remediation. Mr. King reached the initial conclusion that CGL insurance policies would not cover the estimated 40 to 50 million dollars that the remediation program would cost. (TRSOF ¶ 325; App. 324; Dep. of Henry King, App. 318 at 121-22.)
In November 1985, Texas Eastern employees met with employees of Weston to discuss Weston's work schedule. (TRSOF ¶ 333.) At this time in late 1985, the manager of Texas Eastern's Environmental Protection Department, Robert Salzer, understood that many of the pits and landfills at the compressor stations were not in compliance with federal regulations regarding the storage and disposal of PCBs. (Dep. of Robert Salzer, App. 105 at 49-50, 453-63.)
8. The Results of Weston's Survey
In January 1986, Weston and Texas Eastern held a progress meeting to discuss the results of Weston's initial sampling of six compressor station sites.[30] (App. 340.) On February 18, 1986, Weston provided Texas Eastern with a draft report entitled "Compressor Station Disposal Pit Investigation." (App. 341.) This report included the results of Weston's initial six-site survey. (Id.) Weston concluded that
[b]orings drilled adjacent to but outside of the pit perimeters indicated very low to no PCB content, and, thus, minimal migration of PCBs from the pits. However, the PCB presence in the drainage swales and surface water bodies indicates that the potential for off-site migration exists.
(App. 341 at XXXXXXXXX.) The report did not, however, conclusively find evidence of off-site migration although reasonable minds might differ about this characterization of the report. (Dep. of Bradford Cushing, TApp. 106 at 294, 374-75, 539, 670-71.)
In the months following the delivery of Weston's initial report, Texas Eastern's senior management received a number of general briefings concerning the PCB "situation." Examples include (1) a February 27, 1986 Board of Directors meeting at the Ocean Reef Club in Key Largo, Florida, (App. 343), (2) a February 28, 1986 Public Policy Committee meeting, (Dep. of Fred Wichlep, App. 344 at 213-18), and (3) a March 5, 1986 meeting of the Executive Committee of the Board of Directors, (App. 345). In late April 1986, Texas Eastern's senior management was briefed about the estimated cost and duration of a pit remediation effort. (App. 347; App. 348.)
On April 1, 1986, EPA requested additional information from Texas Eastern regarding its use of earthen pits located at various compressor stations. (TRSOF ¶ 345.) Texas Eastern responded on April 25, 1986, and provided EPA with a final version of Weston's pilot program report (six-site survey) dated April 21, 1986. (TRSOF ¶ 348.) In Texas Eastern's April 25, 1986 letter to EPA, it admitted that it had used the earthen pits for the collection of pipeline liquids at certain compressor stations until the fall of 1985. (TRSOF ¶ 349.)
Texas Eastern subsequently met with EPA officials on April 30, 1986, to discuss the status of Weston's pit investigation, and to discuss a draft "action plan" prepared by Texas Eastern for the remediation of the *1318 compressor station sites. (TRSOF ¶ 350.) Texas Eastern represented to EPA officials that it would continue its efforts to identify and control PCBs found at the Texas Eastern sites which may have been exposed to PCBs. (App. 350.) Texas Eastern also expressed a desire to reach an agreement on a remediation plan, possibly in the form of a consent decree, (App. 76), and criteria for determining how clean the Texas Eastern sites would have to be after remediation was completed. (App. 350; App. 351.)
EPA officials, specifically Michael Wood, were clearly displeased with Texas Eastern's continued use of its earthen pits after 1981, the date Texas Eastern claims that it first learned its pipeline liquids were contaminated with PCBs. (App. 350; App. 353.) Texas Eastern explained that the logistics of replacing the earthen pits required a gradual phaseout, and made it nearly impossible to cease all use of the pits at that time. EPA indicated to Texas Eastern that some of the latter's activities, specifically the closing of the pits at its St. Francisville, Union Church, and Clinton compressor stations, by solidifying the PCB liquids with fly ash, (TRSOF ¶ 353), were almost certainly violations of TSCA.
In light of these discussions with EPA, Texas Eastern requested that Weston enlarge its study to include 54 additional compressor station sites (54-site survey). (TRSOF ¶ 354.) During the course of the 54-site survey, Weston communicated some of its findings regarding on-site contamination to some of Texas Eastern's employees, although the specifics of these conversations are not known. (App. 3 at No. 411.) In December 1986, Texas Eastern received a preliminary report of the results of Weston's 54-site survey. (App. 3 at No. 432.) Texas Eastern's attorney admitted at oral argument that the survey gave Texas Eastern reason to believe that off-site contamination had indeed occurred. (Tr. of Hr'g on Mot. for Summ. J., January 13, 1992 at 93-94.) A copy of this initial report was forwarded to EPA in December 1986. (App. 3 at No. 437.) Texas Eastern presented the final results from Weston's 54-site survey to EPA in March 1987. (TRSOF ¶ 391.)
In July 1986, Texas Eastern's Risk Management Department (which included its Insurance Department) was aware of the PCB presence in or on soil located at Texas Eastern's compressor station sites. (Dep. of Stephen Mulliken, App. 261 at 284-87.) At this time, Texas Eastern's Insurance Department requested that Querbes & Nelson, Texas Eastern's insurance brokers, compile a list of all CGL policies issued beginning in 1956. (Dep. of James Farley, App. 359 at 706.) The list was received by the Insurance Department at the end of July or early August 1986. (Id.) Texas Eastern received information regarding claim notification requirements under these policies on or about December 9, 1986. (TRSOF ¶¶ 381, 383.)
On November 5, 1986, Texas Eastern representatives met with representatives from EPA and the Department of Justice to discuss PCB contamination at the compressor station sites. At the conclusion of the meeting, all parties understood that a judicially enforceable agreement would have to be entered into concerning the pit remediation. (TRSOF ¶ 368.)
9. Texas Eastern's Problems Become Public Knowledge
On February 21, 1987, several newspaper accounts of Texas Eastern's problems and its discussions with EPA were published. (TRSOF ¶ 387.) Prior to this time, Texas Eastern had not given notice to its insurers that it had entered into negotiations with EPA concerning the PCBs. (SOF ¶ 388.) During meetings held in London, England, in February 1987, concerning the renewal of Texas Eastern's liability insurance, Texas Eastern advised the London Underwriters that it had a PCB problem and that it was not making a claim against the insurers at the time "because the occurrences being investigated by Weston had not yet given rise to suits or claims against Texas Eastern," (App. 4 at 39. See also Dep. of David Fenton, App. 135 at 76-82), and because Texas Eastern believed that no third parties were involved. (Dep. of Stephen Mulliken, TApp. 2 at 304.) Texas Eastern discussed similar issues with representatives of its other lower-level liability carriers in March 1987. (App. *1319 4 at 39.) On March 17, 1987, representatives of Texas Eastern testified before the United States Senate Subcommittee on Superfund and Environmental Oversight concerning the PCB contamination of its earthen pits. (TRSOF ¶ 397; App. 2 at 2.)
10. Texas Eastern's Negotiations with EPA
On April 14, 1987, Texas Eastern met with EPA representatives for the purpose of outlining the framework within which a Consent Decree would be negotiated covering the cleanup of Texas Eastern's compressor station sites. (App. 381.) On August 18, 1987, in a letter to David Batson, EPA's chief negotiator, Carol Dinkins, Texas Eastern's attorney, outlined certain proposals made by Texas Eastern on which Ms. Dinkins believed an agreement had been reached. (App. 382.) By the middle of October 1987, both Texas Eastern and EPA came to an "Agreement in Principle" which the parties formally executed in writing in November 1987.
Ultimately, EPA and Texas Eastern entered into a consent decree in an action entitled United States of America v. Texas Eastern Transmission Corp. in June 1988. (TRSOF ¶ 411; App. 385.) The Complaint and the Consent Decree were both filed the same day. Pursuant to the Consent Decree, Texas Eastern was obligated to clean up property which it had contaminated with PCBs. All of the property was either owned or operated by Texas Eastern, and none of the property was owned by third parties. (TRSOF ¶ 499.) The Consent Decree required continued monitoring of groundwater under Texas Eastern's land, but did not specifically require or provide for remediation of any groundwater. Although Texas Eastern did not admit liability, it did agree to pay a civil penalty in the amount of $15 million. (App. 385 at 11.) Texas Eastern also agreed to reimburse EPA for costs already expended up to $1.5 million. The estimated total cost of the cleanup is presently in excess of $750 million.
Additionally, in April 1987, Texas Eastern entered into a Consent Decree with the Pennsylvania Department of Environmental Resources (PaDER) wherein Texas Eastern agreed to test soil and groundwater for possible PCB contamination and to remediate any discovered contamination. (Consent Order, App. 227C.) Subsequently, Texas Eastern also agreed to pay a penalty of $5.3 million to settle other PaDER claims that Texas Eastern had violated provisions of the Solid Waste Management Act, (35 Pa.Stat. Ann. § 6018.101 et seq.), and the Clean Streams Law, (35 Pa.Stat.Ann. § 691.1 et seq.).
Several other states initiated administrative or judicial actions against Texas Eastern alleging violations of state environmental laws, including New Jersey, Mississippi, and Kentucky. (See TE's First Am. Compl. ¶¶ 53-56, 65-68, 90-94; App. 227H-I; App. 227J-K; App. 227M-O.) The New Jersey action has been partially resolved, requiring Texas Eastern to pay a civil penalty in the amount of $850,000; however, issues concerning Texas Eastern's potential remediation responsibilities remain outstanding. The Mississippi and Kentucky actions have apparently been resolved by consent decrees.
Finally, as many as thirteen private third-party suits were filed against Texas Eastern alleging property and personal injury damage resulting from the PCB contamination. Only two of these complaints (the Bondy and Atwood actions) are actually involved in the present litigation, because I have denied Texas Eastern's motion for leave to amend its complaint and add the additional eleven complaints filed after the commencement of this action. (See supra pp. 1302-1303.) Bondy v. Texas Eastern Transmission Corp., filed January 29, 1988, was terminated by summary judgment granted in favor of Texas Eastern. (TE's First Am. Compl. at ¶ 104.) Atwood v. Texas Eastern Transmission Corp., filed July 1, 1989, was terminated by a settlement between the parties.[31]
*1320 11. Texas Eastern's Notice to its CGL Carriers
Texas Eastern first gave formal notice of its negotiations with EPA, and of its "claim" under the various insurance policies, to its third-party liability carriers by letter dated August 19, 1987. (TRSOF ¶ 414.) After a December 9, 1987 meeting, in Houston, between Texas Eastern and the Carriers failed to resolve important questions concerning Texas Eastern's insurance claims, F & C filed suit against Texas Eastern, and as is recounted in the "Procedural History," this multidistrict litigation resulted. According to Texas Eastern, it has continued, at least up to January 1992, to provide the Carriers with copies of all relevant documents regarding the filing and settlement of claims arising out of the PCB contamination.
In sum, Texas Eastern now seeks a declaration that all of its costs incurred to comply with the EPA Consent Decree, the various state decrees and settlements, and the various private third-party actions are covered losses under the CGL insurance policies issued by the Carriers. The Carriers seek a declaration that they are not responsible for these costs. With the undisputed facts in mind, I will now address the issues, which in my view, are at the heart of this insurance coverage dispute.
IX. OCCURRENCE
The Carriers have moved for summary judgment on the issue of whether the PCB contamination constitutes an "occurrence" under any or all of Texas Eastern's insurance policies. The Carriers contend that Texas Eastern knew or should have known that it was polluting its own property and the property of third parties. Therefore, they argue, there was no "occurrence" pursuant to any of Texas Eastern's insurance policies because Texas Eastern "intentionally" caused all of the damage for which it is now seeking insurance coverage. Texas Eastern denies this allegation, and responds that since material factual disputes exist as to what Texas Eastern and its employees knew and intended, summary judgment is inappropriate on this issue. For the following reasons, I agree that factual disputes exist which prevent the granting of summary judgment on the "Occurrence" issue.
A. The Policy Language
The policies issued to Texas Eastern obligate the Carriers, in some cases, to indemnify the insured for, and in others, to pay on behalf of the insured
sums which the insured becomes legally obligated to pay as damages because of bodily injury, personal injury or damage to or destruction of property caused by an occurrence.
(Ins.' Mot. Summ. J. No Occurrence at 2) (emphasis original). The definition of an "occurrence" varies among the policies, but the Carriers admit that all of the policies provide coverage for an "accident," and none of the policies provide coverage for intentionally caused harmful acts.
B. Texas Law
It is a fundamental principle of insurance law that insurance contracts should provide coverage only when a loss is fortuitous. R.E. Keeton & A.I. Widiss, Insurance Law § 5.3(a), at 475 (1988). The principle of fortuity is typically reflected in a liability policy's requirement that the insured's loss arise from an "occurrence" or an "accident." Republic Nat'l Life Ins. Co. v. Heyward, 536 S.W.2d 549 (Tex.1976) and Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633 (Tex.1973) establish that Texas law is in accord with these general principles of insurance law. Under Texas law, harm which is the "natural and probable result" of intentional acts is not fortuitous and therefore is not covered by general liability insurance policies.
In Maupin, the insured removed some "borrow material" (sand and gravel) from the property of a third party under the mistaken belief that he had the property owners' permission to do so. The property's true owners *1321 subsequently sued the insured for trespassing on the property. The insurance carrier refused to defend the insured in the suit, contending that no covered occurrence had taken place because the suit alleged an intentional act (trespass) and the policies only provided coverage for "accidents" or "occurrences."[32]
The Maupin court concluded that the removal of the sand and gravel was neither an accident nor an occurrence because the damage to the property was the "natural result" of the insured's intentional acts: "`Where acts are voluntary and intentional and the injury is the natural result of the act, the result was not caused by accident even though that result may have been unexpected, unforeseen and unintended.'" Maupin, 500 S.W.2d at 635 (quoting Thomason v. United States Fidelity & Guar. Co., 248 F.2d 417, 419 (5th Cir.1957)). That the insured was unaware of the property's true owners had no bearing on whether the trespass was caused by "accident." The insured did what he intended to do when he removed the sand and gravel from the property. The only mistake (or accident) made by the insured concerned the property's true ownership and the court concluded that the insurance policies did not provide coverage for accidents of that type. Maupin, 500 S.W.2d at 635.
In Heyward, the Texas Supreme Court again addressed the meaning of "accident," this time in the context of an accidental death rider to a life insurance policy. The court held that
injuries are "accidental" and within the coverage of an insurance policy ... if, from the viewpoint of the insured, the injuries are not the natural and probable consequences of the action or occurrence which produced the injury; or in other words, if the injury could not reasonably be anticipated by [sic] insured, or would not ordinarily follow from the action or occurrence which caused the injury.
Heyward, 536 S.W.2d at 557. It is settled Texas law that injuries which are the "natural and probable consequences" of intentional acts are not fortuitous injuries covered by insurance.
Numerous lower Texas courts are in agreement. For example, in Baldwin v. Aetna Casualty & Sur. Co., 750 S.W.2d 919 (Tex.Ct.App.1988) (writ denied), the insured allegedly damaged state roads by intentionally causing its admittedly overweight trucks to be driven on Texas highways. Citing Maupin, the court held that there was no accidental occurrence under the insurance policies because the act of continually sending out the overweight trucks was intentional, although the insured did not necessarily intend to damage the road. Baldwin, 750 S.W.2d at 921.
In Southern Farm Bureau Casualty Ins. Co. v. Brock, 659 S.W.2d 165 (Tex.Ct.App. 1983) (writ refused n.r.e.), the insured intentionally rammed his truck into a second vehicle to prevent the second vehicle's driver from shooting at someone. The court held that the insured was not entitled to recover for damage sustained by his vehicle under an automobile collision insurance policy covering only "accidental" damage. Citing both Maupin and Heyward, the court reasoned that the damage was not "accidental" because the insured "knew or should have known that the resulting damage to his vehicle was a natural and probable consequence of his act." Brock, 659 S.W.2d at 166-67.
In addition to establishing the Texas courts' definition of "accident" and "occurrence," these cases clearly establish that Texas law determines an insured's intention "objectively" and not "subjectively." Texas courts have consistently framed the occurrence issue as "what the insured knew or should have known." See, e.g., Brock, 659 S.W.2d at 166-67; Sanders v. Prudential Ins. Co., 697 S.W.2d 80, 81-82 (Tex.Ct.App. 1985) (interpreting Heyward to establish a "reasonable anticipation standard," and not a purely subjective one); Chen v. Metropolitan Ins. & Annuity Co., 907 F.2d 566, 568 (5th *1322 Cir.1990).[33]
Texas Eastern contends that the objective test is merely a product of the judicial interpretation of specific language in the standard CGL insurance policy defining an occurrence as "an accident which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." It is Texas Eastern's position that courts have developed the objective test by interpreting the policy term "expected." See, e.g., New Castle County v. Hartford Accident & Indem. Co., 685 F. Supp. 1321, 1331 (D.Del. 1988). Texas Eastern urges that because the individual policies at issue in this case do not include the terms "unexpected" or "unintended," the test which should be applied in this case is a subjective one, requiring the Carriers to prove that Texas Eastern subjectively intended to cause the harm for which the Carriers refuse to provide coverage.[34]
Texas Eastern's contentions do not stand up under scrutiny. Texas Eastern has not offered any Texas precedent which links the inquiry into the insured's intentions to any particular policy language. In my view, the Texas appellate courts have developed an objective test because it flows naturally from the language in Heyward directing a court to inquire whether the injury could "reasonably be anticipated by the insured." Heyward, 536 S.W.2d at 557. The objective test is additionally beneficial because it avoids the difficult task of determining the actual subjective intent of a party. Texas Eastern has not provided any compelling reason to depart from what I believe is settled Texas law and I conclude that Texas Eastern's intent should be determined objectively.[35]
*1323 Under Texas law, there is no insurance coverage for harm which is the natural and probable consequence of an intentional act. The Carriers argue that the evidence of Texas Eastern's knowing and intentional pollution of its own property with pipeline liquids establishes undisputed material facts sufficient to grant summary judgment in their favor and against Texas Eastern on the issue of whether any covered "occurrence" happened.
C. The Applicable Facts
The application of the law to the undisputed facts would be a simple procedure if the parties agreed on the nature of the harm for which Texas Eastern actually seeks coverage. They do not. The Carriers contend that Texas Eastern is attempting to shift costs which it historically should have paid as normal operating expenses to properly store and dispose of its pipeline liquids. Texas Eastern characterizes the costs for which it seeks coverage as the result of the off-site migration of PCBs which Texas Eastern did not know were in the pipeline liquids and did not know had a tendency to migrate in soil or groundwater. The characterization of Texas Eastern's claim is therefore significant to, and in my view dispositive of, the "Occurrence" issue.
Texas Eastern's claim for coverage is predicated, at least in theory, solely on costs incurred to clean up actual damage to third-party property, and on costs incurred to prevent future damage to third-party property, caused by the past, present, and future migration of PCBs from Texas Eastern's property onto the property of third parties. Indeed, this is the only conceivable claim which would allow Texas Eastern to recover from its third-party liability carriers under any CGL policy. Both parties agree that Texas Eastern has no coverage under its third-party liability policies for damage to its own property which does not, at a minimum, create the possibility of future harm to third-party property. Therefore, for the purposes of this motion, I assume that Texas Eastern is making a claim only for cleanup costs related to actual or potential third-party harm.[36]
To prevail on its motion for summary judgment as to there being no "occurrence," the Carriers must establish, with undisputed material facts, that Texas Eastern intentionally polluted third-party property or acted in a manner which would naturally and probably lead to the off-site migration of PCBs. Based on the present record, the Carriers have not met their burden of proof.[37]
*1324 1. Knowledge that the Lubricant was Escaping into the Environment
The Carriers have produced evidence which establishes that Texas Eastern knew that the seals on its compressor station casings were less than perfect. Specifically, Texas Eastern was allegedly aware, beginning in 1958, that seal oil lubricant was escaping the compressors and entering the compressor case where it was exposed to the natural gas in the pipeline.
As I have previously discussed, Texas Eastern also understood that the passage of some amount of lubricant into the compressor case was an inherent design of centrifugal compressors. Texas Eastern's own internal documents establish that a large amount of lubricating oil was lost between 1958 and 1977. In the Carriers' view, the loss can only be adequately explained by oil escaping from the compressor and either traveling down the pipeline (and mingling with the other pipeline liquids, large amounts of which were later disposed of in open earthen pits) or being vented out of the compressor vent stacks with the natural gas during the start-up and shut-down of the compressors. Importantly, Texas Eastern does not deny that it was aware of the system's occasional failures, choosing instead to dispute only the extent to which senior management knew about the frequency and magnitude of the leaks.
In addition, the Carriers note, and Texas Eastern does not dispute, that Texas Eastern was concerned with the compatibility of the seal oil lubricant and epoxies used to coat the inside of the pipeline. The Carriers conclude that Texas Eastern must have known that at least some of the lubricant was getting into the pipeline. Texas Eastern has not adequately responded to this contention.
Texas Eastern does not present a significant amount of evidence to refute the Carriers' allegations. First, Texas Eastern argues that the compressor seal systems were supposed to be "closed systems" with no leakage or "consumption" of lubricant oil. It is clear, however, that numerous employees were working under the opposite assumption. More significantly, other than observing that it would be counterintuitive for a corporation to waste expensive seal oil, Texas Eastern has presented no evidence to establish that the "closed system" assumption was correct.
Second, Texas Eastern employee Walter Woods testified that significant seal oil consumption took place only during seal failure or malfunction. (Dep. of Walter Woods, TApp. 18 at 295-96.) However, Woods also testified that he realized, no later than 1974, that the compressors did leak seal oil into the cases making them one of the prime consumers of lubricant oil. (Dep. of Walter Woods, App. 670 at 5-6.) Rather than supporting Texas Eastern's argument, Mr. Woods's testimony establishes that at least one member of Texas Eastern's senior management understood that the seal oil did not work perfectly and that a substantial amount of oil was lost to the compressor cases.
In addition, Texas Eastern continues to rely on the fact that its senior management was unaware of the extent of the seal oil failures which occurred, and the amount of oil which ultimately entered into the pipeline. If Texas Eastern's managers, responsible for running the individual compressor stations, knew that the lubricant oil was escaping down the pipeline, then Texas Eastern will be charged with that knowledge. As I previously stated, Texas Eastern will not be allowed to hide behind the fact that its senior management did not know some of the basic aspects of its compressor stations' daily operation.
Texas Eastern also contends that most of the lubricant was vaporized by the heat of the turbine engines much like oil in a car engine. Texas Eastern has not, however, offered any evidence to show that the heat of the turbines could possibly be responsible for such a large amount of consumption.[38]
The Carriers contend that once the oil entered into the cases, there were only two paths which it could follow. It could be blown out the vent stacks with the natural gas or it could be discharged down the pipeline *1325 with the natural gas. Texas Eastern does not seriously contest this fact.[39] In fact, one of Texas Eastern's employees, J.C. Elmore, wrote in a February 6, 1976 memorandum to Paul Hughen, that Texas Eastern did not actually get rid of its lubricant oil by using it in its compressor stations, but rather distributed the oil throughout the pipeline.[40] (App. 211 at XXXXXXXXX; Dep. of James Elmore, App. 697 at 166-69.)
Having entered the pipeline, the Carriers contend that Texas Eastern knew or should have known that the lubricant oil intermingled with other pipeline liquids. Texas Eastern responds that it was unaware of PCBs in the pipeline liquids until 1981. The evidence Texas Eastern provides to support this position is the deposition testimony of Texas Eastern employees claiming that they did not know, until 1981, that the oil was mixed in with the other pipeline liquids. (See, e.g., Dep. of Earl Farmer, TApp. 25 at 233; Dep. of Dickran Tefankjian, TApp. 26 at 117-18; internal Texas Eastern memoranda, written after 1981, stating that Texas Eastern did not discover the pipeline liquid contamination until 1981, App. 286 at 1; App. 305 at 1; the Declaration of H. Douglas Church, TApp. 191 at ¶ 6; the testimony before a senate subcommittee of Howard Homeyer, President of Texas Eastern Gas Pipeline Co., that Texas Eastern was not informed of the pipeline liquid contamination until 1981, App. 2 at 17). This evidence does not refute the Carriers' evidence (SOF ¶¶ 43-47) that certain Texas Eastern managers were aware of the contamination.[41] Thus, Texas Eastern has not created a material dispute on the issue of whether Texas Eastern knew about the fate of the escaped lubricant oil.
Having established that the lubricant oil was knowingly intermingled with other pipeline liquids, the Carriers rely on Texas Eastern's admission that it discharged pipeline liquids into the unlined earthen pits from 1958 until 1984, and Texas Eastern's admission that the migration of PCBs began almost immediately after PCBs were placed in the pits, (see Hart Decl., Ex. 47 (Dep. of John Cherry); Ex. 48 at 215-18 (Dep. of Bradford Cushing)), to establish that Texas Eastern intentionally caused all of the harm for which it is now seeking insurance coverage. The Carriers also rely on the testimony of certain Texas Eastern employees who saw cloudy mists coming from the vent stacks indicating that liquid was being vented along with the natural gas, liquid which the Carriers contend was lubricant oil containing PCBs. (TSOF ¶ 120.)
*1326 Texas Eastern responds that it did not believe that the discharge of the liquids into the pits was considered a discharge into the environment. It offers evidence that from the viewpoint of its employees, the pits were considered containers which segregated the liquid from the rest of the environment, (TSOF ¶ 76), and destroyed the liquid either by burning, natural evaporation, or by carting the liquid away for permanent disposal. The Carriers challenge Texas Eastern's characterization of the pits as containers, and contend that Texas Eastern understates its knowledge of the pits' shortcomings as containment vessels.
Concerning the viability of using the disposal pits as containment vessels, the Carriers point to significant amounts of evidence establishing that Texas Eastern was aware that the various compressor station sites had a history of discharging liquids from the pits, which occasionally made their way off-site. First, Texas Eastern's Effluent Discharge Survey indicates that only 8 of the 35 compressor station locations burned pipeline liquids in 1973. (App. 118; App. 119.)[42] Thus, not all of the liquids were burned in the pits, as Texas Eastern has suggested. Next, the Carriers point to the same Effluent Discharge Survey to establish that some of the compressor stations reported that pipeline liquids were being absorbed into the ground, thus refuting Texas Eastern's contention that many of the pit sites had been backfilled and were therefore presumed to be safe containers, much like landfill sites. (Id.) Finally, the Carriers rely on evidence that over a twenty-five year period of time, Texas Eastern was presented with complaints from neighboring property owners alleging that pipeline liquids from the pits had overflowed onto their property. (SOF ¶¶ 114, 125, 130; Dep. of Roy Wolfe, App. 60 at 340; App. 137.)
Concerning the mists that were seen during the venting of natural gas from the compressor casings, Texas Eastern offers the testimony of a number of employees who claim that they believed the mist to be water or pipeline liquids and not any of the lubricating oil. (TSOF ¶ 120.) Texas Eastern also relies on the Declaration of H. Douglas Church as evidence that Texas Eastern did not realize until 1987 that it had regularly vented lubricant oil (containing PCBs) in the regular course of business. (Church Decl., TApp. 191 at ¶ 8.) Finally, Texas Eastern contends that even if its employees knew that it was oil, the employees only saw the mist land on Texas Eastern's property and not on the property of third parties. (TSOF ¶ 120.)
Although it is Texas Eastern's position that it never intended to vent lubricant oil along with natural gas during start-up and shut-down of the compressors, various Texas Eastern employees testified that the venting included numerous instances of misty discharges. (TSOF ¶ 120; Dep. of Eugene Riall, App. 56 at 183-86; Dep. of Walter Woods, App. 670 at 812-14; Dep. of A.B. Jarnagin, App. 658 at 208-09.) Texas Eastern has not created a material dispute that it did not know that lubricant oil was vented along with the natural gas. It is still an issue of dispute, however, as to whether any of the vented oil reasonably should have been expected to migrate onto the property of third parties.
The Carriers respond that even if Texas Eastern is correct about the "containment" function of its pits and its lack of knowledge of the oil content of the mists, Texas Eastern does not adequately address the alternate ways in which the PCBs could and did reach the environment. The Carriers point out that there are drains in the basements of each of the compressor stations which directed leaked lubricant into the environment. (Dep. of Robert Salzer, App. 105 at 248-50.) Texas Eastern has not responded with any evidence to challenge this assertion, except the conclusory statement that Texas Eastern employees did not consider Texas Eastern property to be part of the "general" environment. Texas Eastern's argument is spurious. I conclude, as a matter of law, that Texas Eastern's property is part of the "environment."[43]*1327 Even if Texas Eastern's belief was reasonable at the time, it would not provide Texas Eastern with a valid defense because, under Texas law, its CGL policies would not provide insurance coverage for mistakes of this type. See Maupin, 500 S.W.2d at 635. All of this does not, however, establish that Texas Eastern understood that the PCBs were migrating off its property and onto third-party property.
After considering all of this evidence, I conclude that the Carriers have established, as a matter of law, that Texas Eastern was aware that liquids were escaping from the pits and contaminating the environment, which included both Texas Eastern's property and the property owned by third parties. This does not, however, conclusively establish that Texas Eastern understood that the pipeline liquids contained PCBs.
2. Knowledge that the Lubricant Contained PCBs
Texas Eastern contends that it was unaware that the seal oil lubricant used in its compressor stations contained PCBs until 1972, at which time Monsanto informed Texas Eastern of this fact. The Carriers have produced very little evidence to refute Texas Eastern's claim and certainly not enough to grant summary judgment on the ground that Texas Eastern knew prior to 1972 that PCBs were escaping from its own property and migrating onto third-party property.
The Carriers rely on the deposition testimony of Earl Farmer, a Texas Eastern employee, who testified that in 1958 he was aware that the composition of some lubricant manufactured by Monsanto, which he believed to be OS-81, was a "chlorinated polyphenyl in a phosphate ester mix." (Dep. of Earl Farmer, App. 19 at 90.) This testimony does not, however, conclusively establish that he knew that the oil Texas Eastern used contained PCBs, or even that any other Texas Eastern official knew or had reason to know that the lubricant manufactured by Monsanto, for use by Texas Eastern, contained PCBs.[44]
The Carriers observe that Texas Eastern employee Walter Woods became aware between 1968 and 1972 that there was growing public concern over PCBs in the environment. Once again, this does not refute Texas Eastern's claim that it was not aware of the lubricant's PCB content until 1972. The Carriers also claim that there is some evidence that Walter Woods was looking to replace Turbinol-153 before Monsanto informed Texas Eastern of its decision to discontinue sales of the lubricant oil. The document which the Carriers rely on is a letter written by Woods dated January 7, 1972.[45] (App. 184.) In the Carriers' view, Woods recommended that Texas Eastern pursue the approval of a particular lubricant as a replacement for the Turbinol-153 because he was aware that Turbinol was a polychlorinated biphenyl based product. (Id.) Although this is some evidence from which a fact finder might infer that Texas Eastern knew about the PCBs in the oil earlier than the 1972 Monsanto decision to discontinue the *1328 sale of Turbinol-153, it does not conclusively establish that Texas Eastern knew about the PCBs, and it does not identify the specific time between 1958 and 1972 when Texas Eastern allegedly acquired this knowledge.[46]
As a consequence of the Carriers' inability to establish that Texas Eastern knew that PCBs were in the lubricant prior to 1972, Texas Eastern's coverage cannot, at least as a matter of law, be invalidated before the January 7, 1972 date, on the basis that there was no "occurrence."[47]
D. The Alternative Theory of an Occurrence
Recognizing the difficulty of their task, the Carriers have advanced an alternative theory: Texas Eastern intentionally released pipeline liquids into unlined earthen pits, thereby knowingly polluting the environment with hydrocarbons.[48] Thus, even if Texas Eastern was unaware of the PCBs in the pipeline liquids, it knew that the liquids themselves were environmental pollutants if they migrated off Texas Eastern's property. In the Carriers' view, it is settled Texas law that once an insured intentionally causes harm of any kind (presumably this includes property damage to first or third-party property, personal injury, and bodily injury), all resulting damage is not covered by insurance, because the damage is not fortuitous, regardless of the ultimate scope and magnitude of the harm.
I do not read the Texas cases to require this result. In National Life and Accident *1329 Ins. Co. v. Knapp, 430 S.W.2d 84 (Tex.Civ. App.1968) (writ refused n.r.e.), the court decided that the intent to shoot an intruder in the leg, which ultimately resulted in the intruder's death, invalidated the shooter's insurance coverage because "[t]he insurer is not required to show that the actor had the specific intention to inflict the particular character of injury that flowed from the act." Id. at 90. In other words, the court found that the death of the intruder was an injury of a different magnitude than the result originally intended (mere injury), but was still sufficiently related to the intended harm as to be considered part of the natural and probable consequences of the original act.
In Carpenter Plastering Co. v. Puritan Ins. Co., No. 3-87-2435-R, 1988 WL 156829 (N.D.Tex. August 23, 1988), the insured was aware of minor cracking and water damage due to defective asbestos wall panels, but the damage was later discovered to be much more extensive. The court reasoned that if the insured was aware of the problem, although unaware of the problem's full extent, it would be difficult to consider the accident "`unexpected.'" Carpenter Plastering, 1988 WL 156829, at *5. Once again the court was confronted with a situation where the ultimate harm was reasonably related to the expected harm.
These cases are considerably different from the situation alleged to have existed at Texas Eastern. This is not an example of damage which is merely more extensive or of a different magnitude. PCB damage is ordinarily of a completely different character and caused by a different instrumentality than hydrocarbon damage and is therefore unrelated to any hydrocarbon damage which Texas Eastern might have intentionally caused. Indeed, if Texas Eastern reasonably believed that PCBs did not migrate (although all parties agree that the PCBs did migrate), then it might be entitled to insurance coverage for at least some part of the ultimate cleanup costs, absent some other reason to invalidate coverage.
I reach the same result on the Carriers' loss in progress argument. The loss in progress principle is intended to invalidate coverage for a loss which the insured understood was ongoing and for which it bought insurance coverage while only the extent of the loss was unknown. See Carpenter Plastering, 1988 WL 156829, at *5; Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d 56, 63 (3d Cir.1982); Summers v. Harris, 573 F.2d 869, 872 (5th Cir.1978).
I have previously concluded that Texas Eastern knew that it was causing some property damage by releasing hydrocarbon liquids into the environment (including damage to third-party property) and that Texas Eastern knew it was releasing PCBs onto its own property. I have not concluded, however, that, as a matter of law, Texas Eastern knew or should have known that the natural and probable result of this activity was the release of PCBs onto third-party property.
If the loss for which Texas Eastern requested coverage was the damage to its own property, or even the damage to third-party property caused by the hydrocarbon liquids, the loss in progress principle would probably apply. However, since it is the damage caused by the PCB migration for which Texas Eastern seeks coverage, the loss in progress principle is inapplicable for the purposes of this motion.
The Carriers have failed to establish by undisputed facts of record that all of Texas Eastern's losses were not the result of an "occurrence" within the meaning of the CGL policies. Texas Eastern has likewise failed to establish by undisputed facts of record that any of its losses were the result of an "occurrence" within the coverage of any of its CGL policies. For these reasons, the Carriers' motion for summary judgment on the "Occurrence" issue will be denied.
X. DAMAGES
Both parties have moved for summary judgment on the issue of whether Texas Eastern's losses are recoverable as "damages" under the specific language of its insurance policies. The Carriers contend that the costs of complying with the EPA Consent Decree and the various state decrees are not recoverable as "damages" which result from "property damage" or "bodily injury." Texas Eastern contends that these costs are *1330 recoverable.[49] For the reasons that follow, I conclude that, under Texas law, the remediation costs and the EPA penalties are potentially recoverable as "damages," and the civil penalties paid to Pennsylvania and New Jersey are not.
The insurance policies issued to Texas Eastern by the Carriers generally provide coverage for "damages because of bodily injury or property damage." The Carriers contend that because the government claims sought only injunctive relief and not monetary compensation, the money expended by Texas Eastern to comply with the injunctions is not recoverable as "damages," which unambiguously refers to monetary relief. Alternatively, the Carriers contend that the government orders requiring expenditures by Texas Eastern are based not on existing or threatened property damage or bodily injury, but rather on regulatory violations, and are therefore not recoverable as "damages" because of "property damage" or "bodily injury."
Texas Eastern responds that costs incurred to satisfy the injunctions are recoverable as "damages" because the term "damages," as it appears in the various insurance policies, is ambiguous and reasonably can be interpreted to include them. Additionally, Texas Eastern contends that the primary focus of the government actions was both actual and imminent property damage and a danger to the environment which would likely have caused bodily injury. As such, Texas Eastern claims that the costs are recoverable under its insurance policies.
A. Equitable Relief as Damages
The question of whether the costs incurred in complying with an injunctive order are "damages" is not a novel one. As with many of the issues raised in this litigation, numerous courts have reached different conclusions. Three circuit courts have reached the conclusion that these costs are not recoverable as "damages." See, e.g., Continental Ins. Cos. v. Northeastern Pharmaceutical & Chem. Co. (NEPACCO), 842 F.2d 977, 987 (8th Cir.) (en banc), cert. denied sub nom. Missouri v. Continental Ins. Cos., 488 U.S. 821, 109 S. Ct. 66, 102 L. Ed. 2d 43 (1988) (Missouri law); Maryland Casualty Co. v. Armco, Inc., 822 F.2d 1348, 1354 (4th Cir. 1987), cert. denied, 484 U.S. 1008, 108 S. Ct. 703, 98 L. Ed. 2d 654 (1988) (Maryland law); A. Johnson & Co., Inc. v. Aetna Casualty & Sur. Co., 933 F.2d 66, 69 (1st Cir.1991) (Maine law).[50] However, at least four circuit courts have recently reached the opposite conclusion. See, e.g., New Castle County v. Hartford Accident & Indem. Co., 933 F.2d 1162, 1190-91 (3d Cir.1991) (Delaware law); Independent Petrochemical Corp. v. Aetna Casualty & Sur. Co. (IPC), 944 F.2d 940, 947 (D.C.Cir.1991), cert. denied sub nom. Certain Underwriters at Lloyd's, London v. Independent Petrochemical Corp., ___ U.S. ___, 112 S. Ct. 1777, 118 L. Ed. 2d 435 (1992) (Missouri law); Aetna Casualty & Surety Co. v. Pintlar Corp., 948 F.2d 1507, 1513 (9th Cir.1991) (Idaho law); Avondale Indus., Inc. v. Travelers Indem. Co., 887 F.2d 1200, 1207 (2d Cir.1989), cert. denied, 496 U.S. 906, 110 S. Ct. 2588, 110 L. Ed. 2d 269 (1990) (New York law).
The parties have found one Texas state court decision which addresses the question of whether, in the context of an insurance policy, an injunction can constitute "damages." In Feed Store, Inc. v. Reliance Ins. Co., 774 S.W.2d 73 (Tex.Ct.App.1989) (writ denied), the appellate court concluded that it could not. In Feed Store, the issue was whether an insurer was obligated to defend an insured against a trademark infringement suit which requested only prospective injunctive relief. The insurer had refused to defend on the ground that the CGL policy only obligated it to defend "any suit against the insured seeking damages," and the plaintiff in the underlying suit sought only injunctive relief.[51]
*1331 The appellate court affirmed the lower court's judgment that the insurance company had no duty to defend against the suit. Specifically, the appellate court held that the underlying plaintiff's failure to seek "even one dollar in damages" was compelling, if not conclusive, evidence that the suit was for injunctive relief only, and not for damages. Feed Store, 774 S.W.2d at 74. The court reasoned that while the allegations underlying the suit could have supported a claim for damages, the controlling factor was what the complaint actually demanded. Id. at 75.
Although the opinion provides some guidance in predicting how the Texas Supreme Court would decide this issue, it is important to highlight the issues which the opinion did not consider. First, the court did not determine whether, under Texas law, the term "damages" was ambiguous or unambiguous. The Feed Store court explicitly stated that the parties agreed that the policy was unambiguous and, thus, the settled principle of Texas law requiring resolution of ambiguities in favor of the insured was "quite immaterial to [its] decision...." Feed Store, 774 S.W.2d at 75. Second, the court was not faced with the question of whether an insurance company is obligated to defend and indemnify an insured in an action seeking injunctive relief which requires the insured to expend significant amounts of money in order to comply, as is the case in most environmental litigation. It is therefore helpful to review the decisions of other jurisdictions to predict how the Texas Supreme Court would decide the issue.
In Armco, an insurer brought a declaratory judgment action to determine whether it had an obligation to indemnify its insured for liability pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act[52] (CERCLA) for response costs and injunctive relief. Applying Maryland law, the Fourth Circuit reasoned that "`[d]amages,' as distinguished from claims for injunctive or restitutionary relief, includes `only payments to third persons when those persons have a legal claim for damages.'" Armco, 822 F.2d at 1352 (quoting Aetna Casualty & Sur. Co. v. Hanna, 224 F.2d 499, 503 (5th Cir.1955)). The court reasoned that this "somewhat narrow, technical definition of damages" was necessary because interpreting "damages" to include injunctive relief would render the term "mere surplusage, because any obligation to pay would be covered" by the contract. Armco, 822 F.2d at 1352. Because the suit against the insured sought injunctive relief, Armco concluded that the costs of compliance were not covered by the CGL policy.
In NEPACCO, the Eighth Circuit, sitting en banc, adopted a similar definition of "damages" under Missouri law and concluded that the insurer was not required to cover liability arising out of an EPA CERCLA action. The court conceded that "damages" may be an ambiguous term from the viewpoint of a lay insured, but concluded that the term is not ambiguous in the insurance context, and that the "plain meaning of the term `damages' ... refers to legal damages and does not include equitable monetary relief." NEPACCO, 842 F.2d at 985.
By contrast, the Third Circuit reached the opposite result in New Castle County, where the court reasoned that the question of whether cleanup costs incurred pursuant to CERCLA and the Resource Conservation and Recovery Act[53] (RCRA) are "damages" is correctly answered by determining whether "damages" should receive a "legal, technical meaning" or a "plain, ordinary meaning." New Castle County, 933 F.2d at 1188. The court reviewed Armco, NEPACCO, and various other decisions holding that injunctive relief was not "damages" and concluded that those decisions rested on the courts' application of a "technical meaning" which excluded equitable relief from the definition of "damages." *1332 Delaware law required that the language in an insurance policy be given its plain, ordinary meaning and, if an ambiguity existed, it should be interpreted against the insurer. New Castle County, 933 F.2d at 1188-89. Thus, the court concluded that injunctive relief was insurable under the policies because "damages" could reasonably be interpreted to include such costs.
IPC reached a similar conclusion. In IPC, the Court of Appeals for the District of Columbia Circuit faced the identical issue decided by the Eighth Circuit in NEPACCO: Are response costs recoverable as "damages" under Missouri law? The court recognized that the Eighth Circuit was the "home" circuit for Missouri and was entitled to a degree of deference concerning the interpretation of Missouri law. Nevertheless, IPC concluded that under Missouri law cleanup costs were recoverable as "damages" under a liability insurance policy. IPC, 944 F.2d at 944-47.
The IPC court agreed with the NEPACCO court's conclusion that under Missouri law the language of an insurance policy is to be given the meaning that would ordinarily be understood by the lay person who bought and paid for the policy. IPC, 944 F.2d at 945. In the court's view, however, NEPACCO failed to apply this important principle of law, because it accepted a definition of "damages" used "`by astute insurance specialists or perspicacious counsel'" rather than one understood by the lay insured. Id. at 945 (citation omitted). NEPACCO's reliance on the "`legal, technical meaning,'" Id. (quoting Armco, 822 F.2d at 1352), violated Missouri's principles of interpretation and led the court to reach the wrong result. As in New Castle County, IPC's conclusion rests on its interpretation of the plain, ordinary meaning of the contract rather than on a purely technical definition of "damages."[54]
Texas Eastern correctly observes that Texas law concerning the interpretation of terms in an insurance policy is analogous to Delaware law (and Missouri law). Texas courts do not permit policy terms to be confined to technical meanings unless they have been specifically so defined in the policy. See Gonzalez v. Mission Am. Ins. Co., 795 S.W.2d 734, 736 (Tex.1990); United States Ins. Co. v. Boyer, 153 Tex. 415, 269 S.W.2d 340, 341 (1954) ("[T]he court in construing [an insurance] policy determines the everyday meaning of the words to the general publicthe meaning of the words `in common parlance'`the usual and popular understanding of the term.'") (citations omitted); Garrison, 765 S.W.2d at 538.[55] As the Third Circuit recognized, resolution of the issue rests primarily on whether the term "damages" is ambiguous. The Carriers rely exclusively on Feed Store for the proposition that the Texas Supreme Court would conclude that, under Texas law, the term "damages" is unambiguous and refers only to monetary relief, and not to injunctive relief. Feed Store, however, did not consider the ambiguity question. I conclude that the Texas Supreme Court would not follow Feed Store and would instead conclude that the term "damages" is ambiguous and can reasonably be interpreted to cover costs incurred to satisfy the Federal and State Consent Decrees at issue in this case.
After reading Feed Store, I am not persuaded that the court was faced with the identical issue that is presented in this case. The complaint at issue in Feed Store clearly requested only traditional injunctive relief. The court reviewed the complaint and expressly found that the plaintiff had not alleged that it had suffered, or that it was seeking, monetary damages. Significantly, the opinion did not discuss whether the insured was obligated to take corrective action *1333 and whether such an expenditure would constitute "damages."
In my view, when a court issues an injunction, requiring a party to act or to refrain from acting, the average individual believes that any of the costs associated with compliance constitute "damages." The court in NEPACCO expressly recognized this fact. See NEPACCO, 842 F.2d at 985. Because Texas law requires that insurance terms be given their plain, ordinary meaning from the standpoint of the insured, these costs, although incurred as a result of an injunctive order, should be recoverable.[56]
An injunction issued pursuant to TSCA, RCRA or CERCLA is different in kind from injunctions issued in other contexts. Ordinarily, a court is not free to provide injunctive relief unless a party has established that it lacks an adequate remedy at law. An adequate legal remedy ordinarily takes the form of monetary damages, which would clearly be covered by insurance. In the environmental context, EPA is authorized to seek injunctive relief regardless of the adequacy of other legally sufficient remedies. These injunctions ordinarily require a party to incur large costs to remediate existing environmental damage. This power blurs the line between what might traditionally be considered damages (a remedy at law) and injunctive relief (a remedy in equity).
This distinction does not rely, however, on EPA's ability to choose between its various remedies. A number of courts have relied on the "fortuity" of EPA either (1) choosing to clean up environmental damage and sue the responsible parties for the costs expended by the government; or (2) choosing to sue the responsible party for a mandatory injunction to clean up the pollution in the first instance, to hold that costs expended to comply with injunctions are recoverable as "damages." See, e.g., United States Aviex Co. v. Travelers Ins. Co., 125 Mich.App. 579, 336 N.W.2d 838, 843 (1983). Other courts have relied on the fortuity of EPA requiring a cleanup rather than suing for "environmental damages." While these reasons may add additional support for concluding that "damages" is broad enough to include Texas Eastern's response costs, in my view, the most relevant distinction is based on the injunction's ultimate effect on the insured.[57]
I therefore reject the Carriers' argument that because the EPA Consent Decree sounds primarily in TSCA and RCRA, as opposed to CERCLA[58], Texas Eastern's cleanup costs are per se unrecoverable as "damages."[59] The Carriers believe that EPA's inability to remediate environmental harm and sue to recover the cost under TSCA and RCRA requires a different result regarding the insurability of an insured's costs of compliance with the injunction. In the Carriers' view, those courts holding that CERCLA response costs are recoverable as "damages," rely on the fact that EPA might have decided to clean up the contamination and sue for damages, and refused to deny coverage because of the fortuity of EPA's choice. The Carriers conclude that under TSCA and RCRA, the fortuity risk is nonexistent, and that in this case, EPA could not have proceeded under CERCLA because it *1334 never made a finding that an "imminent and substantial danger to health and the environment" existed at the Texas Eastern sites.
These arguments are all beside the point, because I have not grounded my decision on mere fortuity. As the Feed Store court explained, the inquiry is not what might have been alleged but what was in fact alleged. No court should engage in a post hoc analysis of whether a party might have brought a particular action and I refuse to speculate about whether EPA might have brought an action against Texas Eastern based on grounds other than those stated in the EPA Complaint, or whether EPA might have proceeded under an entirely different statute.
In the present litigation, I am concerned with the issue of whether, under Texas law, the term "damages" is broad enough to include the costs incurred by Texas Eastern in complying with the EPA Consent Decree and various other decrees and settlements. I conclude that an insured's cost of complying with either a demand or an injunction to remediate property damage or bodily injury is the same whether issued under CERCLA, TSCA, or RCRA, and is therefore recoverable as "damages" under Texas Eastern's insurance policies.
B. Compliance Costs as Property and/or Bodily Injury Damage
The second issue raised by the parties is whether the costs incurred by Texas Eastern are losses due to "property damage" or "bodily injury." The Carriers contend that the EPA Complaint and the resulting Consent Decree merely seek to compel Texas Eastern to come into compliance with various environmental regulations and to remediate damage which has resulted from Texas Eastern's prior violation of those regulations. As such, the Carriers argue that Texas Eastern's costs are not recoverable because the costs of complying with federal and state regulations, and the costs of administering prophylactic measures to ensure future compliance, are not insurable.
Texas Eastern apparently concedes that the costs incurred merely to stay in compliance with regulations are not recoverable from the Carriers. Additionally, Texas Eastern must concede that any costs of remediating property damage which cannot be significantly linked to third-party harm are not recoverable because its CGL insurance policies only cover harm to third parties. It is Texas Eastern's view, however, that a large percentage of its costs were incurred primarily to remedy and prevent third-party property damage. Although I am doubtful of Texas Eastern's ability to ultimately establish this relationship, I conclude that a factual dispute exists on this issue requiring that both the Carriers' motion for summary judgment and Texas Eastern's motion for summary judgment be denied on this point.
Because factual disputes exist as to whether some of Texas Eastern's costs were or will be incurred to remediate third-party property damage and to prevent future harm to third-party property and third parties generally, I reject the Carriers' contention that the mere fact that the majority of Texas Eastern's expenses were incurred pursuant to TSCA and RCRA establishes that the costs are not recoverable "damages." The Carriers have, however, raised serious issues concerning which of Texas Eastern's costs are potentially recoverable and which are not.
Texas Eastern cannot seek recovery of costs incurred solely to comply with federal or state environmental legislation. Even those courts which have allowed the recovery of CERCLA response costs under CGL policies have recognized that liability policies do not provide coverage for the costs of statutory and regulatory compliance. For example, in Minnesota Mining & Mfg. Co. v. Travelers Indem. Co., 457 N.W.2d 175 (Minn.1990), the Minnesota Supreme Court qualified its holding that CERCLA-imposed cleanup costs were recoverable by observing:
We are not "opening the door," as the insurers assert, to insurance coverage of all business expenses which are mandated by the government.... These types of costs are not covered by the insurance policies simply because no property damage has occurred.
Id. at 184.
Indeed, Texas Eastern has admitted that it is not seeking coverage for those expenses *1335 which cannot be linked to property damage or bodily injury. Thus, the costs of complying with (1) TSCA regulations regarding the proper labeling of PCB containers; (2) TSCA regulations requiring the maintenance of adequate records of PCB storage and disposal activities; (3) RCRA regulations requiring notification to EPA that Texas Eastern was managing hazardous waste; (4) RCRA regulations requiring Texas Eastern to obtain permits; and (5) RCRA regulations requiring Texas Eastern to comply with various record keeping and safety requirements are not recoverable.
Although I have previously concluded that the mere fact that EPA's Complaint was grounded on regulatory violations does not automatically preclude recovery of costs associated with compliance, it does make it more difficult for the insured to prove that its costs were incurred primarily because of property damage as opposed to mere regulatory violations. For example, the Carriers persuasively argue that many of the regulatory violations alleged in the EPA Complaint could have resulted in a mandatory injunction regardless of whether any property damage had in fact taken place. It would be Texas Eastern's responsibility to establish that each cost for which it seeks insurance coverage was incurred primarily because of property damage, bodily injury, or both. It would also be Texas Eastern's burden to establish that its costs were incurred not to implement prophylactic measures to prevent future regulatory violations, but only to prevent actual and imminent harm to third-party property.
In short, the fact that I have decided to deny summary judgment on this issue should not be viewed as a positive review of the merits of Texas Eastern's claims. It merely signals that Texas Eastern has offered sufficient evidence that would allow it to go forward and attempt to prove that at least some of its claims are recoverable, although it is my view that Texas Eastern would face a Herculean task in this regard.
C. Civil Fines and Penalties
One category of costs which Texas Eastern seeks to recover merits special attention: civil fines and penalties.[60] To date, Texas Eastern has agreed to pay a $15 million penalty to EPA, a $5.3 million penalty to the PaDER, and an $850,000 penalty to the New Jersey Department of Environmental Protection (NJDEP) for violations arising under federal and state environmental laws. I conclude as a matter of law that the civil penalties assessed by PaDER and NJDEP are not recoverable as "damages"; however, the EPA penalty would be recoverable as damages under Texas Eastern's insurance policies.
1. Choice of Law Fines and Penalties
Although the parties agree that Texas law applies to the majority of the issues in this litigation, the Carriers contend that the question of insurability of civil penalties should be determined pursuant to the law of the issuing jurisdiction. Therefore, the Carriers argue that the insurability of the EPA fine would be decided under the federal common law of insurance, and the insurability of the Pennsylvania and New Jersey fines would be decided under Pennsylvania and New Jersey substantive law, respectively. Texas Eastern responds that Texas law should be applied to decide the entire "Damages" issue and, pursuant to Texas law, civil penalties are insurable as "damages" to the insured. In order to decide this issue, it is necessary to address the choice of law principles followed by both Texas and Pennsylvania.
The parties agree that I must apply the choice of law principles from the two forum states originally involved in this action: Texas and Pennsylvania. See generally, In re San Juan Dupont Plaza Hotel Fire Litig., 745 F. Supp. 79, 81 (D.P.R.1990); In re Air Crash Disaster at Stapleton Int'l Airport, *1336 720 F. Supp. 1445, 1448 (D.Colo.1988).[61] In choice of law cases, Texas courts will apply "the law of the state with the most significant relationship to the particular substantive issue...." Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex.1984); W.R. Grace & Co. v. Continental Casualty Co., 896 F.2d 865, 873 (5th Cir.1990). The test is set forth in sections 6 and 188 of Restatement (Second) of Conflict of Laws.[62] Pennsylvania uses a modified version of the Restatement (Second) approach, which combines a relationship and interest analysis. Compagnie des Bauxites de Guinee v. Argonaut-Mid-west Ins. Co., 880 F.2d 685, 688 & n. 9 (3d Cir.1989) (citing Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964)). This test "`takes into account both the grouping of contacts [listed in the Restatement (Second) of Conflict of Laws § 188(2) (1971)] with the various concerned jurisdictions and the interests and policies that may be validly asserted by each jurisdiction.'" Compagnie des Bauxites, 880 F.2d at 689 (quoting Melville v. American Home Assurance Co., 584 F.2d 1306, 1311 (3d Cir.1978)). See also General Star Nat'l Ins. Co. v. Liberty Mut. Ins. Co., 960 F.2d 377, 379 (3d Cir.1992) (citing Cipolla v. Shaposka, 439 Pa. 563, 267 A.2d 854, 856 (1970) ("Pennsylvania rule requires examination of the significant contacts as they relate to the states' public policies underlying the issue in question."))
Since 1961, Texas Eastern's principal place of business has been Houston, Texas.[63] After moving its headquarters to Texas, Texas Eastern routinely sent its insurance applications and paid its insurance premiums from Houston. Additionally, Texas Eastern appears to have co-brokered the acquisition of its insurance policies through John L. Wortham & Son and Querbes & Nelson, Inc., headquartered in Houston and Shreveport *1337 respectively. Notice of the claims at issue in this case was made from Texas Eastern's headquarters in Houston.
Republic Insurance Company, Highlands Insurance Company, and Ranger Insurance Company have their principal places of business in Texas. (Ins.' Mot.Summ.J. Choice of Law at 10.) Although the other insurance carriers have their principal places of business elsewhere, the majority of them do business in the State of Texas. (TE's Mem. in Opp'n Summ.J. Civil Penalties at 12 n. 15.)
The environmental damage took place in as many as fourteen states including Texas, Pennsylvania, and New Jersey. Finally, to date, penalties have been imposed by EPA, PaDER and NJDEP.
The parties agree that on all other issues, no other state has a more significant contact to the present litigation than Texas, based largely on the fact that Texas Eastern is headquartered in Texas, environmental damage occurred in Texas, and many of the Carriers do business in Texas. The relevant question, therefore, is whether the nature of the civil penalties creates a significant relationship to the assessing state which overrides the Texas contacts.
The first step in the choice of law analysis is to determine whether the substantive laws of the states which have a possible interest in a particular issue would reach a different result. If the answer is yes, then I must determine whether the various choice of law analyses choose different substantive law. Again, if the answer is yes, I must choose between the competing choice of law analyses.
On the issue of civil penalties, the states which have a significant interest are Texas, Pennsylvania, and New Jersey.[64] Only New Jersey has decided this issue, concluding that civil penalties are not insurable as a matter of public policy. Township of Gloucester v. Maryland Casualty Co., 668 F. Supp. 394, 401-02 (D.N.J.1987) (environmental fines and penalties are not viewed as "damages" and are thus uninsurable); Blair v. Anik Liquors, 210 N.J.Super. 636, 510 A.2d 314, 318 (Law Div.1986) (indemnification for fines resulting from violation of Alcoholic Beverage Control laws violates public policy).
Neither Pennsylvania nor Texas has decided whether civil penalties are insurable. The best analogy provided by the parties is to the insurability of punitive damages. Under Pennsylvania law, punitive damage awards are not insurable because insurability would violate public policy. Martin v. Johns-Manville Corp., 508 Pa. 154, 494 A.2d 1088, 1096 (1985). Under Texas law, punitive damages are insurable, at least for conduct which merely rises to the level of gross negligence. American Home Assurance Co. v. Safway Steel Products Co., 743 S.W.2d 693, 704-05 (Tex.Ct.App.1987) (writ denied). Therefore, a conflict appears to exist between the substantive law of the three states with potential interests in this issue.
Having found a conflict in the substantive law, I will apply the choice of law principles of Texas and Pennsylvania and determine whether they would select the same substantive law to be applied. Under Texas choice of law principles (following Restatement (Second) of Conflict of Laws § 6(1)), I must first *1338 look at Texas Insurance Code article 21.42 which states a preference for applying Texas law to an insurance contract involving a Texas citizen and an insurance company that does business in Texas. See Tex.Ins.Code Ann. art. 21.42. For the purposes of this discussion, I assume that Texas Eastern, by virtue of its headquarters in Houston, Texas, is a Texas citizen pursuant to article 21.42. As I have previously indicated, most of the insurance companies involved in this litigation do business in Texas. Thus, it would appear that Texas choice of law rules would apply Texas substantive law to this issue.
The Carriers correctly observe, however, that the statute's application is limited to situations where the article would not give extraterritorial effect to Texas law. See generally, W.R. Grace & Co., 896 F.2d at 883. In my view, the Texas Supreme Court would conclude that relying on article 21.42 to apply Texas law to the issue of civil penalties imposed by other states, or to civil penalties imposed by EPA, would be constitutionally permissible, in light of the fact that this litigation involves a dispute between a Texas insured and insurers who have significant contacts with Texas. Therefore, under Texas choice of law principles, Texas substantive law applies.
Under Pennsylvania's choice of law principles, I must balance the various state interests with the public policies underlying those interests. In my view, Texas's interest is making certain that Texas insureds receive all of the benefits for which they contract with insurance carriers. This includes insurance coverage for civil penalties. Pennsylvania's interest is its ability to effectively enforce Pennsylvania laws.
There is little doubt that limiting the insurability of civil penalties does affect Texas's policy concerns. It may well be that Texas Eastern believed it was contracting for coverage of civil penalties that it incurred as a result of operating its natural gas pipeline. However, from Pennsylvania's standpoint, the inability to enforce its laws by the assessment of civil penalties may well hamper its ability to force compliance without resorting to criminal or other more severe sanctions. It would appear that a state can hardly have a more significant contact with the issue of a fine's insurability than in a situation where a foreign corporation doing business within its borders violates its laws, damages its property and natural resources, and is therefore fined as a punishment for the violation, and as a future inducement to comply with the state's laws. Combined with a public policy against the indemnification of liability incurred as punishment, I conclude that under Pennsylvania's choice of law rules, Pennsylvania's substantive law applies. For the same reasons, New Jersey substantive law would apply to the insurability of the New Jersey fines.
Because the choice of law principles lead to divergent choices of substantive law, I must choose between the two. See e.g., Dupont Plaza Hotel Fire, 745 F.Supp. at 87-88. Although I have not found explicit guidance on this point, I will apply federal common law to determine whether to use Texas choice of law principles or Pennsylvania choice of law principles. Federal common law follows the Restatement (Second) of Conflict of Laws. Schoenberg v. Exportadora de Sal. S.A. de C.V., 930 F.2d 777, 782 (9th Cir.1991). Based on Pennsylvania's need to enforce its laws, I believe that Pennsylvania has the most significant contacts concerning the "Fines and Penalties" issue and I will therefore apply Pennsylvania choice of law principles.
2. New Jersey Fines
As previously explained, under Pennsylvania choice of law principles, the penalty paid to New Jersey would be governed by New Jersey substantive law. As such, they are not insurable, and Texas Eastern would not be entitled to recover these losses from its insurance carriers.
3. Pennsylvania Fines
Under Pennsylvania choice of law principles, the Pennsylvania penalties would be governed by Pennsylvania law. Relying on Pennsylvania's refusal to permit insurance against punitive damages, I conclude that Pennsylvania would likewise refuse to permit insurance against civil penalties assessed for *1339 the violation of Pennsylvania's environmental laws.
4. EPA Fines
Under Pennsylvania choice of law principles, the EPA penalty would be controlled by the substantive law of Texas.[65] No federal common law of insurance exists, and as between Texas and Pennsylvania, Texas has the most significant relationship to the insurability of penalties because of Texas Eastern's contacts with Texas, and because of the lack of any significant Pennsylvania public policy regarding the insurance of federally assessed civil penalties. Relying on Texas law which enforces insurance contracts for punitive damages, I conclude that Texas law would permit insurance against civil penalties.
One final issue remains concerning Texas Eastern's ability to recover civil penalties under Texas law. I have previously determined that the term "damages" can reasonably be interpreted to mean money expended under sanction of law to redress harm to property or persons. (See supra p. 1333 note 56.) Although this definition does not necessarily mean that a reasonable person would conclude that penalties are covered as "damages," see IPC, 944 F.2d at 947, it is certainly reasonable that an ordinary person could. I conclude, therefore, that civil penalties can be recovered as "damages" under Texas law. However, as with all of Texas Eastern's claims, Texas Eastern would have the burden of establishing which, if any, of these penalties were imposed primarily to redress harm to third-party property before the Carriers would be obligated to reimburse Texas Eastern.
XI. OWNED PROPERTY EXCLUSION
Both the Carriers and Texas Eastern have moved for summary judgment based on the owned property exclusion.[66] Although the precise wording of the owned property exclusion varies, the following provision is representative of the exclusion as it appears in many of the insurance policies:
This policy does not apply
. . . . .
to property damage to:
(1) property owned or occupied by or rented to the Insured,
(2) property used by the Insured, or
(3) property in the care, custody or control of the Insured as to which the Insured is for any purpose exercising physical control; but parts 2 and 3 of this exclusion do not apply with respect to liability under a written sidetrack agreement and part 3 of this exclusion does not apply with respect to property damage (other than to elevators) arising out of the use of an elevator at premises owned by, rented to or controlled by the Named Insured....
Other policies simply exclude coverage for damage to property owned by the insured, or for loss of, or damage to, or destruction of, property owned by the named insured.
Texas Eastern argues that although the owned property exclusion precludes coverage for damage to its own property, the exclusion should not apply to the cost of remediation work on its own property that is aimed at preventing actual and continuing harm to third-party property, and anticipated future harm to third-party property.
Specifically, Texas Eastern contends that the majority of the remediation work in which it is engaged is aimed at stopping the migration of PCB contamination from Texas Eastern's property to third-party property through surface soil, subsurface soil, and groundwater migration. Texas Eastern relies on case law (from jurisdictions other than *1340 Texas) and the various consent orders and decrees into which it has entered to support its assertion.[67]
The Carriers contend that the owned property exclusion is unambiguous, and in accordance with Texas law, must be given its plain, ordinary meaning. In the Carriers' view, any damage to property owned, rented, or controlled by Texas Eastern is not covered by any of the insurance policies which contain an owned property exclusion. In the alternative, the Carriers urge that Texas Eastern be required to prove that any costs for which it seeks insurance coverage were incurred to remediate actual third-party property damage or to prevent future third-party harm which is imminent, immediate, and substantial.
Neither Texas Eastern nor the Carriers have cited a Texas state court decision, or any decision applying Texas law, which has considered the applicability of an owned property exclusion to a situation analogous to the present litigation. However, Texas Eastern has cited numerous cases from other jurisdictions which have concluded that the owned property exclusion does not bar an insured's recovery for cleanup work on its own property when the focus of the cleanup was the prevention of third-party harm.
For example, in New Castle County v. Continental Casualty Co., 725 F. Supp. 800 (D.Del.1989), aff'd in part and rev'd in part on other grounds, New Castle County v. Hartford Accident & Indem. Co., 933 F.2d 1162 (3d Cir.1991), the district court refused to deny coverage for New Castle County's cleanup costs of the Tybouts Corner landfill on the basis of an owned property exclusion. The court noted that the primary focus of the three lawsuits against the County (one by EPA, and two by citizens living near the landfill site) was the release and continuing release of hazardous substances from the landfill to other properties and the surrounding drinking water. New Castle County, 725 F.Supp. at 816. On this basis, the court concluded that the property damage at issue was "off-site property damage" not owned, rented, or controlled by New Castle County. Because there was a continuing threat of off-site property damage if the contamination on the insured's property was not remediated, the court held that the owned property exclusion did not bar coverage of the County's claims. Id.
In United States v. Conservation Chem. Co., 653 F. Supp. 152 (W.D.Mo.1986) the district court refused to exclude coverage based on an owned property exclusion for remediation costs incurred by the insured, Conservation Chemical Company (CCC), for cleaning up an industrial chemical waste disposal facility located on its own property. The costs were incurred pursuant to a complaint filed by EPA alleging that hazardous wastes which had been disposed of at the site were migrating from the site and posed a danger to public health and the environment. Conservation Chem., 653 F.Supp. at 162.
The court concluded that "coverage of the abatement remedy on the CCC site designed to prevent damage or further damage to third parties cannot be denied on the basis of the owned property exclusion." Conservation Chemical, 653 F.Supp. at 200. The court noted, however, that this does not include elements of the CCC claim which relate to a remedy for damage confined to the CCC site itself. "To the extent that all or a portion of the remedy relates solely to damage to the CCC site itself and not to prevent off-site contamination, the `Owned Property Exclusion' clearly applies, and such damage is not within the coverage provided." Id. The court left the determination of which costs were included and which were not for trial.
*1341 In Consolidated Rail Corp. v. Certain Underwriters at Lloyds, No. 84-2609, 1986 WL 6547 (E.D.Pa. June 5, 1986), aff'd 853 F.2d 917 (3d Cir.1988), a Consolidated Rail Corp. (Conrail) train derailed in Pennsylvania, spilling 32,000 gallons of chloroform onto the ground at and surrounding the accident site. The chloroform liquid contaminated groundwater, storm sewers, and a nearby creek. While concluding that the governmentally mandated cleanup was clearly aimed at the prevention and mitigation of third-party harm, and thereby constituted "damages" as defined by Conrail's excess insurance policies, the district court permitted Conrail to recover its cleanup costs despite the fact that some of Conrail's expenditures were for cleanup of Conrail's own property, and Conrail's insurance policies explicitly excluded coverage for damage to property "owned by the named insured." Consolidated Rail, 1986 WL 6547, at *4-5.
In Township of Gloucester v. Maryland Casualty Co., 668 F. Supp. 394 (D.N.J.1987), the district court explained why it did not consider an owned property exclusion a bar to coverage of a cleanup which included property owned by the insured, Gloucester Township. The court reasoned that there was an ambiguity in the language of the exclusion concerning whether the exclusion precluded coverage of costs which were linked to both damage to third-party property and the repair of property owned by the insured. Township of Gloucester, 668 F.Supp. at 400. The court concluded that because ambiguities should be interpreted against the insurer, and because the cleanup costs were "inextricably linked" to the damage claims of a third-party, the owned property exclusion did not preclude coverage of those costs. Id.
Relying on these and other cases, Texas Eastern argues that the owned property exclusion in its insurance policies should not apply to the cleanup costs it has incurred, and will continue to incur, pursuant to the various formally concluded consent orders and agreements. Texas Eastern admits, however, that the Federal Consent Decree does not require it to remediate any off-site property. According to the terms of the Decree, Texas Eastern must remediate surface soil contamination, off-site equipment areas (controlled by Texas Eastern), and monitor groundwater contamination levels (but not remediate any groundwater at this time). (App. 385; App. 227A at 95).
In light of these facts, Texas Eastern asserts that the focus of EPA's concern regarding the cleanup of Texas Eastern's property was the migration of PCBs from Texas Eastern's property to the property owned by third parties, and the potential future harm to said properties. The evidence which Texas Eastern proffers to support these assertions is sparse, but is sufficient to create a disputed issue of material fact as to whether Texas Eastern's cleanup costs were incurred solely because of damage to its own property, or whether some of Texas Eastern's costs are related to the prevention of third-party damage.
In support of its assertion, Texas Eastern has offered two affidavits sworn by Karen Hammerstrom, a scientist working in EPA's TSCA compliance section who helped prepare risk assessments for EPA regulations concerning healthy PCB levels in the environment, and who prepared risk assessments related to the EPA Complaint and Consent Decree. As previously explained, Texas Eastern offers these affidavits to establish that EPA considered the effects of PCB contamination on third-party property (off-site property) when it decided the level of cleanliness to which it would require Texas Eastern to remediate its property. (First Hammerstrom Affidavit, Hart Decl., Ex. 50 at attachment pp. 6-7; Second Hammerstrom Affidavit, Hart Decl., Ex. 50 at ¶¶ 3-5.) Specifically, Hammerstrom's risk assessment considers what level of post-remediation off-site PCB exposure would be acceptable to EPA. (Second Hammerstrom Affidavit, Hart Decl., Ex. 50 at ¶ 3.)
Additionally, Texas Eastern observes that EPA is charged with the protection of the environment and is by definition always concerned with potential third-party harm. In this regard, Texas Eastern offers the deposition testimony of one of its environmental experts, Bradford Cushing, who testified that due to PCB migration from Texas Eastern's property to third-party property and groundwater, *1342 unspecified off-site contamination has in fact occurred. (Dep. of Bradford Cushing, TApp. 223 at 435-36; App. 632 at Table 2.)
The Carriers respond, however, that any actual off-site pollution has not been specifically defined by any of Texas Eastern's experts and contend that if Texas Eastern wants to rely on off-site property damage to procure coverage, it must do so on a site-by-site basis, proving that a particular site has migrating PCBs, or is in immediate danger of migrating PCB contamination onto off-site property, before the Carriers are deemed liable for any of the cleanup costs. Texas Eastern responds that EPA did not require a site-specific cleanup program, choosing instead to require that all sites meet a particular PCB standard, without regard to what the PCB levels were at the time of the Consent Decree. Therefore, Texas Eastern does not know whether every site, or which individual sites, have migrating PCBs reaching third-party property.
The Carriers' primary contention is that the facts of the present case do not fit within the "judge made insurance law" on which Texas Eastern relies. The Carriers observe that the only actual damage that can be affected by Texas Eastern's cleaning up of its own property is on-site contamination. Thus, this case is distinguishable from the situation where EPA orders a polluter to remediate third-party harm which includes the cleanup of on-site property as one element of a greater third-party problem. In this case, EPA limited its cleanup order to Texas Eastern's own property.
Having considered these arguments, I conclude that the Texas Supreme court would preclude coverage for Texas Eastern's costs which were not primarily aimed at preventing actual, as opposed to purely potential, harm to third-party property.[68] I further conclude that the evidence proffered by the Carriers is insufficient to mandate a finding that none of Texas Eastern's expenses incurred pursuant to the EPA Consent Decree, state government decrees, or private third-party actions were due primarily to prevent future third-party harm.[69]
There is little doubt that the majority of courts to consider this issue have concluded that costs incurred to remediate damage on the insured's property in an attempt to prevent future damage to third-party property are not excluded under the owned property exclusion.[70] Having examined these decisions, *1343 I respectfully decline to fully adopt their rationale, and I do not believe that the Texas Supreme Court would choose to either.
In my view, the owned property exclusion is unambiguous. The clause clearly reads that damage to an insured's property is not covered under the CGL policy. This does not mean that all activity taking place on an insured's property is per se uninsured. If the activity is primarily undertaken to abate an existing risk of harm to a third party, then the owned property exclusion should not apply.
The rationale most often relied on by courts declining to enforce the owned property exclusion is that the failure to allow an insured to recover cleanup costs incurred prior to the actual occurrence of third-party damage creates an incentive for the insured to wait until third-party damage occurs before taking any preventive action. See, e.g., Allstate Ins. Co., 713 F.Supp. at 40-41; Broadwell Realty, 218 N.J.Super. 516, 528 A.2d at 81; Consolidated Rail Corp., No. 84-26019, 1986 WL 6547, at *5. I find this rationale unpersuasive for three reasons. First, if the insured intentionally allows the damage to occur, no insurance coverage should be available because intentional damage is not insurable as an "occurrence" in a standard CGL policy. Second, even if insurance coverage was made available to pay for the cleanup of third-party property, it does not follow that insurance coverage would automatically become available for the damage to the insured's own property.[71] Third, ample incentives exist to compel the insured to timely report and remediate contamination; the most significant being the potential for criminal sanctions in addition to civil penalties for intentionally violating federal and state environmental statutes.[72]
An alternative explanation for allowing insurance coverage for potential third-party harm is that in environmental cases cleanup costs are often directly related to the length of time that the contaminant is left unremediated. See, e.g., Allstate, 713 F.Supp. at 40-41. Thus, an insurance company benefits by paying for the remediation before the pollutant migrates from the insured's property and onto the property of third-parties. See Bankers Trust Co., 518 F.Supp. at 373. Under Texas law, insurance contracts are to be interpreted by the same rules of construction as any other contract. Thus, the terms are to be given their plain, ordinary meaning. It may be true that an insurance company would benefit from the early cleanup, and the parties are free to write a contract that provides for that type of coverage.[73] Texas Eastern and the Carriers entered into contracts which did not provide coverage for damage to the insured's property, and I refuse to alter the agreements which the parties freely made.
Finally, courts have relied on the fact that in the environmental context, the costs of cleanup and prevention of third-party and first-party damage are often inextricably linked, making it virtually impossible to equitably enforce the owned property exclusion. See, e.g., Gloucester, 668 F.Supp. at 400. While the task of separating the insurable costs may be difficult in some cases (I have previously indicated that it may be an impossible task in this case), I do not believe this *1344 difficulty is sufficient to invalidate the owned property exclusion. It is the insured's responsibility to present the insurer with claims that are covered by insurance. This responsibility includes the identification of costs which are recoverable and those which are not. The insured should not reap an additional benefit simply because damages are difficult to prove. If Texas Eastern cannot segregate its damages, then, under Texas law, it fails to satisfy a condition precedent to recovery under its insurance contracts, and the Carriers' obligation to indemnify will never mature.
Texas Eastern contends that no showing of any significant link between the third-party risk and the first-party remediation need be made before a court will allow recovery of the entire cleanup cost. To the contrary, many of the cases considering this issue, and on which Texas Eastern relies, have held that the threat of third-party damage must be significant before a court will allow the insured to recover the cleanup costs for damage to its own property. For example, a number of cases have limited their holding to situations where the danger is both imminent and substantial. In Broadwell Realty, the court summarized its holding: "We are thus convinced that abatement remedies designed to prevent imminent and immediate damage to third parties cannot be denied on the basis of the owned-property exclusion." Broadwell Realty, 218 N.J.Super. 516, 528 A.2d at 82.[74]
Other courts have failed to expressly limit their holdings, but have reached their conclusions in situations where the danger to third-party property was clearly imminent, substantial, or both. See, e.g., Allstate, 713 F.Supp. at 41 (finding that the gas leak from the insured's property constituted a "demonstrated danger" to third-party property); Conservation Chem., 653 F.Supp. at 175 (finding that the release of the hazardous substances constituted an "`imminent and substantial endangerment to the public or welfare of the environment'"); Consolidated Rail, 1986 WL 6547 (32,000 gallons of chloroform was spilled on the insured's property and the property of third parties, clearly creating a substantial danger of third-party harm).
Further, many of these courts explicitly recognized that the insured does not automatically receive coverage for all of its remediation costs. As one court explained, "[t]o the extent that all or a portion of the response expenses pertain solely to damage to the [insured's property] and not to prevent off-site contamination, the owned property exclusion clearly applies, and such damage is not within the coverage provided." Broadwell Realty, 218 N.J.Super. 516, 528 A.2d at 82. See also Conservation Chem., 653 F.Supp. at 200.
Although I agree with Texas Eastern that no consensus exists regarding the precise showing that an insured must make in order to secure coverage for costs incurred on its own property, my reading of the cases leads me to conclude that the insured must at a minimum establish that the costs of cleaning up its own property are significantly related to the cleanup of actual third-party harm or the prevention of future imminent and substantial third-party damage.
In the present case, Texas Eastern relies almost exclusively on the affidavits of Karen Hammerstrom to support its contention that the damages it suffered because of the EPA Consent Decree were the result of EPA's concern for potential off-site third-party harm. This evidence is sufficient to support the contention that the damage on Texas Eastern's own property is related to third-party harm for the purposes of deciding the present motions. Therefore, the Carriers' motion for summary judgment will be denied on the "Owned Property Exclusion" issue. I want to make it clear, however, that if this issue ever came to trial, Texas Eastern would have to establish that each dollar for *1345 which it seeks insurance coverage is substantially related to third-party harm.[75]
XII. POLLUTION EXCLUSION
Both the Carriers and Texas Eastern have moved for summary judgment on the issue of the applicability of two types of pollution exclusion clauses contained in a number of Texas Eastern's insurance policies. Texas Eastern seeks a ruling that pollution caused over a "period of years" can still have been "sudden and accidental" as required by the language of both pollution exclusions. The Carriers contend that pollution caused by intentional discharges over a period of years cannot be considered either "sudden" or "accidental" and that the undisputed facts conclusively establish that Texas Eastern's PCB discharges occurred over a period of almost thirty years, thus precluding any insurance coverage for Texas Eastern's remediation costs. For the following reasons, I agree with the Carriers and will therefore grant summary judgment in favor of those Carriers whose insurance policies contain a pollution exclusion. Texas Eastern's motion will be denied.
Many, but not all, of the insurance policies contain a pollution exclusion. In the policies that do contain such an exclusion, the exclusion generally takes one of the following two forms:
1. This policy does not apply to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.
2. This insurance does not cover any liability for Personal Injury or Bodily Injury or loss of, damage to, or loss of use of property directly or indirectly caused by seepage, pollution or contamination, provided always that this paragraph ... shall not apply to liability for Personal Injury or Bodily Injury or loss of or physical damage to or destruction of tangible property, or loss of use of such property damaged or destroyed where such seepage, pollution or contamination is caused by a sudden, unintended and unexpected happening during the period of this insurance.
I will refer to the first type of exclusion as an "ISO exclusion" and the second version as a "London Market exclusion."
Under the terms of the ISO exclusion, the discharge of a pollutant invalidates any insurance coverage for bodily injury or property damage[76] resulting from the *1346 discharge. The exclusion contains an exception which restores coverage in the event that the discharge is both "sudden and accidental." Under the terms of the London Market exclusion, no insurance coverage exists for bodily injury, personal injury, or property damage caused by pollution or other contamination. The exclusion restores coverage in the event that the damage is caused by a "sudden, unintended, or unexpected happening."
As should be clear from my discussion of the facts, I have concluded that all of the damage in this litigation was caused by Texas Eastern's long-term and continuous release of PCBs on its own property. There can be no material dispute that absent the applicability of the relevant exception, those insurance policies which contain either of the two pollution exclusions provide no coverage to Texas Eastern.
The Carriers contend that they have offered undisputed facts which establish that Texas Eastern intentionally discharged pipeline liquids contaminated with PCBs into unlined earthen pits, intentionally discharged pipeline liquids into the atmosphere during the start-up and shut-down of the compressor units, and intentionally discharged pipeline liquids onto weeds and dirt roads during a twenty-five year period beginning in 1958. The Carriers move for summary judgment on the ground that the two pollution exclusions bar coverage and Texas Eastern cannot offer evidence sufficient for a reasonable jury to conclude that its conduct comes within the exception to either the ISO or London Market exclusion.
Texas Eastern responds that its discharges can be characterized as "sudden and accidental," or as "sudden, unexpected, and unintended." In support of this contention Texas Eastern argues that the term "sudden" is ambiguous and can be interpreted to have more than one meaning. One meaning is a temporal one, as in "quick" or "abrupt." The second meaning is one without regard to the timing of the event, as in "unexpected" or "unintended." If "sudden" means "unexpected," then the mere fact that Texas Eastern's discharges occurred over a long period of time is not relevant to the applicability of the ISO or London Market exclusions. Texas Eastern further contends that its various discharges can be characterized as "accidental," and therefore both "unexpected and unintended," and fall squarely within the exceptions to both exclusions.
Concerning the ISO exclusion, there are two principal questions which must be addressed: (1) should the focus of the pollution exclusion analysis be on the discharge of the pollutant into the environment or on the resulting environmental damage, and (2) must "sudden" have a temporal meaning akin *1347 to "quick" or "abrupt," or can it also have a non-temporal meaning?
On the first issue, courts have been virtually unanimous in concluding that the focus of the pollution exclusion inquiry is on the initial discharge of the pollutant into the environment. For example, the Third Circuit recently concluded that "the plain language of the `sudden and accidental' exception focuses on the nature of the discharge, not on the resulting environmental damage." New Castle County, 933 F.2d at 1202 (Delaware law). Accord, Liberty Mutual Ins. Co. v. Triangle Indus., Inc., 957 F.2d 1153, 1157 (4th Cir.1992), petition for cert. filed June 1, 1992, (No. 91-1945) (New Jersey law); Broderick Inv. Co. v. Hartford Accident & Indem. Co., 954 F.2d 601, 607 (10th Cir.1992) (Colorado law); Hartford Accident & Indem. Co. v. United States Fidelity & Guar. Co., No. 91-4057, 1992 WL 87828, at *6 (10th Cir. April 30, 1992) (Utah law).
In my view, reading the pollution exclusion to focus on the resulting environmental damage, rather than on the discharge of the pollutant, merely repeats the restriction of coverage created by the definition of an "occurrence": the policy provides insurance coverage only for unintentional damage. This interpretation is contrary to the long standing Texas principle that, wherever possible, meaning should be given to all clauses of an insurance policy. I conclude, therefore, that the Texas Supreme Court would require that the "discharge" of the PCBs, and not the resulting environmental damage, be both "sudden and accidental"[77] in order for Texas Eastern to avoid the bar of the ISO pollution exclusion.[78]
As I have previously explained, Texas Eastern bears the burden of establishing either that the occurrence does not come within an exclusion or that it can meet the requirements of the exception to the exclusion. The applicability of the exclusion has been established, and the only question to be decided is whether Texas Eastern's loss falls within the narrow exception to the exclusion.
Under the terms of the ISO exclusion, Texas Eastern must prove that the discharge of pipeline liquids (contaminated with PCBs) was both "sudden and accidental." Texas Eastern contends that "sudden" has more than one reasonable interpretation and, pursuant to Texas law, must be considered an ambiguous term. Under Texas law, if a term in an insurance contract has more than one reasonable meaning, it is ambiguous as a *1348 matter of law, and must be interpreted against the insurer and in favor of providing insurance coverage. Texas Eastern argues that "sudden" can reasonably be interpreted to mean "unexpected" or "unintended," without any reference to the duration of the occurrence. Thus, an event can be "sudden" without necessarily starting or ending "quickly," and can occur over a long period of time.
Texas Eastern's interpretation has some support in the case law. Of the numerous courts in jurisdictions other than Texas that have considered this question, approximately one-half have concluded that "sudden" need not necessarily have a temporal meaning. See New Castle County, 933 F.2d at 1195 n. 60 & n. 61 (collecting cases). The fact that other courts have concluded that "sudden" is susceptible to more than one reasonable meaning is some evidence that "sudden" may be an ambiguous term, but does not automatically require a finding of ambiguity. Hartford Accident & Indem. Co., 1992 WL 87828, at *4; New Castle County, 933 F.2d at 1196. Indeed, it is my view that the split in authority is not particularly relevant because my sole responsibility is to attempt to ascertain what the Supreme Court of Texas would conclude.
The dictionary definition of "sudden" lends further support to Texas Eastern's position. For example, Black's Law Dictionary 1284 (1979) defines "sudden" as "[h]appening without previous notice or with very brief notice; coming or occurring unexpectedly; unforeseen; unprepared for." At the same time, Webster's II New Riverside University Dictionary 1157 (1984) defines "sudden" as "[t]aking place without warning"; "hasty: abrupt"; "brought about in a short time"; or "very quickly and unexpectedly." Clearly the two definitions cannot easily be fully reconciled.
Courts disagree, however, on the significance of these conflicting dictionary definitions. For example, when faced with a similar issue, the Michigan Supreme Court recently refused to give any weight to the conflicting dictionary definitions presented to it as evidence that "sudden" was an ambiguous term. The court explained that if courts reasoned that dictionary differences on the definition of "sudden" is evidence in and of itself that the term is ambiguous, "it would be virtually impossible to write a contract that was unambiguous." Upjohn Co. v. New Hampshire Ins. Co., 438 Mich. 197, 476 N.W.2d 392, 398 n. 8 (1991).
I agree with those courts holding that dictionary definitions are not significantly helpful in determining whether a term has two reasonable definitions. It will often be the case that different people reading different dictionary definitions of the same word will reach different and unique interpretations of that word. That does not automatically mean that every definition is itself reasonable. In the present case, it is certainly reasonable for a person to conclude from reading dictionary definitions that "sudden" need not have a temporal meaning. In my view, however, it is nevertheless an unreasonable and unacceptable interpretation of the term.[79] I will therefore accord the conflicting dictionary definitions little weight.[80]
Finally, Texas Eastern relies on the drafting history of the pollution exclusion to support its contention that "sudden" can have a non-temporal meaning. (See Hart Decl., Exs. 19-31.) The Carriers have urged, in their motion to strike, that I not consider this evidence because Texas law forbids the consultation of extrinsic evidence in determining whether a contract term is ambiguous. I have reviewed Texas law on this issue and conclude that it is appropriate to consider the wording of a contract in light of surrounding circumstances. See Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726, 731 (Tex.1981):
*1349 If, in the light of surrounding circumstances, the language of the contract appears to be capable of only a single meaning, the court can then confine itself to the writing. Consideration of the facts and circumstances surrounding the execution of a contract, however, is simply an aid in the construction of the contract's language.
Id. Having examined the drafting history of the pollution exclusion, I conclude that it is indeed evidence that some of the pollution exclusion drafters considered the meaning of "sudden" to be "unexpected and unintended." In fact, the Third circuit concluded in New Castle County that similar drafting history implied that an interpretation of the term "sudden" which included a non-temporal meaning "is at least plausible, if not plainly correct." New Castle County, 933 F.2d at 1198.
More significantly from my perspective, however, is the lack of evidence linking this non-temporal meaning of "sudden" to the parties to these particular insurance contracts. For example, there is no evidence that the parties ever discussed the meaning of the term "sudden" or referred to the original intent of the drafters at the time of contract. There is little credible evidence even tending to show that the Carriers or Texas Eastern were aware of the drafters' explanation of the ISO pollution exclusion at the time Texas Eastern and the Carriers entered into their contracts of insurance.
Given the tangential relationship of the drafting history to the actual contracts entered into by the Carriers and Texas Eastern, I do not believe that the drafting history is persuasive evidence of the "facts and circumstances surrounding the execution of [the insurance] contract[s]." Sun Oil Co., 626 S.W.2d at 731 (emphasis added). I will therefore consider it as some, but not persuasive, evidence that "sudden" can reasonably mean "unexpected and unintended" without any temporal restriction.
The parties have cited only one case applying Texas law which specifically addresses the meaning of the term "sudden" in the context of a pollution exclusion. In National Standard Ins. Co. v. Continental Ins. Co., No. CA-3-81-1015-D, slip op. (N.D.Tex. October 4, 1983), the district court held that under Texas law, discharges of pollutants over "a period of years" could not be considered "`sudden and accidental.'" National Standard, No. CA-3-81-1015-D, slip op. at 9.
National Standard involved a tort action for bodily injury caused by exposure to chemical carcinogens released into the atmosphere by the insured. In holding that the pollution exclusion[81] precluded coverage under the policies, the court explained:
These claimants assert only that they were exposed to the chemicals through the atmosphere. Regardless of the legal theory used, each of the causes of action they allege would require proof that the defendants discharged the chemicals into the atmosphere. Moreover, they assert that the harmful conditions continued over a period of years, and thus there is no basis in the allegations for describing the chemical discharges as "sudden and accidental." Accordingly, the insurers whose policies otherwise place them on the risk for these claimants, but which policies contain the pollution exclusion, have no obligation to defend these suits.
National Standard, No. CA-3-81-1015-D, slip op. at 9. I interpret this case to support my conclusion that under Texas law, (1) the focus of the analysis under the pollution exclusion is the discharge of the pollutant into the environment, and (2) "sudden" has a temporal meaning akin to "quick" or "abrupt."
It is worth repeating what should already be clear: my principal responsibility is to predict what the Supreme Court of Texas would conclude about the meaning of the term "sudden." I have been provided with some guidance from the district court in National Standard. I have also given significant thought to the issue and conclude that, if faced with this issue, the Texas Supreme Court would decide that "sudden" is unambiguous and cannot reasonably be divorced *1350 from "swiftness," "quickness," or all temporal significance.[82]
I reach this decision keeping in mind the strong presumptions in Texas law that a court must not create an ambiguity in a contract when none exists and must give effect to each term in an insurance contract. Having considered all of the evidence, I believe that a definition of "sudden" which divorces it from the meaning of "swift" and "abrupt" is an unreasonable and tortured interpretation and not one which the Supreme Court of Texas is likely to adopt. Having already concluded that the damages for which Texas Eastern seeks coverage was not caused "quickly" or "abruptly" (because Texas Eastern discharged PCBs into the environment over a long period of years), I find that the ISO exclusion bars coverage for Texas Eastern's claims.
The London Market exclusion is also clearly unambiguous and therefore bars coverage. This exclusion bars coverage of any liability for property, bodily, or personal injury caused by seepage, pollution, or contamination, unless such seepage, pollution, or contamination is caused by a "sudden, unintended and unexpected happening." In the context of this exclusion, "sudden" clearly has a temporal meaning. To interpret "sudden" to mean that the discharge must only be "unintended and unexpected" would create an obvious redundancy in the policy.
Although my finding that the discharges were not "sudden" is sufficient to bar coverage under either exclusion, the discharges were also clearly not "accidental." To the contrary, the discharges were intentional and deliberate. Texas Eastern contends that the discharge of PCBs was "accidental" because Texas Eastern was, at least during the earlier years in question, unaware of the PCB content of its discharges and that it did not know it was discharging a pollutant. I believe that the Texas Supreme Court would rule that where, as here, the substance, regardless of its content, is discharged intentionally, lack of knowledge of the substance's pollutant content does not make the discharge "unintentional" or "accidental."
Texas Eastern also suggests that the relevant "discharge" occurred when the liquids migrated onto third-party property and that this was "accidental." It is the insured's initial discharge, however, not the resulting damage or pollution, that is the focus of the inquiry under the pollution exclusion clauses. In this case, the relevant discharge occurred when the PCBs, whether known or unknown, were released and emitted from Texas Eastern's compressors. Those discharges were neither "sudden" nor "accidental" within the plain meaning of the ISO and London Market pollution exclusion clauses.
For all of these reasons, the policies that contain an ISO or London Market pollution exclusion clause do not afford coverage to Texas Eastern, and as to those policies, summary judgment will be granted to the respective Carriers.[83]
XIII. LATE NOTICE
Both the Carriers and Texas Eastern have moved for summary judgment on the issue of "Late Notice." The Carriers contend that the August 19, 1987 notice provided by Texas Eastern violated a condition precedent to insurance coverage, thereby relieving the Carriers of the duty to defend or indemnify any of the claims against Texas Eastern. Additionally, the Carriers contend that Texas Eastern's late notice prejudiced their ability to adequately evaluate the nature of the *1351 claims. Texas Eastern denies that the notice was late and further denies that the Carriers have suffered any appreciable prejudice due to the timing of the notice. I conclude that Texas Eastern's notice was late as a matter of law, and that the Carriers were prejudiced by such late notice. Therefore, the Carriers' motion for summary judgment will be granted as to all claims, and Texas Eastern's motion will be denied.
A. The Policy Terms
All of the insurance policies issued to Texas Eastern contain a condition precedent requiring Texas Eastern to give notice to the Carriers of both an "occurrence" and of a "claim or suit." The insured's duty is typically to provide notice of an "occurrence as soon as practicable," and to forward every demand, notice, summons, or other process, with regard to a claim or suit, "immediately."
The excess policies typically require notice only of an "occurrence which appears likely to result in liability under" the excess policies themselves. In addition, some of the excess policies contain a provision which provides that the failure to give timely notice does not prejudice the insured's rights under the policy if the insured initially believed that the "occurrence" was unlikely to involve that policy.[84]
Texas Eastern's primary insurance coverage was provided by the F & C policies. Under the policies in effect from July 1967 to January 1981, the duty to notify the insurer arises only after notice of the "occurrence has been received by the Insurance Department or executive officer of the Insured." In the F & C policy effective from January 1981 to April 1988, the duty to notify arises only after notice of the "occurrence has been received by the Insurance Department of Texas Eastern Corporation."
B. Accrual of Texas Eastern's Obligation to Notify its CGL Insurers
The Carriers' allegations concerning the precise time when Texas Eastern's obligation to provide notice accrued are vague. The Carriers' motion cites numerous events, beginning in 1981, which arguably triggered Texas Eastern's notice obligations.[85] As I have previously discussed, the most relevant events for determining the accrual date of Texas Eastern's notice obligation are those events which establish an awareness of off-site migration. Events involving on-site PCB contamination are also relevant because they establish that Texas Eastern was, or should have been, aware of the magnitude of its PCB problem and, thus, affect the determination of what a "reasonable time" for notice after the accrual of the obligation should be. I will briefly outline the relevant events.
1. 1981
The first significant event of which the Carriers allege Texas Eastern should have provided notice was the 1981 discovery of PCBs in a residential gas meter in Long Island, New York. Although claims were made against Texas Eastern for contribution to the costs incurred by gas distribution companies for cleaning up the PCBs, Texas Eastern provided notice of the claims only to one excess liability carrier but not to its primary or other excess insurance carriers. Texas Eastern contends that the distribution companies' intentions to seek contribution for their costs were not considered "claims," (App. 267), and also that Texas Eastern is not now seeking coverage for any money paid to reimburse its customers' costs. In addition, Texas Eastern observes that it was only one of a number of natural gas suppliers to the Long Island site, and that it was never conclusively established that Texas Eastern was the sole source of the PCB contamination, *1352 thus rendering the validity of such claims doubtful.[86] (Dep. of Willard Young, TApp. 20 at 431-36.) Nevertheless, the Carriers plausibly argue that this was an "occurrence" likely to (and which in fact did) result in a claim by third parties.
2. 1982
In August 1982, Texas Eastern entered into two Consent Agreements with EPA, obligating Texas Eastern, inter alia, to test the lubricating oil in its compressors for the presence of PCBs. (App. 289; App. 290.) Texas Eastern contends, not too convincingly, that it did not give notice to the Carriers because it did not believe that this was a claim as defined by its CGL insurance policies. The Carriers observe that many of these costs are similar, if not identical, to the remediation costs for which Texas Eastern is now seeking insurance coverage. Examples of the costs include the installation of source control equipment, testing of pipeline liquids, and disposal of the PCBs.
In addition, Texas Eastern learned, in 1982, that an unlined earthen pit at its St. Francisville station was contaminated with PCBs and might require remediation. (TRSOF ¶¶ 291, 293). There is no evidence, however, that Texas Eastern then knew that any of the PCBs were migrating off its own property. The inherent danger (migration of any liquid from unlined earthen pits) is, however, so obvious, that prudence should have guided Texas Eastern to notify its numerous insurance carriers of potential claims in the future.
Indeed, it certainly could be argued that the known PCB contamination in Texas Eastern's pits, which Texas Eastern insists was unintended, was an event which, in light of federal statutes and EPA's probable requirement of remediation, was likely to result in a claim by EPA. Although Texas Eastern attempts to ground its obligation to notify entirely on the likelihood of a claim resulting from migration of PCBs onto third-party property, it is clear that the major cause and basis of Texas Eastern's present claims is cost associated with the EPA mandated cleanup of PCBs on Texas Eastern's own property. Thus, the CGL carriers certainly would have expected to be notified of this event "as soon as practicable" if, as now, Texas Eastern seeks to recover these costs from its insurers.[87]
3. 1983
Texas Eastern admits that it partially prepared a generic Environmental Impairment Liability (EIL) insurance application in which it listed PCBs in its compressor lubricant as a possible source of a future claim. (TSOF ¶¶ 92-94; App. 301 at XXXXXXXXX). The application was never completed or actually submitted to any insurance company and Texas Eastern contends that its Insurance Department never reviewed the application. Of course, an event which is likely to give rise to a claim pursuant to an EIL policy is not necessarily synonymous with an event likely to give rise to a covered claim pursuant to a CGL insurance policy.[88] This does establish, however, that as early as 1983, Texas Eastern was aware of the potential for future claims.
4. 1984
It is undisputed that EPA, in late November or early December 1984, (App. 306), issued a complaint against Texas Eastern's subsidiary gas pipeline company, Transwestern, which serviced areas not involved in this litigation. At that time, Texas Eastern was *1353 completing, or had completed, the sale of the Transwestern pipeline to Houston Natural Gas (HNG).[89] In April 1985, Transwestern entered into a Consent Agreement with EPA, requiring Transwestern to clean up PCB contamination found in its earthen pits. (App. 306.) Texas Eastern subsequently entered into an agreement with Transwestern to pay for a percentage of Transwestern's remediation costs to be incurred prior to December 31, 1987, up to an aggregate amount of $2 million. Texas Eastern contends that it did not consider this a "claim or occurrence" pursuant to its insurance policies, (TRSOF ¶ 309), and is not seeking insurance coverage for these costs in the present action.
5. 1985
In a January 10, 1985 phone conversation, EPA representative Mike Wood told J.C. Williams, Texas Eastern's Director of Technical Services, that the Transwestern system pit cleanup would require a settlement agreement which would include, among other things, "the method of cleanup, a time schedule (i.e. how soon), to what PCB concentration, etc." (App. 286 at 2.) Texas Eastern admits that Wood advised Texas Eastern that it should make assessments of potential contamination at other Transwestern system locations also using pits. (Id.) Texas Eastern contends that it did not report this to its insurance carriers because it did not consider the Transwestern system contamination, or the suggestion to investigate potential contamination at other sites, to be a claim against Texas Eastern. It seems clear, however, that Texas Eastern knew that there was a likelihood of claims by EPA and state environmental agencies concerning the cleanup of Texas Eastern's pits. It is at least arguable that these events were "occurrences" likely to give rise to a claim and therefore triggered an obligation to notify many of the Carriers "as soon as practicable."
In August 1985, EPA issued a Notice of Non-Compliance to Texas Eastern's Delmont station for violations of TSCA regulations concerning the marking, storage, disposal, and record-keeping of PCBs. (App. 317.) A copy of this letter was forwarded to Texas Eastern Vice President, H. Douglas Church. (Id.) In a subsequent meeting with EPA, Texas Eastern discussed its plans for the closing of its unlined earthen pits.
In November 1985, Texas Eastern hired Roy F. Weston, Inc. to determine the nature and extent of the PCB contamination around the pits, and to devise a remedial plan. (App. 323.) Texas Eastern began to receive results of Weston's initial six-site survey, which began with sampling in December 1985, almost immediately. (App. 3 at No. 400.)
It is undisputed that by this time Texas Eastern understood that it would have to remediate many of its pits to clean the PCB contamination. (Dep. of Howard Homeyer, App. 449 at 134.) In this litigation, it now seeks to recover these remediation costs. A document prepared for Henry King, Texas Eastern's President, by his administrative assistants, dated November 5, 1985, states that "TE's insurance does not cover any costs of clean-up but any accident or emergency involving PCB's [sic] would be covered under the Corporation's liability insurance." (App. 324 at 2.) It is disputed whether this information was provided by Texas Eastern's Risk Management Division, but it does establish that Texas Eastern's senior management did consider the potential insurance ramifications of an on-site remediation of PCB contamination.
The Carriers observe that the Special Master[90] concluded that Texas Eastern anticipated litigation with EPA no later than May 1985, and entered into negotiations with EPA no later than August 1985. (Special Master's "Report and Recommendation No. 2" at 14, Document No. 383.) The Carriers assert that this evidence establishes that *1354 Texas Eastern knew, or should have known, that EPA was making a claim against Texas Eastern because of an occurrence which was likely to give rise to a significant claim. Texas Eastern responds that these negotiations did not involve "occurrences" as defined by its insurance policies, and that no notice to the insurance carriers was required, because any potential litigation would not have concerned third-party damage. (Cody Decl., TApp. 214 at ¶¶ 7, 8.) Although Texas Eastern disavows that it is claiming indemnity for the cleanup costs unassociated with third-party damages[91], it is clear from all of its submissions that Texas Eastern is seeking complete indemnification for all costs it has incurred and will incur in the actual PCB cleanup. Thus, it would appear that at least by May 1985, Texas Eastern should have notified its primary and excess CGL carriers of the likelihood of a claim or claims, if it is to recover any of these remediation costs.
6. 1986
By February 18, 1986, Weston delivered a draft report of the six-site survey to Texas Eastern. (App. 341.) The report clearly establishes that PCBs were found in the drainage swales and surface water bodies of the unlined earthen pits, and that the potential for off-site migration existed. (Id. at XXXXXXXXX.) This is uncontradicted evidence that Texas Eastern was, at a minimum, aware of the potential for off-site migration as of February 1986.
Texas Eastern met with EPA officials on April 30, 1986, to present the results of Weston's investigation and expressed an interest in entering into a consent agreement to clean up the pits. (App. 76.) Texas Eastern maintains, however, that this settlement, and EPA's concern about the pits, did not include any consideration of off-site migration or off-site remediation.[92] Texas Eastern's knowledge that PCBs were found in the swales and surface liquids of the pits, and its knowledge that, over the course of years, pit liquids had migrated onto third-party properties, for which claims were made and compensation paid (albeit not expressly for PCB contamination), certainly alerted Texas Eastern to the potential for PCB contamination claims being made in the future. Although Texas Eastern claims that it did not know PCBs could or would migrate from the pits, certainly, in light of all that it did know, it had reason to suspect the potential for migration and the likelihood of future claims by third-party landowners.
In May 1986, Texas Eastern requested that Weston expand its pit survey to include 54 additional compressor station sites. (TRSOF ¶ 354.) Texas Eastern received the initial results of this 54-site survey in December 1986, and ultimately forwarded the final results to EPA in March 1987. The March 1987 report clearly indicated that off-site contamination had occurred at a number of compressor station sites. (See, e.g., Dep. of Bradford Cushing, App. 654 at 367-72 (relying solely on the March 1987 Weston 54-site survey final report to support his opinion that off-site migration of PCBs had occurred at the Wheelersburg, Ohio compressor station.)) In the Carriers' view, the only reasonable inference that can be drawn from the March 1987 final report is that Texas Eastern knew, or should have known, based on the December 1986 preliminary report, that off-site PCB migration had occurred. Supporting the Carriers' view is Texas Eastern's admission, at oral argument, that the initial results should have alerted Texas Eastern to the fact that off-site PCB contamination had occurred at a number of compressor station sites. (See infra p. 1360 note 97.)
In December 1986, Texas Eastern proposed a cleanup plan to EPA. (TRSOF *1355 ¶ 375; App. 3 at No. 437.) Justice Department representatives made it clear to Texas Eastern that it would require a judicially enforceable consent decree to result from these discussions. (Dep. of Carol Dinkins, App. 362 at 46.) By this time, Texas Eastern was committed to remediating the PCB contamination in its unlined earthen pits and the only material dispute between Texas Eastern and EPA was the extent of the cleanup and the form of the agreement which would be required.
In 1986, Lester Rosenberg, one of Texas Eastern's insurance brokers, began to assemble a list of CGL insurance policies purchased by Texas Eastern beginning with July 1, 1963. (App. 360.) The Carriers contend that this is evidence of Texas Eastern's intent to notify the Carriers of the remediation agreement with EPA. Texas Eastern responds that this was only part of a routine Texas Eastern Insurance Department practice to prepare historical summaries of insurance coverage. Neither party has offered evidence sufficient to establish the authenticity of either explanation.
The Carriers have further suggested that on July 3, 1986, a Texas Eastern Insurance Department employee discussed Texas Eastern's PCB problem with Mr. Rosenberg, stating that there was third-party damage at multiple sites. (Ins.' Mot.Summ.J. Late Notice at 13.) At Mr. Rosenberg's deposition, he did not remember having such a conversation and the parties have offered no other evidence which establishes, with undisputed facts, whether such a conversation ever took place. (See SOF ¶ 363; App. 355; Dep. of Lester Rosenberg, App. 302 at 1106-10.)
In December 1986, Texas Eastern received, from its insurance agents Querbes & Nelson, a list of claim notification information and a summary of policy limits and insurers. (TRSOF ¶ 383; App. 366.) Despite this, notice was not given to the Carriers for another eight months.
7. 1987
On February 21, 1987, the Houston Chronicle published an article detailing Texas Eastern's PCB-related problems. (App. 370.) Having read the article, the Carriers contend that John Dwinell, an Aegis claims attorney, contacted Texas Eastern Claims Manager, Maynard Williams. Mr. Williams informed Mr. Dwinell that the reported PCB matter did not concern Aegis. (Dep. of John Dwinell, App. 373 at 36-37.) Mr. Williams testified that he did not recall the exact conversation, but he testified that "it would be sort of ludicrous of me to tell someone that they are not going to be involved in something." (Dep. of Maynard Williams, TApp. 34 at 235.) He also stated that he recalled Dwinell telling him that Aegis would cover third-party actions but not anything on Texas Eastern's own property. (Id. at 236.)
Texas Eastern's Insurance Manager, James Farley, testified that Texas Eastern considered giving notice in February 1987, (Dep. of James Farley, App. 459 at 600-05), and that the Risk Management Department was being briefed weekly on the progress of the EPA discussions. (Id. at 606-07.) However, precisely what the Insurance Department was receiving notice of is hotly disputed by the parties and there are no undisputed facts on which to rely.[93]
Texas Eastern contends that its Insurance Department personnel were unaware of any third-party threat in late 1986 and early 1987. Stephen C. Mulliken, the Manager of Texas Eastern's Insurance Department, testified at his deposition that in 1987 he understood that Texas Eastern was negotiating with EPA about the cleanup of PCBs on Texas Eastern's own property and that this would not involve the Corporation's third-party liability policies. (Dep. of Stephen Mulliken, TApp. 2 at 252, 284-89.) James Farley expressed a similar opinion at his deposition. (Dep. of James Farley, TApp. 1 at 153-57, 164, 179, 472, 499.) It was only in April and May 1987, that the Insurance Department began to consider the PCB problem as a potential insurance matter.[94]
*1356 On March 17, 1987, Texas Eastern officials testified before a United States Senate Subcommittee concerning Texas Eastern's PCB problem and the status of its settlement discussions with EPA. (App. 2 at 1, 13.) Shortly thereafter, the Carriers contend that settlement negotiations with EPA became intensive. Texas Eastern responds that prior to April 1987, EPA never insisted that Texas Eastern consider any risks of off-site contamination, and never insisted that cleanup levels be based on EPA's "risk assessment" with respect to harm caused or threatened to human health and the environment. According to Texas Eastern, this was also the first time that EPA demanded that Texas Eastern enter into formal negotiations to discuss specific cleanup demands. (TSOF ¶ 111; Church Decl., TApp. 191 at ¶ 9.) Even at this late date, Texas Eastern delayed notifying its insurance carriers for over four months.
On August 18, 1987, Carol Dinkins, Texas Eastern's attorney and chief negotiator, wrote a letter to David Batson, EPA's Chief Negotiator, outlining certain proposals made by Texas Eastern to settle the pit remediation issues with EPA. (App. 382.) I would not characterize this as an "agreement," but it clearly establishes that Texas Eastern had given the remediation issue significant consideration by this time in 1987.
According to Texas Eastern, after the Senate hearings, the Insurance Department began an investigation to determine the extent of the PCB contamination and to determine what insurance coverage was potentially available for the Corporation. (Dep. of James Farley, TApp. 1 at 436-37.) On August 19, 1987, Texas Eastern finalized its "notice of claim" letter, and mailed the letter to the Carriers several days later. (TRSOF ¶ 414.) This was the first formal written notice that any of the insurance carriers received.
Texas Eastern was, at a minimum, obligated to give the Carriers written notice (1) "as soon as practicable" upon the happening of an "occurrence" if it appeared likely to give rise to a claim even if no claim had yet been presented to Texas Eastern, and (2) "with full particulars" of a claim "on account of such occurrence," once a claim was made. Texas Eastern admittedly did neither until August 19, 1987.
C. Texas Law
Texas law views the notice requirement as a condition precedent to coverage and "failure to perform the condition constitutes an absolute defense to liability on the policy." Dairyland County Mut. Ins. Co. v. Roman, 498 S.W.2d 154, 157 (Tex.1973). This is true even if the insurer has actual notice of the loss. Dairyland, 498 S.W.2d at 157; Employers Casualty Co. v. Mireles, 520 S.W.2d 516, 518 (Tex.Civ.App.1975) (writ refused n.r.e.).
The burden is on the insured to show that it has fulfilled all conditions precedent contained in the policies. Trevino v. Allstate Ins. Co., 651 S.W.2d 8, 11 (Tex.Ct. App.1983) (writ refused n.r.e.). See also Dairyland, 498 S.W.2d at 158. Thus, Texas Eastern must establish by admissible evidence that it gave notice in accordance with the policy provisions, or provide a reasonable explanation for its delay. Texas Eastern contends that its notice requirement accrued in April 1987 and that it provided notice "as soon as practicable" in August 1987.
The terms "as soon as practicable" or "immediately," as used in a notice provision, have been construed to require notice "within a reasonable time." Broussard v. Lumbermens Mut. Casualty Co., 582 S.W.2d 261, 263 (Tex.Civ.App.1979); McPherson v. St. Paul Fire & Marine Ins. Co., 350 F.2d 563, 566 (5th Cir.1965). See also, New Amsterdam Casualty Co. v. Hamblen, 144 Tex. 306, 190 S.W.2d 56, 58 (1945). I interpret this to mean that the insured must display the degree of diligence which a reasonably prudent person would exercise under the same or similar circumstances. This necessarily requires an inquiry into what was reasonable under the circumstances of this particular *1357 case. See Broussard, 582 S.W.2d at 263 ("[W]hat is a reasonable time depends upon the facts and circumstances in each particular case.")
In this regard, "[t]he age, experience, capacity and knowledge of the insured are ... circumstances to be considered in determining whether the required notice was given as soon as practicable." Dairyland, 498 S.W.2d at 158. See also McPherson, 350 F.2d at 567. Texas Eastern is a sophisticated corporation with a large Risk Management Department. Therefore, it should be held to a high standard when interpreting the reasonableness of the delay in providing notice to the Carriers.[95] Texas Eastern knew about the potential for third-party claims and had assembled all CGL policies potentially involved by no later than December 1986, a period of eight months before notice was given.
Even a sophisticated insured is not expected to give notice until it knows of an "occurrence" that is likely to give rise to a claim under its insurance policies. Ogden Corp., 924 F.2d at 43; Employers Casualty Co. v. Scott Elecs. Co., 513 S.W.2d 642, 645-46 (Tex.Civ.App.1974). Under Texas law, whether an insured knows or should have known of an occurrence is determined by an objective test. Texas Glass & Paint Co. v. Fidelity & Deposit Co., 244 S.W. 113, 114-115 (Tex.Comm'n App.1922).
Courts in Texas have repeatedly ruled that relatively short delays can be unreasonable, and that the insurer is, therefore, excused from defending and indemnifying the insured. See, e.g., Klein v. Century Lloyds, 154 Tex. 160, 275 S.W.2d 95, 97 (1955) (thirty-four day delay in providing notice does not constitute notice given as soon as practicable); Allen v. Western Alliance Ins. Co., 162 Tex. 572, 349 S.W.2d 590, 594 (1961) ("We hold that as a matter of law the failure to give notice for 107 days, under the circumstances of this case, did not constitute the giving of notice `as soon as practicable' after the accident."); Trinity Univ. Ins. Co. v. Weems, 326 S.W.2d 302, 304 (Tex.Civ.App. 1959) (three and one half month delay does not constitute notice given as soon as practicable); Mireles, 520 S.W.2d at 522 ("In the absence of waiver or special circumstances not present here, [the insured's] delay of over six months [six and one half months] is not notice as soon as practicable as a matter of law."); Broussard, 582 S.W.2d at 263 ("The delay of twenty months in giving notice of [the claim] to the insurance companies did not constitute giving notice `as soon as practicable' as required by the insurance policies."); Kellum v. Pacific Nat'l Fire Ins. Co., 360 S.W.2d 538, 542 (Tex.Civ.App.1962) (writ refused n.r.e.) (one year delay not notice "as soon as practicable"). See also McPherson, 350 F.2d at 565-67 (fifty-four days is not notice "as soon as practicable").
Courts in other jurisdictions have strictly enforced notice provisions in environmental cases. In American Home Assurance Co. v. Republic Ins. Co., 788 F. Supp. 214 (S.D.N.Y. 1992), American Home Assurance Company (American), a primary insurer, sued Republic Insurance Company (Republic) and United National Insurance Company (United), excess carriers, for contribution to a settlement agreement entered into by American on behalf of the insured. In granting the excess carriers' motion for summary judgment on the ground of late notice, the district court held that a "ten month delay from the insured's knowledge of its exposure to the notification of its insurers violated the timely notice of occurrence requirement of those policies." American Home Assurance, 788 F.Supp. at 218.
The court further observed that "even a one month delay" between the time that American was advised of a likely recovery and when it sent notice to Republic and United of the claim "failed to meet the policies' requirement that notice be afforded `as soon as practicable,' particularly because during that time settlement negotiations obviously *1358 bearing on [Republic and United] were being conducted without their knowledge...." American Home Assurance, 788 F.Supp. at 218. Similarly, the Carriers have claimed in the present litigation that Texas Eastern conducted extensive negotiations with EPA long before it gave notice to either its primary or excess insurers.
In Olin Corp. v. Insurance Co. of N. Am., 743 F. Supp. 1044 (S.D.N.Y.1990), aff'd, 929 F.2d 62 (2d Cir.1991), the district court concluded that an insured's one year delay in providing notice constituted a violation of the terms of the insurance policy's notice provision. Olin, 743 F.Supp. at 1055. As in Olin, the Carriers contend that Texas Eastern was aware of its potential liability long before it notified its Carriers. According to the Carriers, at a minimum, Texas Eastern should have provided notice at least by August 1985, when it began negotiating with EPA about the remediation of some of its unlined earthen pits.
D. The Applicable Facts
The parties' inability to agree on the nature of Texas Eastern's claim makes Texas case law difficult to apply in the present case. Texas Eastern has repeatedly asserted that it is not claiming recovery for any of the costs which it did not, or will not, incur because of third-party property damage, third-party personal injury, or third-party bodily injury. I have previously concluded that the relevant occurrence that could trigger liability in this litigation is third-party damage. Thus, providing Texas Eastern with the maximum possible extension of time, the duty to notify would mature no later than when Texas Eastern knew of actual off-site PCB migration or of the likelihood that off-site PCB harm or contamination had occurred. Unreasonable delay will, for the purposes of the present motions, be decided from that point forward. However, in determining what is a reasonable time, the known magnitude of the problem and Texas Eastern's own knowledge of the long existing on-site PCB contamination are relevant factors.
The undisputed evidence is insufficient to establish that EPA made a "claim" against Texas Eastern during the years 1981 through 1985. A claim is the assertion of a legal right through a specific demand, not merely notice of a potential problem. Winkler v. National Union Fire Ins. Co., 930 F.2d 1364, 1367 n. 4 (9th Cir.1991). Although EPA was actively discussing Texas Eastern's future responsibilities regarding the pits, the evidence does not conclusively establish that EPA demanded that Texas Eastern clean up any property.
The Carriers have offered insufficient undisputed evidence to establish that Texas Eastern was aware that PCBs were migrating off-site and contaminating third-party property prior to April 1986. The Carriers have, however, provided ample evidence that Texas Eastern was aware, for at least five years prior to giving notice to the Carriers, that it had a significant on-site PCB problem. Therefore, once Texas Eastern understood that PCBs were actually migrating, or understood the reasonable likelihood of migration, its obligation to provide notice should have accrued very shortly thereafter.
The first time Texas Eastern appears to have considered the potential migration of PCBs was in its initial meetings with representatives of Weston in late 1985. The initial six-site sampling program was designed to determine the extent of PCB contamination in Texas Eastern's pits, including the potential for off-site migration. (Dep. of Manmohen Bhatla, App. 651 at 19-20, 98-99.) The suggestion to check for migration was apparently made by Weston representatives. (Id.) Notes from the initial discussions between Texas Eastern and Weston establish that the parties also discussed the depth of groundwater and the proximity of groundwater to streams at various locations. (App. 328 at 2.)
Bradford S. Cushing, Texas Eastern's environmental expert, testified that the possibility of off-site migration was discussed with Texas Eastern representatives, including H. Douglas Church and Robert Salzer. (App. 653 at 373-76, 379-82, 675-81.) Mr. Cushing also testified that the results of the initial six-site survey indicated that there was the possibility of PCB migration to areas off the compressor station sites. (App. 653 at 679.)
*1359 Texas Eastern responds that it did not know of any off-site migration during this time. It offers H. Douglas Church's letter to EPA, dated April 25, 1986, in which he explains that Texas Eastern had installed silt fencing to prevent migration of contaminated sediment to surface water bodies. (App. 171 at 5.) This letter confirms that Texas Eastern, at a minimum, understood the potential for, if not the probability of, off-site migration, by April 1986. In addition, the Carriers offer what is represented to be an earlier draft of this letter in which Texas Eastern wrote:
The presence of PCBs in the surface waters and drainage swales indicates that PCBs may be migrating from station sites. Remedial actions were initiated the week of April 14, 1986 to reduce further off-site migration potential through the installation of filter fabric, a sedimentation control measure, at three sites identified by the pilot study.
(App. 339 at 7) (emphasis added.) This draft certainly suggests that Texas Eastern's senior management understood that off-site migration was probably taking place at some of its compressor station sites as early as April 1986; over one and one-third years before Texas Eastern provided notice to the Carriers.[96]
This evidence clearly contradicts the litigation affidavits offered by Texas Eastern to establish that it did not have any knowledge of off-site migration until April 1987. For example, H. Douglas Church declared that until 1987, Texas Eastern did not recognize that actual off-site migration had occurred. (Church Decl., TApp. 191 at ¶ 8). However, the draft of his April 25, 1986 letter to the EPA explicitly contradicts this. Derrill Cody, Executive Vice President of Texas Eastern Corporation from June 1986 through December 1989, declared that it was not his understanding that Weston's initial sampling program indicated off-site PCB contamination. (Cody Decl., TApp. 214 at ¶ 5.) The February 1986 draft report of the Weston six-site survey clearly shows that Mr. Cody was mistaken.
Texas Eastern also consistently downplays the Carriers' offers of record proof establishing that Texas Eastern was aware of at least some "isolated" instances where Weston samples discovered off-site migration. First, Texas Eastern argues that there is no evidence that Insurance Department personnel were aware of these findings. I will explain, infra pp. 1360-1361, that in most cases the actual knowledge of the Insurance Department is not relevant because Texas Eastern had a continuing duty to keep its Insurance Department advised of relevant corporate information which should have included information concerning the off-site migration of PCBs.
Second, Texas Eastern often relies on the fact that, in its view, the potential for off-site migration and third-party harm was minute, insignificant, and extremely localized and therefore did not trigger any duty to notify the Carriers. (See, e.g., TE's Reply in Supp. Summ.J. Late Notice at 14: "[T]here is no evidence that any operational employee considered the potential for off-site PCB migration to be significant: the silt fences were merely a routine precaution against soil erosion, which was then thought to be the only way that PCBs could move off-site.") As I have explained, Texas Eastern was aware that it had a significant on-site PCB problem many years prior to the discovery of even the potential for off-site contamination, and Texas Eastern knew that EPA would require a costly cleanup. Thus, even the slightest hint of off-site migration would have required Texas Eastern to provide the Carriers with prompt notice because of the potential magnitude of the PCB contamination problem and the likelihood of a future claim.
It is therefore established, by undisputed record evidence, that Texas Eastern both understood the potential for off-site migration, and knew, at least as of April 1986, that some off-site migration had probably occurred. *1360 These events are highly relevant in establishing the time when Texas Eastern's obligation to provide notice accrued, because they specifically relate to the off-site, as opposed to on-site, migration of PCBs. Although I am tempted to conclude, as a matter of law, that Texas Eastern should have provided notice in April 1986, I have instead chosen December 1986, the date on which Texas Eastern received the results of Weston's 54-site survey, as the date on which Texas Eastern's notice obligation matured, because that is the date on which Texas Eastern should have clearly understood, as a matter of law, the potential for off-site PCB migration and the likelihood that such migration had actually occurred.[97]
It is my duty to determine whether, after the obligation to provide notice had accrued, the insured provided notice within a reasonable amount of time under the circumstances. I will therefore address Texas Eastern's arguments in support of its allegation that notice was provided within a reasonable time.
First, Texas Eastern contends that the August 1987 notice was provided within a reasonable time because, in Texas Eastern's view, no "occurrence," as defined by its insurance policies, took place until after it had notice of the likelihood that off-site harm was taking place. This argument is inapposite, as I have concluded that Texas Eastern need not have provided notice before it was aware of the likelihood of off-site migration.
Second, Texas Eastern contends that at least as to the F & C policies effective from 1967 to 1981, the August 1987 notice was provided within a reasonable time because notice to the Carriers was required only after notice of a "claim or occurrence" was received by its Insurance Department or by a Texas Eastern executive. The undisputed facts completely undermine Texas Eastern's argument. Although the Insurance Department might not have been on notice in the early 1980s, at least by April 1986, executive officers at Texas Eastern had notice of actual and potential third-party migration. (See supra pp. 1358-1359.)
Third, Texas Eastern contends that as to the F & C policies effective from 1981 to April 1988, the August 1987 notice was provided within a reasonable time because notice to the Carriers was required only after notice of a "claim or occurrence" was received by Texas Eastern's Insurance Department. Texas Eastern appears to believe that this policy language relieves it of the duty to inform its Insurance Department of those facts which are relevant to the performance of the Insurance Department's corporate task. It does not. Texas Eastern had a continuing duty to keep its Insurance Department informed of relevant corporate activities so that it could keep track of Texas Eastern's potential insurance claims.[98]
Given the extensive nature of the known on-site PCB problem, Texas Eastern admits that it certainly would have been prudent for its senior management to have kept the Insurance Department informed of the PCB problems in the mid-1980s. (See Dep. of H. Douglas Church, App. 568 at 933-36.) In any event, once Texas Eastern's senior management understood that the PCBs were migrating off the compressor station sites, Texas Eastern's own guidelines would have required that the Insurance Department be *1361 informed.[99] For all of these reasons, I conclude that the Insurance Department was "informed" of the occurrence of off-site migration at least by the time Texas Eastern's senior management became aware of the migration.[100]
When all of the facts are taken into consideration, it is clear to me that Texas Eastern has provided no credible explanation for the eight month delay[101] (December 1986 to August 1987) in providing the Carriers with notice of the off-site migration and the potential claims that would likely arise out of that "occurrence." Texas Eastern was aware of the magnitude of its on-site PCB problem and it was aware of the likelihood for off-site migration by the end of 1986. Notice should have been provided to its Carriers at that time. Eight months thereafter is, as a matter of law, not "as soon as practicable" and not within a reasonable amount of time.[102]
E. Prejudice
Under Texas law, the Carriers contend that they do not need to demonstrate that they have been prejudiced by Texas Eastern's failure to provide timely notice. However, the Texas State Board of Insurance approved an "Amendatory Endorsement" which is "applicable to all general liability policies issued or delivered in Texas" which states that a notice provision is operative only where an insurer proves that it has been prejudiced by the delay. (App. 460.) The effective date of the endorsement is April 1, 1973. Members Ins. Co. v. Branscum, 803 S.W.2d 462, 467 (Tex.Ct.App.1991). The Carriers contend that, by its terms, the endorsement does not apply to excess liability policies, or general liability policies neither issued nor delivered in Texas. I do not decide this issue, because I conclude that Texas Eastern's failure to timely notify the Carriers prejudiced them as a matter of law.[103]
The Carriers bear the burden of proving that they were prejudiced by Texas Eastern's late notice. Branscum, 803 S.W.2d at 467. "The purpose of the notice requirement is to enable the insurer to promptly investigate the circumstances of an accident so that it can prepare to defend any claim that may arise." Stonewall Ins. Co. v. Modern Exploration, Inc., 757 S.W.2d 432, 435 (Tex.Ct.App.1988). This includes the ability to interview witnesses while the facts are still fresh in their minds, to prevent fraud, and to enable it to form an intelligent *1362 opinion of its rights and liabilities under the policy. Stonewall, 757 S.W.2d at 435.
Courts in other jurisdictions have emphasized the importance of allowing the insurance company to control the proceedings including investigation, settlement, and litigation. For example, in Metal Bank of Am., Inc. v. Insurance Co. of N. Am., 360 Pa.Super. 350, 520 A.2d 493, appeal denied, 517 Pa. 607, 536 A.2d 1332 (1987), the court explained that "the reason for [requiring] timely notice to the insurer is to enable it to gain early control of the proceedings and give it an opportunity to investigate and acquire information about the case." Metal Bank, 360 Pa.Super. 350, 520 A.2d at 498. On the facts before it, that court concluded that the insured's late notice had denied the insurer all of this, particularly because a settlement between the insured and EPA was a fait accompli by the time the insured provided notice.
In West Bay Exploration Co. v. AIG Specialty Agencies, 915 F.2d 1030 (6th Cir.1990), the court concluded that the insured's failure to notify its insurer before disposing of the contamination source responsible for the damage for which the insured was seeking coverage, prejudiced the insured by denying it the opportunity to investigate the claim. The court noted that each of the insurance policies contained a pollution exclusion; by removing the pollution source, the insured "materially compromised the [insurers'] ability to present their most powerful defense to liability under the policy." West Bay, 915 F.2d at 1037. The court's rationale raises an additional purpose of the notice requirement: to allow the insurer to investigate an accident in order to determine whether it need provide the insured with any coverage at all. See also Stonewall, 757 S.W.2d at 435 (notice provision allows the insurer to ascertain its rights and liabilities under the policy).
The Carriers contend that Texas Eastern has waited so long to give them notice that important witnesses can no longer recall important events.[104] More importantly, Texas Eastern's delay foreclosed any opportunity for the Carriers to play a meaningful role in the discussions with EPA and state agencies, participate in the development of the remedial and investigatory programs, or control in any way the costs for which Texas Eastern is now seeking indemnification. The Carriers have also suggested that Texas Eastern waived certain defenses to EPA's claims in the course of their initial negotiations.
Texas Eastern vigorously denies that the Carriers have established prejudice. First, Texas Eastern asserts that the negotiations between Texas Eastern and the EPA grew strained during August 1987 and came to a standstill at the end of the month, when EPA declared that it was preparing to file litigation. (TApp. 172.) According to Texas Eastern, in mid-September, only after having been assured that Texas Eastern's negotiating team would be "authorized to recommend a conceptual agreement" to Texas Eastern's management, EPA advised Texas Eastern that it would postpone the filing of litigation "for a short while" in order to permit continuation of the settlement discussions. (TApp. 173.) The parties subsequently entered into a non-binding "Agreement in Principle" on November 9, 1987. The EPA Consent Decree was filed in June 1988. (App. 474 at 10-11.) Thus, Texas Eastern contends that the Carriers had ample time after they received notice to participate in the negotiation process.
Texas Eastern's contentions are unavailing. The simple fact that negotiations became strained in August 1987 did not undo all of the work done prior to that date. Certainly Texas Eastern knew that it faced very substantial liabilities, and that EPA would not release it from those liabilities absent a settlement agreement or litigation. As Texas Eastern admitted, shortly after the "impasse," Texas Eastern resumed negotiations with EPA, and within months settled on an Agreement in Principle. By the time the Carriers received notice, the matter was for all intents and purposes a fait accompli, or in more modern vernacular, it was a "done deal."
In a September 2, 1987 letter to EPA, Carol Dinkins summarized "the relative positions of the parties as of August 28, 1987." *1363 (App. 646.) The letter included a list of thirty-five items on which agreement had been reached, and Ms. Dinkins commented that the "list is impressive, both for the number of items that it contains and the magnitude of the undertaking that it represents." (App. 646 at XXXXXXXXX.) Texas Eastern had already agreed to pay a civil penalty and oversight costs, although the amount was yet to be agreed upon. (Id. at XXXXXXXXX-XX.) Given these undisputed facts, I am convinced that the Texas Supreme Court would hold, as a matter of law, that the Carriers were prejudiced by Texas Eastern's late notice.
Second, Texas Eastern contends that even if the Carriers establish that they have suffered some prejudice, the Carriers must prove that they could have changed the result had proper notice been provided. This is not the law of Texas. Texas may require prejudice, but it has expressly rejected the application of a "substantial prejudice" standard. Branscum, 803 S.W.2d at 467. Under Texas law, an ordinary showing of prejudice is sufficient to invalidate coverage.
Third, Texas Eastern contends that it did not receive the first of many private third-party claims until after August 1987, and it received most of the governmental claims (state agency claims) after that date as well. Therefore, the Carriers could have participated in the defense of these lawsuits after they received notice.
The Carriers respond that Texas Eastern entered into a voluntary consent decree with the Commonwealth of Pennsylvania in April 1987, in which Texas Eastern agreed to "assess any contamination at the Pennsylvania sites and to remedy that contamination expeditiously." (App. 227C at 6.) Thus, prejudice has clearly been established concerning the Pennsylvania claim. More importantly, however, I conclude that the Carriers were sufficiently prejudiced by Texas Eastern's handling of the EPA Complaint and the resulting EPA Consent Decree, the cost of which constitutes the majority of Texas Eastern's claim against its insurance carriers, that isolated instances where the Carriers may have received timely notice of the actual filing of a claim are insufficient to cure the overall prejudice which the Carriers initially suffered.[105] By the time Texas Eastern gave notice, remedial efforts, testing, and monitoring had begun, and schedules and methodologies to characterize the sites had been established. Most importantly, Texas Eastern had already presented to EPA its proposed settlement terms, and thus completely destroyed any meaningful opportunity for the Carriers to shape the negotiations with EPA. The record makes it abundantly clear that Texas Eastern never wanted the Carriers to interfere with what was a carefully negotiated settlement with EPA and waited until the settlement was substantially agreed upon before providing any notice to the Carriers.
Texas Eastern failed to provide the Carriers with timely notice of the "occurrences," the claims, and the likelihood of claims arising from the "occurrences," thereby violating a condition precedent to receiving insurance coverage. The carriers have established that they have suffered prejudice because of this delay. Texas Eastern has failed to provide an adequate excuse, or even any plausible explanation, for the unreasonable delay.
*1364 For all of these reasons, the Carriers' joint partial motion for summary judgment on the issue of "Late Notice" will be granted and Texas Eastern's cross-motion will be denied. By reason of the late notice, all of Texas Eastern's claims must fail.
XIV. DUTY TO DEFEND
Texas Eastern contends that Fidelity had a duty to defend it against the threatened EPA action and the various state and private third-party actions, and has moved for summary judgment on this ground.[106] Fidelity responds that under Texas law it had no duty to defend because the claims made against Texas Eastern were not covered by its insurance policies, and even if it did have a limited duty to defend, that duty would be defined by its duty to indemnify Texas Eastern against losses, thereby making Texas Eastern's motion for summary judgment premature.
A. The Policy Language
Although Texas Eastern and F & C vigorously disagree about whether all or some of the eight insurance policies which F & C issued to Texas Eastern, beginning in 1961 and ending in 1988, require F & C to defend Texas Eastern, both parties agree that if the duty to defend exists at all, it exists pursuant to the policies written between 1961 and 1973, which contain a duty to defend clause which can correctly be characterized as "traditional."[107]
The language of the policies can be summarized as follows:
With respect to such insurance as is afforded by this policy, the company shall ... defend any suit against the insured alleging such injury or destruction and seeking damages on account thereof, even if such suit is groundless, false, or fraudulent....
B. Texas Law
Under Texas law, an insurer's contractual duty to defend is ordinarily determined solely from the face of the pleadings without reference to the truth or falsity of such allegations and without reference to facts outside the pleadings. Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387 S.W.2d 22, 24-25 (Tex.1965); Rhodes v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir.1983). The duty arises when a comparison of the complaint and the insurance policy reveals that at least one of the allegations, if proven to be true, would state a cause of action within the terms of the policy. Rhodes, 719 F.2d at 119. In applying this "pleadings only" or "four corners" rule, "the court may indulge the most liberal interpretation of the allegations of which they are susceptible and doubts as to the import of the allegations are to be resolved in favor of the insured and coverage." Continental Sav. Ass'n v. United States Fidelity & Guar. Co., 762 F.2d 1239, 1243-44 (5th Cir.), amended on other grounds, 768 F.2d 89 (5th Cir.1985); Heyden, 387 S.W.2d at 26.
In the ordinary situation, an insurer must make a determination after a complaint has been filed against its insured as to whether any of the stated allegations, if ultimately found to be true, could potentially state a claim that would result in a covered loss under the insurance policy. If the insurer determines that a colorable claim has been made, then the duty to defend arises. If the insurer properly determines that no covered claim has been made, then there is no duty to defend.
The Texas courts have deviated from an orthodox application of the four corners rule, and looked beyond the pleadings in order to determine whether the insurer has a duty to *1365 defend, in cases where the issue is whether the claims, even if proven true, would not be covered under the policy of insurance. For example, in Gonzales v. American State Ins. Co., 628 S.W.2d 184 (Tex.Ct.App.1982), the court explained:
Where the insurance company refuses to defend its insured on the ground that the insured is not liable to the claimant, the allegations in the claimant's petition control, and facts extrinsic to those alleged in the petition may not be used to controvert those allegations. But, where the basis for the refusal to defend is that the events giving rise to the suit are outside the coverage of the insurance policy, facts extrinsic to the claimant's petition may be used to determine whether a duty to defend exists.
Gonzales, 628 S.W.2d at 187. In McLaren v. Imperial Casualty & Indem. Co., 767 F. Supp. 1364 (N.D.Tex.1991), aff'd in part and rev'd in part on other grounds, 961 F.2d 213 (5th Cir.1992) (unpublished opinion), the district court surveyed Texas law and concluded that the application of the allegations of the complaint rule
is limited in [Texas's] reported cases to two kinds of situations. One is where the insurance company seeks to avoid the defense obligation on the ground that extrinsic facts establish that the insured is not liable in the underlying suit....
The second situation ... is where the underlying complaint affirmatively alleges a set of facts that fall within an exclusion to the policy coverage or are otherwise outside of the coverage.
McLaren, 767 F.Supp. at 1372-73. The court explained that the rule had no application in situations where the insurer attempted to prove that it had no defense obligations at all. Id. at 1374. See also, Blue Ridge Ins. Co. v. Hanover Ins. Co., 748 F. Supp. 470, 473 (N.D.Tex.1990) ("The status of the `insured' is to be determined by the true facts, not ... incorrect facts that might be alleged by a personal injury claimant....")
The New Jersey Supreme Court reached a similar conclusion under New Jersey law. In Hartford Accident & Indem. Co. v. Aetna Life & Casualty Ins. Co., 98 N.J. 18, 483 A.2d 402 (1984), the New Jersey Supreme Court observed that "`[t]he duty to defend is not a product of statute or of common law. It is solely a contractual undertaking of the insurer and it can be as limited or as broad as the insurer sees fit to provide through its policy.'" Hartford, 483 A.2d at 405 (quoting the trial court's opinion.)[108] In interpreting the standard duty to defend clause, the court concluded that "`the duty to defend extends only to claims on which there would be a duty to indemnify in the event of a judgment adverse to the insured.'" Id.
The Hartford Court recognized that the general approach to the duty to defend problem obligated an insurer to defend an action whenever the complaint alleges a basis of liability within the covenant to pay. However, the court explained that when the duty "`depends upon a factual issue which will not be resolved by the trial of the third party's suit against the insured, the duty to defend may depend upon the actual facts and not upon the allegations in the complaint.'" Hartford, 98 N.J. 18, 483 A.2d at 406. In these cases, the court concluded that it was appropriate for a court to review facts outside of the complaint in order to determine whether the insurer has a duty to defend.
Texas Eastern urges me to reject this view of the duty to defend because it defeats the primary purpose of the four corners rule in that an insured will have to defend against the third-party claim and at the same time will have to prove to its insurance company that the allegations are potentially covered by its insurance. In Texas Eastern's view, an insured should not have to bear this burden at a time when what it needs most urgently is a competent defense against the third-party claimant.
I agree that an insured needs a competent defense; the question that I address here, however, is who should provide it. If the insurer has no duty to indemnify the *1366 insured because the allegations, even if true, would not be covered by insurance, then the insurer has every contractual right to refuse to defend its insured. If the insurer chooses, it may, of course, defend its insured with a reservation of rights concerning its ultimate responsibility to indemnify the claims if the claimant (against the insured) is victorious. The mere fact that the third-party claimant has failed to allege facts which would conclusively establish that the insurer does not have a duty to indemnify a particular claim should not alter the insurer's ability to prove that it has no contractual duty to defend. This is particularly true in a case such as the instant one where the insured's initial defense demand, concerning the EPA action, came before any formal complaint was ever filed, and thus the precise nature of the allegations was unknown.
As the New Jersey Supreme Court explained in Hartford, "`[t]his is not to free the carrier from its covenant to defend, but rather to translate its obligation into one to reimburse the insured if it is later adjudged that the claim was one within the policy covenant to pay.'" Hartford, 483 A.2d at 406. Although this alters the nature of the duty to defend, it is an appropriate result because the contractual duty to defend is only one to defend suits involving claims which the carrier would have to pay if the claimant prevailed in the action. Although the Texas Supreme Court has never expressly adopted this test, I am convinced that it would do so if faced with this particular question.
This result is particularly appropriate given the unique nature of Texas Eastern's defense demand. In Texas Eastern's view, notice to F & C that it was involved in protracted negotiations with EPA concerning the resolution of imminent PCB-related claims was sufficient to invoke F & C's defense obligations. In the typical case, the defense obligation arises when a complaint is filed and the insurer is able to compare the complaint with its insurance contract and determine whether any of the allegations could potentially lead to a covered claim. Due to the nature of the claim involved in the instant case, F & C did not have the benefit of seeing the complaint before it was filed in June 1988, simultaneous with the filing of the Consent Decree.
In fact, even if F & C had the benefit of seeing the complaint, it is not entirely clear that it would have stated a covered cause of action. The complaint relies almost exclusively on allegations that Texas Eastern violated TSCA and RCRA provisions and thereby caused PCB environmental contamination on property owned and operated by Texas Eastern. The complaint clearly indicates that the contamination occurred over a period of years. The complaint does not even mention or suggest damage or imminent risk to third-party property or third-party injury.[109]
I have heretofore concluded that there are issues of fact as to whether there was an "occurrence" within the coverage of the CGL policies, thereby precluding summary judgment in favor of the Carriers on the "Occurrence" issue. Ordinarily this would lead to the conclusion that the EPA Complaint stated a potentially covered claim thereby triggering a duty to defend upon demand and notice by Texas Eastern.
However, when I consider extrinsic evidence available to F & C at the time its duty to defend arguably accrued, it is clear that it had no duty to defend Texas Eastern against the claims made by EPA. I have concluded that the notice provided by Texas Eastern to its Carriers, including F & C, was *1367 late and prejudicial to the Carriers as a matter of law, and will grant the Carriers summary judgment on this issue. As was explained in "Late Notice," supra part XIII.C, timely notice is a condition precedent for an insured to be entitled to coverage for any claim. Late notice makes all claims, whether or not potentially covered, uninsurable. Klein, 154 Tex. 160, 275 S.W.2d at 96; New Amsterdam, 144 Tex. 306, 190 S.W.2d at 58; McPherson, 350 F.2d at 566. As a result, no duty to defend ever accrued on or after the date of the late notice on August 19, 1987.[110] Although F & C did not expressly move for summary judgment in its favor on the "Duty to Defend" issue, granting summary judgment on the "Late Notice" issue, in favor of all the Carriers, will eliminate any duty to defend that F & C might otherwise have had to defend Texas Eastern. Summary Judgment will therefore be entered in favor of F & C on the "Duty to Defend" issue.[111]
Finally, concerning the Pennsylvania state agency action, I have found no evidence that Texas Eastern made a defense demand on F & C before settling with the PaDER in April 1987. As such, no duty to defend could have accrued. As to the other state and private third-party actions which are still a part of this litigation, I have previously concluded that the prejudice suffered by the Carriers due to the late notice affected more than just their ability to defend against the EPA claim. The late notice prevented them from adequately defending against all claims which followed. Specifically, the late notice prevented the Carriers from participating in Texas Eastern's initial cleanup decisions and from participating in the majority of Texas Eastern's negotiations with EPA. Although a number of the state and third-party claims were filed after Texas Eastern first provided notice to the Carriers, it would be inequitable to allow Texas Eastern to recover costs expended to defend against allegations in state or private third-party complaints which are, in large part, identical to allegations in the EPA Complaint, when I have prevented Texas Eastern from recovering its defense costs in the EPA action. As such, F & C has no duty to defend against any of the claims presently included in this litigation.
An appropriate order follows.
ORDER AND FINAL JUDGMENT[1]
For the reasons set forth in the accompanying opinion, it is hereby ORDERED that:
*1368 1. The Carriers' motion to strike is GRANTED IN PART AND DENIED IN PART Exhibits eight (8) through eighteen (18) in the Declaration of Laird Hart and Texas Eastern Transmission Corporation's (Texas Eastern) "Statement of General Background Facts" are stricken. All other evidence offered by any party to this litigation remains part of the official record;
2. The Carriers' supplemental motion to strike is DENIED;
3. The Carriers' motion for summary judgment on the "Occurrence" issue is DENIED;
4. The Parties' cross-motions for summary judgment on the issue of "Damages" are GRANTED IN PART AND DENIED IN PART. Losses incurred due to an injunctive order are compensable as "damages" under Texas Eastern's insurance policies. Civil penalties assessed by the United States Environmental Protection Agency are compensable as "damages" under Texas Eastern's insurance policies (excepting those policies which expressly exclude coverage for civil fines or penalties). Civil penalties assessed by the Pennsylvania Department of Environmental Resources and the New Jersey Department of Environmental Protection are not compensable as "damages" under Texas Eastern's insurance policies. In all other respects, the cross-motions are DENIED;
5. The Parties' cross-motions for summary judgment on the issue of the "Owned Property Exclusion" are DENIED.
6. The Carriers' motion for summary judgment on the issue of the "Pollution Exclusion" is GRANTED. No coverage will be provided for losses incurred by Texas Eastern under insurance policies containing either an ISO or London Market type pollution exclusion clause. Judgment in favor of all the Carriers whose insurance policies contain either of the two pollution exclusions and against Texas Eastern is entered on this issue;
7. Texas Eastern's motion for summary judgment on the issue of the "Pollution Exclusion" is DENIED;
8. The Carriers' motion for summary judgment on the issue of "Late Notice" is GRANTED. No insurance coverage is available for any of Texas Eastern's losses under any of its CGL insurance policies identified in this litigation, whether primary, excess, or umbrella policies, because Texas Eastern failed to provide the Carriers with timely notice of the claims for which it seeks insurance coverage. Judgment is entered in favor of all the Carriers and against Texas Eastern on the "Late Notice" issue;
9. Texas Eastern's motion for summary judgment on the issue of the "Duty to Defend" is DENIED. Fidelity & Casualty Company of New York (Fidelity) has no duty to defend Texas Eastern in any of the claims involved in this litigation. Judgment is entered in favor of Fidelity and against Texas Eastern on the "Duty to Defend" issue.
It is further ORDERED that, because I have concluded that Texas Eastern provided the Carriers with late notice of all the claims for which Texas Eastern seeks insurance coverage, final judgment is entered in favor of all the Carriers and against Texas Eastern. All remaining outstanding motions in "Texas Eastern Transmission Corporation PCB Contamination Insurance Coverage Litigation," MDL Docket No. 764, that are not determined by this order are hereby DENIED as moot due to the entry of final judgment on all claims in favor of all insurance carriers.
NOTES
[1] The insurance companies include Fidelity & Casualty Company of New York, Associated Electric & Gas Insurance Services Limited, Aetna Casualty & Surety Company, American Home Assurance Company, Boston Old Colony Insurance Company, Continental Casualty Company, First State Insurance Company, Highlands Insurance Company, The Home Insurance Company, The Insurance Company of North America, Insurance Company of the State of Pennsylvania, Lexington Insurance Company, Midland Insurance Company (in receivership), National Surety Corporation, Prudential Reinsurance Company, Ranger Insurance Company, Republic Insurance Company, Stonewall Insurance Company, United States Fire Insurance Company, Certain Underwriters at Lloyd's, London, and Certain London Market Insurance Companies.
[2] Texas Eastern and the individual Carriers filed a Joint Submission of Texas Eastern Policies in which they stipulated to the existence of approximately fifty-seven insurance policies. Texas Eastern and the London Market Insurers filed a Stipulation in which they agreed to the existence of an additional fifty-three insurance policies.
[3] A polychlorinated biphenyl is defined as "Any of a family of industrial compounds produced by chlorination of biphenyl, noted chiefly as an environmental pollutant that accumulates in animal tissue with resultant pathogenic and teratogenic effects." Webster's II New Riverside University Dictionary 912 (1984).
[4] Texas Eastern has also asserted claims seeking damages for breach of contract against all of its insurers.
[5] Texas Eastern originally filed this action in New Jersey state court on December 21, 1987. The suit was subsequently dismissed on March 17, 1988, on the ground of forum non conveniens.
[6] To the extent that I have declined to rule on any outstanding motion in this case, the motion should be considered denied as moot.
[7] In this regard, "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248, 106 S.Ct. at 2510.
[8] Exhibits 28-31 are documents concerning the intent of various insurance carriers (not necessarily parties to this litigation) regarding the language of the pollution exclusion. For the purposes of this motion, I will consider them as part of the proffered pollution exclusion evidence.
[9] I will refer to Texas Eastern's Appendix filings as "TApp." and to the Carriers' Appendix filings as "App." Both Appendices were filed in support of the summary judgment motions.
[10] Both parties have referred to a generic group of high level Texas Eastern employees as "senior management." Although never defined, I understand this term to refer to employees at Texas Eastern who are, or were, responsible for making important policy and management decisions concerning Texas Eastern's corporate activities. This group is not solely limited to officers and directors, but also includes high level managers responsible for the oversight of Texas Eastern's daily pipeline operations.
[11] The Carriers' motion to strike Ford's report concerning Texas Eastern's waste management practices, (TApp. 203), on the ground that the report will not be helpful in deciding the motions for summary judgment, will also be denied for the same reason.
[12] I take this opportunity to observe the difficulty and irony of a federal district court judge sitting in Pennsylvania predicting what the Supreme Court of Texas would do if faced with particular questions, given that two of the three cases consolidated in this action originated in Texas and concern activities which primarily occurred there.
[13] Texas Eastern does not have the burden of proof on the Carriers' affirmative defense of misrepresentation. See Koral Indus., Inc. v. Security-Connecticut Life Ins. Co., 788 S.W.2d 136, 141 (Tex.Ct.App.), writ denied, 802 S.W.2d 650 (Tex. 1990). Because I will grant summary judgment to the Carriers on the issue of "Late Notice," I do not reach the merits of the misrepresentation claim.
[14] Other courts have recognized the subjective/objective distinction. See, e.g., United States v. LBS Bank New York, Inc., 757 F. Supp. 496, 501 n. 7 (E.D.Pa.1990) ("Although knowledge possessed by employees is aggregated so that a corporate defendant is considered to have acquired the collective knowledge of its employees ... specific intent cannot be aggregated similarly.")
[15] The TSOF should not be confused with Texas Eastern's "Statement of General Background Facts" which I have previously concluded cannot be relied on because it lacks sufficient references to record evidence. (See supra pp. 1303-1304.)
[16] In each paragraph of the TRSOF, Texas Eastern repeated the Carriers' original allegation as it appeared in the SOF, and then stated its response. My citations to the TRSOF refer not to the Carriers' statements, but to Texas Eastern's. For example, if Texas Eastern did not dispute a proposition, or disputed it on different grounds, a citation to that paragraph in the TRSOF refers to Texas Eastern's acceptance of the proposition. Sometimes Texas Eastern claims to have disputed a proposition, but I find that the only dispute raised by Texas Eastern is immaterial. In that situation, I have treated the fact as undisputed by Texas Eastern, and have therefore included a TRSOF cite as an admission by Texas Eastern that the fact is indeed undisputed. On certain occasions, when Texas Eastern's dispute is material, I have cited to the TRSOF for the text of Texas Eastern's response itself. When I wish to cite to a fact alleged to be undisputed by the Carriers, but materially disputed by Texas Eastern, I have cited to the SOF instead. Likewise, when I wish to cite to a fact alleged to be undisputed by Texas Eastern, I have cited to the TSOF. In short, any citation beginning with "T" can be understood to mean that Texas Eastern has agreed to, or has not materially disputed, the proposition stated.
[17] The pipeline passes through, among others, the following states: Texas, Louisiana, Mississippi, Arkansas, Alabama, Tennessee, Kentucky, Missouri, Illinois, Indiana, Ohio, West Virginia, Pennsylvania, Maryland, and New Jersey. (TE's First Am.Compl. at ¶ 39.)
[18] The lubricant purchased from Monsanto has been known in its various formulations as OS-81 (beginning in 1958), MCS-153 (beginning in 1961), and Turbinol-153 (beginning in 1970). (TRSOF ¶ 13.) All appear to have contained high PCB concentrations.
[19] The compressors consumed a substantial amount of lubricant. For example, of the 210, 713 gallons of lubricant purchased from Monsanto, Texas Eastern's compressors consumed 175, 856 gallons of the lubricant from 1958 to 1977. (TRSOF ¶ 39.)
[20] Texas Eastern admits that there was a large leakage of lubricant from the compressor units into the natural gas pipeline. The only material dispute concerns when Texas Eastern became aware of this fact.
[21] Further supporting this conclusion is the fact that Texas Eastern tested at least one epoxy, used to coat the inside of the natural gas pipeline, for compatibility with OS-81, and replaced the "O" rings in its compressor units with ones compatible with the Monsanto lubricant. (TRSOF ¶¶ 46, 47.) Texas Eastern admits to taking these measures as a precaution to guard against the possibility that lubricant would escape into the pipeline. (TRSOF ¶ 47.)
[22] Pipeline distillates can be harmful to the human body and to vegetation depending on the nature and extent of the exposure. It was therefore undesirable to allow the distillates to come into contact with property on which vegetation growth was desirable. In this regard, Texas Eastern personnel considered pipeline liquids to be pollutants if they escaped in undesirable quantities from their containment pits.
[23] This was no small task. Texas Eastern removed twenty million gallons of liquid from its pipeline during the thirty year period 1957 through 1987. (TRSOF ¶ 62.)
[24] Pigs are shafts with attached brushes and/or rubber cups that, when inserted into a pipeline segment, make contact with the pipeline wall, and push the liquids forward to collection areas in the pipeline.
[25] There is some dispute as to whether Texas Eastern's personnel "routinely" dumped pipeline liquids within the scope of their employment or merely dumped the liquids "as needed." This is a distinction without a difference. It is clearly established that Texas Eastern personnel repeatedly dumped pipeline liquids into the unlined earthen pits whenever the responsibilities of their jobs required such dumping.
[26] The pits were generally about ten to thirty feet in diameter on isolated portions of the compressor station sites. The pits were typically lined with clay or dug in hard, compact, nonporous ground. (TSOF ¶ 77.) The pits were ordinarily surrounded by an earthen berm, made from the material excavated in the process of digging the pit, that served as a precaution against accidental overflow. (TSOF ¶ 78.)
[27] Although Texas Eastern disputes the Carriers' contention that Texas Eastern "disposed" of its pipeline liquids into the pits, there is no doubt that in most instances Texas Eastern intended the pits to be the pipeline liquids' final resting place. For example, at some compressor station locations, the earthen pits had built-in pilot lights that automatically ignited any incoming liquids. (TSOF ¶ 79.) No evidence has been produced to explain what saleable or other value existed for the burnt remains of Texas Eastern's pipeline liquids.
[28] Once removed from a compressor unit, the PCB-based oil was used for "make-up" (replacement) in those units which continued to use the PCB-based lubricant. (TSOF ¶ 24.) Three units were changed out in 1972, and an additional three units were changed out in 1973. (TSOF ¶¶ 24, 25.)
[29] 15 U.S.C. § 2601 et seq.
[30] The survey was conducted at six compressor station sites and included eight pits. The parties have refereed to the study as both the "six" and the "eight" site survey, and I will refer to it as the "six-site survey."
[31] The violations alleged in the state agency actions are in many respects duplicative of Texas Eastern's remediation responsibilities under the EPA Consent Decree. I have, therefore, focused primarily on the Federal Consent Decree in resolving these summary judgment motions. As I observed in my memorandum denying Texas Eastern's motion for leave to amend its pleadings, the private third-party actions raise factual issues which in some cases vary significantly from those presently involved in this case.
[32] The policy defined "occurrence" as "either (a) an accident, or (b) in the absence of an accident, a condition for which the insured is responsible which during the policy period causes physical injury to or destruction of property which was not intended." Maupin, 500 S.W.2d at 634 n. 1.
[33] Though an objective test is used, it is not such a broad test as to deny coverage for any harm which is a reasonably foreseeable consequence of the insured's acts. Both Texas Eastern and the Carriers agree that, under Texas law, negligent acts are covered by third-party liability insurance policies. See Massachusetts Bonding & Ins. Co. v. Orkin Exterminating Co., 416 S.W.2d 396, 400 (Tex.1967). In Kentucky Cent. Life Ins. Co. v. Fannin, 575 S.W.2d 76 (Tex.Civ.App.1978), Mrs. Fannin drove her car at a speed in excess of 100 miles per hour, lost control of the car, and was killed. The court concluded that a jury determination that the death was "accidental" was reasonable because
there is nothing in the act of driving at an excessive rate of speed and failing to stop at a stop sign, though both be [sic] violations of the law, which per se is calculated to produce bodily injury or death to the driver. Under some circumstances, either excessive speed or a failure to stop may result in injury or death, but it cannot be logically said that death is the natural consequence of either act.
Fannin, 575 S.W.2d at 81. (emphasis original). "[A]lthough Mrs. Fannin may have been voluntarily exposing herself to some danger," her actions did not invalidate her accidental death benefits. Id. at 80.
In Freeman v. Crown Life Ins. Co., 580 S.W.2d 897 (Tex.Civ.App.1979) (writ. ref. n.r.e.), the court permitted the recovery of an accidental death benefit, even though the insured was killed while driving under the influence of alcohol, reasoning that "the ordinary person who is insured by an accident insurance policy would consider his death in an automobile collision accidental even though at the time of the collision he may be intoxicated or otherwise negligent." Freeman, 580 S.W.2d at 901.
Clearly, then, under Texas law, coverage is precluded only when the harm was intended, or when the harm was a natural and probable consequence of an intentional act.
[34] Texas Eastern relies on Dayton Indep. School Dist. v. National Gypsum Co., 682 F. Supp. 1403 (E.D.Tex.1988), rev'd on other grounds sub nom. W.R. Grace & Co. v. Continental Casualty Co., 896 F.2d 865 (5th Cir.1990), for the proposition that Texas law would require an insurer to establish that the insured acted either willfully, intentionally, or maliciously for the purpose of causing injury, in order to invalidate coverage on intentional conduct grounds. Dayton, 682 F.Supp. at 1408. In reaching the conclusion that Texas would apply a subjective test, the Dayton court relied on the Texas appellate court's decision in Orkin Exterminating Co. v. Massachusetts Bonding & Ins. Co., 400 S.W.2d 20 (Tex.Civ.App.1965), rev'd on other grounds, 416 S.W.2d 396 (Tex.1967). Because I choose to rely on the more recent decisions of the Texas Supreme Court, Maupin and Heyward, I respectfully decline to follow the conclusion of the Dayton court.
[35] Texas Eastern also challenges the applicability of the Texas precedent cited by the Carriers, contending that those cases were interpreting "accident" based policies while Texas Eastern's arguments are without merit. First, Texas courts have concluded that "occurrence" based policies are substantially similar to the older "accident" based policies. See, e.g., Maupin, 500 S.W.2d at 634 (analyzing an "occurrence-based" policy under prior decisions based on "accident" policies and describing the two types of policies as similar). Second, Texas Eastern has admitted in its pleadings that the definition of "occurrence" is similar to the definition of "accident" in that both terms require the insured to suffer harm that is unintended. (See App. 4 at 30 (the variations in specific "occurrence" definitions contained in the policies are "irrelevant"); TE's Mot.Summ.J. Trigger of Coverage at 1300 n. 4 ("The term `accident' as used in [early accident based] policies is interpreted as the equivalent of `occurrence.'"))
[36] It is worth noting that although I conclude that Texas Eastern has made a potentially cognizable claim for coverage, I have not, and will not, offer an opinion on the ultimate merit of the claim. It is, of course, another question whether Texas Eastern can prove that any of its cleanup costs are actually related to third-party harm and whether it can prove that any of the various policy exclusions would not invalidate its coverage. Although I can conceive of no way that Texas Eastern would be able to prove that a particular portion of its cleanup costs were specifically allocable to actual or potential third-party harm, that issue need not be presently decided. At present, Texas Eastern seems to contend that all of its cleanup costs are attributable to actual or potential third-party harm.
[37] The Carriers characterize this case as one where an intentional corporate polluter, motivated exclusively by financial gain, failed to properly handle and dispose of its industrial waste, and is now attempting to "dump" its problem into its insurance carriers' lap. In support of this contention, the Carriers have cited to record evidence tending to show that Texas Eastern was slow to act after it discovered the migration of pipeline liquids from its pits and the venting of lubricating oil out of its vent stacks. In addition, the Carriers have cited to evidence tending to show that senior management at Texas Eastern believed that its PCB problem was a regulatory one and not one for which its third-party liability carriers would provide any coverage.
The Carriers have not, however, established with undisputed facts that at the time Texas Eastern dumped the PCBs it knew or reasonably should have known that the PCBs would migrate onto the property of third-party landowners. Texas law does not require invalidation of coverage for third-party PCB contamination simply because Texas Eastern knowingly dumped pipeline liquids onto its property or knowingly dumped PCBs which it reasonably believed would not migrate off its own property.
[38] PCBs are, in fact, known to be highly heat resistant and difficult to remove. This is one of the reasons why cleanups are so expensive. The heat resistant quality was also one of the primary reasons they were used as a seal oil in the compressors.
[39] Texas Eastern does offer one piece of evidence which it contends establishes that most of the seal oil lost to the compressor cases was typically recovered and reused. (App. 80.) This memorandum, dated August 5, 1976, from W.G. Marks to E.C. Riall, Jr., states that there were 3,900 gallons of leakage in the seal oil lubricant system, and that the leaked oil was "normally trapped, filtered and returned to the turbine reservoirs." (Id.)
At his deposition, however, A.B. Jarnagin testified that he compiled all of the information in the memorandum for Mr. Marks, including the figure representing the amount of oil leaked and recovered. In response to questions about what he meant when he wrote the term "leaks," Mr. Jarnagin explained that he was referring to leaks from "the inside of the equipment to the outside of the turbine, through metal joints," and not to leaks through the inner seal rings into the compressor cases. (App. 658 at 326-27.) In light of Mr. Jarnagin's testimony, the memorandum does not create a material dispute as to whether Texas Eastern knew that some oil escaping from the compressor into the compressor case was traveling either down the pipeline or out the vents.
[40] Texas Eastern challenges the value of this evidence because J.C. Elmore was an employee in a staff position who had no responsibility for Texas Eastern's change-out program. I interpret this to suggest that perhaps this memorandum was not prepared in the "scope of Elmore's employment" and thus cannot be used to impute knowledge to Texas Eastern. Elmore's deposition clearly established, however, that he was involved in the change-out program and that the memorandum expressed his opinion of how the compressor stations worked. This does not suggest that it was necessarily Texas Eastern's corporate opinion that the lubricant oil was escaping down the pipeline or out the vents, only that one of its employees believed this to be the case.
[41] Texas Eastern cannot be heard to argue that because some of its employees were ignorant of the pipeline contamination that ignorance is imputed to the entire corporation. Since a sufficient number of Texas Eastern managers responsible for the daily operation of Texas Eastern's pipeline understood that lubricant oil was escaping into the pipeline, that knowledge will be imputed to the corporation.
[42] These 8 stations were: Mt. Pleasant, TN; Owingsville, KY; Wind Ridge, PA; Holbrook, PA; Accident, MD; Marietta, PA; Perulack, PA; and Grantville, PA.
[43] Texas Eastern contends that the term "environment" had a different meaning during Texas Eastern's use of the pits as a containment facility. In Texas Eastern's view, pollutants entered the environment only "when they reached rivers and lakes[but] not landfills." (TE's Mem. in Opp'n Summ.J.No Occurrence at 14.) Texas Eastern's contention fails for two reasons. First, there is no evidence establishing that Texas Eastern believed all of the property which it owned or used at its compressor stations was not part of the environment. Second, Texas Eastern ignores the evidence that property damage was caused by overflow of the pits, as well as by venting and other sources.
[44] The Carriers also offer a June 28, 1968 memorandum from Texas Eastern's Superintendent of Design and Construction, W.M. Stephens, to Texas Eastern's Assistant Chief Engineer, R.E. Moore, indicating that MCS-153 "is formulated with chlorinated polyphenyl (Chlorinated aromatic hydrocarbon) and a phosphate ester." (App. 29 at XXXXXXXXX.) Again, this evidence is insufficient for me to find, as a matter of law, that Texas Eastern was aware that its seal oil lubricant contained PCBs before 1972.
[45] This is the same date that Monsanto proposed that Texas Eastern sign a hold harmless agreement indemnifying Monsanto for any future liability arising out of the sale of Turbinol-153. See supra p. 1313. Thus, one explanation for the memorandum is Woods's desire to quickly find a replacement oil, because Monsanto was making it difficult for Texas Eastern to continue to purchase Turbinol-153.
[46] The Carriers expend a considerable amount of effort attempting to document that Texas Eastern knew, prior to 1972, that the lubricant oil contained PCBs. Upon review of the evidence, it appears that the Carriers have established that Texas Eastern knew about the potential hazards of PCB use, but they have not shown that Texas Eastern was aware that the oil contained the PCBs.
In 1958, Monsanto did warn Texas Eastern that its workers should limit their exposure to the lubricant oil. (TRSOF ¶ 25; App. 47-49.) In the 1960s and 1970s, there was certainly a large amount of public attention regarding the potentially harmful effects of PCBs in the environment and the effects of PCBs in living creatures. In 1970, Monsanto began terminating the sale of PCB-based products and warned its customers not to allow the PCBs to become environmental pollutants. While all of this evidence supports the Carriers' contention that Texas Eastern knew or should have known that PCBs were dangerous if discharged into the environment, it does not establish that Texas Eastern knew or should have known that PCBs were contained in its lubricating oil.
[47] It is tempting to grant summary judgment on the "Occurrence" issue with respect to damage caused after January 7, 1972. Though the issue is a close one, I will deny partial summary judgment here. The Carriers argue that since it was known that liquids from the pits were escaping to third-party property, as soon as Texas Eastern knew that the liquids contained PCBs, Texas Eastern must have known that PCBs were escaping to third-party property. This is not necessarily the case. Texas Eastern has suggested that it believed that the liquids which were escaping did not contain PCBs, even after it knew that PCBs were in the pipeline liquids dumped in the pits. That is, Texas Eastern believed that the PCBs remained entrenched in the pits, and that only non-PCB substances were entering third-party land. (See, e.g., TApp. 200; Tr. of Hr'g on Mot. for Summ.J., January 13, 1992 at 90 (Texas Eastern did not know until 1987 that PCBs are "enveloped in the hydrocarbon, they don't adhere to the soil because the hydrocarbons pick the PCBs up and move them into groundwater and move them off of the site.")) Although I am personally inclined to agree with the Carriers that simple common sense should have alerted Texas Eastern to the possibility that PCBs were migrating with the lubricant either from the pits, the vent stacks, the drainage swales, or the spraying of the liquids on the fence lines dividing Texas Eastern's property from third-party property, and even though I have concluded in "Late Notice," infra p. 1360, that Texas Eastern knew or should have known of off-site PCB migration at least by December 1986, the Carriers have not proved that, as a matter of law, Texas Eastern knew, in January 1972, that PCBs were migrating with the other pipeline liquids, and summary judgment regarding all harm occurring after January 7, 1972 will therefore be denied. Even if I did grant summary judgment on this issue, Texas Eastern would not be precluded from seeking coverage for damage caused prior to January 7, 1972, and Texas Eastern's experts have testified that the vast majority of PCB damage to third-party property occurred prior to 1972 due to the immediate migration of the lubricant oil downward into the subsurface of the pits. (See Hart Decl., Ex. 47 (Dep. of John Cherry); Ex. 48 (Dep. of Bradford Cushing); TApp. 203.)
[48] Texas Eastern admits that in certain concentrations, hydrocarbons are damaging to the environment if they escape containment, which in the present case refers to an escape from the earthen pits. (TE's Mem. in Opp'n Summ.J. No Occurrence at 16; Dep. of J. Clifton Williams, App. 117 at 235-36.)
[49] The parties agree that this issue does not affect the two private third-party claims which sought monetary damages from Texas Eastern.
[50] See also Grisham v. Commercial Union Ins. Co., 951 F.2d 872 (8th Cir.1991) (reaffirming its decision in NEPACCO).
[51] The relevant portion of the policy read:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of personal injury or advertising injury to which the insurance applies ... and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such injury....
Feed Store, 774 S.W.2d at 74. This language is substantially similar to language found in the insurance policies at issue.
[52] 42 U.S.C. § 9601 et seq.
[53] 42 U.S.C. § 6901 et seq.
[54] See also Hazen Paper Co. v. United States Fidelity & Guar. Co., 407 Mass. 689, 555 N.E.2d 576, 583 (1990) ("We explicitly reject the reasoning of some courts that incorporates `[p]revious judicial interpretations' into the insurance contract to narrow the scope of the word `damages' and thus purport to eliminate any ambiguity. Lay people should not reasonably be expected to know such limitations.") (citations omitted).
[55] Texas law also instructs a court not to interpret an insurance policy term so as to render a portion of the contract meaningless. In my view, reading the policy to include coverage for an injunction of the type at issue here does not completely divest the term "damages" of meaning. More traditional injunctive relief may still be excluded from the definition of "damages" under CGL policies.
[56] I agree with the Third Circuit that "the `as damages' clause, read in its entirety, collectively conveys a single point namely, that [an insurer] is obliged to indemnify [an insured] for money expended under the sanction of law to redress harm to property or persons." New Castle County, 933 F.2d at 1190 n. 56.
[57] I stated at the outset of this opinion that my sole task is to interpret the contracts that Texas Eastern and its insurance carriers entered into. In interpreting the term "damages," I believe that the actual effect of a requested remedy on an insured is particularly relevant to the issue of what an average individual would believe the term "damages" to mean. This is not identical to an inquiry into the "reasonable expectations of the insured," a doctrine of insurance contract interpretation not yet adopted in Texas. See Mary Kay Cosmetics, Inc. v. North River Ins. Co., 739 S.W.2d 608, 613 (Tex.Ct.App.1987).
[58] The parties vigorously dispute whether the EPA Complaint is best characterized as a "CERCLA remediation case" or a "TSCA/RCRA regulatory compliance case." In my view, the terms of the Complaint and the Consent Decree make it clear that EPA moved primarily under TSCA and RCRA to compel Texas Eastern to remediate its property, relying on CERCLA only to recover EPA's oversight costs.
[59] Of course, Texas Eastern must still establish that the damages are the result of property damage, bodily injury, or both.
[60] The parties apparently believe that characterizing Texas Eastern's payments as civil "fines" (the Carriers) or as civil "penalties" (Texas Eastern) will effect the outcome of my decision concerning the payments' insurability. I do not share the parties' view. Because EPA, PaDER, and NJDEP characterize the payments as civil "penalties," I have used this designation throughout the opinion.
[61] In short, the parties contend, and I agree, that the claims in this case which were originally filed under diversity jurisdiction must be resolved under the laws of the forum state, including choice of law rules, in which they were originally filed: Texas and Pennsylvania. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 1021-22, 85 L. Ed. 1477 (1941). The two circuit courts to decide the issue of whether courts whose jurisdiction is based on the FSIA would follow the laws of the forum state or use federal common law to determine choice of law questions are split. Compare Barkanic v. General Admin. of Civil Aviation, 923 F.2d 957, 959-61 (2d Cir.1991) (the forum's choice of law rules apply) with Liu v. Republic of China, 892 F.2d 1419, 1425-26 (9th Cir.), cert. dismissed, 497 U.S. 1058, 111 S. Ct. 27, 111 L. Ed. 2d 840 (1990) (federal common law choice of law rules apply). Because this court is sitting in diversity on many of these claims, I choose to follow the Second Circuit's view that the forum's choice of law rules apply. To decide otherwise would require an almost impossible separation of the issues in this case.
[62] Section 6 provides:
(1) A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.
(2) When there is no such directive, the factors relevant to the choice of the applicable rule of law include
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.
Section 188 provides:
(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6.
(2) In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter of the contract, and
(e) the domicile, residence, nationality, place of incorporation and place of business of the parties.
These contacts are to be evaluated according to their relative importance with respect to the particular issue.
(3) If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied, except as otherwise provided in §§ 189-199 and 203.
[63] In 1961, Texas Eastern moved its headquarters from Shreveport, Louisiana.
[64] The Carriers have suggested that the insurability of penalties levied by EPA should be governed by the federal common law of insurance. I believe that the insurability of penalties assessed pursuant to federal environmental statutes should be governed by state law. As one district court recently concluded, "[w]hile environmental matters implicate broad national concerns, there is no authority for creating a federal common law of environmental insurance coverage...." A. Johnson & Co., Inc. v. Aetna Casualty & Sur. Co., 741 F. Supp. 298, 300 n. 2 (D.Mass.1990), aff'd, 933 F.2d 66 (1st Cir.1991).
I also reject the Carriers' contention that federal environmental laws preempt the application of state law (if it would permit insurability of civil penalties) because "`such state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" (Ins.' Mot.Summ.J. Civil Fines & Penalties at 10 n. 6 (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 404, 85 L. Ed. 581 (1941) (footnote omitted)). The Carriers have made no showing that Congress expressly preempted state law or that an irreconcilable conflict exists between federal and state goals and, as such, the state law continues to apply. See Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 255, 104 S. Ct. 615, 625, 78 L. Ed. 2d 443 (1984) (state law principles are not preempted by a federal regulatory scheme unless they are "expressly supplanted.")
[65] Since Texas choice of law principles would also apply Texas substantive law, it is technically unnecessary for me to decide between Texas and Pennsylvania choice of law principles on the EPA penalty issue.
[66] Not all of the policies contain owned property exclusions, and this section of the opinion only applies to those policies containing such exclusions. Additionally, the parties agree that the owned property exclusion does not apply to groundwater remediation in those states where the groundwater is not the property of the surface landowner. The parties apparently agree that, under present law, groundwater is the property of the surface landowner only in Texas, Indiana, and Mississippi.
[67] Although Texas Eastern contends that the state orders, decrees, and settlements into which it has entered require Texas Eastern to remediate third-party property, the vast majority of Texas Eastern's cleanup obligations require Texas Eastern to remediate PCB contamination on Texas Eastern's own property. Any liability which Texas Eastern has incurred pursuant to state orders, decrees, or settlements makes up a very small percentage of Texas Eastern's total response costs, because Texas Eastern is obligated to perform similar remediation work under the EPA Consent Decree. Accordingly, I will treat Texas Eastern's liability pursuant to state actions together with the EPA Consent Decree for the purposes of deciding the "Owned Property Exclusion" issue.
[68] In other words, Texas law would exclude all coverage if not one PCB had migrated off Texas Eastern's land, but would permit recovery for the cost of remediating actual third-party damage including the cost of remediating PCBs on Texas Eastern's propertyif the PCBs were imminently and substantially likely to migrate. If it were possible to precisely separate the cost of remediating third-party property from the cost of remediating imminently migrating PCBs, I would be inclined to limit Texas Eastern's recovery solely to actual harm. I have, however, made this one concession to practicality because of the near impossibility of absolutely separating the two types of costs.
[69] I reject the Carriers' contention that the owned property exclusion excludes coverage for the cleanup of any "damage" to the insured's own property. This interpretation of the exclusion necessarily precludes coverage for work done on the insured's property that is "damage" on the one hand, but is performed primarily to remediate actual harm to third-party property due to the migration of the same contaminants. Under the Carriers' view, even if Texas Eastern could establish that its response costs were incurred primarily to prevent third-party harm, the costs would not be covered by its liability insurance.
In my view, the definition of "occurrence" is broad enough to include environmental damage which has not harmed third parties, but is imminently, immediately, and substantially likely to do so. Thus, I also reject the Carriers' assertion that only actual third-party damage is recoverable by Texas Eastern under the terms of its liability insurance policies, because the policies' definition of an "occurrence" is not broad enough to cover future harm, regardless of the imminent, immediate, or substantial nature of that harm.
[70] See, e.g., Allstate Ins. Co. v. Quinn Constr. Co., 713 F. Supp. 35, 40-41 (D.Mass.1989), vacated, 784 F. Supp. 927 (D.Mass.1990); Unigard Mut. Ins. Co. v. McCarty's Inc., 756 F. Supp. 1366, 1369 (D.Idaho 1988); Broadwell Realty Serv. Inc. v. Fidelity & Casualty Co., 218 N.J.Super. 516, 528 A.2d 76, 82 (1987); Banker Trust Co. v. Hartford Accident & Indem. Co., 518 F. Supp. 371, 374 vacated on other grounds, 621 F. Supp. 685 (S.D.N.Y.1981). But see Wolf Bros. Oil Co. v. International Surplus Lines Ins. Co., 718 F. Supp. 839, 845 (W.D.Wash.1989) (granting defendant insurance carrier's summary judgment motion on the ground that the remediation costs were either not covered under the policy or that they were excluded by the owned property exclusion because the cleanup occurred on the insured's property).
[71] In my view, an insurer in Texas Eastern's position cannot hope to obtain insurance coverage for any more than the cost of cleaning up actual third-party property damage or that portion of harm to its own property which is primarily aimed at the prevention of imminent and substantial third-party harm. Therefore, the extra insurance coverage obtained by the insured provides a minimal incentive to allow the pollutant to migrate to third-party property.
[72] I also reject Texas Eastern's contention that notions of fairness, equity, or public policy require a different result. Although I agree that an insured who remediates unintended environmental harm before it contaminates other property has saved its CGL insurance carriers from liability for third-party harm, matters of financial fairness are better addressed in an action for restitution, grounded upon a claim of unjust enrichment, than by rewriting the parties' contracts.
[73] Texas Eastern might also have applied for Environmental Impairment Liability (EIL) Insurance which specifically provides coverage for environmental damage. There is some evidence which suggests that Texas Eastern considered such a purchase but later rejected the idea. (See App. 301.)
[74] See also Summit Assocs., Inc. v. Liberty Mut. Fire Ins. Co., 229 N.J.Super. 56, 550 A.2d 1235, 1240 (App.Div.1988) (requiring the trial court, on remand, to determine whether the threat to third-party property was "immediate and imminent or whether it was an `undefined and speculative future loss' which should be excluded from coverage.")
[75] I have explained on two other occasions that I doubt Texas Eastern will be able to make such a showing. Making Texas Eastern's burden even more difficult is evidence establishing that Texas Eastern believed that off-site migration was not an imminent or substantial danger. For example, Bradford Cushing testified at his deposition that EPA made a determination that "the [PCB] sites did not present an eminent [sic] and substantial endangerment requiring immediate action." (Dep. of Bradford Cushing, App. 304 at 446-47.) Likewise, Carol Dinkins testified that Texas Eastern represented to EPA that the PCBs did not represent a substantial endangerment. (Dep. of Carol Dinkins, App. 275 at 159-60.) It is clear to me that EPA would have ordered Texas Eastern to remediate the PCBs on its property whether or not the PCBs posed an immediate threat to third parties or the environment. Evidencing this is the fact that EPA discussed the pit remediation with Texas Eastern long before EPA realized that off-site migration had occurred. While this would not necessarily preclude coverage for some of the claims, it is further evidence that third-party harm was not the primary focus of the EPA complaint and of the EPA Consent Decree.
[76] Texas Eastern has additionally requested a ruling that the government and private third-party actions which underlie this litigation seek damages for "personal injury" as well as for property and bodily injury. Specifically, Texas Eastern alleges that the migration of PCBs onto the property of third parties can be considered personal injury under the provisions of its various insurance policies. Having considered Texas Eastern's arguments, I reject this interpretation of the insurance policies.
Contemporaneous with this opinion, I have filed a memorandum and order denying Texas Eastern's motion for leave to file an amended complaint which includes new private third-party lawsuits filed against Texas Eastern arising out of the PCB contamination. This litigation is therefore primarily concerned with the government actions requiring Texas Eastern to remediate the PCB contamination and to pay certain civil penalties. The EPA Consent Decree is grounded primarily on RCRA and TSCA claims, although it clearly includes an element of a CERCLA claim. The state claims are based primarily on state environmental laws which are similar to the federal statutes.
It is Texas Eastern's position that the EPA claims are codifications of common law trespass and nuisance causes of action and are therefore covered under the personal injury provisions which provide coverage for "wrongful entry" and in some cases "other invasion[s] of the right of private occupancy." I have read EPA's Complaint and can identify no claim expressly based on either trespass or nuisance. I reject Texas Eastern's contention that because one of the many motivations behind the federal legislation was the codification of the common law causes of action, a RCRA or TSCA action is thereby transformed into one for either trespass or nuisance.
It may well be appropriate in some cases to look behind the express pleadings of a complaint to determine whether an insurance carrier must defend or indemnify an insured for a particular claim, but I do not believe that Texas law requires a court or an insurance company to examine the legislative history of a federal or state statute to determine whether a particular statutory claim can be recharacterized as a covered common law cause of action.
Concerning the state government actions, Texas Eastern has provided insufficient evidence to allow me to conclude that there is any allegation of damage for personal injury in the common law form of nuisance or trespass. To the extent that Texas Eastern sought rulings that the nature of the EPA or other state government claims includes personal injury, its motion will be denied. The two private third-party actions do allege personal injury and the ISO pollution exclusion does not apply to those causes of action. The London Market exclusion does apply to personal injury, see supra pp. 1345-1346, and coverage for the private third-party complaints is barred by any insurance policies containing a London Market type pollution exclusion.
[77] See Ogden Corp. v. Travelers Indem. Co., 924 F.2d 39, 42 (2d Cir.1991) (concluding that the terms of the pollution exclusion require that the discharge meet both the "sudden" and "accidental" provisions in order to satisfy the exception to the exclusion). Texas Eastern apparently admits at page six in its memorandum in opposition to the insurers' motion for summary judgment that the focus should be on the discharge and not on the damage which the discharge ultimately causes.
[78] Texas Eastern has raised the additional arguments that it is entitled to a trial on the issues of (1) whether PCBs constitute a "pollutant" as defined by the insurance policies, and (2) whether depositing pipeline liquids into pits and spraying liquids into the atmosphere constitutes a "discharge" as defined by the insurance policies.
It is undisputed that Texas Eastern intentionally deposited pipeline liquids containing PCBs into its unlined earthen pits. As a matter of law, I conclude that this act is a "discharge, dispersal, release or escape" as defined by the ISO exclusion. It is also undisputed that Texas Eastern released pipeline liquids into the atmosphere during the start-up and shut-down of the compressor units. I conclude that these acts were either "discharge[s], dispersal[s], release[s] or escape[s]" as defined by the ISO pollution exclusion. Finally, Texas Eastern's intentional spraying of pipeline liquids to kill weeds and to wet down dirt roads is clearly covered by the plain language of the exclusion. Likewise, these events clearly constitute "happenings" as required by the London Market type exclusion. Therefore no disputed issue exists for trial.
It is equally clear that PCBs are covered by the plain language of the ISO and London Market exclusions. It is beyond dispute that PCBs are a toxic chemical. As such, the release of PCBs into the environment satisfies the language of both exclusions. If Texas Eastern had discharged a small amount of PCBs into a contained area, there might be a dispute as to whether that release constituted either "pollution" or "contamination." However, the undisputed facts reveal that substantial amounts of PCBs were released into the unlined earthen pits, dispersed into the air, and sprayed onto the ground over a long period of years. Texas Eastern has offered no reasonable argument to support its contention that the release of PCBs into the environment did not constitute "pollution" or "contamination" and thus the language of the ISO and London Market exclusions is satisfied.
[79] It is significant that Black's Law Dictionary has the unreasonable definition of the term. Black's relies on case law, not laymen's understanding, to form its definitions.
[80] Although the Third Circuit found the dictionary definition of "sudden" persuasive evidence, it agreed that conflicting definitions did not require a finding of ambiguity: "[W]e agree ... that the existence of more than one dictionary definition is not the sine qua non of ambiguity. If it were, few words would be unambiguous." New Castle County, 933 F.2d at 1193.
[81] The pollution exclusion was the ISO type exclusion.
[82] In this regard, it is useful to recall the Fifth Circuit's statement about a lawyer's ability to create ambiguity: "As necessity is the mother of invention, so is ambiguity the father of multiple reasonable constructions, and where lawyers are involved, one never lacks an eager parent of either gender." Ideal Mut. Ins. Co., 783 F.2d at 1238.
[83] I note that with respect to one policy issued by Aegis, effective from March 1, 1975 to March 1, 1981, Texas Eastern contends that the pollution exclusion was deleted by endorsement for the entire effective period of the policy, while Aegis contends that the exclusion was deleted only from 1978 to 1981. Because I will grant summary judgment under all policies on the issue of late notice, I do not decide whether this policy contained a pollution exclusion from 1975 to 1978.
[84] Record evidence establishes that prior to April 1987, Texas Eastern's senior management understood that cleanup costs would likely exceed $100 million. Although Texas Eastern has not strenuously argued that the excess carriers were entitled to notice some time later than F & C, its knowledge of the probable cleanup costs would foreclose such an argument.
[85] In fact, the Carriers have contended that Texas Eastern knew, beginning in 1958, that it had a significant PCB-related problem, suggesting the possibility of a notification obligation many years prior to the actual date of notice.
[86] Doubtful claims, however, do not do away with an insured's duty to notify its insurer.
[87] Texas Eastern cannot have it both ways. If I were to accept Texas Eastern's argument that the owned property exclusion does not apply to environmental harm of this type, then Texas Eastern would have to prove that notice was not late with respect to claims for cleaning up its own property. Since it knew of this so-called occurrence as early as 1982, the notice was late as a matter of law.
Conversely, if I accept Texas Eastern's argument that notice is only required when there is a likelihood of a claim by a third party based on PCB contamination, Texas Eastern is all but admitting that the owned property exclusion applies to virtually all of these claims.
[88] However, "Texas Eastern's Insurance Department believed that Texas Eastern already enjoyed the equivalent of EIL coverage under its general liability policies." (TSOF ¶ 94.)
[89] As late as January 11, 1985, however, Texas Eastern continued to operate the Transwestern system during the change of ownership. (App. 286.)
[90] Arlin Adams, formally a judge on the Third Circuit Court of Appeals, was the special master assigned to this case for the purpose of resolving certain discovery disputes involving claimed attorney-client and work-product privileges.
[91] Texas Eastern, of course, believes that all costs incurred pursuant to the EPA Consent Decree are associated with third-party damage. I reject this view as discussed under "Owned Property." See supra part XI.
[92] In fact, it is Texas Eastern's position that EPA did not make any specific cleanup demands at any time prior to April 1987. (Church Decl., TApp. 191 at ¶ 9.) EPA's failure to demand an immediate cleanup may be explained, in part, by the fact that the Weston report which Texas Eastern presented to EPA intentionally and deliberately deleted all of the references to potential off-site migration contained in the February 1986 draft. (Ins.' Mem. in Opp'n Summ.J. Late Notice at 10-11.)
[93] This is relevant because certain F & C policies required notice only after Texas Eastern's Insurance Department became aware of an "occurrence or claim." (See supra p. 1351.)
[94] Apparently, it is undisputed that the Insurance Department was aware that Texas Eastern had an on-site PCB problem. The reasonableness of the Insurance Department's action, after its personnel learned about the potential off-site harm, should take that knowledge into account.
[95] The question of whether notice is reasonable is usually a question of fact but if the facts are undisputed the question then becomes one of law. Klein v. Century Lloyds, 154 Tex. 160, 275 S.W.2d 95, 97 (1955); Broussard, 582 S.W.2d at 262; Continental Sav. Ass'n v. United States Fidelity & Guar. Co., 762 F.2d 1239, 1243 (5th Cir.), amended on other grounds, 768 F.2d 89 (5th Cir.1985) (citing Klein, 154 Tex. 160, 275 S.W.2d at 97).
[96] On March 30, 1987, it appears that Texas Eastern gave notice to an insurance company not party to this litigation (A.C.E.) of a potential claim arising out of the discovery of PCBs in drinking well water near one of Texas Eastern's compressor stations. (App. 367.) This is approximately five months before Texas Eastern gave the Carriers involved in this litigation notice of any "occurrence."
[97] This point was made clear at oral argument in the statements of Mr. Nickels, counsel for Texas Eastern, in response to my questions:
THE COURT: And when was that, the Weston [54-site survey] report?
MR. NICKELS: It was presented formally to the EPA, I believe, in March or April of 1987
THE COURT: Well, when was it presented to Texas Eastern?
MR. NICKELS: December, '86.
THE COURT: All right. Now, at that time you certainly knew that they [PCBs] were emanating off-site, didn't you, or had reason to believe that they were?
MR. NICKELS: We have reason to believe that, that is right your Honor.
Tr. of Hr'g on Mot. for Summ.J., January 13, 1992 at 93-94.
[98] The policy requirement that the Insurance Department be informed of the claim or occurrence must be read to include a duty on Texas Eastern's part to make its Insurance Department aware of relevant corporate activities. Otherwise, insureds could easily build "Chinese walls" around their insurance departments for the sole purpose of defeating insurance carrier defenses to coverage.
[99] Stephen Mulliken, Director of Texas Eastern's Risk Management Department, testified at his deposition that Texas Eastern had guidelines in effect which required that all accidents, occurrences, or events that may lead to a claim, whether a formal claim was presented or not, should be immediately reported through the field offices to the Claims Department in Houston. (Dep. of Stephen Mulliken, App. 261 at 258.)
[100] Texas Eastern contends that only the Insurance Department had the requisite skill to make the subjective determination of when a claim was "likely" to involve a particular excess policy. Nothing in the policy language requires this result and I find Texas Eastern's argument to be wholly without merit. Senior management was qualified to make decisions concerning the likely involvement of excess carriers on individual claims. In addition, the duty to inform the Insurance Department of important corporate matters would include informing it of the known off-site migration of pollutants and contaminants.
[101] It should be clear that December 1986 merely represents the latest possible date on which undisputed evidence establishes that Texas Eastern's notice obligation accrued. I previously indicated that April 1986 could, in all likelihood, also have been chosen.
[102] Even if Texas Eastern's unsupported contention that it did not learn about the off-site migration of PCBs until April 1987 is accepted, I would still conclude that notice was late as a matter of law. Texas Eastern was clearly aware of the magnitude of its PCB problem in April 1987, and was negotiating with EPA to settle the issue of pit remediation. Although four months may appear to be a short period of time, Texas Eastern has advanced no meritorious explanation for the delay. The period from April to August 1987 was a crucial time for the Carriers to be involved in the settlement process and Texas Eastern's delay deprived the Carriers of this opportunity. Under Texas law, Texas Eastern had a duty to promptly notify the Carriers. Notice, after a four month delay, fails to be notice within a reasonable time. (See cases cited supra pp. 1357-1358.)
[103] Prior to the 1973 enactment of the endorsement, no showing of prejudice was required. Thus, as to those policies written prior to April 1973, no prejudice need be shown.
[104] Portions of depositions give credence to this argument. (See, e.g., supra pp. 1354-1355.)
[105] For example, it is clear from the record that Texas Eastern likely relied on the environmental studies and its consultations with EPA concerning the contamination on its own property to form its opinions about the contamination which was the subject of the state agency and private third-party claims. The Carriers should have had an opportunity to participate in the decisions concerning the studies and the overall approach which Texas Eastern decided to employ with regard to its PCB contamination problems. Texas Eastern's late notice denied the Carriers this important opportunity and thereby prejudiced the Carriers.
As for the private third-party claims, all but two of these claims are not presently before this court. However, because Texas Eastern was aware, for a long period of time, of the likelihood of private third-party claims by reason of the admitted off-site migration of PCBs, even if the exact identities of the claimants were unknown, the Carriers were equally prejudiced by being unable to make their own investigation and take action to minimize future private party claims. See, e.g., Olin Corp. v. Insurance Co. of N. Am., No. 91-9155, 1992 WL 114441, *5 (2d Cir. June 1, 1992) (The filing of an initial lawsuit "would surely have alerted a reasonable person to suspect that other claims by varied plaintiffs ... might follow.")
[106] No claim is being asserted against the excess insurance carriers on this ground.
[107] The parties dispute what the precise nature of Fidelity's duty was under the insurance policies issued from 1973 to 1988. The contracts are so confusing that counsel for Texas Eastern professed to staying up all night before oral argument attempting to understand them but was unable to do so. Having read the contract language, I have little doubt that counsel was telling the truth. Because I conclude that F & C had no duty to defend even under a more traditional duty to defend clause, I do not reach the issue of F & C's obligations under these later clauses, which were clearly more restrictive and limited than the usual duty to defend clauses contained in CGL policies.
[108] Texas law is in accord with this view of the duty to defend. See, e.g., Whatley v. City of Dallas, 758 S.W.2d 301, 304 (Tex.Ct.App.1988) (writ denied) (the duty to defend is ordinarily a contractual undertaking defined by the insurance policy).
[109] Texas Eastern argues for an orthodox application of the four corners rule on the duty to defend issue, even though it relies very heavily on extrinsic evidence to prove that the complaint and the Consent Decree caused it to incur liability which can be linked to some third-party injury that is nowhere alleged in the EPA Complaint. Its reliance on the Hammerstrom affidavits is a good example. Texas Eastern relies heavily on these two affidavits to establish that EPA considered potential harm to third-parties when it determined the acceptable levels of contamination that could safely remain on Texas Eastern property after the remediation was complete. The affidavits were submitted to the court in support of the Consent Decree, not as a part of the original complaint. An application of the four corners rule would prevent the consideration of this piece of evidence, which I believe is crucial in order for Texas Eastern to establish that any of its response costs are recoverable from its third-party liability carriers.
[110] For the same reasons, any F & C policy containing a pollution exclusion clause also defeats Texas Eastern's contention that F & C has a duty to defend.
[111] I have concluded that F & C had no duty to defend Texas Eastern. However, a number of issues raised by the parties regarding F & C's liability in the event it is determined that it breached its duty to defend require brief comment.
In Texas Eastern's view, F & C's failure to defend would obligate F & C to pay all defense costs, and to pay all damage claims, including those claims not covered by the insurance policies, up to, and perhaps even exceeding, the policies' limits. In addition, F & C would be prohibited from challenging the reasonableness of the settlements entered into by Texas Eastern.
Texas law does not support the majority of these assertions. While it is apparently true that an insurer cannot challenge the reasonableness of a good faith settlement entered into after a breach of the duty to defend, an insurer is free to litigate the issue of coverage for the settlement. See Employers Casualty Co. v. Block, 744 S.W.2d 940, 943 (Tex.1988). Moreover, Texas Eastern's reliance on Rhodes for the proposition that F & C must pay all damages assessed, including those not covered by the policies, is unavailing. See Rhodes, 719 F.2d at 120 n. 5. As the Fifth Circuit recently observed, "[h]opeful insureds under Texas law cite this footnote [Rhodes, 719 F.2d at 120 n. 5] in vain.... The insured does not win [unlimited] indemnification merely by showing that the insurer did owe it a defense in the underlying cause of action. Even an unfaithful insurer may not be bound to an insurance contract it did not write." Enserch Corp. v. Shand Morahan & Co., Inc., 952 F.2d 1485, 1493 n. 13 (5th Cir.1992).
[1] It has come to my attention that Southern American Insurance Company (one of the many London Market Insurers) is currently undergoing Liquidation proceedings. On March 26, 1992, Judge Anne M. Stirba of the Third Judicial District in and for Salt Lake County, State of Utah ordered that "[n]o suit, action, proceeding, or claim at law or in equity of any kind shall be brought, maintained, or further prosecuted [against Southern American Insurance Company] without proper authorization of the Liquidator. ..." The Liquidator is Utah Insurance Commissioner Harold C. Yancey. Therefore, neither this order nor the accompanying opinion apply to Southern American Insurance Company.
I have also been informed that the following insurance companies: Kingscroft Insurance Company Ltd. (formally known as Dart Insurance Company Ltd., Kraft Insurance Company Ltd., and Dart & Kraft Insurance Company Ltd.), El Paso Insurance Company Ltd., Lime Street Insurance Company Ltd. (formally known as Lousiville Insurance Company Ltd.), and Mutual Reinsurance Company Ltd. (collectively known as the "KELM Companies") are currently under a Temporary Restraining Order, dated May 8, 1992, entered by the United States Bankruptcy Court for the Southern District of New York, which prohibits "commencing or continuing any judicial, administrative or regulatory action or proceeding against Kingscroft, El Paso, Lime Street and/or Mutual or any of their property in the United States...." Sherman & Sterling has informed the court that at least one of the KELM Companies is a party to the present litigation. Therefore, neither this order nor the accompanying opinion apply to the any of the KELM Companies which are parties to this litigation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1772517/ | 651 S.W.2d 8 (1983)
Virginia TREVINO, Appellant,
v.
ALLSTATE INSURANCE COMPANY, Appellee.
No. 05-81-01347-CV.
Court of Appeals of Texas, Dallas.
January 25, 1983.
On Motion for Rehearing April 8, 1983.
Rehearing Denied May 11, 1983.
*10 Robert E. Barfield, Amarillo, for appellant.
Arlen D. Bynum, Dallas, for appellee.
Before GUITTARD, C.J., and AKIN and STEPHENS, JJ.
GUITTARD, Chief Justice.
Virginia Trevino brought this suit as a third-party beneficiary on a policy of homeowner's liability insurance issued by Allstate Insurance Company to Patrick Henry. She alleges that she was injured by the negligent horseplay of the insured Henry and that Henry's liability to her has been established by the allowance of her claim in the bankruptcy court. The present trial was before the trial court on an agreed statement of facts. The court rendered judgment for Allstate, and Trevino contends on this appeal that the agreed evidence shows as a matter of law that the insured had become "legally obligated to pay" the amount sued for as damages because of "bodily injury" within the terms of the policy. Allstate contends that all conditions precedent to recovery on the policy had not been performed and that as a matter of law the insured had not become "legally obligated to pay" the amount sued for as damages within the terms of the policy. We agree that Trevino has failed to plead and to prove that all conditions precedent to recovery had occurred or had been performed. Consequently, we affirm.
According to the agreed evidence, Trevino was injured on or about April 20, 1976, as a result of an act of horseplay on the part of the insured Henry, who had a policy of homeowner's insurance issued by Allstate. Trevino gave notice to Allstate of her intention to file a suit against Henry, and she did file in the District Court of Randall County a suit alleging that her injury was proximately caused by Henry's negligence. Henry did not "tender the defense" of the suit to Allstate, and Allstate did not participate in defending it. Before the Randall County suit could be tried, Henry filed a petition for voluntary bankruptcy. Trevino filed in the bankruptcy proceeding a proof of claim alleging that further prosecution of the Randall County suit had been stayed on account of the bankruptcy and that Henry was liable to her as alleged in the petition in the Randall County suit, a copy of which was attached. The bankruptcy judge signed an order allowing this claim in the amount of $10,000, reciting that the bankrupt, though properly notified of the hearing, did not appear and that no other parties at interest had filed or *11 expressed any objection to the allowance of the claim. The order further recites that after hearing evidence and argument of counsel, the court finds that claimant Trevino had been damaged and injured by the bankrupt Henry in the amount of $10,000.
The agreed evidence in the present suit shows that Allstate had no notice of the filing of the petition in bankruptcy or of Trevino's action in the bankruptcy court and was not a party to that action. The suit in Randall County was never tried, but was dismissed for want of prosecution after the bankruptcy petition was filed.
On appeal, Allstate contends that all conditions precedent to recovery on the policy had not been performed. Specifically, Allstate complains that the insured Henry failed to forward suit papers to Allstate as required by the policy.
Trevino did not plead specifically that suit papers had been forwarded, nor did she plead generally that all conditions precedent to recovery had occurred or been performed, as authorized by rule 54 of the Texas Rules of Civil Procedure. Tex.R. Civ.P. 54. Allstate answered with a general denial. The only evidence in the record relative to this issue is the stipulation that Henry did not "tender the defense" of the Randall County suit to Allstate.
The relevant portion of the policy states that "the Insured shall, if claim is made or suit is brought against the Insured, forward to the Company every demand, notice, summons or other process received by him...." The policy further provides, "No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with...." A similar policy provision requiring the forwarding of suit papers has been held to establish a condition precedent to recovery on the policy.[1]Weaver v. Hartford Accident & Indemnity Co., 570 S.W.2d 367, 369 (Tex.1978); Members Mutual Ins. Co. v. Cutaia, 476 S.W.2d 278, 278-79 (Tex.1972).
A condition precedent to the right to maintain an action must be performed and "the fact of performance or excuse of nonperformance must be alleged and proved in order to warrant a recovery." Southwestern Associated Telephone Co. v. City of Dalhart, 254 S.W.2d 819, 825 (Tex. Civ.App. Amarillo 1952, writ ref'd n.r.e.). When a plaintiff avers generally that all conditions precedent have been performed, he is required to prove the performance of only those conditions precedent specifically denied by the defendant. The effect of this rule is to shift the burden of pleading to the defendant, but not the burden of proof, when the plaintiff has made a general allegation that all conditions precedent have been performed.
Trevino makes no specific allegations that the insured forwarded the suit papers as required by the policy, nor does she make a general allegation that all conditions precedent have been performed. In the absence of any pleading by Trevino of the performance of all conditions precedent, rule 54 did not cast on Allstate the burden to specifically plead the failure to perform any condition precedent. The burden to both plead and prove the performance of conditions precedent remained with Trevino.
*12 We recognize that since Allstate made no objection to Trevino's pleadings before the judgment was signed, it waived any objection to Trevino's pleadings. Tex. R.Civ.P. 90. Nevertheless, waiver of pleading of a fact essential to the cause of action does not constitute waiver of proof of that fact. See Northrup v. O'Brien, 474 S.W.2d 614, 617 (Tex.Civ.App. Dallas 1971, no writ); Great Southwest Life Insurance Co. v. Camp, 464 S.W.2d 702, 704 (Tex.Civ.App. Fort Worth 1971, no writ); Gottschalk v. Gottschalk, 212 S.W.2d 223, 225 (Tex.Civ. App. Austin 1948, no writ). Therefore, we must examine the record to determine whether the trial court correctly held that Trevino had failed to meet her burden of proof.
Our examination of the record reveals that the only evidence which might be relevant to this issue is the stipulation that the insured did not "tender the defense" of the Randall County suit to Allstate. This does not constitute affirmative evidence that suit papers were forwarded to Allstate and, in fact, could be interpreted to be an admission by Trevino that suit papers were not forwarded. Under this record, Trevino has not met her burden of proof on an essential element of her cause of action and the presumption contained in rule 54 is inoperative to relieve Trevino of this burden. Consequently, the trial court correctly rendered judgment for Allstate.
Affirmed.
ON MOTION FOR REHEARING
In her motion for rehearing, Trevino contends that Allstate cannot rely on the policy provisions requiring the insured to forward suit papers because this provision was not put in issue in the trial court. She insists that she had no burden to show compliance with this provision unless it was put in issue by Allstate. Her argument is based on two provisions of Rule 94 of the Texas Rules of Civil Procedure, (1) the requirement that a responsive pleading allege affirmatively any "matter constituting an avoidance or affirmative defense" and (2) the provision that in a suit on an insurance contract, the insurer is not allowed to raise an issue that the loss is due to a risk or cause within any of the exceptions to the general liability specified in the contract unless the particular exception is alleged in a responsive pleading. We conclude that neither of these provisions is applicable.
MATTERS OF AVOIDANCE OR AFFIRMATIVE DEFENSE
Whether a particular fact is a matter of avoidance or defense turns on the burden of proof. Normally the plaintiff has the burden to prove all facts essential to liability, including proof of performance of all conditions precedent. Nonperformance of a condition precedent may be considered a matter of "avoidance" or "defense" in the sense that it bars recovery even though the truth of the plaintiff's allegations may be established. See Dairyland County Mutual Ins. Co. v. Roman, 498 S.W.2d 154, 157 (Tex.1973). In this sense, of course, failure to establish one of several essential elements of any cause of action bars recovery even though all other elements may be established. The pertinent inquiry is whether compliance with a condition precedent is a matter that plaintiff must prove as an essential element of his case. The law is clear that performance of a condition precedent is an essential element of the plaintiff's case on which the plaintiff has the burden of proof unless he alleges performance of all conditions precedent and the defendant fails to deny specifically performance of the conditions, as required by rule 54. Texas International Airlines v. Wits Air Freight, 608 S.W.2d 828 (Tex.Civ.App. Dallas 1980, no writ); City of Galveston v. Shu, 607 S.W.2d 942, 945 (Tex.Civ.App. Houston [1st Dist.] 1980, no writ); Bunch Electric Co. v. Tex-Craft Builders, Inc., 480 S.W.2d 42, 47 (Tex.Civ. App. Tyler 1972, no writ); see Dairyland County Mutual Ins. Co. v. Roman, 498 S.W.2d 154, 157 (Tex.1973) ("defense" of failure to give notice of accident was not available to company because the insured pleaded generally that all conditions precedent had been performed and the insurer *13 failed to deny specifically). Under these authorities, having made no such general allegation, Trevino cannot claim the benefit of the presumption provided by rule 54. Consequently the forwarding of suit papers is not a matter of avoidance or affirmative defense, but a fact she must prove as an essential element of her case.
Exception to General Coverage
Neither is Trevino relieved of her burden of pleading and proving compliance with the condition precedent by the provision of rule 94 excusing the claimant in a suit on an insurance contract from negating exceptions to liability in the absence of a defensive pleading of a particular exception. The text of this provision is as follows:
Where the suit is on an insurance contract which insures against certain general hazards, but contains other provisions limiting such general liability, the party suing on such contract shall never be required to allege that the loss was not due to a risk or cause coming within any of the exceptions specified in the contract, nor shall the insurer be allowed to raise such issue unless it shall specifically allege that the loss was due to a risk or cause coming within a particular exception to the general liability; provided that nothing herein shall be construed to change the burden of proof on such issue as it now exists.
Because of this requirement, even though the burden of proof is on the claimant to negate policy exceptions, that proof is waived by the company's failure to plead the exception it relies on to defeat recovery. T.I.M.E., Inc. v. Maryland Casualty Co., 157 Tex. 21, 300 S.W.2d 68, 73 (Tex.1957). This provision is not applicable here, however, because the policy requirement of forwarding suit papers does not concern a "risk or cause coming within a particular exception to the general liability." This policy requirement is applicable, whatever risk or cause may have resulted in the loss. It is a condition precedent to recovery on the policy rather than an exception relieving the company from liability for losses caused by particular hazards that would otherwise fall within the general hazard insured against. Consequently, no burden is cast on the insurer to plead specifically unless the claimant alleges compliance with this requirement or pleads generally the performance of all conditions precedent, as allowed by rule 54.
This conclusion is supported by decisions holding that the insurer's burden to plead exceptions under this provision of rule 94 does not extend to matters affecting the insurer's general obligation, on which the claimant has the burden of proof. Bethea v. National Casualty Co., 307 S.W.2d 323, 325 (Tex.Civ.App. Beaumont 1957, writ ref'd); Preferred Life Insurance Co. v. Stephenville Hospital, 256 S.W.2d 1006, 1010 (Tex.Civ.App. Eastland 1953, no writ). Analogous authority may be found in decisions holding that rule 93(m), requiring a sworn plea of failure to give notice of a claim, does not apply to noncompliance with a policy requirement that the insured give prompt notice of any accident alleged to be within coverage of the policy. National Surety Corp. v. Diggs, 272 S.W.2d 604, 612 (Tex.Civ.App. Fort Worth 1954, writ ref'd n.r.e.); Lone Star Finance Co. v. Universal Automobile Ins. Co., 28 S.W.2d 573, 575 (Tex.Civ.App. Galveston 1930, no writ) (construing earlier statute); cf. City of Beaumont v. Fuentez, 582 S.W.2d 221, 223 (Tex.Civ.App. Beaumont 1979, no writ) (claimant who did not plead compliance with charter requirement of notice did not invoke pleading requirement of rule 93(m)).
Motion for rehearing overruled.
NOTES
[1] Although Allstate argues that the record affirmatively shows harm from the insured's failure to forward suit papers, we conclude that the question of harm does not arise in this case. Before May 1, 1976, the insurer did not have to slow that it was harmed by the insured's failure to forward suit papers; the fact that suit papers were not forwarded was sufficient. Members Mutual Ins. Co. v. Cutaia, 476 S.W.2d 278, 280 (Tex.1972). By an "amendatory endorsement" effective May 1, 1976, applicable to all general liability policies issued in Texas, the State Board of Insurance has required that the insurer be prejudiced by the insured's failure to forward suit papers before such a failure will bar liability under the policy. The claimant in this case was injured on or about April 20, 1976, and the policy covering the incident was issued before that date. The law in effect at the date of issuance of the policy controls. Shelton v. Ray, 570 S.W.2d 419, 420 (Tex.Civ. App. El Paso 1978, no writ); Lee v. Universal Life Ins. Co., 420 S.W.2d 222, 226 (Tex.Civ. App. Houston [14th Dist.] 1967, writ ref'd n.r. e.). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1622179/ | 851 F. Supp. 283 (1994)
John M. STEWART, et al., Plaintiffs,
v.
GNP COMMODITIES, INC., 1211 Corporation, et al., Defendants.
Nos. 88 C 1896, 91 C 2635.
United States District Court, N.D. Illinois, Eastern Division.
March 29, 1994.
*284 Constantine John Gekas, Adrianne S. Harvitt, Harvitt & Gekas, Ltd., Chicago, IL, Bruce S. Feder, Feder Law Office, Phoenix, AZ, for plaintiffs.
Howard J. Roin, Andrew S. Marovitz, Mayer, Brown & Platt, Chicago, IL, for defendant 1211 Corp.
MEMORANDUM OPINION AND ORDER
LEINENWEBER, District Judge.
Plaintiffs are investors who purchased interests in certain commodity pools operated by Waters, Tan & Co. ("Waters Tan"). Defendant, G.H. Miller & Co. ("Miller"), is a Futures Commission Merchant ("FCM").
Statutory and Regulatory Provisions
The Commodity Futures Trading Commission ("Commission" or "CFTC") regulates the operation of commodity pools, FCMs and a host of other functions involved in the commodity markets. See 7 U.S.C. § 1 et seq. ("Commodity Exchange Act" or the "Act"); and 17 CFR § 1 et seq. ("Regulations"). A commodity pool operator is defined in the Act and Regulations as any
person engaged in a business which is of the nature of an investment trust, syndicate, or similar form of enterprise, and who, in connection wherewith, solicits, accepts, or receives from others, funds, securities or property, either directly or through capital contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of trading in any commodity for future delivery or commodity option....
7 U.S.C. § 1a(4); 17 CFR § 1.3(5)(cc). Thus, the Act and Regulations permit a pool operator to receive money from his customers. Pool operators are required to register with the National Futures Association ("NFA"). 17 CFR § 3.
The Act and Regulations also define a Commodity Trading Advisor as a person who, for compensation or profit, is in the business of advising others in the trading of commodity futures or options. 7 U.S.C. § 1a(5).
The Act and Regulations define an introducing broker as
any person ... engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market who does not accept any money, securities, or property (or extend credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom.
7 U.S.C. § 1a(14); 17 CFR § 1.3(mm). Therefore, under the Regulations and the Act, an introducing broker is not permitted to accept money from clients. Introducing brokers are also required to register with the NFA.
A "Futures Commission Merchant" ("FMC") is also defined by the Act and Regulations to include anyone engaged in the solicitation or acceptance of orders for purchase of commodity futures but with the important difference that the FMC is permitted to accept "money, securities, or property" in return for the purchase. 7 U.S.C. § 1a(12); 7 CFR § 1.3(p).
The Regulations require an introducing broker, as a condition of registration, to meet certain minimum financial requirements or, in the alternative, furnish a written guarantee agreement executed by the FCM for whom he works. 17 CFR § 1.17; § 1.10(a)(ii)(C) and (j). The form of the guarantee agreement is specified by regulation. (17 CFR § 1.3(nn)).
FACTS
In 1982, Dennis K. Tan ("Tan"), and his partner, John Waters ("Waters"), started an investment club. By mid-1983, the club had begun to lose money, a fact which Tan and Waters hid from their investors by the artifice of sending false reports. They obtained money to fund the withdrawal of a club member by soliciting new customers. In 1984, in order to raise more money, they organized their first commodity pool. From November 8, 1984 until September 30, 1985, they formed additional pools and registered them with the NFA under the corporate name of Waters, Tan and Co. Waters Tan was also registered as a commodity trading advisor. *285 As an associated person ("AP"), Tan was personally involved in all aspects of the Waters Tan commodity pools, including the organization, advertisement, trading, and operation. He solicited investors, made trading decisions, and physically received investment funds from customers.
In May of 1985, Tan registered with the NFA as an introducing broker for Miller. To fulfill the financial requirements of the Regulations, Tan furnished the NFA with a written guarantee executed by Miller.
The guarantee agreement stated in relevant part:
In consideration for the introduction of customer and option customer accounts by Dennis K. Tan, an introducing broker, to G.H. Miller & Co., a futures commission merchant ... the future commission merchant guarantees performance by the introducing broker of, and shall be jointly and severally liable for, all obligations of the introducing broker under the Commodity Exchange Act, as it may be amended from time to time, and the rules, regulations and orders which have been or may be promulgated thereunder with respect to the solicitation of and transactions involving all customer and option customer accounts the introducing broker entered into on or after the effective date of this agreement.
This agreement was in effect until terminated by mutual consent on July 18, 1986. Some of the material used by Waters Tan to promote its commodity pools stated that Waters Tan was an introducing broker for Miller. This was incorrect and there was no creditable evidence that Miller acquiesced in this deception. It was not until 1986, after Tan ceased to be an introducing broker for Miller and the termination of the guarantee, that Waters Tan itself became registered as an introducing broker, but for a FCM other than Miller.
In 1988, the Commission shut down the Waters Tan commodity pool operation for reasons of fraud. The NFA charged Tan and Waters personally with fraud and expelled them in 1988. In 1989, Tan was charged by the state of Arizona with criminal racketeering for his activities in operating the commodity pools, charges to which he pleaded guilty in 1989.
Plaintiffs have all lost money as a result of the frauds associated with the commodity pools operated by Waters Tan. All of the plaintiffs made payments directly to and received certificates from Waters Tan and none made any payments to Tan individually. None of the plaintiffs placed any trades directly with Miller either through Tan or otherwise. Both Tan and Waters testified that they made an effort to conceal the existence and operation of the pools from Miller.
Plaintiffs have now sued Miller on the guarantee for the money they lost through Tan's fraud. Miller has moved for summary judgment.
ARGUMENT
Plaintiffs' position is straight forward: they made investments with Tan. He defrauded them and they lost money as the result of his fraud. A guarantee agreement existed between Miller and Tan. Therefore, Miller should make good their losses. Miller, however, contends that it only guaranteed Tan's actions as an introducing broker and not for his actions as a pool operator. Therefore, the guarantee did not cover the complained of activities.
Under section 4 of the Act, Miller as a FCM, is strictly liable for the actions of its introducing brokers provided they are within the scope of their office. 7 U.S.C. § 4; Rosenthal & Co. v. Commodity Futures Trading Comm'n, 802 F.2d 963, 969 (7th Cir.1986). This obligation is reinforced by the terms of the guarantee agreement which makes Miller strictly liable for the actions of its introducing broker "with respect to the solicitation of the transaction of involving all customer and option customer accounts of the introducing broker" entered into during the term of the agreement. The issue, therefore, presented by the motion is whether the acknowledged fraud of Tan was within the scope of Tan's office as Miller's introducing broker and within the terms of the guarantee.
*286 A guarantee is a contract and is to be construed, like other contracts, according to the intention of the parties as ascertained from the instrument itself, in light of surrounding circumstances at the time it was executed. Cargill v. Buis, 543 F.2d 584, 587 (7th Cir.1976). Both sides agree that the terms of the guarantee are unambiguous but have differing interpretations. Plaintiffs cite Rosenthal while Miller cites two cases from the Commission itself: Taylor v. Vista Futures, Inc., Comm.Fut.L.Rep. (CCH) ¶ 25, 165 (Nov. 20, 1991), and Hazen v. Waters, Tan & Co., et al., CFTC Docket No. 88-R356.
Initially, the court notes that the terms of the guarantee agreement are dictated by the Commission Regulations (See 17 CFR § 1.3(mm)) and it is well settled that an "agency's construction of its own regulation binds a court in all but extraordinary cases." Homemakers North Shore, Inc. v. Bowen, 832 F.2d 408, 411 (7th Cir.1987).
Vista, similar to this case, involved an introducing broker (Vista Futures) and its branch manager,[1] who were both guaranteed by a FCM. The branch manager, like Tan here, was operating a commodity pool on the side in addition to introducing customers to the FCM. After the branch manager converted funds invested in the pool, the pool investors sued the FCM on the guarantee. The Commission, in overruling the Administrative Law Judge ("ALJ"), established a distinction between the solicitation of orders and the solicitation of funds. Since by statute and regulation an introducing broker (and its associated persons) cannot solicit funds, the fraudulent activity, because it involved solicitation of funds, was found to be outside the scope of the office of introducing broker.
Hazen was a decision by an ALJ arising out of this very case and involved Tan and the same guarantee agreement executed by Miller, but different claimants. The ALJ held that Miller was not vicariously liable for those losses arising from investments in the Waters Tan commodity pools because Waters Tan was not its introducing broker.
In Rosenthal, the Commission (affirmed by the Seventh Circuit), found a FCM criminally responsible under section 4 for fraudulent activities of a commodity pool operator who was also its branch manager, i.e., an AP of the FCM.[2] The FCM had entered into an arrangement with the pool operator so as to permit the FCM to share commissions on the pool investments. In soliciting customers for his commodity pool, the AP pool operator withheld required warnings about the risky nature of commodity speculation. The Commission determined this to be a form of commodity fraud. The Commission further found that the fraud was within the scope of the agency even though the fraud was committed while soliciting customers for the commodity pool rather than for the FCM. The Seventh Circuit upheld the Commission stating that
some deference must be paid to the special knowledge which the commission brings to the regulation of the commodities markets. ...
* * * * * *
The commission has deemed [the associated person] an agent of [the FCM] in soliciting investors through fraudulent means not because the words "within the scope of his employment or office" ineluctably compel the conclusion that [the AP]'s agency included solicitation but because the word allow this interpretation....
* * * * * *
It had a reasonable if not compelling basis for deeming [the PA]'s acts to be within the scope of the agency created by the [FCM] and no more is required to compel us to up hold the Commission's order.
While Rosenthal at first blush appears to be at odds with Vista and Hazen, nevertheless, they are easily reconciled. As the Commission stated in Vista, a distinction is made *287 between soliciting orders and soliciting funds. In Vista, as well as in Hazen (and also here), the introducing broker was hired to solicit orders and not funds. In fact, as emphasized by the Commission, the Act and Regulations prohibit introducing brokers from soliciting funds. The agent in Rosenthal committed the fraud through the solicitation of orders for his pool, the funds from which he intended to invest through his principal Rosenthal, which was the whole purpose behind their business relationship. The Commission and the Seventh Circuit emphasized that Rosenthal, unlike Miller, was fully aware that its agent was operating a commodity pool and soliciting funds for it. Therefore, the FCM should be encouraged to keep an eye on the methods utilized to obtain pool sales, but holding it criminally responsible.
Therefore, we have two Commission decisions, one arising out of the very same facts present here and the other out of an exceedingly similar fact situation, and a Commission decision which the Seventh Circuit stated was not "ineluctably" compelled and distinguishable. Besides, there are practical considerations supporting the reasoning in Vista and Hazen and Miller's position, which are not implicated by Rosenthal. The principals entered into an arrangement guaranteeing the activities of agents under which they had a right to expect would not involve the handling of money. The statute prohibited the agent from accepting money from customers. Miller could have made Tan its AP which would have allowed him to handle customer money but it chose not to do so. An arrangement that involves the handling of money is obviously riskier than one not involving the handling of money. Miller ought not have its risk increased without its knowledge. This is the basis for the Commission's decision in Vista. On the other hand, the arrangement between Rosenthal and its agent obviously contemplated the latter, soliciting orders which was the basis of the fraudulent charge.[3]
In addition, here, unlike Rosenthal, plaintiffs have brought forth no evidence that Miller was aware of Tan's involvement in the illegal pools. None of the plaintiffs purchased any futures directly from Miller. Also, unlike the branch manager in Rosenthal, Tan was not the pool operator and none of the plaintiffs purchased investments directly from Tan. All interests purchased by plaintiffs were from Waters Tan, the registered pool operator. All checks were sent to Waters Tan and all certificates of ownership were issued by Waters Tan. Plaintiffs, therefore, knew they were dealing with Waters Tan rather than Miller.
Plaintiffs argue that Miller is liable under the guarantee because the guarantee by its terms continued despite "subsequent incorporation, merger or consolidation" of the introducing broker. Therefore, Waters Tan, as well as Tan, is covered by Miller's guarantee. However, there was no evidence that Tan incorporated, merged or consolidated with any entity after the date of the guarantee. Waters Tan, the corporation, pre-existed the agreement. Tan was functioning in two capacities: as an AP of a registered pool operator, Waters Tan, and as an introducing broker for Miller. There is no evidence that Miller knew about Tan's role with Waters Tan, much less acquiesced in it.
Finally, plaintiffs claim that Miller cloaked Waters Tan with apparent authority to act as its introducing broker. The evidence in support is the declaration of a Waters Tan employee, Lee Paulus ("Paulus"). He testified that Aaron Itkin ("Itkin"), an employee of Miller, visited the offices of Waters Tan in 1986, at which time he discussed the use of the Miller name by Waters Tan. However, what Paulus failed to disclose is that three days after the visit, Itkin wrote Tan a letter confirming their discussions "concerning the use of the Waters, Tan and Company name in any manner in your promotional efforts...." He further confirmed their discussion that all promotional material
must be written under the Dennis Tan banner rather than the Waters Tan stationery. All letters to clients must likewise not be sent on Waters Tan stationery and the legend "introducing Broker for G.H. Miller & Company" must not appear *288 in any form indicating Waters Tan as introducing for our firm.
A review of promotional materials used by Tan by the NFA was carried out subsequent to this. The NFA pointed out that the use of promotional materials listing Waters Tan as an introducing broker for Miller was not in accord with NFA compliance rules. Tan's lawyer responded to the NFA, admitting that such use was wrong and that all such offending material had been destroyed. From this evidence it is obvious that Miller did not cloak Waters Tan with apparent authority to act as its introducing broker.
CONCLUSION
There being no issue of material fact, the motion for summary judgment of G.H. Miller & Co. is granted and the case is dismissed.
IT IS SO ORDERED.
NOTES
[1] Any person associated with an introducing broker as an associate, partner, employee, or agent who is involved in any capacity in soliciting or accepting customers orders must also be registered. (7 U.S.C.A., § 6k(1)).
[2] An associated person of a FCM must also register. (7 U.S.C.A. § 6k(1)).
[3] The agent of Rosenthal, being an AP of FCM, was entitled to receive customer funds. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1127001/ | 637 So.2d 604 (1994)
PEOPLES HOMESTEAD FEDERAL BANK AND TRUST, Plaintiff-Appellee,
v.
Fred O. LAING, Sr., Individually and d/b/a Laing Farms, Defendant-Appellant.
No. 25784-CA.
Court of Appeal of Louisiana, Second Circuit.
May 4, 1994.
*605 Fewell, Rhymes & Lucas by Richard L. Fewell, Jr., Monroe, for defendant-appellant.
Snellings, Breard, Sartor, Inabnett & Trascher, by W. Brooks Watson, Monroe, for plaintiff-appellee.
Before HIGHTOWER and WILLIAMS, JJ., and LOWE, J. Pro Tem.
HIGHTOWER, Judge.
In this suit on a promissory note, Fred O. Laing, Sr., individually and d/b/a Laing Farms, appeals from adverse rulings granting a motion to strike and summary judgment. We affirm.
PROCEDURAL HISTORY
On November 16, 1988, People's Homestead Federal Bank for Savings filed suit against Laing, seeking to recover the amount due on a 1987 promissory note, together with interest and attorney's fees. In his answer, Laing did not dispute his signature on the instrument but, instead, asserted failure of consideration. Subsequently, the trial court granted the bank's motion for summary judgment and defendant appealed. Concluding that Louisiana's parol evidence rule would not exclude presentation of the indicated defense, we reversed and remanded for further proceedings. See People's Homestead Bank v. Laing, 569 So.2d 271 (La.App. 2d Cir.1990). During the pendency of that appeal, however, People's became insolvent and the receiver, Resolution Trust Corporation ("RTC"), upon appropriate motion, substituted itself as party plaintiff.
Subsequently, the case remained dormant for almost two years. Then, on August 4, 1992, Dennis Joslin, who had acquired the note in question from the RTC through notarial endorsement and transfer, substituted himself as plaintiff. Answering the amended petition, Laing specifically requested to reserve his right of litigious redemption pursuant to LSA-C.C. Art. 2652, "inasmuch as Petitioner herein acquired the disputed note from the Resolution Trust Corporation (RTC)." Joslin responded by moving to have this portion of the defense stricken from the pleadings, and the trial court granted that request. Soon thereafter, plaintiff obtained a summary judgment recognizing defendant's debt of $53,874.40, plus interest and attorney's fees, and maintaining Joslin's attendant privileges and mortgages on certain property. This appeal, challenging both rulings, ensued.
DISCUSSION
Motion to Strike
Appellant initially contends that the trial court erred in striking the litigious redemption assertion from his answer. The provisions of LSA-C.C.P. Art. 964 authorize a court, on motion of a party or sua sponte, to order stricken any insufficient demand or defense or any redundant, immaterial, impertinent, or scandalous matter. In his motion to strike, Joslin contended that a defendant cannot claim the benefit of LSA-C.C. Art. 2652, the litigious redemption doctrine, against the RTC or its assignees. We agree.
Although, with certain exceptions (see, e.g., LSA-C.C. Art. 2447), Louisiana law allows the sale of litigious rights, speculation in litigation is discouraged by LSA-C.C. Art. 2652:
He against whom a litigious right has been transferred, may get himself released by paying to the transferee the real price of the transfer, together with interest from its date.
*606 Removing the profit incentive in such transactions serves to dissuade trafficking in lawsuits. Smith v. Cook, 189 La. 632, 180 So. 469 (1938). However, an asset transferred to a regulatory agency, such as the RTC, does not fit the prototype at which this codal provision is aimed.
In its position as a receiver, the RTC acquired Laing's promissory note as a part of an effort to protect the creditors and depositors of the failing institution. Because the Federal Savings & Loan Insurance Corporation insured these deposits, the endeavor for conservation also extended to those monies contributed to that governmental corporation by other member thrifts and, ultimately, the taxpayers. Transfer transactions, such as the one which occurred when People's became insolvent, allow financial regulators to gain control of a faltering bank expeditiously, with no service interruption and minimized depositor losses. See FDIC v. Wood, 758 F.2d 156, 160-61 (6th Cir.1985), cert. denied, 474 U.S. 944, 106 S.Ct. 308, 88 L.Ed.2d 286 (1985). Speed is required in such a transaction. Id. For that reason, bulk transfers and the ability of federal agencies to estimate the value of a thrift's assets, simply by analyzing its books and records, are often essential elements in saving a distressed institution. See Id.; FSLIC v. Murray, 853 F.2d 1251, 1256 (5th Cir.1988).
Subjecting the RTC or its assignees to the litigious redemption doctrine would wreak havoc with the agency's ability to perform its statutorily mandated function of managing failed thrifts. In any purchase transaction, the agency would be faced with assigning a value to each and every pending suit on a note. Not only would these measures retard the intervention, but also produce an unjustified windfall to the defaulting borrowers and a consequential loss to either the thrift's depositors, other creditors, or the taxpayers.
More concisely stated, while LSA-C.C. Art. 2652 is a legislative attempt to prohibit trafficking in litigation, profit did not motivate the RTC's acquisition in the instant matter. Hence, the sale of litigious rights rule should not be applied to thwart the useful and expeditious method by which thrift regulators intervene in failing institutions. Indeed, in FDIC v. Orrill, 771 F.Supp. 777 (E.D.La.1991), aff'd, 978 F.2d 711 (5th Cir.1992), a federal district court specifically determined that a defendant borrower could not invoke the LSA-C.C. Art. 2652 concept against notes acquired by the Federal Deposit Insurance Corporation. Citing NCNB Texas Nat'l Bank v. Cowden, 895 F.2d 1488 (5th Cir.1990), the Orrill court recognized that federal regulatory agencies may obtain and transfer rights acquired from failed banking institutions, notwithstanding that such rights would not have been transferrable under state law.
Here, of course, we are not directly concerned with the federal agency but with an individual who has acquired the note at issue from that authority. However, under former LSA-R.S. 10:3-201 (now LSA-R.S. 10:3-203), the transfer of an instrument vests in a transferee, like Joslin, such rights as the transferor previously held. Therefore, an assertion based upon LSA-C.C. Art. 2652 cannot prevail against an assignee of the RTC. In managing failed banks, and rather than directly incurring the costs of prosecuting each delinquent account, the RTC sells obligations in bulk without assigning a specific monetary value to separate items. In doing that, to ensure that its protective goals are advanced, the agency must be able to convey its rights along with any promissory notes. Otherwise, the market for such assets would be substantially restricted, producing a deleterious effect in regard to the conservation of faltering institutions. Cf. Porras v. Petroplex Sav. Ass'n., 903 F.2d 379 (5th Cir. 1990). Thus, both policy considerations and our commercial law dictate that Joslin, in addition to the RTC, be insulated from the litigious redemption doctrine. See also, e.g., FDIC v. Bledsoe, 989 F.2d 805, 811 (5th Cir.1993) (explaining how the imposition of state statutes of limitations upon assignees would undermine the ability of federal agencies to protect bank assets). Accordingly, the trial court correctly ordered the indicated passages stricken from Laing's answer.[1]
*607 Motion for Summary Judgment
Appellant also assigns error in reference to the granting of Joslin's motion for summary judgment. Laing contested the note on two grounds: litigious redemption and failure of consideration. Our previous discussion having resolved the former matter, we are left with only the latter aspect.
Laing has consistently alleged that he signed the promissory note at issue in exchange for an assurance by People's that it would make crop loans to his sons, but that the bank thereafter refused to extend the promised credit. However, in his brief, appellant correctly concedes that lack of consideration and other defenses based upon alleged side agreements are barred by the D'Oench, Duhme doctrine (n. 1, supra). Clearly, assignees of federal regulatory agencies enjoy such protections, see Bell & Murphy & Assoc. v. Interfirst Bank Gateway, 894 F.2d 750 (5th Cir.1990), cert. denied, 498 U.S. 895, 111 S.Ct. 244, 112 L.Ed.2d 203 (1990), which shield against averred commitments to finance future loans when not evidenced in the bank's records, see Beighley v. FDIC, 868 F.2d 776 (5th Cir.1989). Very importantly, too, appellant has not briefed the summary judgment issue, and any specification or assignment of error not briefed is considered abandoned. URCA 2-12.4; Day v. South Line Equipment Co., 551 So.2d 774 (La.App. 1st Cir.1989), writ denied, 553 So.2d 474 (La.1989).
CONCLUSION
Accordingly, for the foregoing reasons, the judgment of the trial court is affirmed at appellant's costs.
AFFIRMED.
NOTES
[1] We do not find it necessary to agree or disagree with appellant's argument that his litigious redemption claim is barred by neither the D'Oench, Duhme nor the federal holder in due course principles. The former concept emanates from D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and is a common law rule of estoppel precluding a borrower from asserting against a federal regulatory agency defenses based upon secret or unrecorded side agreements which alter the facially unqualified obligation. The federal holder in due course doctrine gives those same agencies immunity from a debtor's personal defenses. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2031229/ | 720 N.W.2d 770 (2006)
271 Mich. App. 244
LAKE FOREST PARTNERS 2, INC., Petitioner-Appellant,
v.
DEPARTMENT OF TREASURY, Respondent-Appellee.
Docket No. 257417.
Court of Appeals of Michigan.
Submitted February 8, 2006, at Lansing.
Decided June 6, 2006, at 9:05 a.m.
Released for Publication August 31, 2006.
*771 Stefan B. Herpel, P.C. (by Stefan B. Herpel), Ann Arbor, for the petitioner.
Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and Roland Hwang, Assistant Attorney General, for the respondent.
McClelland & Anderson, L.L.P. (by Gregory L. McClelland and Melissa A. Hagen), Lansing, for the Michigan Association of Home Builders.
Honigman Miller Schwartz and Cohn LLP (by Alan M. Valade and Regis A. Carozza), Detroit, for Wexford Builders, Inc.
Before: WILDER, P.J., and ZAHRA and DAVIS, JJ.
ZAHRA, J.
Petitioner appeals as of right the judgment of Tax Tribunal affirming respondent's assessment under the State Real Estate Transfer Tax Act (SRETTA), MCL 207.521 et seq. This case addresses the propriety of assessments under the SRETTA for purchase agreements that include both the sale of unimproved property and an executory contract to build a home on that property. We conclude that the value of the property for purposes of assessment of the state real estate transfer tax is determined at the time the parties execute the purchase agreement. We reverse and remand.
A. Facts and Proceedings
This case involves 45 transactions in which petitioner agreed to sell buyers certain unimproved lots and subsequently build homes on those lots. In each transaction, a single document entitled "purchase agreement" provided the terms of the sale of the unimproved lot and the terms of the agreement to build a home on that lot. The parties stipulated that the purchase agreement separately stated the consideration for the lot and the consideration to build the home. The purchase agreement also provided that after petitioner completed construction of the home and a certificate of occupancy was issued, petitioner would deliver a warranty deed to the buyer. When the deed was recorded, petitioner paid real estate transfer taxes based on the value of the lot as it existed when the purchase agreement was executed.[1]
*772 In May 2002, respondent Department of Treasury determined that, under the SRETTA, petitioner failed to pay the appropriate transfer taxes in each of the 45 transactions. Respondent concluded that petitioner should have paid transfer taxes based on the value of the lot and the home. Respondent ordered petitioner to satisfy a tax deficiency of $65,968, plus a penalty ($16,492) and interest. Petitioner filed its petition with the Tax Tribunal for reconsideration of respondent's assessment, which the Tax Tribunal denied.
B. Standard of Review
This Court reviews decisions of the Tax Tribunal only to determine whether the tribunal committed an error of law or applied the wrong legal principles. Const. 1963, art. 6, § 28; AERC of Michigan, LLC v. City of Grand Rapids, 266 Mich. App. 717, 722, 702 N.W.2d 692 (2005), citing Schultz v. Denton Twp., 252 Mich.App. 528, 529, 652 N.W.2d 692 (2002). Also, this Court reviews the interpretation of statutes, which is a question of law, de novo. AERC of Michigan, supra at 722, 702 N.W.2d 692, citing Florida Leasco, LLC v. Dep't of Treasury, 250 Mich.App. 506, 507, 655 N.W.2d 302 (2002).
C. Analysis
MCL 207.523 provides:
(1) There is imposed, in addition to all other taxes, a tax upon the following written instruments executed within this state when the instrument is recorded:
(a) Contracts for the sale or exchange of property or any interest in the property or any combination of sales or exchanges or any assignment or transfer of property or any interest in the property.
(b) Deeds or instruments of conveyance of property or any interest in property, for consideration.
(2) The person who is the seller or grantor of the property is liable for the tax imposed under this act.
The state real estate transfer tax is "levied at the rate of $3.75 for each $500.00 or fraction of $500.00 of the total value of the property being transferred." MCL 207.525. "`Value' means the current or fair market worth in terms of legal monetary exchange at the time of the transfer." MCL 207.522(e) (emphasis added). While the transfer tax is paid "when the instrument is recorded," MCL 207.523(1), the transfer tax is assessed on "the current or fair market worth . . . at the time of the transfer," MCL 207.522(e).
"`[O]ur primary task in construing a statute, is to discern and give effect to the intent of the Legislature.'" Neal v. Wilkes, 470 Mich. 661, 665, 685 N.W.2d 648 (2004), quoting Sun Valley Foods Co. v. Ward, 460 Mich. 230, 236, 596 N.W.2d 119 (1999). "`The words of a statute provide "the most reliable evidence of its intent...."'" Neal, supra at 665, 685 N.W.2d 648, quoting Sun Valley, supra at 236, 596 N.W.2d 119, in turn quoting United States v. Turkette, 452 U.S. 576, 593, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (1981). "Unless defined in the statute, every word or phrase of a statute will be ascribed its plain and ordinary meaning." Robertson v. DaimlerChrysler Corp., 465 Mich. 732, 748, 641 N.W.2d 567 (2002). "`[C]ourts must give effect to every word, phrase, and clause in a statute and avoid an interpretation that would render any part of the statute surplusage or nugatory.'" Jenkins v. Patel, 471 Mich. 158, 167, 684 N.W.2d 346 (2004) (citation omitted). "[P]rovisions not included by the Legislature *773 should not be included by the courts." Polkton Charter Twp. v. Pellegrom, 265 Mich.App. 88, 103, 693 N.W.2d 170 (2005) (citation omitted).
Each of the 45 transactions involved the execution of two written instruments: a purchase agreement and a deed. Of those two instruments, only the deed was recorded, and, thus, only the deed was taxed. MCL 207.523(1). Although the purchase agreements were not recorded, they are nonetheless "[c]ontracts for the sale or exchange of property" under MCL 207.523(1)(a). Because the transfer tax may be imposed on purchase agreements, we conclude that upon the execution of a purchase agreement, some interest in the property is transferred under the SRETTA. Respondent's contention that interest in the property is transferred only by execution of the deed ignores the language of MCL 207.523(1)(a). The transfer tax is assessed on "the current or fair market worth . . . at the time of the transfer." MCL 207.522(e). We therefore conclude that the transfer tax is assessed on the basis of the value of the property when the purchase agreement is executed.[2]
Further, it is well-settled that the execution of a purchase agreement transfers an interest in property. See Graves v. American Acceptance Mortgage Corp. (On Rehearing), 469 Mich. 608, 614, 677 N.W.2d 829 (2004); Stevens v. DeBar, 229 Mich. 251, 253, 200 N.W. 978 (1924); Zurcher v. Herveat, 238 Mich.App. 267, 291, 605 N.W.2d 329 (1999); Pittsfield Charter Twp. v. City of Saline, 103 Mich. App. 99, 103, 302 N.W.2d 608 (1981). And although the purchase agreements transfer only an equitable interest in the property, under the SRETTA, the transfer of "any interest in the property" will suffice. MCL 207.523(1)(a) (emphasis added). As a practical matter, "[a] trial court should enforce the equities of the parties in such a manner as to put them as nearly as possible in the position that they would have occupied had the conveyance of the real property occurred when required by the contract." Godwin v. Lindbert, 101 Mich. App. 754, 758, 300 N.W.2d 514 (1980). In other words, "[l]and, traditionally presumed to have a peculiar value, is subject to specific performance." Kent v. Bell, 374 Mich. 646, 651, 132 N.W.2d 601 (1965). Here, each purchase agreement indicated a specific lot number that identified the real estate purchased. "Conceivably, [the land] could not be duplicated by an award of money." Id. Thus, execution of the purchase agreement transfers to the buyer an equitable interest in the property, which gives rise to a cause of action for possession of the property. Therefore, we conclude that the value of the property for purposes of assessment is determined at the time the parties execute the purchase agreement.
We reverse and remand for further proceedings. We do not retain jurisdiction.
WILDER, P.J., concurred.
*774 DAVIS, J. (dissenting).
I respectfully disagree with my colleagues' interpretation of the State Real Estate Transfer Tax Act (SRETTA), MCL 207.521 et seq. I believe that it clearly articulates a legislative intent to impose a tax based on the value of property at the time title is legally transferred. I would therefore affirm.
MCL 207.523(1) imposes
a tax upon the following written instruments executed within this state when the instrument is recorded:
(a) Contracts for the sale or exchange of property or any interest in the property or any combination of sales or exchanges or any assignment or transfer of property or any interest in the property.
(b) Deeds or instruments of conveyance of property or any interest in property, for consideration.
Significantly, the purchase agreements involved here were not recorded. Only the subsequent deeds were recorded. On these facts, the plain, unambiguous language of the statute imposes a tax on the deeds, not the purchase agreements.
MCL 207.532(1) further provides, in relevant part, that the state real estate transfer tax "shall be paid only once" and "shall not be imposed on a written instrument that transfers property if the written instrument is given and the transfer made pursuant to a written executory contract upon which the tax was previously paid." No tax was previously paid here, nor could it have been because the only taxable instruments under the facts of this case are the instruments actually recorded.
The majority correctly points out that "`[v]alue' means the current or fair market worth in terms of legal monetary exchange at the time of the transfer." MCL 207.522(e) (emphasis added). MCL 207.532(1) also refers to "the transfer." The only logical interpretation is, as the majority concludes, that the Legislature intended to impose a tax on certain instruments conveying interest in property at the time those instruments are recorded, but in an amount calculated on the basis of the value of the property when "the transfer" took place. The SRETTA does not explicitly define "transfer," other than clearly indicating that there can only be one "transfer" relevant to any given instrument. The majority erroneously concludes that, because a transfer (of an equitable interest) took place with the execution of the purchase agreement, that must be the transfer.
The state real estate transfer tax is imposed only on the instrument that is actually recorded. The majority's construction of the statute would calculate the tax on the basis of a "transfer" that took place in an entirely different instrument, even though the recorded instrument upon which the tax is actually imposed also contains a transfer. This creates a complication that the Legislature did not intend from a plain reading of the statute. Indeed, the Legislature specifically provided for certain exceptions, such as land contracts, MCL 207.526(o), or instruments "to confirm title already vested in a grantee," MCL 207.526(n). If the Legislature had intended to impose a tax based on the first transfer, or based on any transfer, it could easily have said so. Instead, it refers to the transfer, logically referring to the transfer embodied in the instrument being recorded and on which the tax is imposed. Here, that refers to the transfer of legal title to the improved lot with the house on it.[1]
*775 Reading the statute as a whole further indicates that the Legislature did not intend to include equitable transfers in computing the state real estate transfer tax. The majority relies heavily on the language "or any interest in the property" for its conclusion that a transfer of equitable title will suffice as a "transfer." However, the best way to determine "the current or fair market worth in terms of legal monetary exchange," MCL 207.522(e), is to examine how much money was, in fact, exchanged. When legal title passes, the seller is presumably satisfied that he or she has received full compensation, and the buyer is presumably satisfied that he or she is not paying too much. A purchase agreement conveys an equitable interest that could be enforced by filing suit for specific performance, but the transaction is not complete at that point. More significantly, the classic understanding of an "interest in the property" is what bundle of rights the purchaser has acquired by the transaction, not the kind of suit that would be necessary to enforce those rights. For example, fee simple absolute is an "interest in the property," as is a life estate or a possibility of reverter. The majority's focus on a partial transfer of the relevant interest, rather than on the interest itself, further defeats the Legislature's intent.
The plain, unambiguous language of the SRETTA imposes a tax on the value of the transfer effectuated by the instrument that is being recorded. In this case, that transfer by deed is of legal title to the improved property, including the lot and the house. Therefore, I would affirm.
NOTES
[1] The same 45 transactions were initially the subject of a circuit court case, Washtenaw Co v. Lake Forest Partners 2, Inc, LC No. 00-579-CH. In that case, the county argued that, under the real estate transfer tax act (RETTA), MCL 207.501 et seq., which essentially mirrors the SRETTA, petitioner should have paid the county on the basis of the value of the lot and the home. The case was resolved by a consent order, under which the parties agreed that as long as petitioner used separate contracts in these types of transactions, i.e., one for the sale of the lot and one for the construction of the home, the RETTA tax would be assessed only on the basis of the value of the lot.
[2] We note that, under MCL 207.526, the purchase agreements may arguably be classified as "written instruments and transfers of property" that are exempt from the tax. Specifically, the purchase agreements may be characterized as "land contract[s] in which the legal title does not pass to the grantee until the total consideration specified in the contract has been paid," MCL 207.526(o). However, as mentioned, the purchase agreements in this case were not recorded, and thus whether they are exempt under MCL 207.526 is purely academic. In any event, we disagree with the suggestion that the land-contract exemption delays the assessment of taxes rather than the date on which the transfer tax is paid. We conclude that the land-contract exemption delays the date on which the transfer tax is paid, and merely allows buyers to record land contracts without immediately paying the tax, thus protecting the buyers' rights under the land contract until a deed is executed.
[1] Both fall within the definition of "property" under the SRETTA. MCL 207.522(b). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1677746/ | 516 So. 2d 20 (1987)
Alexander ROBINSON, III, Appellant,
v.
STATE of Florida, Appellee.
No. BT-8.
District Court of Appeal of Florida, First District.
November 13, 1987.
Rehearing Denied December 11, 1987.
Alexander Robinson, III, pro se.
No appearance for appellee.
NIMMONS, Judge.
Robinson appeals from an order denying his Fla.R.Crim.P. 3.850 motion. His motion asserted two grounds: (1) his confession, which was introduced at his trial, was involuntarily given; and (2) his attorney was ineffective by failing to call two alibi witnesses.
The first ground is unavailing because such could have been raised by direct appeal from his conviction.
With respect to the second ground, the trial judge attached to his order an affidavit of Robinson's trial counsel upon which affidavit the court relied in denying the motion. This was error because the affidavit was not part of the files and records in *21 the case. See McCorkle v. State, 419 So. 2d 373 (Fla. 1st DCA 1982).
However, the trial court's order of denial is sustainable on another basis facial insufficiency of the motion. Ground two of Robinson's motion simply alleged that his lawyer failed to present two alibi witnesses after he asked that the lawyer do so. There is no hint in the motion as to any facts such as the identity of such witnesses, what they would testify to if called, or their availability. While the failure to call witnesses may constitute ineffective assistance of counsel, see e.g. Halpin v. State, 428 So. 2d 703 (Fla. 2nd DCA 1983), a 3.850 movant must allege more than the bare bones statement that his lawyer failed to call two witnesses.
AFFIRMED.
MILLS and ERVIN, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2984728/ | February 20, 2014
JUDGMENT
The Fourteenth Court of Appeals
DYLLAN CHANCE GODWIN, Appellant
NO. 14-13-00631-CR V.
THE STATE OF TEXAS, Appellee
________________________________
This cause was heard on the motion of the appellant to withdraw notice of
appeal. Having considered the motion the Court orders the appeal DISMISSED.
We further order appellant pay all costs expended in the appeal.
We further order the mandate be issued immediately.
We further order this decision certified below for observance. | 01-03-2023 | 09-22-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1506531/ | 899 S.W.2d 36 (1995)
Tyiwon WILSON a/k/a Tommy Lewis Weaver, Appellant,
v.
STATE of Texas, Appellee.
No. 07-94-0341-CR.
Court of Appeals of Texas, Amarillo.
May 11, 1995.
Rehearing Overruled June 13, 1995.
*37 Roderique S. Hobson, Jr., Lubbock, for appellant.
William C. Sowder, Dist. Atty., Michael West, Assistant Criminal Dist. Atty., Lubbock, for appellee.
Before REYNOLDS, C.J., and DODSON and BOYD, JJ.
REYNOLDS, Chief Justice.
Pursuant to a plea-bargain agreement, appellant Tyiwon Wilson a/k/a Tommy Lewis Weaver pleaded guilty to, and was found guilty of, the offense of delivery of a controlled substance of less than 28 grams, and his punishment was assessed at confinement for ten years. Filing a proper notice to appeal from the denial of his pretrial motion for sentencing under the amended version of the statute he was charged with violating, appellant argues by two points of error that the trial court erred in its denial. We will overrule the points and affirm.
Charged by indictment with the offense of delivery of a controlled substance of less than 28 grams, alleged to have been committed on 1 June 1994,[1] appellant appeared before the trial court in November of that year to enter his plea. Prior to commencing the plea proceedings, the trial court entertained appellant's "Motion for Sentencing Under Senate Bill 1067, Acts 1993, Ch. 900 73rd Legislature," which bill included, inter alia, amendments, effective 1 September 1994, to the Texas Health and Safety Code and the Texas Penal Code. Articles one and two of the Senate Bill[2] reclassified the offense of which appellant was convicted from a first degree felony (for delivery of a controlled substance less than 28 grams), Texas Health & Safety Code Annotated section 481.112(b) (Vernon 1992), to a state jail felony (for delivery of a controlled substance less than one gram), Texas Health & Safety Code Annotated section 481.112(b) (Vernon Supp.1995), and, correspondingly, reduced the punishment for the offense from a range of five years to life, Texas Penal Code Annotated section 12.32 (Vernon 1994), to a range of 180 days to two years. Tex.Penal Code Ann. § 12.35 (Vernon 1994).
Articles one and two of Senate Bill 1067 concluded with a "saving provisions" clause which pronounced:
*38 (a) The change in law made by this article applies only to an offense committed on or after the effective date of this article. For purposes of this section, an offense is committed before the effective date of this article if any element of the offense occurs before the effective date.
(b) An offense committed before the effective date of this article is covered by the law in effect when the offense was committed, and the former law is continued in effect for that purpose.
Act approved June 19, 1993, 73rd Leg., R.S., ch. 900, §§ 1.18 & 2.08, 1993 Tex.Gen.Laws 3586, 3714.[3] Denying appellant's motion, the court expressed the opinion "that the law [did] not allow for sentencing pursuant to the new statute for an offense committed prior to September 1st, 1994."
Thereafter, appellant and the State stipulated that on 1 June 1994, appellant "delivered to Bill Bates cocaine, the net weight of which was one gram or under." Recognizing that the stipulated delivery of a controlled substance less than one gram would bring the offense charged within the state jail felony classification under the amended statute had it been committed after 1 September 1994, the court nonetheless reiterated its denial of appellant's motion for sentencing under the amended statute, and appellant plead guilty to the offense.
By the prosecution of this appeal, appellant asserts that (1) "the trial court erred by refusing to grant [his] motion, upon a plea of guilty, to be sentenced under Senate Bill 1067, Acts 1993, Ch. 900, 73rd Legislature and changes in the penal code and punishments, thereunder," and (2) the trial court violated his constitutional rights under the Fourteenth Amendment of the United States Constitution by refusing to sentence him under the amended statutory provisions. We disagree.
Under his initial assertion, appellant argues that the "saving provisions" clause of the Code Construction Act, Texas Government Code Annotated section 311.031 (Vernon 1988), mandates that his sentence be determined in accordance with the revised version of the statute under which he was convicted. In pertinent part, that clause provides:
If the penalty, forfeiture, or punishment for any offense is reduced by a reenactment, revision, or amendment of a statute, the penalty, forfeiture, or punishment, if not already imposed, shall be imposed according to the statute as amended.
Tex.Gov't Code Ann. § 311.031(b) (Vernon 1988). Following his argument, as we perceive it, to its logical conclusion, appellant would have us hold that the general "saving provisions" clause of the Code Construction Act preempts the application of the specific "saving provisions" clause of Senate Bill 1067. We are not persuaded by the argument.
Though the Code Construction Act applies to all reenactments, revisions, amendments, and repeals of any of the Texas codes, the Act's general savings clause is inapplicable to the amended Health and Safety and Penal Codes, because specific savings clauses were provided by the legislature in Senate Bill 1067 to address the application of those amendments. See Ex Parte Mangrum, 564 S.W.2d 751, 755 (Tex.Cr.App.1978). By including the "saving provisions" clauses, recorded above, at the conclusion of articles one and two of the Senate Bill, the legislature expressed its clear intention that the "old law" would remain in effect to govern the disposition of cases involving offenses committed prior to 1 September 1994, the effective date of the amended statutes.
It is undisputed that appellant committed the offense of which he now stands convicted on 1 June 1994, exactly three months before the amended versions of the pertinent Health and Safety and Penal Code provisions came into effect. Consequently, the trial court properly applied the "old" versions of section 481.112(b) of the Health and Safety Code and *39 section 12.32 of the Penal Code at the plea hearing and in assessing appellant's punishment.
Furthermore, it is axiomatic that when two statutes conflict, the specific controls over the general, particularly when the specific provision is the later enactment. Tex.Gov't Code Ann. § 311.026(b) (Vernon 1988); City of Dallas v. Mitchell, 870 S.W.2d 21, 22-23 (Tex.1994). Therefore, since the general provision of the Government Code conflicts with the specific "saving provisions" clause of the later enacted Senate Bill 1067, the specific clause provided by the Senate Bill still prevails. Appellant's first point of error is overruled.
As we discern appellant's argument under his second point, he contends that by applying the "old law" in the disposition of his case, the trial court denied him equal protection of the law in violation of his federal and state constitutional rights. We disagree.
At the outset, we concur in the State's assessment that appellant, in the cursory paragraph which comprises his argument under this point, "has failed to offer any authority to support his proposition that he has been denied a constitutional right." Consequently, his argument does not comport with Rule 74(f), Texas Rules of Appellate Procedure, which requires that his appellate brief contain "such discussion of the facts and the authorities relied upon as may be requisite to maintain the point at issue." Standing alone, this is sufficient to justify overruling his second point of error. Burks v. State, 876 S.W.2d 877, 910 (Tex.Cr.App. 1994), cert. denied, ___ U.S. ___, 115 S. Ct. 909, 130 L. Ed. 2d 791 (1995). Nevertheless, we will address his argument.
Generally, legislation is presumed to be valid and will be sustained if the classification drawn by the statute is rationally related to a legitimate state interest. Jackson v. State, 807 S.W.2d 387, 390 (Tex.App.Houston [14th Dist.] 1991, pet'n ref'd). In order to successfully claim denial of equal protection of the law on the basis of unreasonable classification, an accused must prove the existence of a class of which he is a part and unreasonable discrimination. Russell v. State, 665 S.W.2d 771, 777 (Tex.Cr.App.1983), cert. denied, 465 U.S. 1073, 104 S. Ct. 1428, 79 L. Ed. 2d 752 (1984). In other words, in the absence of class discrimination, an otherwise even-handed statute will survive an equal protection challenge. Beck v. State, 583 S.W.2d 338, 344 (Tex.Cr.App.1979).
Although appellant argues that "[i]t is unconstitutional for two citizens in the same courtroom charged with the same offense to be subject to differing ranges of punishment merely because one of the defendants committed the offense before midnight on August 31, 1994," his argument implicates neither a denial of equal protection nor any class discrimination. Indeed, insofar as the record shows, appellant was tried and sentenced in the same manner as all criminal defendants who committed similar offenses prior to 1 September 1994, the effective date of the revised Health and Safety and Penal Codes, and his trial and punishment comported with the directives of the "saving provisions" clause of Senate Bill 1067. Appellant's second point of error is overruled.
The judgment is affirmed.
NOTES
[1] Appellant was charged pursuant to the provisions of the 1992 version of section 481.112(b) of the Texas Health and Safety Code, which classified as a first degree felony the knowing or intentional delivery of a substance weighing, in the aggregate, less than twenty-eight grams. Tex.Health & Safety Code Ann. § 481.112(b) (Vernon 1992).
[2] Article one of Senate Bill 1067 amended portions of the Penal Code, and article two modified sections of the Health and Safety Code.
[3] We note that the "saving provisions" clause has not been included in the codification of Senate Bill 1067; however, in instances such as the present one in which a provision of a code conflicts with a statute enacted by the same legislature, the statute controls. Tex.Gov't Code Ann. § 311.031(c) historical note (Vernon Supp.1995) [Act of Mar. 1 1989, 71st Leg., R.S., ch. 1, § 1, 1989 Tex.Sess.Law Serv. 1]. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1617331/ | 623 So. 2d 1268 (1993)
O. William REEDER
v.
The SUCCESSION OF Michael B. PALMER, Lynn Paul Martin, Individually and d/b/a LPM Enterprises and Bank of La-Place.
Nos. 92-C-2965, 92-C-3002.
Supreme Court of Louisiana.
September 3, 1993.
Rehearing Denied October 7, 1993.
*1269 Ellis B. Murov, Robert E. Kerrigan, John F. Willis, Deutsch, Kerrigan & Stiles, New Orleans, for applicant.
Stephen W. Rider, McGlinchey, Stafford, Cellini & Lang, New Orleans, Joseph Accardo, Jr., Bruce A. North, Lynn P. Martin, Accardo, Edrington & Golden, La Place, for respondent.
DENNIS, Justice.[*]
The question before us is whether this state court action is barred by res judicata because of a prior federal court judgment in the defendants' favor in a suit based on the same factual transaction or wrong as the *1270 instant case. Reeder sued for damages in federal court under federal securities statutes as the result of an alleged Ponzi or pyramid scheme perpetrated by Martin, Palmer, and others, and included a pendent state securities law claim (Reeder I). The federal district court dismissed Reeder's case with prejudice for failure to state a claim on the ground that post-dated checks, issued to Reeder in return for his investments in a bogus air travel business, did not qualify as "securities" or "investment contracts" under federal or Louisiana securities law. Reeder v. Succession of Palmer, 736 F. Supp. 128 (E.D.La.1990). The federal court of appeal affirmed without opinion. Reeder v. Succession of Palmer, 917 F.2d 560 (5th Cir.1990).
Reeder then sued Martin and Palmer in a virtually identical action in state court, with the exceptions that his petition did not rely on federal statutes and included not only state securities claims, but also state contract, tort and unfair trade practices claims. (Reeder II). The state trial court sustained the defendants' exceptions of res judicata and no cause of action, and dismissed Reeder's case with prejudice. The state court of appeal affirmed in part and reversed in part, holding that the federal court's dismissal of the state securities law claim operated as an adjudication on the merits for res judicata purposes, that the state tort claims had prescribed, that the state unfair trade practices claim was perempted, but that, although Reeder failed to state a cause of action in contract, his state law claim on this ground was not barred by res judicata and, therefore, he would be allowed an opportunity to amend his petition to remedy this deficiency. Reeder v. Succession of Palmer, 604 So. 2d 1070 (La.App. 5th Cir.1992).
We reverse the court of appeal judgment in part and reinstate the trial court's judgment dismissing Reeder's state case with prejudice. The federal court had pendent jurisdiction over all of Reeder's state law claims because they arose out of the same transaction or wrong as those presented in the federal proceeding. Therefore, Reeder was obligated to file in his first suit all the legal theories he wished to assert. The res judicata effect of the federal court judgment precludes the omitted state law claims because it is not clear that the federal district court would have declined to exercise pendent jurisdiction over them.
1. BACKGROUND
Dr. O. William Reeder filed a complaint in federal court alleging that Lynn Paul Martin, the late Michael B. Palmer, and others had defrauded him in violation of federal and Louisiana securities laws by operating an alleged Ponzi or pyramid scheme. (hereinafter Reeder I). Reeder's complaint specifically requested that the federal district court exercise pendent jurisdiction over plaintiff's factually-related state securities law claim filed in the federal proceeding.
According to Reeder's complaint, Palmer initially persuaded him in October of 1986 to invest in Martin's "travel club" and thereafter acted as intermediary between him and Martin. Palmer and Martin allegedly solicited funds from individuals to purchase blocks of advance airline tickets for groups taking gambling trips to Las Vegas casinos, for which the casinos were to reimburse Martin and pay a commission. Martin purportedly promised to return all of the funds invested plus interest at the rate of 6% per month on the total invested. In reality, the "travel club" never engaged in legitimate business, and when the club repaid capital contributions and so-called dividends, the money was covertly taken from capital invested by other victims of the scheme. Reeder alleged that with each investment he received two post-dated checks drawn on Martin's account with the Bank of LaPlace; one check represented a return of principal, and the other represented a fixed interest payment. Reeder's complaint stated that over the course of one and one-half years, he invested approximately $245,000 in Martin's "travel club" and received only $68,000 in return, for a net loss of $185,000.
In April of 1988, Martin turned himself in to federal authorities and confessed to having operated a Ponzi scheme in violation of federal securities laws. Martin was indicted and pleaded guilty to federal criminal charges in connection with that scheme. See United States v. Lynn Paul Martin, No. 89-390 "C"(2) (E.D.La.). Because Palmer committed *1271 suicide in May of 1988, his succession was named as a defendant in Reeder I.
In Reeder I, the federal district court concluded that no "securities" as defined under the federal or state securities laws were involved in Martin's "travel club" scheme and dismissed Reeder's case with prejudice. Reeder v. Succession of Palmer, 736 F. Supp. 128 (E.D.La.1990). The federal appellate court affirmed. Reeder v. Succession of Palmer, 917 F.2d 560 (5th Cir.1990). Reeder then activated a previously-filed state court suit against Martin and Palmer based on a petition virtually identical to his federal court action (Reeder II). Reeder sought damages based on factual allegations substantially the same as those in his federal complaint but grounded his suit in state securities law and other state law theories, rather than on federal statutes. The state trial court sustained the defendants' exceptions of res judicata and no cause of action, and dismissed Reeder II with prejudice. The state court of appeal agreed that res judicata barred the state securities law claim, disposed of other claims on different grounds, but held that the contract claim was not barred by the federal court judgment. Reeder v. Succession of Palmer, 604 So. 2d 1070 (La.App. 5th Cir. 1990). We granted certiorari to determine whether the court of appeal correctly applied the principles of res judicata.
2. LAW AND ANALYSIS
When a state court is required to determine the preclusive effects of a judgment rendered by a federal court exercising federal question jurisdiction, it is the federal law of res judicata that must be applied. McNeal v. Paine, Webber, Jackson & Curtis, 249 Ga. 662, 293 S.E.2d 331 (1982); Anderson v. Phoenix Inv. Counsel of Boston, 387 Mass. 444, 440 N.E.2d 1164 (1982); Rennie v. Freeway Transport, 294 Or. 319, 656 P.2d 919 (1982); Jeanes v. Henderson, 688 S.W.2d 100 (Tex.1985), reh'g of cause overruled (May 1, 1985); Commercial Box & Lumber Co. v. Uniroyal, Inc., 623 F.2d 371, 373 (5th Cir.1980); Aerojet-General Corp. v. Askew, 511 F.2d 710 (5th Cir.), appeal dismissed and cert. denied, 423 U.S. 908, 96 S. Ct. 210, 46 L. Ed. 2d 137 (1975); Restatement (Second) of Judgments § 87 (1982); C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure, Jurisdiction § 4468 (1981). Cf. Pilie & Pilie v. Metz, 547 So. 2d 1305 (La.1989). Federal res judicata principles have been heavily influenced by the great advances in the Restatement Second of Judgments. Federal courts and commentators often cite and rarely depart from the Restatement view. 18 Wright, Miller & Cooper, Federal Practice and Procedure § 4401 (1981).
Under federal precepts, "claim preclusion" or "true res judicata" treats a judgment, once rendered, as the full measure of relief to be accorded between the same parties on the same "claim" or "cause of action." When the plaintiff obtains a judgment in his favor, his claim "merges" in the judgment; he may seek no further relief on that claim in a separate action. Conversely, when a judgment is rendered for a defendant, the plaintiff's claim is extinguished; the judgment then acts as a "bar." Under these rules of claim preclusion, the effect of a judgment extends to the litigation of all issues relevant to the same claim between the same parties, whether or not raised at trial. The aim of claim preclusion is thus to avoid multiple suits on identical entitlements or obligations between the same parties, accompanied, as they would be, by the redetermination of identical issues of duty and breach. Kaspar Wire Works, Inc. v. Leco Engineering & Mach., 575 F.2d 530 (5th Cir.1978) (Rubin, J., citing authorities). See Restatement (Second) of Judgments §§ 18-20 (1982).
Claim preclusion will therefore apply to bar a subsequent action on res judicata principles where parties or their privies have previously litigated the same claim to a valid final judgment. In most cases, the key question to be answered in adjudging the propriety of a claim preclusion defense is whether in fact the claim in the second action is "the same as," or "identical to," one upon which the parties have previously proceeded to judgment. The authorities do not provide a uniform definition of the terms "claim" or "cause of action" in connection with the application of res judicata. The clear trend, however, in the most recent decisions, in harmony with such procedural concepts as the *1272 "transaction or occurrence" test for compulsory counterclaims as stated in Federal Rules of Civil Procedure, Rule 13(a) and the "common nucleus of operative fact" standard for pendent federal jurisdiction of United Mine Workers v. Gibbs, 383 U.S. 715, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966), has been towards the adoption of § 24 of the Restatement 2d, of Judgments. That Section sets forth a "transactional analysis" as to what constitutes a "claim," the extinguishment of which prohibits subsequent litigation with respect to the transaction(s) from which it arose. A majority of the federal circuit courts, as well as the Claims Court, have thus far expressly adopted the Restatement's transactional approach. Annotation, Proper Test to Determine Identity of Claims for Purposes of Claim Preclusion by Res Judicata Under Federal Law, 82 A.L.R.Fed. 829, 837 (1987); e.g., Southmark Properties v. Charles House Corp., 742 F.2d 862 (5th Cir. 1984). See Pilie & Pilie v. Metz, 547 So. 2d 1305, 1310 (La.1989) (citing authorities).
Section 24 of the Restatement (Second) of Judgments (1982) adopts a "transactional" view of claim for purposes of the doctrines of merger and bar, as follows:
§ 24. Dimensions of "Claim" for Purposes of Merger or
BarGeneral Rule Concerning "Splitting"
(1) When a valid and final judgment rendered in an action extinguishes the plaintiff's claim pursuant to the rules of merger or bar (see §§ 18, 19), the claim extinguished includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose.
(2) What factual grouping constitutes a "transaction", and what groupings constitute a "series", are to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage.
Illustrations of how the rule of § 24 applies to various situations are set forth in Restatement (Second) of Judgments § 25 (1982) as follows:
§ 25. Exemplifications of General Rule Concerning Splitting
The rule of § 24 applies to extinguish a claim by the plaintiff against the defendant even though the plaintiff is prepared in the second action
(1) To present evidence or grounds or theories of the case not presented in the first action, or
(2) To seek remedies or forms of relief not demanded in the first action.
Comment e of § 25 of the Restatement (Second) of Judgments (1982) explains the effects of the rules of §§ 24 and 25 in a case in which a given claim may be supported by theories or grounds arising from both state and federal law as follows:
A given claim may find support in theories or grounds arising from both state and federal law. When the plaintiff brings an action on the claim in a court, either state or federal, in which there is no jurisdictional obstacle to his advancing both theories or grounds, but he presents only one of them, and judgment is entered with respect to it, he may not maintain a second action in which he tenders the other theory or ground. If however, the court in the first action would clearly not have had jurisdiction to entertain the omitted theory or ground (or, having jurisdiction, would clearly have declined to exercise it as a matter of discretion), then a second action in a competent court presenting the omitted theory or ground should be held not precluded. * * *
See, e.g., Texas Employers' Ins. Ass'n v. Jackson, 862 F.2d 491, 501 (5th Cir.1988); Langston v. Insurance Co. of North America, 827 F.2d 1044, 1046-47 (5th Cir.1987); Ocean Drilling & Explor. Co. v. Mont Boat Rental Serv., Inc., 799 F.2d 213, 216, 217 (5th Cir.1986) applying §§ 24 and 25 of Restatement (Second) of Judgments (1982).
Succinctly stated, if a set of facts gives rise to a claim based on both state and federal law, and the plaintiff brings the action in a federal court which had "pendent" jurisdiction to hear the state cause of action, *1273 but the plaintiff fails or refuses to assert his state law claim, res judicata prevents him from subsequently asserting the state claim in a state court action, unless the federal court clearly would not have had jurisdiction to entertain the omitted state claim, or, having jurisdiction, clearly would have declined to exercise it as a matter of discretion. Restatement (Second) of Judgments §§ 24, 25 and 25, Comment e. E.g., Woods Exploration & Producing Co. v. Aluminum Co. of America, 438 F.2d 1286, 1315 (5th Cir.1971); Anderson v. Phoenix Inv. Counsel of Boston, 387 Mass. 444, 440 N.E.2d 1164, 1168 (1982). In cases of doubt, therefore, it is appropriate for the rules of res judicata to compel the plaintiff to bring forward his state theories in the federal action, in order to make it possible to resolve the entire controversy in a single lawsuit. Restatement (Second) of Judgments § 25, Reporter's Note at 228; Woods Exploration & Producing Co. v. Aluminum Co. of America, 438 F.2d 1286, 1315 (5th Cir.1971). Applying these precepts to the case at hand, we conclude that each of the state law claims asserted by the plaintiff in Reeder II is precluded by the res judicata bar of the federal court judgment dismissing Reeder I with prejudice.
First, the present state law claims arise from the same set of facts or transaction as the federal and state securities law claims which the parties litigated to a valid final judgment on the merits in the federal court. The text and substance of the Ponzi scheme transaction or series of connected transactions alleged in the two actions are virtually the same, both involving the alleged intentional and/or negligent misrepresentations by Martin, Palmer and others to Reeder and other investors disguising the true nature and operations of the alleged travel club pyramid scheme and the precariousness of their investments.
Second, the federal district court had pendent jurisdiction to hear the state law claims which Reeder chose not to assert in that forum. Pendent jurisdiction, in the sense of judicial power, exists when there is a federal claim of "substance sufficient to confer subject matter jurisdiction on the court", and the relationship between that claim and the state claim is such that they "derive from a common nucleus of operative fact", so that "if, considered without regard to their federal or state character, a plaintiff[ ] ... would ordinarily be expected to try them all in one judicial proceeding...." United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 1138, 16 L. Ed. 2d 218 (1966).
The requirement of substantiality does not refer to the value of the interests that are at stake but to whether there is any foundation of plausibility to the claim. Duke Power v. Carolina Environmental Study Group, Ind., 438 U.S. 59, 98 S. Ct. 2620, 57 L. Ed. 2d 595 (1978); Garvin v. Rosenau, 455 F.2d 233 (6th Cir.1972). If the plaintiff raises a substantial federal question, the court has jurisdiction of the case and its decision must go to the merits of the case. A loose factual connection between the claims has been held enough to satisfy the requirements that they arise from a common nucleus of operative fact and that they be such that a plaintiff ordinarily would be expected to try them all in one judicial proceeding. Tower v. Moss, 625 F.2d 1161 (5th Cir.1980); Frye v. Pioneer Logging Machinery, Inc., 555 F. Supp. 730 (D.C.S.C.1983), citing Wright, Miller & Cooper, Federal Practice and Procedure. See id., § 3567.1 (1984). Therefore, it is clear that under these principles the federal court in Reeder I had pendent jurisdiction, in the sense of judicial power, over Reeder's state law claims arising from the same transaction as his federal question claim. In fact, Reeder, by his own federal complaint, invoked the Reeder I court's exercise of pendent jurisdiction over his state securities law claim.
Third, we cannot say that the federal district court in Reeder I "would clearly have declined to exercise" its pendent jurisdiction over the omitted state law tort, contract, unfair trade practice claims, and other state claims if Reeder had advanced them in that court along with his state law securities act claim. Pendent jurisdiction is a doctrine of discretion which allows the trial court a wide latitude of choice in deciding whether to exercise that judicial power. See United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 1138, 16 L. Ed. 2d 218 (1966). A federal *1274 court must consider and weigh in each case, and at every stage of the litigation, the values of judicial economy, convenience, fairness, and comity in order to decide whether to exercise jurisdiction over a case brought in that court involving pendent state law claims. When the balance of these factors indicates that a case properly belongs in state court, the federal court should decline the exercise of jurisdiction by dismissing the case without prejudice. The doctrine of pendent jurisdiction thus is a doctrine of flexibility, designed to allow courts to deal with cases involving pendent claims in the manner that most sensibly accommodates a range of concerns and values. Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 108 S. Ct. 614, 98 L. Ed. 2d 720 (1988); Rosado v. Wyman, 397 U.S. 397, 90 S. Ct. 1207, 25 L. Ed. 2d 442 (1970); United Mine Workers v. Gibbs, supra.
In Gibbs, the Court stated that "if the federal claims are dismissed before trial... the state claims should be dismissed as well." 383 U.S. at 726, 86 S.Ct. at 1139. More recently, however, the Court has made clear that this statement does not establish a mandatory rule to be applied inflexibly in all cases. Jurisdiction is thus not automatically lost because the court ultimately concludes that the federal claim is without merit. See Carnegie-Mellon Univ. v. Cohill, 484 U.S. at 350, n. 7, 108 S.Ct. at 619 n. 7; Rosado v. Wyman, 397 U.S. at 403-405, 90 S.Ct. at 1213-1214. In fact, a countervailing policy in favor of hearing pendent state claims was expressed by the Court in Hagans v. Lavine, 415 U.S. 528, 94 S. Ct. 1372, 39 L. Ed. 2d 577 (1974): "[I]t is evident from Gibbs that pendent state law claims are not always, or even almost always, to be dismissed and not adjudicated. On the contrary, given advantages of economy and convenience and no unfairness to litigants, Gibbs contemplates adjudication of these claims." Id. at 545-546, 94 S.Ct. at 1383-1384.
The principles and standards of pendent jurisdiction support and mesh with the principles of res judicata. The plaintiff is required to bring forward his state theories in the federal action in order to make it possible to resolve the entire controversy in a single lawsuit. Restatement (Second) of Judgments § 25, Reporter's Note at 228 (1982); Woods Exploration & Producing Co. v. Aluminum Co. of America, 438 F.2d at 1315. The federal district court, exercising its discretion, may decline jurisdiction of some or all of the plaintiff's state law claims if the court finds that the objectives of judicial economy, convenience and fairness to litigants, as well as other factors, will be served better thereby. United Mine Workers v. Gibbs, 383 U.S. at 726, 86 S.Ct. at 1139. To insure that this decision will be made fairly and impartially by the court, rather than by a party seeking the tactical advantage of splitting claims, however, the claim preclusion rules further provide that, unless it is clear that the federal court would have declined as a matter of discretion to exercise its pendent jurisdiction over state law claims omitted by a party, a subsequent state action on those claims is barred. Restatement (Second) of Judgments § 25, Comment e; Woods Exploration and Producing Co. v. Aluminum Co. of America, supra; Anderson v. Phoenix Inv. Counsel of Boston, 440 N.E.2d at 1169.
In view of the breadth of the federal trial courts' discretion and the necessary indeterminacy of the discretionary standards, in order for a subsequent court to say that a federal district court clearly would have declined its jurisdiction of a claim not filed, the subsequent court must find that the previous case was an exceptional one which clearly and unmistakably required declination. The rules do not countenance a plaintiff's action in failing to plead a theory in a federal court with the hope of later litigating the theory in a state court as a second string to his bow. Therefore, the action on such omitted claims is barred if it is merely possible or probable that the federal court would have declined to exercise its pendent jurisdiction. Restatement (Second) of Judgments § 25, Comment e. See also Anderson v. Phoenix Inv. Counsel of Boston, 387 Mass. 444, 440 N.E.2d 1164, 1169 (1982).
Reeder I was not an exceptional case in which the federal court clearly or unmistakably would have declined to exercise its pendent jurisdiction over the related state law claims, had Reeder included them in his *1275 complaint. In fact, the federal court did not decline to exercise its pendent jurisdiction over the only state law claim that it was asked to adjudicate, viz., Reeder's claim for damages based on state securities law arising out of the same transaction or series of connected transactions as the state tort, contract, and unfair trade practices claims. Because the federal district court had exclusive jurisdiction of one of the federal securities law claims, 15 U.S.C. § 78aa, the federal court was the only forum in which it was possible to resolve the entire controversy in a single lawsuit. In these circumstances, the assertion of pendent jurisdiction is especially compelling. Cf., Aldinger v. Howard, 427 U.S. 1, 18, 96 S. Ct. 2413, 2422, 49 L. Ed. 2d 276 (1976); Boudreaux v. Puckett, 611 F.2d 1028, 1031 (5th Cir.1978) (discussing pendent party jurisdiction where the federal court maintains exclusive jurisdiction over the underlying federal claim).
In a very similar case arising out of the same Ponzi scheme, the same federal district court did not decline pendent jurisdiction over state securities, fraud, and negligence law claims even after dismissing the federal securities law claim with prejudice for failure to state a claim. In fact, the federal district court considered and rendered final judgment on the merits on each of the pendent state law claims, ultimately dismissing each claim with prejudice. Guidry v. Bank of LaPlace, 740 F. Supp. 1208 (E.D.La.1990). On appeal, the Guidry court of appeal affirmed as to the dismissal of some of the state claims with prejudice, but required that some be dismissed without prejudice. Moreover, that court did not say that the federal district court clearly should have declined to exercise jurisdiction even as to the few pendent state law claims that were dismissed without prejudice. Guidry v. Bank of La-Place, 954 F.2d 278 (5th Cir.1992). Therefore, in the present case, although it may have been possible for the district court to decline pendent jurisdiction of the omitted remaining state law claims, we cannot say that it was even probable, much less clear or unmistakable, that the federal court would have done so.
Our conclusion in this regard is bolstered by opinions of other courts which have held that, by the operation of federal res judicata principles, federal judgments under federal securities acts barred subsequent suit between the same parties deriving from a common nucleus of operative facts presenting state claims omitted from the earlier federal proceeding. See McNeal v. Paine, Webber, Jackson & Curtis, Inc., 249 Ga. 662, 293 S.E.2d 331 (1982) (federal judgment under Securities Exchange Act of 1934 barred negligence, breach of fiduciary duty, and fraud claims in state court); Anderson v. Phoenix Investment Counsel of Boston, Inc., 387 Mass. 444, 440 N.E.2d 1164 (1982) (federal judgment under Investment Advisers Act of 1940 barred unfair and deceptive trade practices claim in state court); Rennie v. Freeway Transport, 294 Or. 319, 656 P.2d 919 (1982) (federal judgment under the Securities Exchange Act of 1934 barred fraud claim in state court); Jeanes v. Henderson, 688 S.W.2d 100 (Tex.), reh'g of cause overruled (May 1, 1985) (federal judgment under Securities Exchange Act of 1934 barred declaratory judgment action in state court). See also Browning Debenture Holders Comm. v. DASA Corp., 560 F.2d 1078 (2d Cir.1977) (prior final judgment based on federal securities laws barred litigation of pendent claims, even if the prior judgment did not explicitly rule on state law breach of fiduciary duty claims). In each of these cases, the state court could not find that it was clear, unmistakable or highly probable that the federal district court would have declined to exercise pendent jurisdiction over the factually-related state law claims. Thus, in each of the respective cases, federal res judicata barred the state claims later presented in state court.
DECREE
For these reasons, the judgment of the court of appeal affirming the trial court judgment sustaining the exception of res judicata as to the state securities claim is affirmed. The judgment of the court of appeal reversing the balance of the trial court's judgment is vacated. The trial court's judgment dismissing Reeder II, in its entirety, with prejudice is therefore reinstated.
AFFIRMED IN PART; REVERSED IN PART.
NOTES
[*] WATSON, J. not on panel. Rule IV, Part 2,§ 3. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1667408/ | 911 S.W.2d 773 (1995)
Raul Pecina CASTANEDA, Appellant,
v.
The STATE of Texas, Appellee.
No. 04-95-00210-CR.
Court of Appeals of Texas, San Antonio.
September 20, 1995.
Rehearing Overruled November 22, 1995.
*774 Allen F. Cazier, Law Offices of Allen Cazier, San Antonio, for Appellant.
Steven C. Hilbig, Criminal District Attorney, Edward F. Shaughnessy, III, Assistant Criminal District Attorney, San Antonio, for Appellee.
Before RICKHOFF, L. LOPEZ and HARDBERGER, JJ.
OPINION
PER CURIAM.
Appellant entered a plea of guilty to a charge of unauthorized use of a vehicle and received deferred adjudication. Appellant thereafter entered a plea of true to a violation of probation. The trial court adjudicated his guilt and sentenced him to ten years confinement. In a single point of error, appellant contends that the court erred in denying appellant's election to be sentenced under the amended penal code because his guilt had not been adjudicated before the amendment took effect. We affirm.
The date of the offense to which appellant pleaded guilty was January 22, 1993. At that time, unauthorized use of a vehicle was a third degree felony subject to a term of imprisonment of not more than ten years or less than two years. See Act approved June 19, 1993, 73rd Leg., R.S., ch. 900, sec. 1.01, 1993 Tex.Gen.Laws 3586, 3603, 3640 (illustrating prior classification of offense as third degree felony). Effective September 1, 1994, this offense became a state jail felony, subject to a term of confinement of not more than two years or less than 180 days. Act approved June 19, 1993, 73rd Leg., R.S., ch. 900, sec. 1.01, 1993 Tex.Gen.Laws 3586, 3603, 3640. The legislature, in amending the penal code and creating state jail felonies, specifically provided:
(a) The change in law made by this article applies only to an offense committed on or after the effective date of this article. For purposes of this section, an offense is committed before the effective date of this *775 article if any element of the offense occurs before the effective date.
(b) An offense committed before the effective date of this article is covered by the law in effect when the offense was committed, and the former law is continued in effect for that purpose.
Act approved June 19, 1993, 73rd Leg., R.S., ch. 900, sec. 1.18, 1993 Tex.Gen.Laws 3586, 3705. The effective date of the amendment was September 1, 1994. Act approved June 19, 1993, 73rd Leg., R.S., ch. 900, sec. 1.19(a), 1993 Tex.Gen.Laws 3586, 3705.
There is no dispute that the offense for which appellant was convicted was committed prior to the effective date of the relevant amendment to the penal code. Thus, it is governed by the law in existence at that time. The fact that appellant was not actually convicted prior to the date of the amendment is irrelevant. Also, appellant's citations to general code construction provisions, public policy, and a "general statement of law," are defeated in light of the specific, unambiguous, and express intent of the legislature that the amendment apply only to offenses committed after its effective date. The trial court did not err in sentencing appellant for commission of a third degree felony rather than a state jail felony. See Perry v. State, 902 S.W.2d 162 (Tex.App.Houston [1st Dist.] 1995, review refused) (possession of controlled substance prior to amendment of Health & Safety Code subject to sentencing as second degree felony not state jail felony); Wilson v. State, 899 S.W.2d 36 (Tex.App. Amarillo 1995, review refused) (possession of controlled substance prior to amendment of Health & Safety Code subject to sentencing as first degree felony not state jail felony).
Appellant also urges that equal protection requires that he be sentenced under the reduced punishment scheme. His argument, in its entirety, is that "[i]t is unconstitutional for two citizens in the same courtroom charged with the very same offense to be subjected to differing ranges of punishment merely because one of the defendants committed the offense before midnight on August 31, 1994." We first note that appellant did not raise this purported constitutional violation in a separate point of error and that he has completely failed to offer any analysis or authority to support his contention. Merely calling the matter to our attention is not sufficient to present error for review. McWherter v. State, 607 S.W.2d 531, 536 (Tex.Crim.App.1980); see also Burks v. State, 876 S.W.2d 877, 910 (Tex.Crim.App. 1994), cert. denied, ___ U.S. ___, 115 S. Ct. 909, 130 L. Ed. 2d 791 (1995).
In any event, appellant's contention lacks merit. The exact same argument (differing only in two words) was rejected by the Amarillo Court of Appeals in Wilson v. State, 899 S.W.2d 36 (Tex.App.Amarillo 1995, pet. filed July 19, 1995). That court noted that the argument "implicates neither a denial of equal protection nor any class discrimination." Id. at 39. Appellant has not demonstrated that he was treated in any manner different from all other criminal defendants who committed unauthorized use of a vehicle prior to the effective date of the amendment to the penal code. See id. The sentencing scheme utilized by the trial court does not violate equal protection.
For all the foregoing reasons, appellant's sole point of error is overruled. The judgment is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3106524/ | Order issued June 27, 2013
In The
Court of Appeals
Fifth District of Texas at Dallas
________________________________________
No. 05-12-01639-CR
________________________________________
MICHAEL SHAWN CHAFFIN, Appellant
V.
THE STATE OF TEXAS, Appellee
ORDER
Before Justices Lang, Myers, and Evans
Based on the Court’s opinion of this date, we GRANT the April 4, 2013 motion of Greg
Gray for leave to withdraw as appointed counsel on appeal. We DIRECT the Clerk of the Court
to remove Greg Gray as counsel of record for appellant. We DIRECT the Clerk of the Court to
send a copy of this order and all future correspondence to Michael Shawn Chaffin, No. 1827340,
Coffield Unit, 2661 FM 2054, Tennessee Colony, Texas, 75884.
Douglas S. Lang
DOUGLAS S. LANG
JUSTICE | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2900722/ | Criminal Case Template
COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
ALBERTO ISSASI,
Appellant,
v.
THE STATE OF TEXAS,
Appellee.
§
§
§
§
§
No. 08-02-00338-CR
Appeal from the
210th District Court
of El Paso County, Texas
(TC# 20010D02038)
MEMORANDUM OPINION
This is an attempted appeal from a judgment of conviction for the offense of
possession of cocaine. The issue before us is whether we have jurisdiction to consider
Appellant's appeal. We conclude that we do not and dismiss the attempted appeal for want
of jurisdiction.
On June 27, 2002, the court granted the State's motion to revoke Appellant's deferred
adjudication and sentenced him to five (5) years' imprisonment. Appellant filed his initial
notice of appeal on July 30, 2002. In this notice, Appellant stated that he was appealing the
denial of his Request for Findings of Fact and Conclusions of Law. On August 1, 2002, this
Court notified Appellant that it appeared that the notice of appeal was not timely filed, and
the Court gave notice of our intent to dismiss the appeal for want of jurisdiction unless any
party could show grounds for continuing the appeal.
On August 6, 2002, Appellant filed an Amended Notice of Appeal wherein he stated
that he filed a "Motion Renewing Motion to Dismiss and Acquittal" on June 27, 2002. The
amended notice of appeal incorporates by that motion by reference and states that the appeal
is taken from the matters addressed in that motion. The motion alleges that the court erred
in admitting hearsay evidence at the hearing on the State's motion to adjudicate guilt.
This Court notified Appellant that it would consider Appellant's "Motion Renewing
Motion to Dismiss and Acquittal" as a motion for new trial; thus, the appeal was timely
perfected. However, this Court indicated that the appeal appeared to be taken from the trial
court's decision to adjudicate guilt, and this Court had no jurisdiction to hear the appeal. We
requested a response from Appellant. No response was received.
Article 42.12, Section 5(b) provides, in relevant part:
On violation of a condition of community supervision imposed under
Subsection (a) of this section, the defendant may be arrested and detained as
provided in Section 21 of this article. The defendant is entitled to a hearing
limited to the determination by the court of whether it proceeds with an
adjudication of guilt on the original charge. No appeal may be taken from this
determination. [Emphasis added].
Tex. Code Crim. Proc. Ann. art. 42.12, § 5(b) (Vernon Supp. 2003).
It is well established that a defendant whose deferred adjudication probation has been
revoked and who has been adjudicated guilty of the original charge, may not raise on appeal
contentions of error in the adjudication of guilt process. See, e.g., Connolly v. State, 983
S.W.2d 738, 740-41 (Tex. Crim. App. 1999) (reiterating what it characterized as the plain
meaning of Article 42.12, Section 5(b) and holding that defendant was not permitted to
appeal whether State utilized due diligence); Olowosuko v. State, 826 S.W.2d 940, 942 (Tex.
Crim. App. 1992) (following adjudication of guilt, defendant not permitted to raise points
of error related to alleged vagueness of conditions of probation or sufficiency of motion to
revoke); Phynes v. State, 828 S.W.2d 1, 2 (Tex. Crim. App. 1992) (defendant not permitted
to raise point of error concerning whether his right to counsel had been violated at
adjudication hearing); Wright v. State, 592 S.W.2d 604, 606 (Tex. Crim. App. 1980) (holding
that under the predecessor to Article 42.12, Section 5(b), "no appeal may be taken from the
hearing in which the trial court determines to proceed with an adjudication of guilt on the
original charge"); Williams v. State, 592 S.W.2d 931, 932-33 (Tex. Crim. App. 1979) ("the
trial court's decision to proceed with an adjudication of guilt, is one of absolute discretion
and [is] not reviewable . . .").
In the present case, Appellant was attempting to appeal the Court's failure to provide
findings of fact and conclusions of law regarding the revocation of Appellant's deferred
adjudication community supervision, and, possibly, the admission of some hearsay evidence.
When the trial court revokes a defendant's probation, due process requires specific written
findings of fact where a defendant requests findings of fact be made. See Joseph v. State, 3
S.W.3d 627, 639 (Tex. App.--Houston [14th Dist.] 1999, no pet.). A trial court's failure to
comply with a defendant's request for findings in support of revocation may require reversal,
particularly where the court's failure to make findings of fact has impeded appellate review
of the court's decision. See Ford v. State, 488 S.W.2d 793, 795 (Tex. Crim. App. 1972);
Joseph, 3 S.W.3d at 639.
However, neither the Ford case nor the Joseph case involved the adjudication of guilt
with regard to community supervision. See Ford, 3 S.W.3d at 794; Joseph, 3 S.W.3d at 632.
Appellant cannot appeal the court's decision to proceed to an adjudication of guilt; therefore,
there has been no impediment to appellate review as such review is not permissible.
Appellant's contentions concerning the admission of hearsay evidence are likewise not
appealable. Accordingly, we dismiss the appeal for want of jurisdiction.
July 8, 2003
RICHARD BARAJAS, Chief Justice
Before Panel No. 4
Barajas, C.J., Larsen, and McClure, JJ.
(Do Not Publish) | 01-03-2023 | 09-09-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1465717/ | 713 F.Supp. 1329 (1989)
PLASTICOLOR MOLDED PRODUCTS, Plaintiff-Counterdefendant,
v.
FORD MOTOR COMPANY, Defendant-Counterclaimant.
No. CV 85-3863-AK (Tx).
United States District Court, C.D. California.
April 28, 1989.
*1330 *1331 Harold L. Jackson, Jackson & Jones, Tustin, Cal., Manuel S. Klausner, Kindel & Anderson, Los Angeles, Cal., for plaintiff-counterdefendant.
Charles R. Mandley, Jr., Pattishall, McAuliffe, Newbury, Hilliard & Geraldson, Chicago, Ill., Mark S. Lee, Lawler, Felix & Hall, Los Angeles, Cal., for defendant-counterclaimant.
OPINION
KOZINSKI, Circuit Judge.[*]
The use of trademarks to identify the source of products is as old as the modern market economy. While the use of marks to signify ownership of goods dates back thousands of years,[1] the trademark as we know it today most likely originated with the medieval guilds of Europe, who often required members to identify their products "to facilitate the tracing of `false' or defective wares and the punishment of the offending craftsman." F. Schechter, The Historical Foundations of the Law Relating to Trade-marks 47 (1925). As markets for durable goods grew larger, and the likelihood of personal contact between manufacturer and purchaser accordingly diminished, trademarks became increasingly important in guaranteeing the source and quality of products.
*1332 As the value of trademarks grew, so did the incentive to appropriate them. A cause of action for copying someone else's trademark and placing it on one's own merchandise was recognized by the early seventeenth century. See Southern v. How, Popham 143, 79 Eng. Reprint 1243 (1618). The common law of unfair competition and trademark infringement was imported into American law in the early nineteenth century, and by the middle of that century had become an unquestioned aspect of trade regulation. See, e.g., Taylor v. Carpenter, 23 F.Cas. 742 (C.C.D.Mass.1844) (No. 13,784) (Story, J.).[2] With minor exceptions, trademarks remained a matter of common law until 1946, when Congress passed the Lanham Act and established the current statutory framework for registering marks and redressing claims of infringement.[3]
Throughout the development of trademark law, the purpose of trademarks remained limited and constant: identification of the manufacturer or sponsor of a product. Product features could therefore be divided into two categories. Features that served to identify the source of a product were protected by trademark law, and could not be copied by others. On the other hand, features that served as functional components of a product if the product could not work or would not be as desirable without them were unprotected by trademark law. Others were free to copy these features, subject only to whatever protection was available under patent law. In the vast majority of cases, the mutual exclusivity of the categories was airtight. Names of products were source-identifiers, and hence protected; physical attributes of products were functional, and hence unprotected. See, e.g., Best Lock Corp. v. Schlage Lock Co., 413 F.2d 1195 (C.C.P.A.1969) (figure eight configuration of lock functional and therefore unprotected).[4]
Only relatively recently have trademarks begun to leap out of their role as source-identifiers and, in certain instances, have effectively become goods in their own right. When sports fans wear jackets bearing the names of their favorite teams, when listeners of popular music wear T-shirts and buttons emblazoned with the names of musical groups, when followers of fashion wear blue jeans with names of fictitious people sewn into the pockets (a practice which, mercifully, is no longer as popular as it was a decade ago), they are *1333 using registered trademarks and service marks, but not to identify the source of the product. The wearer of a baseball jacket reading New York Mets does not care whether the New York Mets manufactured the jacket, or authorized its production, or are in any way associated with it. He wears it to announce his allegiance. New York Mets may well be a service mark, but in this context it has become a product as well; it is a functional component of the jacket as surely as the material from which the jacket is made.[5]
A small but growing number of cases has recognized this change, and has found no difficulty in applying the source-identifying/functional distinction where trademarks or service marks serve purely as functional features. See International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912 (9th Cir.1980) (insignia of young women's fraternal organization is functional element of jewelry), cert. denied, 452 U.S. 941, 101 S.Ct. 3086, 69 L.Ed. 2d 956 (1981); University of Pittsburgh v. Champion Prods., Inc., 566 F.Supp. 711 (W.D.Pa.1983) (name of university is functional element of shirts); Bi-Rite Enters., Inc. v. Button Master, 555 F.Supp. 1188 (S.D.N.Y.1983) (names of recording artists are functional elements of buttons).
These cases have presented no difficulty for the traditional categories of trademark law because, as in the New York Mets hypothetical, it has been clear that the ordinary purchaser has treated the marks as functional items, not as source-identifiers. This is because the mark and the product have represented radically different industries; reasonable purchasers could not believe or care that the mark holder would be competing in the same market as the product manufacturer. E.g., Job's Daughters (fraternal organization and jewelry production); University of Pittsburgh (educational/athletic services and clothing production); Bi-Rite Enterprises (music services and button production). Where the mark and the product come from the same or similar industries, however, the distinction between the categories blurs, because a mark can serve simultaneously as a source-identifier and a functional element.
This case presents such a situation. We find ourselves at the intersection of what have been, until now, two mutually exclusive areas of trademark law.
I. Facts
This lawsuit was brought by Plasticolor Molded Products, Inc., seeking a declaratory judgment of its rights to use Ford Motor Company trademarks on the automobile accessories it produces. Ford then counterclaimed for trademark infringement and unfair competition under the Lanham Act, 15 U.S.C. §§ 1114, 1125(a) (1982), and under California law. Ford moved for summary judgment, which was denied. Plasti-color Molded Prods. v. Ford Motor Co., 698 F.Supp. 199 (C.D.Cal.1988). On December 29, 1988, the court heard argument on both parties' renewed motions for summary judgment.
A. The Prior Opinion
In its prior ruling on Ford's first motion for summary judgment, the court made six findings of fact. All are relevant to the motions currently under consideration. For convenience, they are reproduced below.
1. Ford is a Delaware corporation with its principal place of business in Dearborn, Michigan. It has for many decades manufactured, advertised and sold motor vehicles, parts and accessories, including floor mats, mudflaps and step treads (collectively, "floor mats"). It has advertised its automotive parts and accessories extensively throughout the country, and has sold them through independent Ford dealers. In addition, it sells its parts through repair *1334 shops, discount stores and other mass merchandisers.
2. Ford has long used various arbitrary and distinctive marks to identify its products, including FORD, AEROSTAR, BRONCO, CAPRI, COUGAR, COURIER, ESCORT, EXP, FIESTA, LYNX, MERCURY, MUSTANG, PINTO, RANGER, TEMPO, THUNDERBIRD, and TOPAZ, as well as certain pictorial designs, among them the Mustang "running horse" and Thunderbird symbols. Through Ford's long and extensive use of these trademarks, they have acquired a secondary meaning signifying Ford and its products, and have acquired substantial good will that increases Ford's recognition and the attractiveness of its products to consumers.
3. Ford has attempted to protect its trademarks through federal trademark registration. It owns federal registrations for the FORD trademark for a variety of automotive products, including a 1929 registration for floor mats. Ford has also registered its BRONCO, CAPRI, COUGAR, COURIER, FIESTA, MERCURY, PINTO, RANGER, and THUNDERBIRD trademarks; these registrations have become incontestable and are conclusive evidence of Ford's exclusive rights to the marks. See 15 U.S.C. §§ 1065, 1115(b) (1982). Ford has also registered its Mustang and Thunderbird designs.
4. Plasticolor is a California corporation with its principal place of business in Fullerton, California. Since 1971 it has engaged in the business of manufacturing and selling plastic automobile accessories, including floor mats. It produces these items in a variety of designs and colors, some bearing designs or other graphics. Plasticolor sells its products through independent Ford dealers, automotive chains, catalog houses, mass merchandisers, van converters, repair shops and garages many of the same outlets Ford uses for its own similar products or other parts. Plasticolor has promoted its products through brochures and industry trade shows, but has not engaged in substantial media advertising aimed at the consuming public.
5. In 1973, Plasticolor began selling small quantities of its accessories bearing Ford's PINTO trademark and Mustang design without license or any other authorization from Ford. Later, still without authorization, Plasticolor began selling mats and other accessories bearing other Ford marks: FORD, CAPRI, BRONCO, MERCURY, COUGAR, COURIER, FIESTA, ESCORT, RANGER, and the Mustang and Thunderbird designs. In choosing to use the Ford trademarks, Plasticolor relied on the success of the genuine Ford products sold under those marks and the good will that Plasticolor would be able to exploit.
6. Most of Plasticolor's mats bearing Ford marks are packaged with cardboard header cards bearing the word "Plasticolor"; some bear as well the description "Ford Custom Carpet Front." The header cards do not indicate that "Plasticolor" is the manufacturer, and there is no indication of any relation to Ford or disclaimer thereof. Plasticolor has distributed a not insubstantial number of mats without any header cards; moreover, it has distributed some bearing Ford trademarks with the designation "O.E.," which is understood in the industry to mean "original equipment," even though the mats were not original equipment or authorized by Ford, the original equipment manufacturer.
On these facts, the prior opinion granted Ford's motion for summary judgment as to the claim for trademark infringement and unfair competition under the Lanham Act. The court found that Plasticolor's use of the Ford trademarks "creates a substantial likelihood of confusion among consumers and the general public as to the source or sponsorship of floor mats bearing the Ford trademarks." 698 F.Supp. at 202. The court was careful to limit its holding to Plasticolor's products as presented at the time. While Plasticolor represented that it intended to change its packaging, the court expressed no view as to a new design.
The prior opinion partially rejected and partially accepted Plasticolor's argument that its use of Ford's trademarks did not constitute infringement because the marks served a functional, rather than a sourceidentifying, *1335 purpose. Plasticolor contended that it used the marks to provide a means by which car owners could decorate their cars and demonstrate their pride in owning a car manufactured by Ford, not to indicate that the floor mats were produced or authorized by Ford. The court found it "clear that Plasticolor's actual use of the Ford marks has served both a trademark [i.e., source-identifying] and a functional purpose.... To the extent that the use of the trademark creates confusion as to source, it is subject to the strictures of the Lanham Act." Id. at 203-04.
The prior opinion noted that Ford's three state law claims, under California's unfair competition statute, Cal.Bus. & Prof.Code §§ 17000-17500 (West 1987 & Supp.1989), California's dilution statute, Cal.Bus. & Prof.Code § 14330 (West 1987), and the common law of unfair competition, had not been sufficiently addressed by the parties. The court accordingly denied without prejudice Ford's motion as to the state law claims. 698 F.Supp. at 204.
B. The Current Motions
Subsequent to the filing of the prior opinion, Plasticolor has redesigned its packaging and has introduced samples of the new packaging into the record. All other facts remain unchanged. The court thus readopts the first five findings of fact from its prior opinion, and modifies the sixth to read as follows:
6. Most of Plasticolor's mats bearing Ford marks are packaged with cardboard header cards. The header cards identify the product as "floor mats," without specifying that the mats are designed to be used inside Ford cars. The cards do, however, include a photograph of a Ford car, with the Ford logo clearly visible. Beneath the header card, most of the floor mat is visible, including the portion which reads "FORD" (or "MUSTANG," or various other Ford trademarks) in large capital letters. The lower third of the header card bears a two-section disclaimer. The upper section reads, in large letters:[6]
Manufactured By
PLASTICOLOR
Molded Products Inc.
Fullerton, California
The lower section reads, in smaller letters, "NOTICE," and on the line below, "This product is not authorized, sponsored, or manufactured by Ford Motor Co."[7] The underside of the floor mats bear similar disclaimers, in small letters, with insubstantial differences in wording, abbreviation and punctuation.
II. The Lanham Act Claim
The Ford trademarks on Plasticolor's floor mats serve two purposes. On one hand, a purchaser could reasonably interpret the marks as source-identifiers, as indicating that Ford has either manufactured or authorized production of the mats. On the other hand, a purchaser could reasonably consider the marks to be functional elements, designed to help the mats contribute to a harmonious ensemble of accessories and decorate the interior of a car. Indeed, a reasonable purchaser could easily interpret the marks both ways simultaneously.
If the marks were solely source-identifiers or solely functional elements, there would be an existing body of law to apply in ruling on the motions for summary judgment. Because the marks incorporate aspects of both, however, the court must first consider what law to apply.
A. The Law
In an ordinary case of trademark infringement, the plaintiff must prove that the alleged infringement creates a likelihood of confusion. 15 U.S.C. § 1114 (1982); Lindy Pen Co. v. Bic Pen Corp., 725 F.2d 1240, 1243 (9th Cir.1984), cert. denied, 469 *1336 U.S. 1188, 105 S.Ct. 955, 83 L.Ed.2d 962 (1985). "`Likelihood of confusion exists when consumers viewing the mark would probably assume that the product or service it represents is associated with the source of a different product or service identified by a similar mark.'" Alpha Indus., Inc. v. Alpha Steel Tubes & Shapes, Inc., 616 F.2d 440, 443 (9th Cir.1980), quoting Scott Paper Co. v. Scott's Liquid Gold, Inc., 589 F.2d 1225, 1229 (3d Cir.1978).
A number of factors are relevant to this determination, including (1) the strength of the plaintiff's mark; (2) the extent to which the goods are related; (3) the similarity of the marks; (4) evidence of actual confusion; (5) the degree of identity of marketing channels for the goods; (6) the likely degree of purchaser care; (7) the defendant's intent in selecting the mark; and (8) the likelihood of expansion of the product lines. Toho Co. v. Sears, Roebuck & Co., 645 F.2d 788, 790 (9th Cir.1981). In considering whether the buying public is likely to be confused, the factfinder cannot look merely at the point of sale; a mark that is likely to confuse prospective purchasers observing it after the point of sale constitutes no less an infringement. Levi Strauss & Co. v. Blue Bell, Inc., 632 F.2d 817, 822 (9th Cir.1980).[8]
Functional features, on the other hand, are unprotected by trademark law. International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912, 917 (9th Cir.1980), cert. denied, 452 U.S. 941, 101 S.Ct. 3086, 69 L.Ed.2d 956 (1981). A feature is functional if it embodies the benefit the consumer wishes to purchase, as opposed to an assurance that the product is manufactured or sponsored by a particular entity. Rachel v. Banana Republic, Inc., 831 F.2d 1503, 1506 (9th Cir.1987).[9] The purpose of the distinction was ably expressed by our own Judge Orr in one of the earliest cases to apply it in the context of the Lanham Act:
If the particular feature is an important ingredient in the commercial success of the product, the interest in free competition permits its imitation in the absence of a patent or copyright. On the other hand, where the feature or, more aptly, design, is a mere arbitrary embellishment, a form of dress for the goods primarily adopted for purposes of identification and individuality and, hence, unrelated to basic consumer demands in connection with the product, imitation may be forbidden where the requisite showing of secondary meaning is made. Under such circumstances, since effective competition may be undertaken without imitation, the law grants protection.
Pagliero v. Wallace China Co., 198 F.2d 339, 343 (9th Cir.1952) (footnotes omitted).[10] A product feature is accordingly functional "if it is essential to the use or purpose of the article or if it affects the cost or quality of the article." Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 850 n. 10, 102 S.Ct. 2182, 2187 n. 10, 72 L.Ed.2d 606 (1982). See also Fuddruckers, Inc. v. Doc's B.R. Others, Inc., 826 F.2d 837, 842 (9th Cir.1987).[11]
*1337 Where a copied product feature is partially functional but partially source-identifying, we are presented with three alternatives. First, we could find that the source-identifying aspects of the feature trump the functional aspects, and simply apply the standard law of trademark infringement. Second, we could find the opposite, and hold that the feature is unprotected from copying. Third, we could attempt to find an appropriate middle ground. We consider each alternative in turn.
The first alternative has been adopted in a case very similar to this one. In National Football League Properties, Inc. v. Wichita Falls Sportswear, Inc., 532 F.Supp. 651 (W.D.Wash.1982), the defendant, without authorization from the plaintiff, manufactured replicas of professional football jerseys. The court found that the jerseys' design, colors and use of team names created a likelihood of confusion as to sponsorship. Id. at 662. The court then discussed, without deciding, whether the jersey attributes were functional features, and concluded: "Even assuming the marks are functional[, this assumption] does not, however, preclude trademark protection. A functional feature may additionally serve as a trademark and be protected as such." Id. at 663.[12]
We are unable to adopt this reasoning. Affording the same degree of protection against mixed-use copying as against purely source-identifying copying has the effect of protecting functional features, a result clearly contrary to established trademark law. If we apply straightforward trademark law, we would enjoin the production of articles likely to cause public confusion as to source or sponsorship both at and after the point of sale. Confusion after the point of sale, however, is inherent in a partial functional use: A mixed-use article that eliminates the likelihood of confusion after the point of sale also defeats much of the feature's functionality. Consider some examples: A football jersey bearing the words "Seattle Seahawks (Not Affiliated with the Seattle Seahawks)"; a shoulder patch reading "Boston Bruins (Not Sponsored by the Boston Professional Hockey Association)"; a floor mat reading "Ford (Not Manufactured by Ford Motor Company)." These disclaimers would probably end confusion as to source, but would also effectively negate the functional aspects of the marks. Treating mixed uses exactly like source-identifying uses would thus protect functional features, a result contrary to established principles of trademark law. See p. 1336 supra. The reasoning of National Football League flies in the face of this authority.[13]
*1338 An alternative approach would be to treat mixed uses as entirely functional uses, and accordingly withhold all protection. This alternative has been implicitly adopted in the Third and Sixth Circuits. See Keene Corp. v. Paraflex Indus., Inc., 653 F.2d 822 (3d Cir.1981); Schwinn Bicycle Co. v. Murray Ohio Mfg. Co., 470 F.2d 975 (6th Cir.1972) (per curiam).[14] Again, we decline to follow, this time because to do so would contravene the clear language of the Lanham Act. Congress has provided that
[a]ny person who shall, without the consent of the registrant ... use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with such use is likely to cause confusion, or to cause mistake, or to deceive ... shall be liable in a civil action by the registrant for the remedies hereinafter provided.
15 U.S.C. § 1114(1) (1982). Any use of a registered mark which causes confusion, whether additionally functional or not, is plainly covered by this language. Were we to treat mixed uses as purely functional, and thus withdraw all protection, we would be decimating a cause of action explicitly provided by Congress. We must accordingly reject the implicit holdings of Keene and Schwinn.[15]
In searching for an appropriate middle ground, we have little guidance beyond the fundamental principles discussed above; research does not disclose any cases that have embarked on a similar journey. We do have, however, some assurance that the search is not misguided. The Ninth Circuit has twice posited the existence of the situation we confront today, and has twice suggested that there may be a middle ground between pure functionality and pure source-identification. International Order of Job's Daughters, after reaffirming that functional features are unprotected, cautioned:
Our holding does not mean that a name or emblem could not serve simultaneously as a functional component of a product and a trademark. That is, even if the Job's Daughters' name and emblem, when inscribed on Lindeburg's jewelry, served primarily a functional purpose, it is possible that they could serve secondarily as trademarks if the typical customer not only purchased the jewelry for its intrinsic functional use and aesthetic appeal but also inferred from the insignia that the jewelry was produced, sponsored, or endorsed by Job's Daughters.... Accordingly, a court must closely examine the articles themselves, the defendant's merchandising practices, and any evidence that consumers have actually inferred a connection between the defendant's product and the trademark owner.
633 F.2d at 919 (citations omitted). The following year, the court observed that "a trademark which identifies the source of goods and incidentally serves another function may still be entitled to protection." *1339 Vuitton et Fils S.A. v. J. Young Enterprises, Inc., 644 F.2d 769, 775 (9th Cir. 1981).
By indicating that mixed uses are entitled to some protection, Job's Daughters and Vuitton preclude the alternative of treating mixed uses as pure functional uses. But neither Job's Daughters nor Vuitton suggest that mixed uses are to be afforded full trademark protection. Satisfied that the answer lies somewhere in between, we begin our search for this middle ground.[16]
In finding a solution, we must reconcile two principles that often pull in opposite directions. The Lanham Act requires that we protect trademark registrants from confusion as to source or sponsorship, to the greatest extent consistent with the functionality doctrine. The functionality doctrine requires that we permit the copying of functional features to the greatest extent consistent with the Lanham Act. We must look, therefore, for a solution that permits trademarks to be copied as functional features, but minimizes the likelihood that the public will associate the copied mark with the registrant.
There need be no conflict between the two principles at the point of sale. The functional use of a trademark does not preclude a clear indication at the point of sale (in the form of a label, packaging, or other identification easily removed or concealed by the consumer) that the product is not manufactured or sponsored by the registrant. Floor mat purchasers can fully enjoy the functional use of a FORD floor mat even though the mat bears a removable notice disclaiming any affiliation with the Ford Motor Company. Applying a likelihood of confusion test at the point of sale will therefore not significantly deter the purchase of an article using a trademark as a functional feature.
It is only after the point of sale that the likelihood of confusion standard must be tempered. As discussed above, requiring the manufacturer to eliminate the likelihood of confusion past the point of sale will, in most cases, entirely eliminate the possibility that the mark could serve a functional purpose. A floor mat whose upper surface reads "FORD (not authorized by Ford Motor Company)" would obviously attract few customers. Protecting functional copying of trademarks will therefore require that we tolerate at least some confusion as to source or sponsorship after the point of sale.[17]
The potential for confusion can be diminished, however, by requiring that the manufacturer of a product that employs a trademark for functional purposes take all reasonable steps to eliminate post-sale confusion consistent with the functional use of the mark. The manufacturer will, for example, often be able to place a disclaimer on a portion of the article not generally visible while the article is in use. A notice of non-authorization on the underside of a floor mat, or a disclaimer affixed to the inside of a football jersey, will not hinder the functional use of a trademark, but may somewhat reduce the likelihood of post-sale confusion. In other cases, the copier may be able to place its own name alongside the copied trademark without interfering with the mark's functionality. There may also be cases where a visible disclaimer will not detract from the functional purpose of the trademark. Whatever the method chosen, it must be the most effective reasonably available that does not materially interfere with the trademark's functional purpose.
What constitutes reasonable measures will vary with the nature of the product and its market. In some cases, no reasonable measures may be available. A concealable *1340 disclaimer may be much easier to affix to a floor mat, for instance, than to jewelry. A particular measure is likely to be unreasonable if it substantially decreases consumer demand or materially increases production costs. Determining the most effective method reasonably available for eliminating the likelihood of confusion consistent with functional enjoyment of the mark is a question of fact, to be determined on a case by case basis.[18]
B. The Summary Judgment Motions
We have determined that the mixed use of a trademark constitutes infringement where the likelihood of confusion exists as to source or sponsorship at the point of sale, or where the alleged infringer has not taken reasonable steps to eliminate the likelihood of confusion after the sale. We can now apply this standard to Plasticolor's use of Ford's trademarks.
Of the factors relevant to the determination of whether confusion at the point of sale is likely, all but one remain unchanged since the prior opinion. Ford's marks are still strong. See Plasticolor Molded Prods. v. Ford Motor Co., 698 F.Supp. 199, 200 (C.D.Cal.1988). Plasticolor and Ford still sell nearly identical products, through many of the same channels. See id. at 201. It is still true that Plasticolor intentionally uses Ford trademarks to attract customers who own Ford automobiles. See id. The only change since the prior opinion is that Plasticolor has redesigned its packaging, requiring a reevaluation of the court's finding, based on the old packaging, of substantial evidence of actual confusion. See id. at 202.
The only evidence relevant to actual confusion are the mats themselves.[19] Without any evidence of the existence or nonexistence of actual confusion on the part of consumers, it is impossible to resolve this factual issue. The mats and packaging, as discussed above, include trademarks belonging to both Ford and Plasticolor: Upon viewing the mats, it is impossible to determine as a matter of law whether the public is likely to be confused. While actual confusion is but one element of a multifactor inquiry, survey results are, in many cases, crucial in determining the likelihood of confusion. See, e.g., Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352, 1360 (9th Cir.1985) (en banc). This is such a case. The question cannot be resolved on summary judgment.
We are similarly unable to rule, as a matter of law, whether Plasticolor has taken adequate steps to avoid the likelihood of post-sale confusion. As discussed above, Plasticolor has affixed disclaimers to the underside of the mats, so that the disclaimers are not visible while the mats are in ordinary use. Anyone inspecting the mats' underside, however, would easily be able to see the disclaimer. Without any evidence as to whether the public is likely to remain confused despite the disclaimer, and without any evidence as to the mats' salability with a more prominent disclaimer, we are unable to ascertain whether the current disclaimer represents the most effective reasonable step to reduce post-sale confusion.
The motions for summary judgment as to the Lanham Act claim are accordingly denied.
III. The State Law Claims
Ford claims that Plasticolor's use of the Ford trademarks constitutes unfair competition, a deceptive trade practice and a violation of California's anti-dilution statute. We consider the cross-motions for summary judgment as to each claim in turn.
A. Unfair Competition
California unfair competition law, Cal.Bus. & Prof.Code §§ 17200-17208 *1341 (West 1987 & Supp.1989), provides a cause of action substantially parallel to that provided by federal trademark law. See International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912, 916 (9th Cir.1980), cert. denied, 452 U.S. 941, 101 S.Ct. 3086, 69 L.Ed.2d 956 (1981). As with trademark law, a cause of action for unfair competition requires the likelihood of consumer confusion as to source or sponsorship. Ball v. American Trial Lawyers Ass'n, 14 Cal.App.3d 289, 304, 92 Cal.Rptr. 228, 238 (1971); Walt Disney Prods. v. Air Pirates, 581 F.2d 751, 760 (9th Cir.1978), cert. denied, 439 U.S. 1132, 99 S.Ct. 1054, 59 L.Ed.2d 94 (1979). California unfair competition law, moreover, does not protect against the copying of functional features. Tveter v. AB Turn-O-Matic, 633 F.2d 831, 839 (9th Cir.1980), cert. denied, 451 U.S. 911, 101 S.Ct. 1983, 68 L.Ed.2d 300 (1981).[20]
Analysis of the unfair competition claim, therefore, tracks analysis of the Lanham Act claim. To prevail, Ford will have to prove (1) the likelihood of consumer confusion at the point of sale, and (2) that Plasticolor has not taken reasonable steps to eliminate the likelihood of confusion after the point of sale. Because each of these inquiries involves unresolved issues of fact, the cross motions for summary judgment are denied as to the unfair competition claim as well.[21]
B. Deceptive Trade Practices
It is far from clear that California provides a cause of action for deceptive trade practices distinct from the cause of action for unfair competition. If the deception alleged by Ford consists of Plasticolor's advertising and marketing of its mats, Ford's cause of action is a branch of the tort of unfair competition which also requires Ford to show likelihood of confusion in order to prevail. Toho Co. v. Sears, Roebuck & Co., 645 F.2d 788, 793-94 (9th Cir.1981); Cal.Bus. & Prof.Code §§ 17200, 17500 (West 1987). Because deceptive advertising can cause consumer confusion only before or at the point of sale, we need not consider post-sale confusion: Ford can prevail on this claim by showing that Plasticolor's advertising is likely to cause confusion among potential purchasers as to the mats' source or sponsorship. Because the existence of the likelihood of confusion at the point of sale remains to be resolved, the motions for summary judgment are denied as to this claim as well.
C. Dilution
Ford alleges that Plasticolor's use of Ford's marks dilutes the marks' distinctive quality, in violation of Cal.Bus. & Prof. Code § 14330 (West 1987). Ruling on the motions for summary judgment as to dilution will necessitate a four-part inquiry. First, we must determine whether Ford can state a claim under the statute. Second, we must address Plasticolor's contentions that the dilution statute is preempted by the Lanham Act and by the federal patent laws. Third, we must discern the effect of the 1985 amendment to section 14330, which added a new subsection (b) in response to International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912 (9th Cir.1980), cert. denied, 452 U.S. 941, 101 S.Ct. 3086, 69 L.Ed.2d 956 (1981). Fourth, we must apply the results of our analysis to the motions presented.
1. A Dilution Cause of Action
Section 14330(a) provides:
*1342 Likelihood of injury to business reputation or of dilution of the distinctive quality of a mark registered under this chapter, or a mark valid at common law, or a trade name valid at common law, shall be a ground for injunctive relief notwithstanding the absence of competition between the parties or the absence of confusion as to the source of goods or services.
Cal.Bus. & Prof.Code § 14330(a) (West 1987). While the statute speaks in terms of protecting against two distinct harmsinjury to business reputation and dilution of a mark's distinctive qualitythe first harm has consistently been deemed subsumed in the second. Courts have interpreted the statute to include injury to business reputation as one of the possible elements supporting a cause of action for dilution. See, e.g., Toho Co. v. Sears, Roebuck & Co., 645 F.2d 788, 793 (9th Cir.1981) (rejecting claim of dilution where "Sears' use of the reptilian monster character on its garbage bag packages [does not] link Godzilla with something unsavory or degrading").
What differentiates dilution from trademark infringement and unfair competition is that it dispenses with the need to show likelihood of confusion. The dilution statute protects against an injury less immediate than the loss of sales due to purchaser confusion; it protects against what is frequently termed "the gradual diminution or whittling away of the value of a trademark, resulting from use by another." 2 J.T. McCarthy, Trademarks and Unfair Competition § 24.13, at 213 (2d ed. 1984). Similar metaphors abound: Courts speak in terms of "blurring," McFly Inc. v. Universal City Studios, Inc., 228 U.S.P.Q. (BNA) 153, 161 (C.D.Cal.1985), "tarnishing," Nutri/System, Inc. v. Con-Stan Indus., Inc., 228 U.S.P.Q. (BNA) 859, 863 (C.D.Cal.1985) (quoting Toho, 645 F.2d at 793), aff'd, 809 F.2d 601 (9th Cir.1987), and even "infection," Sykes Laboratory, Inc. v. Kalvin, 610 F.Supp. 849, 859 (C.D.Cal.1985) (quoting Mortellito v. Nina of California, Inc., 335 F.Supp. 1288, 1296 (S.D.N.Y.1972)). Dilution thus refers to copying which, while not sufficiently confusing to divert sales in the short run, will tend to divert them in the long run by weakening the instantaneous favorable associations the public makes with highly regarded products. See Exxon Corp. v. Exxene Corp., 696 F.2d 544, 549-50 (7th Cir.1982).
Courts were suspicious of California's dilution statute in the years immediately following its 1967 enactment. Despite the broad wording of the statute, it was not unusual for courts to express reluctance about giving the section an "overly broad application lest it swallow up all competition in the claim of protection against trade name infringement." Coffee Dan's, Inc. v. Coffee Don's Charcoal Broiler, 305 F.Supp. 1210, 1217 n. 13 (N.D.Cal.1969). See also Carter-Wallace, Inc. v. Procter & Gamble Co., 434 F.2d 794, 803 (9th Cir. 1970). The concern was a legitimate one; if dilution were treated simply as unfair competition minus the need to show likelihood of confusion, the doctrine would effectively render unfair competition and trademark law superfluous for redressing claims of trade name copying.
Dilution doctrine has accordingly been limited by the principle that only the most distinctive marks are eligible for protection. 2 J.T. McCarthy § 24.14. See, e.g., Accuride Int'l, Inc. v. Accuride Corp., 871 F.2d 1531, 1539 (9th Cir.1989) (ACCURIDE insufficiently distinctive to merit protection under section 14330); Grey v. Campbell Soup Co., 650 F.Supp. 1166, 1175 (C.D.Cal. 1986) (GODIVA mark for chocolate strong enough to be entitled to protection against dilution), aff'd mem., 830 F.2d 197 (9th Cir.1987); Builders Square, Inc. v. Wickes Cos., 227 U.S.P.Q. (BNA) 644, 649, 1985 WL 5469 (C.D.Cal.1985) (BUILDERS EMPORIUM not distinctive enough to be protected by dilution statute). So limited, dilution coexists peaceably with unfair competition as an adjunct doctrine providing a greater measure of protection for the most distinctive trade names.
This limitation poses no obstacle for Ford. The name FORD and Ford's other marks used by Plasticolor on its floor mats (CAPRI, BRONCO, MERCURY, COUGAR, COURIER, FIESTA, ESCORT, RANGER, *1343 and the Mustang and Thunderbird designs) are sufficiently distinctive to warrant protection under the anti-dilution statute. The marks are arbitrary and fanciful, have been extensively used for many decades, have been heavily advertised and are well known to the public. Each of Ford's marks is strong enough to be eligible for protection under section 14330. Cf. Grey, 650 F.Supp. at 1175.
Neither is Ford hindered by two other asserted obstacles. The fact that Ford and Plasticolor are competitors in the same market does not preclude protection; a cause of action for dilution can exist where the plaintiff and defendant provide the same product or service. See Century 21 Real Estate Corp. v. Sandlin, 846 F.2d 1175, 1180 (9th Cir.1988) (name of one real estate brokerage firm can dilute mark of another). See also Jordache Enters., Inc. v. Hogg Wyld, Ltd., 828 F.2d 1482, 1489 (10th Cir.1987) (interpreting New Mexico dilution statute). But see EZ Loader Boat Trailers, Inc. v. Cox Trailers, Inc., 746 F.2d 375, 380 (7th Cir.1984) (reaching opposite result applying Illinois statute); Smithkline Beckman Corp. v. Procter & Gamble Co., 591 F.Supp. 1229, 1246-47 (N.D.N.Y.1984) (reaching opposite result applying New York statute), aff'd mem., 755 F.2d 914 (2d Cir.1985).
Nor does the fact that Plasticolor's use of Ford's marks is partially functional preclude protection. The statute itself makes no distinction between source-identifying and functional uses; indeed, the fact that the likelihood of confusion as to source is explicitly not an element of the cause of action is a strong indication that the statute is intended to protect against functional uses of trademarks. Functional copying, moreover, can often constitute the very sort of injury the statute is designed to prevent. See, e.g., Coca-Cola Co. v. Gemini Rising, Inc., 346 F.Supp. 1183, 1191 (E.D.N.Y.1972) (reproduction on poster of COCA-COLA mark, along with distinctive script and format, where mark is altered to read "Enjoy Cocaine," dilutes mark) (applying New York statute); Bi-Rite Enters., Inc. v. Button Master, 555 F.Supp. 1188, 1196 (S.D.N.Y.1983) (applying New York dilution statute to sale of buttons bearing names of musical groups, but finding that the plaintiffs had made no showing of harm). The purely functional copying of a trademark, such as the sale of shirts bearing the FORD name and logo, could dilute the mark's distinctive quality as surely as the sale of Ford beer or Ford aftershave. Section 14330 thus affords protection.
A more difficult question concerns what the statute protects against. Courts have interpreted the statute to protect the holder of a distinctive mark against four overlapping types of injury. We consider each in turn.
First, the statute protects the mark against association with something unsavory or degrading. See, e.g., Toho Co. v. Sears, Roebuck & Co., 645 F.2d 788, 793 (9th Cir.1981) (finding no dilution in part because use of GODZILLA in connection with garbage bag packages is not unsavory or degrading); Grey v. Campbell Soup Co., 650 F.Supp. 1166, 1175 (C.D.Cal.1986) (DOGIVA name for dog biscuits causes dilution of GODIVA mark for chocolate, in part because of injury to business reputation caused by associating food for animals with food for human consumption), aff'd mem., 830 F.2d 197 (9th Cir.1987); Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200, 205 & n. 8 (2d Cir.1979) (use of distinctive cheerleading uniform in "sexually depraved film" is ground for injunction under New York dilution statute).
Second, the statute protects against the tarnishing of a mark, and resulting injury to business reputation, caused by association with a poorly manufactured product. See, e.g., McFly, Inc. v. Universal City Studios, Inc., 228 U.S.P.Q. (BNA) 153, 161 (C.D.Cal.1985) (use of surname McFly in popular film "Back to the Future" not dilutive of mark used by group of restaurants and bars, in part because of relevance of "the high quality of a junior user's goods and services"); Sally Gee, Inc. v. Myra Hogan, Inc., 699 F.2d 621, 625 (2d Cir.1983) (affirming finding of no dilution under New *1344 York statute in part because alleged diluter's products were of higher quality).
Third, the statute protects against genericide,[22] the tendency of a widely-used product name to become the generic term for the product. See, e.g., Sykes Laboratory, Inc. v. Kalvin, 610 F.Supp. 849, 856-59 (C.D.Cal.1985). See also R.G. Smith v. Chanel, Inc., 402 F.2d 562, 569 (9th Cir. 1968) (applying common law of unfair competition where district court decision predated enactment of dilution statute).
Fourth, the statute protects against the gradual impairment of a trademark when it is used to identify unaffiliated products, a practice that tends to diffuse the public's immediate association of the mark with the source. See, e.g., Toho Co. v. Sears, Roebuck & Co., 645 F.2d 788, 793 (9th Cir. 1981); Ameritech, Inc. v. American Information Technologies Corp., 811 F.2d 960, 965 (6th Cir.1987) (applying Ohio common law); Exxon Corp. v. Exxene Corp., 696 F.2d 544, 549-50 (7th Cir.1982) (applying Illinois statute).
Section 14330 speaks of the likelihood of dilution, not actual dilution. Cal.Bus. & Prof.Code § 14330(a); Century 21 Real Estate Corp. v. Sandlin, 846 F.2d 1175, 1180 (9th Cir.1988). Thus, unless the statute is preempted by federal law, and unless the 1985 amendment materially alters the statute's coverage, Ford can prevail on its dilution claim if it proves that Plasticolor's use of its marks causes the likelihood of any of these four types of injury.
2. Preemption
Plasticolor contends that because the dilution statute dispenses with the requirement of proving a likelihood of confusion, it is preempted by the Lanham Act or, to the extent that the dilution statute purports to prohibit the copying of functional features, the federal patent law. Both of these contentions misapprehend the nature of federal preemption.
Any discussion of preemption must start with Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964), and Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 84 S.Ct. 779, 11 L.Ed.2d 669 (1964), where the Supreme Court held that state unfair competition law cannot prohibit the copying of an unpatentable article. To let a state do so, the Court observed, "would be to permit the State to block off from the public something which federal law has said belongs to the public." Sears, 376 U.S. at 232, 84 S.Ct. at 789. The Court found that in enacting the patent laws, Congress had balanced the twin needs of spurring invention and promoting free competition. Id. at 230-31, 84 S.Ct. at 788. State protection of articles Congress has declared unprotectable would upset the balance; just as a state law extending the life of a patent beyond the expiration date set by Congress would clash with the objectives of the patent law, so would a more indirect extension of protection as was available under state unfair competition law. Id. at 231, 84 S.Ct. at 788.
Subsequent cases have made it clear, however, that the supremacy clause does not require full congruence between federal and state intellectual property protections. See Goldstein v. California, 412 U.S. 546, 93 S.Ct. 2303, 37 L.Ed.2d 163 (1973) (federal copyright law does not preempt state copyright law providing greater protection); Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974) (federal patent law does not preempt state trade secret law protecting unpatentable processes); Aronson v. Quick Point Pencil Co., 440 U.S. 257, 99 S.Ct. 1096, 59 L.Ed.2d 296 (1979) (federal patent law does not preempt state contract law enforcing royalty agreement as to unpatentable invention). State regulation is preempted only where the Constitution expressly provides that federal regulatory power is exclusive, where the Constitution expressly prohibits the states from *1345 regulating, or where state regulation would conflict with federal. Goldstein, 412 U.S. at 552-53, 93 S.Ct. at 2307-08 (quoting The Federalist No. 32, at 241 (A. Hamilton) (B. Wright ed. 1961)). As neither of the first two conditions is satisfied regarding intellectual property protection, see Kewanee, 416 U.S. at 480, 94 S.Ct. at 1885; Goldstein, 412 U.S. at 553, 93 S.Ct. at 2308, determination of whether state protection is preempted "involves a consideration of whether [state] law `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Kewanee, 416 U.S. at 479, 94 S.Ct. at 1885 (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941)). See also Aronson, 440 U.S. at 262, 99 S.Ct. at 1099.
It is accordingly necessary to examine the objectives underlying federal trademark and patent protection, to determine whether federal law preempts California's dilution statute as applied to the partially functional copying of a trademark.
a. The Lanham Act
The Lanham Act does not, by its terms, foreclose broader protection afforded under state law. Indeed, the Act explicitly contemplates the continued existence of state law protection. See 15 U.S.C. § 1065 (1982) (under certain conditions right to use mark becomes incontestable "except to the extent, if any, to which the use of a mark registered on the principal register infringes a valid right acquired under the law of any State"). We can thus infer that the goal of nationwide uniformity, while undoubtedly one of the objectives of the Lanham Act, see S.Rep. No. 1333, 79th Cong., 2d Sess., reprinted in 1946 U.S.Code Cong. Serv. 1274, 1276-77, was not paramount. Instead, the Act serves the goal of national uniformity by providing a nationwide floor, assuring the public and trademark owners at least a minimum level of protection. See id. at 1277 ("a sound public policy requires that trade-marks should receive nationally the greatest protection that can be given them").[23]
Nor does the existence of state law protection interfere with the two major purposes of the Lanham Act:
One is to protect the public so it may be confident that, in purchasing a product bearing a particular trade-mark which it favorably knows, it will get the product which it asks for and wants to get. Secondly, where the owner of a trade-mark has spent energy, time, and money in presenting to the public the product, he is protected in his investment from its misappropriation by pirates and cheats.
Id. at 1274. See also Keebler Co. v. Rovira Biscuit Corp., 624 F.2d 366, 372 n. 3 (1st Cir.1980); Mariniello v. Shell Oil Co., 511 F.2d 853, 858 (3d Cir.1975). State law providing greater protection clearly does not conflict with either of these objectives. See Golden Door, Inc. v. Odisho, 646 F.2d 347, 352 (9th Cir.1980).
Moreover, unlike the strict specifications of the patent laws (the requirements of novelty, utility and nonobviousness and the 17-year time limit), which embody a congressional balancing of the benefits of free competition with those of promoting invention, the requirements of the Lanham Act embody no such balancing. While there is a public interest in promoting competition *1346 in the production of goods and services, there is no analogous public interest in competition to sell a good or service under a particular trade name. The two interests at war in the patent arena are aligned when it comes to trademarks; the public interest in product competition is served by granting monopolies in trade names the public has come to recognize, because such monopolies ensure that the public is receiving accurate information as to the sources of competing goods.
This lack of patent-like balancing in the Lanham Act manifests itself in the absence of patent-like requirements. Trademarks need not represent any advance in the state of the art of trade names to be eligible for protection; there is no requirement that a trademark be clever or creative. Even the most mundane mark, if recognized by consumers, is entitled to protection. The Lanham Act places no limit on the duration of the monopoly; a mark that is widely associated with its owner is protected in perpetuity. State trademark protection cannot upset any sort of delicate balance in the Act, as it can regarding the patent law, because the Act incorporates no such balance.
The Lanham Act thus does not preempt state trademark protection greater than that provided by the Act. "By extending to federal registrants greater protection than is available under the Lanham Act, California law, like the Act, protects both the public from confusion about the services and products it is receiving and the public relations investment of plaintiff." Golden Door, Inc. v. Odisho, 646 F.2d 347, 352 (9th Cir.1980). State law is preempted only where it provides less protection than the Lanham Act, where it permits federal trademarks to be infringed. Id. (quoting Mariniello v. Shell Oil Co., 511 F.2d 853, 858 (3d Cir.1975)). Otherwise, the states are free to provide forms of protection not included in the Lanham Act. International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912, 916 (9th Cir.1980), cert. denied, 452 U.S. 941, 101 S.Ct. 3086, 69 L.Ed.2d 956 (1981).
The Lanham Act thus does not preempt California's dilution statute. We now turn to the question of whether the statute, as applied to the functional copying of trademarks, is preempted by the patent laws.
b. The Patent Laws
There is no doubt that the patent laws preempt state laws that provide greater protection against the copying of articles. Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964); Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 84 S.Ct. 779, 11 L.Ed.2d 669 (1964). As the Court subsequently explained, Sears and Compco involved "the question [of] whether a State could, under principles of a state unfair competition law, preclude the copying of mechanical configurations which did not possess the qualities required for the granting of a federal design or mechanical patent." Goldstein v. California, 412 U.S. 546, 569, 93 S.Ct. 2303, 2316, 37 L.Ed.2d 163 (1973) (emphasis added). Plasticolor would have us extend the holdings of Sears and Compco beyond mechanical configurations, to require the preemption of state protection of any functional aspect of a product, including a word such as Ford. Such an extension, however, has been foreclosed by Goldstein and by Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974).
In both of these cases, the Court drew a distinction between items that are within the sphere of the patent laws, but are unprotected, and items that fall outside of that sphere. Goldstein rebuffed a claim that the patent laws preempted state protection against record piracy, observing:
In regard to mechanical configurations, Congress had balanced the need to encourage innovation and originality of invention against the need to insure competition in the sale of identical or substantially identical products. The standards established for granting federal patent protection to machines thus indicated not only which articles in this particular category Congress wished to protect, but which configurations it wished to remain free. The application of state law in these cases to prevent the copying *1347 of articles which did not meet the requirements for federal protection disturbed the careful balance which Congress had drawn and thereby necessarily gave way under the Supremacy Clause of the Constitution. No comparable conflict between state law and federal law arises in the case of recordings of musical performances. In regard to this category of "Writings," Congress has drawn no balance; rather, it has left the area unattended, and no reason exists why the State should not be free to act.
Goldstein, 412 U.S. at 569-70, 93 S.Ct. at 2316.
While Goldstein involved the question of whether state protection was preempted by federal copyright law, it established a distinction which Kewanee carried over into patent law. Kewanee was concerned with whether patent law preempts state trade secret law to the extent that state law protects unpatented items. The Court first divided unpatented items into two categories, the first of which was "items which would not be proper subjects for consideration for patent protection under 35 U.S.C. § 101."[24]Kewanee, 416 U.S. at 482, 94 S.Ct. at 1886. Augmented state protection for these items, the Court held, would not be preempted by the patent law: "As in the case of the recordings in Goldstein v. California, Congress, with respect to nonpatentable subject matter, `has drawn no balance; rather it has left the area unattended, and no reason exists why the State should not be free to act.'" Id. at 482-83, 94 S.Ct. at 1886-87 (quoting Goldstein, 412 U.S. at 570, 93 S.Ct. at 2316).
The distinction could not be more plain. States cannot, consistent with the patent law, prohibit the copying of product features that fall within the general subject matter of the patent laws. But states can prohibit the copying of features that are ineligible for patent protection by virtue of the fact that they fall entirely outside the scope of the patent laws. As to these features, state protection does not conflict with any objective of federal patent law.[25]
A trademark clearly falls into this second category. A trademark is not a process, machine, manufacture or composition of matter; it therefore does not fall within the broad category of items statutorily eligible for patent protection. A trademark or service mark is a word or a group of words identifying the source of goods or services. Even when used functionally, trademarks are items to which the patent laws do not speak. Enhanced state protection is not precluded.
As section 14330(a) is not preempted by federal trademark or patent law, it is applicable to Plasticolor's use of Ford's marks. We next consider the effect, if any, of the 1985 amendment to the statute.
3. The 1985 Amendment
In 1985 the California legislature amended section 14330 by adding subsection (b), which reads:
Any person who uses or unlawfully infringes upon a mark registered under this chapter or under Title 15 of the United States Code, other than in an otherwise noninfringing manner, either on the person's own goods or services or to describe the person's own goods or services, irrespective of whether the mark is used primarily as an ornament, decoration, garnishment, or embellishment on or in products, merchandise, or goods, for the purpose of enhancing the commercial value of, or selling or soliciting purchases of, products, merchandise, goods or services, without prior consent of the owner of the mark, shall be subject *1348 to an injunction against that use by the owner of the mark.
Cal.Bus. & Prof.Code § 14330(b) (West 1987) (emphasis added; footnote omitted). This amendment was proposed by legislators concerned about cases in the federal courts, particularly Job's Daughters in the Ninth Circuit, which allowed the functional use of trademarks by competitors. These legislators intended to provide a dilution cause of action where, because a mark is used functionally, federal trademark law affords no redress. Whether they accomplished this purpose is, as we shall see, another question entirely.
Subsection 14330(b), as enacted, is not easy to comprehend. The subsection begins by authorizing an injunction against anyone who "uses or unlawfully infringes upon" a registered trademark; this phrase appears to prohibit all uses of trademarks, whether or not they constitute an infringement under federal law. The second clause, however, takes away everything the first has given, by exempting anyone who uses a trademark "in an otherwise noninfringing manner." What we are left with is a prohibition against those ornamental uses that constitute infringements under federal law. So construed, the 1985 amendment leaves the law exactly as it found it.
Puzzled by this result, we turn to the legislative history, which is instructive. As originally drafted, the statute did not contain the phrase underscored above. Absent that phrase, the statute would be quite clear: It would prohibit all ornamental uses of registered trademarks, regardless of whether they constituted an infringement under federal law. The legislative record discloses that the original version of the statute ran into opposition from the state bar, which argued that the statute would sweep too broadly, prohibiting some innocuous uses of trademarks.[26] But the language adopted to amend the amendment was not, as discussed above, narrowly tailored: It excludes not merely some noninfringing uses, but all of them.
When drafting a statute, the legislature must embody its intentions in precise statutory language; the parties and the court must not be left to guess what the legislature meant. Where, as here, a statute incorporates competing concerns, the legislature must resolve those concerns in a meaningful way and select statutory language that clearly reflects the nature of that resolution. This it failed to do here. As best we can tell, one faction supported the statute as originally written, another thought it too broad. In attempting to satisfy both sides, the legislature added language that nullified the language already there. By trying to say everything, the legislature succeeded in saying nothing at all.
It is not the function of the courts to draw distinctions that the legislature failed to draw. Separating what is prohibited from what is permitted requires an exercise of policy judgment, a weighing of conflicting considerations. That is the responsibility of the political branches under our tripartite system of government. Having found no such line drawn by subsection 14330(b), we conclude that it neither adds to nor subtracts from the law as it stood prior to its enactment. We disregard it.
4. The Summary Judgment Motions
Ford has never suggested that there is anything unsavory or degrading about floor mats. See Toho Co. v. Sears, Roebuck & Co., 645 F.2d 788, 793 (9th Cir.1981). Indeed, the fact that Ford itself is in the floor mat business would render any such claim frivolous. Neither has Ford suggested that Plasticolor's floor mats are poorly manufactured, see McFly, Inc. v. Universal Studios, Inc., 228 U.S.P. Q. (BNA) 153, 161 (C.D.Cal.1985), or that any of Ford's marks are in danger of becoming the generic term for floor mats, see Sykes Laboratory, Inc. v. Kalvin, 610 F.Supp. 849, 856-59 (C.D.Cal.1985). Ford can thus prevail on its dilution claim only by proving that Plasticolor's use of its marks is likely to diminish the marks' effectiveness *1349 by attenuating the public's association of the marks with Ford. See Toho, 645 F.2d at 793.
"Rule 56(c) mandates the entry of 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." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Ford bears the burden of establishing dilution. After nearly four years of litigation and two rounds of summary judgment motions, Ford has failed to introduce the least bit of evidence supporting its claim that Plasticolor's use of its marks dilutes their distinctive quality. The only evidence on this point is the floor mats themselves, and their appearance raises precisely the opposite inference. The mats contain clear, legible and accurate depictions of various Ford trademarks and logos. They are sold to the public for use in conjunction with Ford products, giving consumers the opportunity to express their allegiance to their Ford-manufactured automobiles. If anything, such use is likely to increase the distinctiveness of Ford's marks. As Judge Sofaer noted in rejecting a similar claim that the sale of buttons bearing the trademarked names of musical groups diluted the marks' distinctive quality, "defendants' use only operates to strengthen plaintiffs' marks. Rather than clouding the distinctive message of quality that plaintiffs' marks carry, defendants provide fans of the various Performers an opportunity to announce their allegiance to the groups, thereby publicizing the popularity of the groups." Bi-Rite Enters., Inc. v. Button Master, 555 F.Supp. 1188, 1196 (S.D.N.Y.1983).
Ford has had ample opportunity to introduce evidence of the likelihood of dilution and has utterly failed to do so. Plasticolor's summary judgment motion as to Ford's counterclaim for dilution is accordingly granted.
IV. Damages for Past Infringement
The last opinion, dated May 9, 1988, determined that Plasticolor's sale of floor mats bearing Ford trademarks, as the mats were packaged at the time, constituted trademark infringement. 698 F.Supp. at 204. Ford claims it is entitled to damages and an accounting of wrongful profits flowing from this infringement.
Section 35 of the Lanham Act, 15 U.S.C. § 1117(a) (Supp. IV 1986), provides, in relevant part:
When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled ... subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by plaintiff, and (3) the costs of the action.... In assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed.
15 U.S.C. § 1117(a) (Supp. IV 1986). Because Plasticolor's use of the Ford marks was intentional, 698 F.Supp. at 201, Ford can recover damages under this section. Faberge, Inc. v. Saxony Prods., Inc., 605 F.2d 426, 429 (9th Cir.1979) (per curiam); Maier Brewing Co. v. Fleischmann Distilling Corp., 390 F.2d 117, 123 (9th Cir.), cert. denied, 391 U.S. 966, 88 S.Ct. 2037, 20 L.Ed.2d 879 (1968).
If this were a case of pure trademark infringement, Ford would be entitled to an accounting of Plasticolor's profits from sales of the infringing floor mats. See, e.g., Playboy Enters., Inc. v. Baccarat Clothing Co., 692 F.2d 1272, 1274-75 (9th Cir.1982). But because the Lanham Act does not prohibit functional copying, Ford cannot recover profits from sales to consumers who were not confused as to the source of the floor mats. These consumers were interpreting the Ford marks in their functional, hence unprotected, capacity; Ford is not entitled to any recovery flowing from these sales.
Ford can recover, however, to the extent that Plasticolor's uses of the Ford marks *1350 were interpreted by purchasers as identifications of source. These sales, where the marks produced consumer confusion, represent classic examples of trademark infringement. Ford is thus entitled to an accounting of Plasticolor's profits flowing from these sales only.
Sorting out one type of sale from another should not be too difficult. The parties have submitted surveys indicating levels of purchaser confusion: We need simply determine an appropriate overall percentage of confusion and apply it to Plasticolor's total profits in order to arrive at a figure representing profits attributable to confusion.[27] Section 1117(a) sets out the procedure to follow. Ford has the burden of proving only the total amount earned by Plasticolor on sales of Ford-trademarked floor mats through May 9, 1988. Plasticolor then must prove (1) the percentage of that figure to be counted as profit, (2) the percentage of profit not attributable to consumer confusion, and (3) any other deductions it claims to be appropriate. 15 U.S.C. § 1117(a) (Supp. IV 1986).
V. Attorneys' Fees
Section 1117(a) authorizes the award of attorneys' fees "in exceptional cases." 15 U.S.C. § 1117(a) (Supp. IV 1986). Such an award is appropriate where "the defendant's acts `constituted extraordinary, malicious, wanton, and oppressive conduct.'" U-Haul Int'l, Inc. v. Jartran, Inc., 793 F.2d 1034, 1043-44 (9th Cir.1986) (quoting Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1026 (9th Cir.1985), cert. denied, 474 U.S. 1059, 106 S.Ct. 802, 88 L.Ed.2d 778 (1986)). There is nothing exceptional about this case; Plasticolor's conduct has not been particularly egregious. Cf. Transgo, 768 F.2d at 1026 (affirming award of attorneys' fees where defendants had conspired to pass off goods as plaintiffs'); Playboy Enters., Inc. v. Baccarat Clothing Co., Inc., 692 F.2d 1272, 1276 (9th Cir.1982) (reversing denial of attorneys' fee award where defendants had deliberately deceived the public); Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant, 771 F.2d 521, 526-27 (D.C.Cir.1985) (awarding attorneys' fees where plaintiff engaged in abusive litigation tactics). The legal issues presented were novel and their resolution not easily predictable. While Plasticolor's use of Ford's marks was deliberate, there is no evidence suggesting that Plasticolor intended to deceive the public. Ford is thus not entitled to recover attorneys' fees under section 1117(a).
VI. Conclusion
Plasticolor's motion for summary judgment is granted as to Ford's counterclaim for dilution. All other motions for summary judgment are denied. Ford is entitled to recover damages and costs proportionate to the percentage of Plasticolor's sales before May 9, 1988, attributable to consumer confusion as to the source of the floor mats. Ford is not entitled to recover attorneys' fees.
NOTES
[*] Sitting by designation pursuant to 28 U.S.C. § 291(b) (1982).
[1] Ancient Egyptian wall paintings depict field workers branding cattle. 1 J.T. McCarthy, Trademarks and Unfair Competition § 5:1, at 131-32 (2d ed.1984). Greek vases of the fifth and sixth centuries B.C. are sometimes inscribed with the insignia of the potter. P. Goldstein, Copyright, Patent, Trademark and Related State Doctrines 276 (2d ed. 1985). While it is possible that such marks could identify the rancher or potter in the event of sale, it is more likely that the marks were meant solely to indicate ownership. See id.
[2] Justice Story's tone indicates the importance he ascribed to trademarks as identifications of source. His three-paragraph opinion, which cites no authority other than his own treatise, begins and ends as follows:
I have not the slightest doubt, in the present case, that a perpetual injunction ought to be granted. The case presented is one of unmitigated and designed infringement of the rights of the plaintiffs, for the purpose of defrauding the public and taking from the plaintiffs the fair earnings of their skill, labor and enterprise.
....
... I do not quote cases, to establish the principles above stated. They are very familiar to the profession; and are not now susceptible of any judicial doubt.
Taylor v. Carpenter, 23 F.Cas. 742, 744 (C.C.D. Mass.1844) (No. 13,784).
[3] Congress first provided for the registration of trademarks in 1870, and added criminal penalties for infringement six years later. Act of July 8, 1870, ch. 230, 16 Stat. 198 (1870); Act of August 14, 1876, ch. 274, 19 Stat. 141 (1876). In 1879, the Supreme Court declared the whole enterprise unconstitutional, as exceeding congressional authority under the commerce clause, U.S. Const. art. I, § 8, cl. 3, or the copyright-patent clause, U.S. Const. art. I, § 8, cl. 8. Trade-Mark Cases, 100 U.S. (10 Otto) 82, 25 L.Ed. 550 (1879). Statutes passed in 1881 and 1905 provided only limited trademark protection. Act of March 3, 1881, 21 Stat. 502 (1881) (protecting marks used in international commerce and commerce with Indian tribes); Act of Feb. 20, 1905, ch. 592, 33 Stat. 724 (1905) (protecting only certain trademarks). See generally Pattishall, Two Hundred Years of American Trademark Law, 68 Trademark Rep. 121, 129-38 (1978).
[4] In a small number of cases, distinctive non-functional physical attributes of products have been afforded protection. See, e.g., In re Owens-Corning Fiberglas Corp., 774 F.2d 1116 (Fed. Cir.1985) (protecting distinctive pink color of fibrous glass residential insulation); Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200 (2d Cir.1979) (protecting distinctive cheerleading uniform); Truck Equip. Serv. Co. v. Fruehauf Corp., 536 F.2d 1210 (8th Cir.) (protecting trapezoidal design of twin hopper bottomed grain semi-trailer), cert. denied, 429 U.S. 861, 97 S.Ct. 164, 50 L.Ed.2d 139 (1976).
[5] As Judge Posner has observed, "In an age when fashion-conscious consumers wear T-shirts emblazoned with the trademarks of consumer products and owners of Volkswagens buy conversion kits to enable them to put a Rolls Royce grille on their car, it is apparent that trade names, symbols, and design features often serve a dual purpose, one part of which is functional in the sense of making the product more attractive, and is distinct from identifying the manufacturer or his brand to the consumer." W.T. Rogers Co. v. Keene, 778 F.2d 334, 340 (7th Cir.1985).
[6] The disclaimer uses only capital letters; lower case letters are used here to indicate their relative size.
[7] Ford has submitted a photograph of a Plasticolor "MUSTANG" floor mat in which the disclaimer is significantly smaller, and is worded slightly differently. We need not determine which design is actually being used by Plasticolor in order to reach a decision today.
[8] While point-of-sale and post-sale confusion are both considered in determining whether there has been trademark infringement, the two are not equivalent in significance. Point-of-sale confusion is by far the more important, because it directly affects individuals who are in the market for the particular product. Post-sale confusion may affect future purchasers of the product, but in a more indirect and diffuse manner; post-sale confusion is far less likely to cause erroneous purchases than point-of-sale confusion.
[9] The distinction substantially predates the Lanham Act. It was well-established by 1924, when the Supreme Court lent its approval to what was, at the time, vigorous competition in the chocolate-flavored liquid quinine market. See William R. Warner & Co. v. Eli Lilly & Co., 265 U.S. 526, 531, 44 S.Ct. 615, 617, 68 L.Ed. 1161 (1924).
[10] Judge Posner provides an economic justification for the nonprotection of functional features and generic names in W.T. Rogers Co. v. Keene, 778 F.2d 334, 338-40 (7th Cir.1985).
[11] Recent authority has suggested the existence of two distinct types of functionality, "aesthetic functionality" and "utilitarian functionality." See, e.g. First Brands Corp. v. Fred Meyer, Inc., 809 F.2d 1378, 1382 & n. 3 (9th Cir.1987). As the terms imply, a feature is aesthetically functional if it is desired for its appearance, but functional in a utilitarian sense if desired for its use. The distinction makes a difference only in cases involving an alleged infringement of a product's packaging or trade dress, where aesthetic functionality does not preclude protection but utilitarian functionality does. See, e.g., Fabrica, Inc. v. El Dorado Corp., 697 F.2d 890, 895 (9th Cir.1983). Where, as here, infringement is alleged of the actual product rather than the product's package, the law is identical whether the functionality of the product feature is utilitarian or aesthetic.
[12] In another similar case, the Fifth Circuit effectively reached the same result, without being quite so explicit. Boston Professional Hockey Ass'n v. Dallas Cap & Emblem Mfg., Inc., 510 F.2d 1004 (5th Cir.), cert. denied, 423 U.S. 868, 96 S.Ct. 132, 46 L.Ed.2d 98 (1975), involved a defendant who manufactured embroidered cloth emblems depicting the trademarks of professional hockey teams. The court began its discussion of the case by noting that "[t]he difficulty with this case stems from the fact that a reproduction of the trademark itself is being sold, unattached to any other goods or services." Id. at 1010. Despite this effective concession of functionality, the court then went on to determine that the public would likely be confused as to sponsorship, id. at 1011-12, and to hold that the plaintiffs were entitled to an injunction, id. at 1012. The Fifth Circuit has subsequently explained that Boston Hockey is to be interpreted as holding that a trademark owner is protected from mixed-use copying, but not purely functional copying. Kentucky Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368, 389 (5th Cir.1977). The Ninth Circuit has rejected the reasoning of Boston Hockey insofar as it protects a pure functional use, but apparently not insofar as it protects a mixed use. See International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912, 918-19 (9th Cir.1980), cert. denied, 452 U.S. 941, 101 S.Ct. 3086, 69 L.Ed.2d 956 (1981).
[13] National Football League purports to find authority for its conclusion in International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912, 919 (9th Cir.1980), cert. denied, 452 U.S. 941, 101 S.Ct. 3086, 69 L.Ed.2d 956 (1981). National Football League, 532 F.Supp. at 663. Job's Daughters, however, only suggested that some protection may be available to mixed uses. It did not indicate that trademark holders were entitled to the same protection against mixed uses as against pure source-identifying uses. In light of the fact that the immediately preceding section of Job's Daughters devotes substantial space to a well-reasoned reaffirmation of the functionality doctrine, 633 F.2d at 917-19, it is hardly likely that the court would discard the doctrine when confronted by a mixed use.
[14] Language in a recent opinion may misleadingly suggest that this alternative has also been implicitly adopted in the Ninth Circuit regarding the overall shape of a product: "For an overall product configuration to be recognized as a trademark, the entire design must be non-functional." Clamp Mfg. Co. v. Enco Mfg. Co., 870 F.2d 512, 516 (9th Cir.1989). In context, however, the quoted passage merely rejects the possibility that an otherwise unprotectable (because functional) overall design could be protected by the mere addition of a few nonfunctional features. Clamp does not purport to resolve the question left open by Vuitton and Job's Daughters. See pp. 1338-39 infra.
[15] See W.T. Rogers Co. v. Keene, 778 F.2d 334, 341 (7th Cir.1985) (involving a Keene different from the Third Circuit litigant) (denying all protection to feature only partially functional could have unintended effect of ruling out all trademark protection for source-identifying pleasing design features, because such features will inevitably be aesthetically functional to a certain extent).
[16] Although recognizing that neither complete protection nor complete nonprotection is a satisfactory solution, W.T. Rogers Co. v. Keene, 778 F.2d 334, 340 (7th Cir.1985), the Seventh Circuit has resigned itself to choosing one or the other, according to whether the functional or source-identifying aspects of the feature predominate. Id. at 346-48. With all respect, this court is more optimistic.
[17] The possibility of post-sale confusion can be eliminated entirely if the registrant is able to embody its trademark in a copyrighted logo. See, e.g., Camp Beverly Hills, Inc. v. Camp Central Park, Inc., 217 U.S.P.Q. (BNA) 783, 784 (S.D.N.Y.1982). Ford has not done so.
[18] This is not unlike the question of the likelihood of confusion, which is also a question of fact. See Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352, 1356 n. 5 (9th Cir.1985) (en banc).
[19] Through discovery, Ford obtained preliminary surveys conducted by Plasticolor. Plasticolor tells us that the surveys involved prototype packaging that differs in material respects from the packaging now in use. It is impossible to determine the effect of the current packaging by reference to surveys of consumer response to different packaging, and we therefore give these surveys little weight.
[20] Indeed, to the extent that the thing being copied is a functional physical feature of an article or the article itself, state unfair competition law would be preempted by federal patent law. See Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964); Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 84 S.Ct. 779, 11 L.Ed.2d 669 (1964). The question of whether patent law preempts state protection against functional copying of a word will be considered below. See section III(C)(2)(b) infra.
[21] Ford's counterclaim purports to allege a separate count based on the common law of unfair competition. Research has disclosed no authority for the proposition that California has a common law of unfair competition distinct from the caselaw interpreting the unfair competition statute. The existence of parallel bodies of law governing the same conduct would appear to be of little practical value; any point of divergence between the two would be controlled by the statute.
[22] The term genericide, although by now firmly esconced in the literature, is a malapropism: It refers to the death of the trademark, not to the death of the generic name for the product. A more accurate term might be trademarkicide, or perhaps even generization, either of which seems to better capture the idea that the trademark dies by becoming a generic name.
[23] We thus reject the reasoning of United States Jaycees v. Commodities Magazine, Inc., 661 F.Supp. 1360, 1365-68 (N.D.Iowa 1987), which held that the Lanham Act preempts Iowa's dilution statute. United States Jaycees relies entirely on the Lanham Act's objective of nationwide uniformity; the opinion ignores the fact that the Act itself permits inconsistent state protection, and disregards the language in the Senate report indicating that uniformity was desirable because local law was providing too little protection, not too much. See id. at 1367. The logic of United States Jaycees would require the invalidation of all state unfair competition protection more extensive than that provided by the Lanham Act, a result we are clearly foreclosed from reaching. See Golden Door, Inc. v. Odisho, 646 F.2d 347, 351-52 (9th Cir.1980); International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912, 916 (9th Cir.1980) (state unfair competition "protections need not track those provided by the Lanham Act"), cert. denied, 452 U.S. 941, 101 S.Ct. 3086, 69 L.Ed.2d 956 (1981). United States Jaycees appears to be the only decision ever to hold that a dilution statute is preempted by the Lanham Act. 2 J.T. McCarthy, Trademarks and Unfair Competition § 24.13, at 66 (Supp.1988).
[24] 35 U.S.C. § 101 (1982) provides: "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." The category referred to by the Court thus includes everything that is not a process, machine, manufacture or composition of matter. A trademark is none of these.
[25] The Court has recently restated the distinction in Bonito Boats, Inc. v. Thunder Craft Boats, Inc., ___ U.S. ___, 109 S.Ct. 971, 980-81, 103 L.Ed.2d 118 (1989).
[26] The underscored language was apparently intended to exempt companies which used identical trade names but produced widely different products.
[27] This percentage can also be applied to Ford's total cost of suit in order to determine the level of costs to be awarded under section 1117(a). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1558895/ | 644 F.Supp.2d 521 (2007)
JoAnne OEHLMANN, Plaintiff,
v.
METROPOLITAN LIFE INSURANCE COMPANY, Defendant.
No. 3:06-CV-01075.
United States District Court, M.D. Pennsylvania.
December 21, 2007.
*524 Timothy G. Lenahan, John Joseph Warring, Lenahan & Dempsey, P.C., Scranton, PA, for Plaintiff.
Veronica Winter Saltz, Saltz Polisher, P.C., Wayne, PA, for Defendant.
MEMORANDUM
EDWIN M. KOSIK, District Judge.
This case concerns a dispute over Defendant Metropolitan Life Insurance Company's ("Defendant" or "MetLife") handling of a life-insurance policy claim, to which Plaintiff JoAnne Oehlmann ("Plaintiff" or "Oehlmann") is a primary beneficiary. Oehlmann's ex-husband purchased the policy for their minor daughter, who tragically died in a house fire on April 26, 2005. Plaintiff pleaded the following causes of action: (1) bad faith; (2) breach of contract; (3) breach of the covenant of good faith and fair dealing; (4) breach of fiduciary duty; (5) negligence; and (6) negligent infliction of emotional distress. We have subject-matter jurisdiction of this case under 28 U.S.C. § 1332(a) (2000), as the diversity and amount-in-controversy requirements are met.[1]
Factual Background
On February 3, 1994, MetLife issued a life-insurance policy to Todd H. Smirman ("Smirman"), on the life of his minor daughter (the "Insured"). (Doc. 32-3 at 5-6.) Smirman, purchaser of the policy, listed as primary beneficiaries both himself and the Plaintiff (the Insured's mother), to whom he was married at the time. (Doc. 32-2 at 18.) Each beneficiary was to share fifty percent of the policy proceeds; the face value of the policy was $100,000.00. (Id. at 5, 18.) The policy was issued in the Commonwealth of Pennsylvania.[2] (Id. at 5.)
On January 8, 1999, the Court of Common Pleas of Pike County issued a divorce decree dissolving the marriage of Plaintiff and Smirman. (Doc. 39-13 at 7.) Paragraph VI. E. of the Property Settlement Agreement of November 4, 1998, executed by the parties and incorporated into the divorce decree, provides: "The life insurance policies currently insuring the lives of the children are to remain in full force and effect with both Husband and Wife being named as beneficiaries." (Id. at 14.) On December 19, 2001, Plaintiff remarried. (Id. at 6.)
The Insured died in a house fire, while she was living with her mother, on April 26, 2005. (Doc. 39-5 at 3.) Plaintiff retained counsel on or about June, 2005, and counsel requested the requisite claims forms from MetLife. (Doc. 39-8 at 1.) *525 Both Smirman and Plaintiff individually submitted claims forms to MetLife, on July 1, and July 5, 2005, respectively. (Docs. 32-2 at 25, 39-13 at 2.) After processing, MetLife settled the claim on July 20, 2005, and established money-market accounts for both Smirman and Plaintiff. (Docs. 32-2 at 2, 39-14 at 1, 39-15 at 1-2.) Each account contained 50% of the proceeds, $55,630.37.
Five days later, by letter dated July 25, 2005, counsel for Smirman notified Met-Life that (1) Smirman disputed Plaintiff's right to the proceeds, and (2) an investigation of the circumstances surrounding the fire was ongoinginsinuating that the fire may not have been an accident.[3] (Doc. 32-3 at 1.) In response to the claims of the policyholder, MetLife issued a letter to Plaintiff's attorney on August 4, 2005, which advised of Smirman's allegations and designated a time period during which Smirman's counsel could investigate the allegations.[4] (Docs. 32-4 at 1, 39-16 at 1-2.) MetLife requested the fire marshal's report from Plaintiff, and MetLife received the report, dated August 4, 2005, from Plaintiff's attorney on September 13, 2005. (Doc. 32-6 at 1.)
Also on August 4, and without knowledge of MetLife's aforementioned correspondence of that date, Plaintiff instituted litigation against MetLife by filing a Praecipe for Writ of Summons in the Pennsylvania Court of Common Pleas of Pike County. (Doc. 32-2 at 3.)
By letter dated September 27, 2005, MetLife ruled the fire not suspicious, and notified Plaintiff and Smirman regarding same, but explained that Plaintiff and Smirman were still considered rival claimants given Smirman's belief that he was the sole beneficiary of the proceeds. (Docs. 32-2 at 3-4, 32-7 at 1-2.) Additionally, Plaintiff's litigation against MetLife was still pending. (Doc. 32-7 at 2.) As the proceeds had already been disbursed to the money-market accounts, MetLife told the parties that it would distribute the accounts once each side had executed a settlement agreement and release. (Docs. 32-7 at 2, 32-8 at 1.) The relevant portions of the release sent to Oehlmann are as follows:
*526 [I]n consideration of the sum of Fifty Thousand Dollars ($50,000.00), . . . Releasors, their successors and assigns, and anyone claiming under them, hereby releases, discharges and acquits Metropolitan Life Insurance Company and its representatives, . . . from any and all claims, including, without limitation, claims for breach of contract, denial of benefits, bad faith, unfair claims practices and/or statutory violations, breach of the implied covenant of good faith and fair dealing, exemplary or punitive damages, consequential damages for financial loss, emotional distress, breach of fiduciary duty, negligence and attorney's fees, as well as all other claims, demands, sums of money, actions, rights, causes of action, obligations and abilities of any kind of nature whatsoever which Releasors may have had or claimed to have had, or now has or claims to have, or hereafter may have or assert to have [relating to Policy No. 945 000 604A or Pike County C.C.P. No.: 921-2005], and that "Releasors hereby acknowledge that payment of the amount referred to. . . above constitutes full satisfaction and discharge of all the claims, demands, sums of money, actions, rights, causes of action, debts, obligations and liabilities they have against Releasees. . . and that the sole consideration . . . for releasing said claims, demands, sums of money, actions, rights, causes of action, debts, obligations and liabilities is the payment of said sum."
(Doc. 32-7 at 1-2.)
Throughout the next months, Plaintiff's attorney continued with the litigation because MetLife would not distribute the accounts without a release, (see Docs. 32-10 at 1-2, 39-22 at 1, 39-24 at 1), and MetLife refused to disburse the proceeds absent a release, (see Docs. 32-9 at 1, 32-11 at 1-2, 32-12 at 1, 32-13 at 1-2, 3, 32-15 at 1, 39-28 at 3, 39-37 at 6.) MetLife and Plaintiff's communications make clear that MetLife insisted on the releases because it considered Plaintiff and Smirman to be rival claimants, (Docs. 39-21 at 2, 39-28 at 3, 39-32 at 2-3), and that Plaintiff refused to execute such a release because the release would waive any claim against Met-Life, (Docs. 32-16 at 1, 39-30 at 1, 39-34 at 1). Although Plaintiff's attorney notified MetLife that Smirman no longer disputed the beneficiary arrangement, MetLife received no direct communication from Smirman stating such, nor did it receive an executed settlement agreement and release from Smirman. (Docs. 39-28 at 3, 39-32 at 2). It appears that Smirman's counsel was non-responsive during this period, further frustrating efforts to settle this matter. (Doc. 39-28 at 3).
By letters dated February 16, 2006 and March 14, 2006, the attorneys for Plaintiff and Smirman notified MetLife that they had agreed to split the proceeds, however the parties failed to execute the releases provided by MetLife. (Docs. 39-34 at 1, 39-35 at 2). At this point, Plaintiff's Pike County litigation was still pending. In March, 2006, after talking with counsel, MetLife sent revised releases to Plaintiff and Smirman, (Doc. 39-37 at 2, 7), however each again failed to execute them (Doc. 39-38 at 1). Plaintiff's attorney informed MetLife that the release could not be executed as written, and that he was referring the matter to new counsel. (Doc. 32-16 at 1). On May 8, 2006, Plaintiff's new counsel filed a new complaint in the Court of Common Pleas of Lackawanna County. MetLife removed the matter to this court.[5] On June 7, 2006, in addition to its answer, MetLife filed a counterclaim and third-party complaint of interpleader against *527 Plaintiff and Smirman.[6] (Doc. 3 at 9). While this matter was pending during fall, 2006, Smirman orally agreed to waive any dispute to the payment of the proceeds, and executed the release for MetLife, on November 4, 2006.[7] (Doc. 32-18). Despite Plaintiff not executing the release, MetLife sent Plaintiff her account checkbook for the proceeds on November 14, 2006. (Docs. 39-17 at 1, 39-23 at 9).
Summary Judgment Standard
Summary judgment should be granted when the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). "The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A disputed fact is material when it could affect the outcome of the suit under the governing substantive law. Id. at 248, 106 S.Ct. 2505. A dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id. at 250, 106 S.Ct. 2505. The court should draw all inferences in the light most favorable to the non-moving party. Wicker v. Consol. Rail Corp., 142 F.3d 690, 696 (3d Cir.1998).
Initially, the moving party must show the absence of a genuine issue concerning any material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party has satisfied its burden, the nonmoving party, "must present affirmative evidence in order to defeat a properly supported motion for summary judgment." Anderson, 477 U.S. at 257, 106 S.Ct. 2505. Mere conclusory allegations or denials taken from the pleadings cannot withstand summary judgment once the moving party has presented evidentiary materials. See Schoch v. First Fid. Bancorp., 912 F.2d 654, 657 (3d Cir.1990). Additionally, "[t]he mere presence of an expert opinion supporting the non-moving party's position does not necessarily defeat a summary judgment motion; rather, there must be sufficient facts in the record to validate that opinion."[8]Kosierowski v. Allstate Ins. Co., 51 F.Supp.2d 583, 595 (E.D.Pa. 1999) (citing Advo, Inc. v. Philadelphia Newspapers, Inc., 51 F.3d 1191, 1198-99 (3d Cir.1995)).
The court considers the burden of proof to be sustained at trial when it evaluates the motion for summary judgment. In Pennsylvania, the insured must prove the elements of a bad faith case by clear and convincing evidence. Northwestern Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir.2005); Cowden v. Aetna Cas. & Sur. Co., 389 Pa. 459, 134 A.2d 223, 229 (1957); Terletsky v. Prudential Prop. & *528 Cas. Ins. Co., 437 Pa.Super. 108, 649 A.2d 680, 688 (1984). Accordingly, "the insured's burden in opposing a summary judgment motion brought by the insurer is `commensurately high because the court must view the evidence presented in light of the substantive evidentiary burden at trial.'" Babayan, 430 F.3d at 137 (quoting Kosierowski, 51 F.Supp.2d at 588). A defendant may prevail at the summary judgment stage by "affirmatively demonstrating a reasonable basis for its actions." Quaciari v. Allstate Ins. Co., 998 F.Supp. 578, 581 n. 3 (E.D.Pa.), aff'd, 172 F.3d 860 (3d Cir.1998) (table decision).
If the court determines that "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial.'"' Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting First Nat'l Bank of Arizona v. Cities Serv. Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968)). Rule 56 mandates the entry of summary judgment against the 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. Celotex Corp., 477 U.S. at 322, 106 S.Ct. 2548.
Multiple readings of the parties' briefs and their exhibits make clear that no material fact is in dispute. As such, summary judgment is appropriate.
I. Plaintiff's Bad Faith Claim
Plaintiff asserts that Defendant acted in bad faith in violation of 42 Pa. Cons.Stat. Ann. § 8371 (2007).[9] To succeed on a bad faith claim, a plaintiff-insured must prove (1) that the insurer did not have a reasonable basis for denying benefits under the policy; and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis in denying the claim. Northwestern Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir.2005); Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230, 233 (3d Cir. 1997) (recognizing that Terletsky established the test for section 8371 causes of action); Terletsky v. Prudential Prop. & Cas. Ins. Co., 437 Pa.Super. 108, 649 A.2d 680, 688 (1994). Bad faith may be established even when an insurer ultimately pays a claim if the delay of payment is unreasonable. See Klinger, 115 F.3d at 234; Ania v. Allstate Ins. Co., 161 F.Supp.2d 424, 430 n. 7 (E.D.Pa.2001). Additionally, bad faith can include post-litigation conduct by the insurer, although the conduct must be more than mere discovery abuses. See Krisa v. The Equitable Life Assurance Soc'y, 109 F.Supp.2d 316, 319-21 (M.D.Pa.2000); O'Donnell v. Allstate Ins. Co., 734 A.2d 901, 907 (Pa.Super.Ct.1999). But see Hollock v. Erie Ins. Exch., 588 Pa. 231, 903 A.2d 1185, 1188-91 (2006) (Cappy, C.J., dissenting). The plaintiff must prove both elements by clear and convincing evidence. Babayan, 430 F.3d at 137; Terletsky, 649 A.2d at 688. "If there is a reasonable basis for denying resolution of a claim, even if it is clear that the insurer did not rely on that reason, there cannot, as a matter of law, be bad faith." Williams v. Hartford Cas. Ins. Co., 83 F.Supp.2d 567, 574 (E.D.Pa.2000).
*529 Plaintiff argues that we should consider alleged violations of the Pennsylvania Unfair Insurance Practice Act ("UIPA"), 40 Pa. Stat. Ann. § 1171.1-1171.15 (West 1999), and/or the regulations promulgated thereunder, the Unfair Claims Settlement Practices regulations ("UCSP"), 31 Pa. Code. § 146.1-146.10 (1997 & 2001), when we determine whether Met Life acted in bad faith. No Supreme Court of Pennsylvania precedent exists on this issue.[10] The Superior Court of Pennsylvania has ruled that a trial court may consider alleged violations of the UIPA or the UCSP to determine whether an insurer acted in bad faith. See Romano v. Nationwide Mut. Fire Ins. Co., 435 Pa.Super. 545, 646 A.2d 1228, 1233 (1994) ("[W]e find that the rules of statutory construction permit a trial court to consider, either sua sponte or upon the request of a party, the alleged conduct constituting violations of the UIPA or the regulations in determining whether an insurer . . . acted in `bad faith.'"); The Brickman Group, Ltd. v. CGU Ins. Co., 865 A.2d 918, 929 (Pa.Super.Ct.2004); Hayes v. Harleysville Mut. Ins. Co., 841 A.2d 121, 125 (Pa.Super.Ct.2003); O'Donnell v. Allstate Ins. Co., 734 A.2d 901, 906 (Pa.Super.Ct.1999). The Romano Court reasoned that because section 8371 lacked a definition for bad faith, under the rules of statutory construction, courts should consider other statutes regarding insurance practices, such as the UIPA, to establish standards for good faith. See Romano, 646 A.2d at 1232-33.
Since the landmark test for bad faith was announced in Terletsky, however the federal courts sitting in diversity have abstained from applying the rule of construction announced in Romano, and have adhered to the Terletsky standard. See UPMC Health Sys., 391 F.3d at 505-06 (applying the Terletsky test and ignoring violations of the UIPA as evidence of bad faith); Dinner v. United Servs. Auto. Ass'n Cas. Ins. Co., 29 Fed.Appx. 823, 827-28 (3d Cir.2002) (rejecting Romano and its progeny) (non-precedential); Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230, 233-34 (3d Cir.1997) (holding that until the Supreme Court of Pennsylvania rules on the issue, the Third Circuit will apply the Terletsky standard for bad faith); Employers Mut. Cas. Co. v. Loos, 476 F.Supp.2d 478, 494 (W.D.Pa.2007); Pittas v. Hartford Life Ins. Co., 513 F.Supp.2d 493, 502-03 (W.D.Pa.2007); Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., 410 F.Supp.2d 417, 422 (W.D.Pa. 2006); Connolly v. Reliastar Life Ins. Co., 2006 WL 3355184, at *8 (E.D.Pa. Nov. 13, 2006) (noting that the Third Circuit has *530 observed that violations of the UIPA do not establish bad faith per se); Berks Mut. Leasing Corp. v. Travelers Prop. Cas., 2002 WL 31761419, at * 5 n. 8 (E.D.Pa. Dec. 9, 2002) (noting that the relevance of the UIPA to bad faith claims under section 8371 has been questioned in the Third Circuit); Parasco v. Pacific Indemnity Co., 920 F.Supp. 647, 655 n. 5 (E.D.Pa. 1996).[11]
The Third Circuit explains its rejection of the UIPA and UCSP as bad faith per se in Dinner as follows:
Prior to Terletsky, the Pennsylvania Superior Court had looked to the UIPA and the UCSP to give content to the concept of bad faith as used in [section 8371]. Terletsky did not, however, and it is apparent from a comparison of the bad faith standard it adopted with the provisions of the UIPA and the UCSP that much of the conduct proscribed by the latter is wholly irrelevant to whether an insurer lacks a reasonable basis for denying benefits and, if so, whether it knew of or recklessly disregarded that fact.
It necessarily follows that a violation of the UIPA or the UCSP is not a per se violation of the bad faith standard and that it is only the Terletsky standard itself that allows one to determine whether a violation of the former is of any relevance in a case like the one before us. It is also apparent that reference to the fact that the defendant's conduct violated the UIPA or the UCSP holds the potential for the jury's verdict being influenced by irrelevant matter.
Dinner, 29 Fed.Appx. at 827.
When we interpret state statutes, decisions of the state's highest court bind us. Comm'r of Internal Revenue v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967). Absent such a decision, our task as a federal court sitting in diversity is to determine how the Supreme Court of Pennsylvania would resolve the issue if called upon to do so. See Prudential Prop. & Cas. Ins. Co. v. Pendleton, 858 F.2d 930, 934 (3d Cir.1988). In attempting to forecast state law, a court must "consider relevant state precedents, analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand." McKenna v. Ortho Pharm. Corp., 622 F.2d 657, 663 (3d Cir. 1980). "We are not precluded from giving `proper regard' to the holdings of the lower courts of the forum state in fashioning a conflict-of-laws rule, although, unlike the holdings of the state's highest court, they are not necessarily dispositive of the question." Gruber v. Owens-Illinois Inc., 899 F.2d 1366, 1369 (3d Cir.1990) (quoting Nat'l Sur. Corp. v. Midland Bank, 551 F.2d 21, 29 (3d Cir.1977)). We are free to reach a contrary result if, by analyzing "other persuasive data," we predict that the [State] Supreme Court would hold otherwise. Gruber, 899 F.2d at 1369; Nat'l Sur. Corp., 551 F.2d at 29-30.[12]
*531 We adopt the logic of the Dinner court and reject that the alleged violations of UIPA and UCSP are bad faith per se for the following reasons. First, the standard for judging legal bad faith in section 8371 actions is the Terletsky test. Therefore, that an insurer may have allegedly violated a regulatory standard is irrelevant to our analysis. Second, the UIPA and the UCSP are designed to be implemented and enforced by the Insurance Commissioner of Pennsylvaniait is not our province to usurp the Commissioner's power in this regard by de facto regulation of the insurance industry under the guise of section 8371. See Hardy v. Pennock Ins. Agency, Inc., 365 Pa.Super. 206, 529 A.2d 471, 478 (1987). The UIPA does not create a private cause of action for citizens.[13] The UIPA may only be enforced by the Commissioner, and such enforcement is wholly within the discretion of the Commissioner. Finally, the UIPA attempts to prevent and regulate violations systemic in the insurance industry, as only violations committed "with a frequency that indicated a general business practice" are sanctionable. See 40 Pa. Stat. Ann. § 1171.5(a)(10) (1999); Loos, 476 F.Supp.2d at 494 n. 11. Regulations designed for an industry are inapposite to evaluating an individual episode of alleged bad faith.[14] We write this, however, with the caveat that we are aware of the standards laid out in the UIPA and the UCSP, and have considered the defendant's conduct in light of them. We will now evaluate the conduct of MetLife by the two-prong Terletsky test.
We conclude that Plaintiff has failed to fulfill her burden of proving each element by clear and convincing evidence. Looking to the first prong of the Terletsky test, the evidence establishes that Met-Life's investigation into the fire and beneficiary arrangement was reasonable. After receiving the claims forms from both beneficiaries, MetLife processed the claim, and transferred the funds owed into accounts for Plaintiff and Smirman. A claims processing period of a few weeks is entirely reasonable. When Smirman, the policyholder, questioned the beneficiary arrangement and whether the cause of the house fire was accidental, MetLife acted appropriately by allowing the policyholder a period in which to investigate the arrangement, requesting the fire marshal's report, and promptly notifying the other beneficiary, Plaintiff. We find that delaying the distribution of the proceedswhich MetLife had already transferred into interest bearing accounts for each of the *532 beneficiariespending the resolution of the disputed issues was reasonable.
As for Defendant's conduct after Plaintiff instituted the action in Pike County, we find it reasonable given the circumstances. After Defendant received the report from the fire marshal, it determined that the fire was not suspicious, and attempted to pay out the proceeds by requesting a settlement agreement and release from both beneficiaries. "When there is a dispute as to the money owed, it is reasonable, customary, and prudent for an insurer of anyone to get a release as part of the settlement of the disputed claim." Leab v. Cincinnati Ins. Co., 1997 WL 360903, at *6 (E.D.Pa. June 26, 1997).[15] Likewise, we find that requesting a settlement agreement and release from both beneficiaries to be appropriate when one beneficiary has disputed the beneficiary arrangement and when the other beneficiary has sued the insurer over the proceeds of the policy. See Kubrick v. Allstate Ins. Co., 2004 WL 45489, at *15 (E.D.Pa. Jan. 7, 2004); Kosierowski v. Allstate Ins. Co., 51 F.Supp.2d 583, 593 (E.D.Pa.1999) ("[I]t is not inappropriate for an insurance company to attempt to resolve all claims with one settlement, particularly when there is no indication of an attempt to mislead."); Watson v. Allstate Ins. Co., 28 F.Supp.2d 942, 947 (M.D.Pa.1998); Palucis v. Cont'l Ins. Co., 1998 WL 474108, at *2-3 (E.D.Pa. July 16, 1998). An insurance company need not submerge its interests to that of a beneficiary. See Cowden v. Aetna Cas. & Surety Co., 389 Pa. 459, 134 A.2d 223, 228 (1957). We reject the notion, which plaintiff advances, that Defendant insisted upon a release in order to cover up a bad faith bungling of its handling of this claim. MetLife has affirmatively demonstrated a reasonable basis for its delay in distributing the life insurance proceeds, and thus, summary judgment must be entered for them on Plaintiff's bad faith claim.
We now consider each of Plaintiff's remaining claims. Initially, we note that although Plaintiff alleges five distinct causes of action in addition to the bad faith claim, each is essentially a permutation of the bad faith claim. All claims stem from Plaintiff's dissatisfaction with MetLife's delay in distributing the life-insurance proceeds. To be thorough, we evaluate the claims individually under the governing Pennsylvania law.
II. Breach of Contract Claim
Plaintiff contends that MetLife breached the life insurance contract by delaying payment, which constituted a constructive denial, and by requiring Plaintiff to sign a settlement agreement and release *533 prior to distributing the proceeds. In Pennsylvania, to establish a breach of contract claim, a party must show (1) the existence of a contract, including its essential terms, (2) a breach of duty imposed by the contract, and (3) damages. See Ware v. Rodale Press, Inc., 322 F.3d 218, 225 (3d Cir.2003). An action for breach of an insurance contract does not lie when the policy proceeds have been paid. See Kubrick, 2004 WL 45489, at *9 (E.D.Pa. Jan. 7, 2004); Wiener v. Banner Life Ins. Co., 2003 U.S. Dist. LEXIS 4957, at *25 (E.D.Pa. Feb. 28, 2003). We do not believe that Defendant breached the insurance contract, because MetLife paid the proceeds of the policy.
Plaintiff fails to understand the role she played in this saga by instituting a lawsuit against MetLife one month after Plaintiff submitted her claim form. The purpose of the release that MetLife sent to Plaintiff was to insulate MetLife from potential liability from the pending Pike County litigation. Its purpose was not, as is often the case in accident insurance claims, to settle the value of the claim, see, e.g., Kubrick v. Allstate Ins. Co., 2004 WL 45489, at *5-6 (E.D.Pa. Jan. 7, 2004); Kosierowski v. Allstate Ins. Co., 51 F.Supp.2d 583, 587 (E.D.Pa.1999); Palucis v. Cont'l Ins. Co., 1998 WL 474108, at *1 (E.D.Pa. July 16, 1998); the value of the claim was already established by the face value of the policy. Any delay which occurred in the payment of the proceeds resulted from Plaintiff instituting litigation again MetLife. Furthermore, MetLife did pay the proceeds without requiring the settlement agreement and release. Because the purpose of the release was to settle the pending Pike County litigation and because MetLife did pay Plaintiff the proceeds owed, no breach of contract claim is cognizable, and summary judgment is entered in favor of Defendant.
III. Remaining Claims of Breach of the Covenant of Good Faith and Fair Dealing, Breach of Fiduciary Duty, Negligence, and Negligent Infliction of Emotional Distress
The issue here is which, if any, of the above-referenced claims are barred by Pennsylvania's gist of the action doctrine, which prevents ordinary breach of contract claims from being recast as tort claims. See Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 103-04 (3d Cir.2001); eToll, Inc. v. Elias/Savion Advert., Inc., 811 A.2d 10, 14 (Pa.Super.Ct.2002). In its brief, MetLife contends that all of these claims should be dismissed under the gist of the action doctrine. We agree as to the counts of negligence and negligent infliction of emotional distress, but disagree as to the counts of breach of fiduciary duty and breach of the covenant of good faith and fair dealing.
A. Negligence
The gist of the action doctrine bars tort claims when (1) the tort claim arises solely from the contractual relationship with the parties; (2) the alleged duties breached were grounded in the contract itself; (3) any liability stems from the contract; and (4) the tort claim essentially duplicates the breach of contract claim. Reardon v. Allegheny Coll., 926 A.2d 477, 486 (Pa.Super.Ct.2007). "[A] claim should be limited to a contract claim when the parties' obligations are defined by the terms of the contracts and not by the larger social policies embodied by the law of torts." eToll, Inc., 811 A.2d at 15. Plaintiff contends that these claims should not be barred by the gist of the action doctrine because the defendant's obligations to Plaintiff arise from the larger social policies of the UIPA and the UCSP. The requirements of the UIPA and the UCSP are regulatory in nature, and do not *534 arise to legal duties owed to the plaintiff. See discussion supra I. Any legal duties owed to Plaintiff arise from the parties' relationship of Insurer and Beneficiary, and this relationship is governed by the insurance policya contract. Therefore, summary judgment must be entered in Defendant's favor as to these counts.
B. Good Faith and Fair Dealing
In Pennsylvania, "every contract has an implied term that the parties will perform their duties in good faith." Northview Motors, Inc. v. Chrysler Motors Corp., 227 F.3d 78, 91 (3d Cir.2000); see Restatement (Second) of Contracts § 205. But see Ash v. Cont'l Ins. Co., 932 A.2d 877, 883 n. 2 (2007) (discussing whether the covenant of good faith and fair dealing is implied in every contract in Pennsylvania and declining to settle the issue). A cause of action for breach of the covenant of good faith and fair dealing is not a tort claim. Id. at 883. The duty of good faith and fair dealing is an implied covenant that arises in every contract, and thus, its breach is tantamount to a breach of contract. See id. Therefore, a breach of the duty of good faith and fair dealing is not barred by the gist of the action doctrine.
In order to fulfill its obligation of good faith and fair dealing, an insurer need only "accord the interest of the insured the same faithful consideration it gave to its own interest" and evaluate the case honestly, intelligently, and objectively. Keefe v. Prudential Prop. & Cas. Ins. Co., 203 F.3d 218, 227 (3d Cir.2000). We find that MetLife did give Plaintiff's interest the same consideration as its own. MetLife processed the claim in less than a month from receipt of the claim form, and transferred the proceeds earmarked for Plaintiff into a separate money market account at that time. MetLife immediately communicated to Plaintiff that Smirman disputed the beneficiary arrangement and accidental nature of the fire. MetLife also notified Smirman that Plaintiff was a rightful beneficiary. Finally, MetLife continually requested that Plaintiff sign the release so that it could distribute the funds to Plaintiff. In contrast to these actions, Plaintiff instituted litigation against MetLife one month after the claim was submitted, and ardently refused to sign the release, despite the fact that Plaintiff and MetLife were still adversaries in a pending lawsuit. No evidence presented in either party's briefs supports a finding that MetLife acted less than honestly, intelligently, and objectively in processing Plaintiff's claim. We find that MetLife acted in good faith, and therefore, summary judgment on this count will be entered for them.
C. Fiduciary Duty
The Supreme Court of Pennsylvania recognizes certain circumstances in which an insurer owes a fiduciary duty to an insured. For example, an insurer acts as a fiduciary when it exerts its rights under a policy to handle all claims against the insured or to make a binding settlement. See Birth Ctr. v. St. Paul Cos., 567 Pa. 386, 787 A.2d 376, 389 n. 17 (Pa.2001); Gedeon v. State Farm Mut. Ins. Co., 410 Pa. 55, 188 A.2d 320, 322 (1963). However, "[a]s a general rule, a life insurance company has no fiduciary obligation to the beneficiary; their relationship is solely a matter of contract." Benefit Trust Life Ins. Co. v. Union Nat'l Bank of Pittsburgh, 776 F.2d 1174, 1177 (3d Cir.1985). MetLife has no fiduciary obligation to Plaintiff because the contract at issue is one of life insurance and because the circumstances which the Supreme Court of Pennsylvania have identified as giving rise to a fiduciary relationship are not present here. Therefore, summary judgment is granted in favor of MetLife.
*535 D. Negligent Infliction of Emotional Distress
To state a claim for negligent infliction of emotional distress, a plaintiff must allege that she is foreseeable and that she suffered a physical injury as a result of the defendant's negligence. Armstrong v. Paoli Mem'l Hosp., 430 Pa.Super. 36, 633 A.2d 605, 609 (1993). Such claims will lie in four circumstances: (1) where the plaintiff suffered a physical injury and consequently experiences psychological and emotional pain and suffering; (2) where the plaintiff observed injury to a close family member and is as a consequence of the shock emotionally distressed; (3) where the plaintiff nearly experiences a physical impact in that he was in the zone of danger of the defendant's tortious conduct; or (4) where a contractual or fiduciary duty exists. Clay v. Option One Mortgage Corp., 2007 WL 2728972, at *5 (E.D.Pa. Sept. 18, 2007) (citing Armstrong, 633 A.2d at 609, 615); Brown v. Philadelphia Coll. of Osteopathic Med., 449 Pa.Super. 667, 674 A.2d 1130, 1134-35 (1996). Because the MetLife does not stand in a fiduciary capacity to Plaintiff, see supra III.C, any duty owed to Plaintiff must be contractual, and arise from the insurance contract. Thus, Plaintiff's claim for negligent inflection of emotional distress is barred by the gist of the action doctrine.
Conclusion
Viewing the evidence in the light most favorable to Plaintiff, we find that Plaintiff has failed to raise a genuine issue of material fact, and has failed to proffer evidence to support a dispute of material fact. As we have discussed at length in this memorandum, weighing the uncontradicted evidence presented, we find that Defendant is entitled to summary judgment on all counts contained in Plaintiff's complaint. An appropriate order follows.
ORDER
AND NOW, this 21st day of December, 2007, IT IS HEREBY ORDERED THAT:
1. Defendant's motion for summary judgment on all counts of Plaintiff's complaint is GRANTED;
2. Judgment is hereby entered in favor of Defendant and against Plaintiff;
3. Third-party defendant Todd H. Smirman is DISMISSED from this case;
4. The Clerk of Court is directed to CLOSE this case.
NOTES
[1] The matter in controversy exceeds the sum of $75,000, exclusive of interest and costs, and arises between citizens of different states. MetLife is a citizen of New York because it is a corporation organized and existing under the laws of the state of New York, and it has its principal place of business in New York, New York. Plaintiff is a citizen of Pennsylvania.
[2] Neither party disputes that Pennsylvania law applies to this action. We apply the choice-of-law rules of the state in which the district court sits when federal jurisdiction is based on diversity of citizenship. See St. Paul Fire & Marine Ins. Co. v. Lewis, 935 F.2d 1428, 1431 n. 3 (3d Cir.1991) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). Under Pennsylvania choice-of-law rules, an insurance contract is governed by the law of the state in which the contract was made. McMillan v. State Mut. Life Assurance Co. of Am., 922 F.2d 1073, 1074-75 (3d Cir.1990); Crawford v. Manhattan Life Ins. Co., 208 Pa.Super. 150, 221 A.2d 877, 880 (1966).
[3] Relevant portions of the letter are as follows:
"I am shocked to hear that a portion of the insurance monies are being disbursed to Mrs. Oehlmann . . . . Based on conversation with Jackie Savage, it is my understanding that the owner and beneficiary of the subject policy is Todd H. Smirman. I have enclosed a copy of the Quick Quote Summary from your office for your review. Mr. Smirman disputes that Ms. Oehlmann has any entitlement to the subject policy. Further, an investigation of this tragic event is ongoing as circumstances were suspicious."
(Doc. 32-3 at 1.) Smirman's attorney again raised these issues in a follow-up letter to MetLife dated August 15, 2005:
"[T]he circumstances surrounding the fire, resulting in the death of my client's children, were suspicious and it is my understanding that the cause remains under investigation by the Fire Marshal. Of course, it gives my client great concern regarding the distribution of proceeds until an investigation has been completed and we have received a report from same. However, based upon your correspondence, it seems that your company would be comfortable releasing the proceeds absent an order of court directing otherwise. My client is still contemplating same."
(Doc. 32-5 at 1.)
[4] Relevant portions of the letter are as follows:
"We have been contacted by Attorney Kelly Gaughan on behalf of Todd Smirman, questioning the beneficiary arrangements on this policy. We have advised Attorney Gaughan that although Todd Smirman was the policy owner, the beneficiaries are Todd Smirman and JoAnne Oehlmann. Currently we are holding the Total Control Account checkbooks to allow Attorney Gaughan time to review the beneficiary designation. Your patience is appreciated."
(Doc. 32-4 at 1.)
[5] Upon defense counsel's request, Plaintiff's former counsel discontinued the Pike County litigation without prejudice on August 28, 2006.
[6] According to the court's case-action memorandum of October 12, 2006, we recommended that counsel work to dismiss third-party defendant Smirman from this action. (Doc. 9). According to Plaintiff's counsel's letter of November 14, 2006, Plaintiff's counsel was to file a notice dismissing Smirman from the action. (Doc. 32-19 at 1). No such notice is reflected in the docket. Accordingly, to reflect the understanding of the parties, we shall dismiss Smirman as a party from this litigation in the attached order.
[7] In the release, Smirman also took responsibility for the delay in the payment of the proceeds. After receiving the release, MetLife sent Smirman his account checkbook.
[8] As support for Plaintiff's Brief in Opposition to Defendant's Motion for Summary Judgment, Plaintiff submitted an expert opinion regarding standard insurance claims practices. We have read and considered the expert opinion, however we find that the expert opinion does not create a dispute of material fact in this matter.
[9] Section 8371 provides:
In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:
(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the insurer.
42 Pa. Cons.Stat. Ann. § 8371 (West 2007).
[10] The Supreme Court of Pennsylvania recently recognized this issue, but saved its resolution for another day:
The first question concerns the role that the UIPA may play in a trial of a bad faith claim. Even though it is the Insurance Commissioner who enforces the statute, there are Superior Court decisions that conclude that an insured may ask the court to consider whether an insurer's violations of the UIPA are evidence that an insurer acted in bad faith under § 8371 in handling a claim. See, e.g., Romano v. Nationwide Mutual Fire Ins. Co., 435 Pa.Super. 545, 646 A.2d 1228 (1994) (holding that the insured may make reference to a section in the UIPA to illustrate its insurer's bad faith behavior for refusing to pay a loss.) But see Parasco v. Pacific Indem. Co., 920 F.Supp. 647 (E.D.Pa.1996) (explaining that the insured's references to sections of the UIPA that cover unfair claim or settlement practices if committed with such frequency as to indicate a business practice do not show that the insurer should be liable under § 8371 for wrongfully failing to defend or settle in a particular case).
Toy v. Metro. Life Ins. Co., 928 A.2d 186, 200 n. 17 (Pa.2007); see also UPMC Health System v. Metro. Life Ins. Co., 391 F.3d 497, 505 (3d Cir.2004) (noting that the Supreme Court of Pennsylvania has not stated whether conduct that violates the UIPA constitutes bad faith for section 8371 claims).
[11] But see MacFarland v. United States Fid. & Guar. Co., 818 F.Supp. 108 (E.D.Pa.1993) (holding that the alleged conduct constituting violations of the UIPA and the regulations can be considered in determining whether the insurer acted in bad faith under section 8371); Rottmund v. Cont'l Assurance Co., 813 F.Supp. 1104 (E.D.Pa. 1992) (holding that courts may look to other statutes upon the same or similar subjects to define bad faith under section 8371); Coyne v. Allstate Ins. Co., 771 F.Supp. 673 (E.D.Pa.1991) (holding that provisions of the UIPA can be utilized to describe conduct constituting bad faith). We note, however, that all of these cases occurred prior to the Superior Court's test in Terletsky, which was announced in 1994.
[12] See also O'Donnell v. Yanchulis, 875 F.2d 1059, 1063 (3d Cir.1989); Goodwin v. Elkins & Co., 730 F.2d 99, 110 n. 23 (3d Cir.1984); Connecticut Mut. Life Ins. Co. v. Wyman, 718 F.2d 63, 65-66 (3d Cir.1983); Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165, 1167 (3d Cir. 1981); Plummer v. Lederle Labs., 819 F.2d 349, 355 (2d Cir. 1987); Green v. J.C. Penney Auto Ins. Co., 806 F.2d 759, 761 (7th Cir.1986) ("Intermediate [state] appellate court cases are useful but not binding evidence of what the [state] Supreme Court would do").
[13] Although persons aggrieved by an insurance company's alleged violations of the UIPA may not bring a legal cause of action, an aggrieved person may request that the Department of Insurance review the act in question to determine whether it warrants an administrative hearing. See Hardy, 529 A.2d at 478 (discussing the administrative review process outlined in J.C. Penney Cas. Ins. Co. v. Pennsylvania Dep't of Ins., 43 Pa.Cmwlth. 360, 402 A.2d 558 (1979)).
[14] For example, we note that the conduct of an insurer towards a single insured could be egregious enough to constitute bad faith under 8371, but not sanctionable under the UIPA/UCSP framework because the conduct which gave rise to the bad faith was not committed frequently enough to indicate a general business practice. On the other hand, an insurer could have shoddy business practices systemically (such as continually failing to respond timely to correspondence from policyholders or continually failing to complete timely an investigation), which would not rise to bad faith to one policyholder. See Heinlein v. Progressive N. Ins. Co., 2007 WL 2071676, at *4 n. 3 (W.D. Pa. July 17, 2007).
[15] In Hayes v. Harleysville Mut. Ins. Co., 841 A.2d 121 (Pa.Super.Ct.2004), the Superior Court of Pennsylvania found that an insurer acted in bad faith when it required the insured to sign a settlement agreement and release for the claim and the potential bad faith claim in order to receive the value of the underinsured motorist claim. Hayes involved an insurance company misrepresenting the value of the policy coverage and failing to disclose documents which represented the true value of the coverage. Id. at 127.
While we agree with the outcome in Hayes given the facts of that case, it does not apply to the facts of this case, and we must look to the facts of each situation to determine whether the insured's conduct was reasonable. Hayes involved underinsured motorist coverage, specifically, how much the insurer was required to pay under the terms of the policy. The face value of the life-insurance policy is not disputed in the instant case. Instead, the proceeds of the policy were disputed by the beneficiaries. Furthermore, unlike the plaintiff in Hayes, the instant plaintiff filed suit against MetLife one month after she submitted the claim form. These differences alter whether the insurance company's actions were reasonable. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1695140/ | 426 So.2d 631 (1982)
Don SPIERS d/b/a Don Spiers Realty
v.
Edward SEAL and Clyde Seal.
Patrinia M. SCIANNA and John Scianna
v.
Clyde SEAL, Edward Seal and Seal Lumber Company.
Nos. 82 CA 0146, 82 CA 0147.
Court of Appeal of Louisiana, First Circuit.
November 16, 1982.
Rehearing Denied February 17, 1983.
Writs Denied April 15, 1983.
*632 John N. Gallaspy, Bogalusa, for plaintiffs.
M. Reggie Simmons, Franklinton, for defendants.
Before EDWARDS, WATKINS and SHORTESS, JJ.
WATKINS, Judge.
These are two cases which were consolidated for trial and are now consolidated for purposes of appeal.
We will discuss only the demands that are the subject of the present appeal. In No. 82 CA 0147 Patrinia M. Scianna and her major son, John S. Scianna, brought suit for specific performance of a contract to sell allegedly entered into by Seal Lumber Company, Inc., damages from Seal Lumber Company, failure of Seal Lumber Company to comply with the alleged contract to sell, or alternatively, damages from Edward Seal and Clyde Seal for failure to comply with the alleged contract, and attorney's fees from the parties cast in judgment. In No. 82 CA 0146, Don Spiers, d/b/a Don Spiers Realty, seeks a commission of $3,000.00 from Edward Seal and Clyde Seal for work in obtaining an alleged contract to sell which the Seals allegedly failed to perfect into an actual sale. The trial court awarded $3,000.00 commission in favor of Don Spiers Realty but denied the Sciannas' *633 demands for specific performance, damages and attorney's fees. In No. 82 CA 0147 the Sciannas appealed, and in No. 82 CA 0147 Edward and Clyde Seal appealed. We affirm the action of the trial court in awarding a commission in the sum of $3,000.00 in favor of Don Spiers Realty, but also hold that the Sciannas are entitled to specific performance.
Seal Lumber Company, Inc., was founded by the father of the brothers Edward and Clyde Seal. Upon their father's death, Edward and Clyde Seal became sole shareholders, directors and officers of Seal Lumber Company, Inc., and at all times pertinent to the case they were sole stockholders, directors and officers of Seal Lumber Company, Inc., with Edward Seal as president and Clyde Seal as secretary and treasurer.
It has been stipulated that all of the instruments given below which were introduced at the trial as exhibits dealt with the same property, although under different descriptions. Suffice it for present purposes to say that the property in question was owned by Seal Lumber Company, Inc., and consisted of approximately 26 acres on South Columbia Street near Bogalusa, Louisiana.
The five exhibits which are pertinent to our discussion are as follows:
Stipulated Exhibit # 1. Listing agreement dated January 18, 1978, listing the said property with Georgia Spiers of Spiers Realty over the signature of Clyde Seal on the line provided for "Owner's Signature". The total requested sales price is given as $44,600.00 and a 10% realtor's commission is provided for.
Stipulated Exhibit # 2. Letter signed by Edward Seal, under which signature is typed "Edward W. Seal, Pres., Seal Lumber Co., Inc.", dated March 22, 1979, addressed to Don Spiers Realty Co., offering the whole property for sale for a price of $60,000.00, or fractional portions thereof for lesser sums. The letterhead reads "Seal Lumber Company, Inc., Lumber-Paints Building Materials, Bogalusa, Louisiana 76427". The offer states it is to remain in effect for six months from date of the letter.
Stipulated Exhibit # 3. Listing agreement dated March 22, 1979, listing property with "Georgia" of Don Spiers Realty, over the signature of Edward Seal on the line provided for "Owner's Signature". The total requested sales price is given as $60,000.00 and a 10% realtor's commission is provided for.
Stipulated Exhibit # 4. Instrument captioned "Agreement to Purchase" dated "3/23, 1979" beginning on line one with the words "I/We offer and agree to purchase" followed by a description of the property in question. A realtor's commission of 5% is provided for. The instrument recites that the "offer" is to remain open until "3/25/79" and is signed by Patrinia M. Scianna and John S. Scianna. Below the Sciannas' signatures is a line stating "I/We accept the above in all its conditions" followed by the signatures of Clyde Seal and Edward Seal. Opposite the signatures is written "3/27, 1979".
Stipulated Exhibit # 5. Letter from John N. Gallaspy, attorney for Patrinia M. Scianna and John S. Scianna, dated April 24, 1979, addressed to Edward Seal and Clyde Seal stating that pursuant to the Purchase Agreement (Stipulated Exhibit # 4) his clients are prepared to accept title to the property on either April 26, 1979, at 11:00 a.m. or April 28, 1979, at 11:00 a.m. at Mr. Gallaspy's office in Bogalusa.
The record reveals that the Seals never appeared to transfer title to the property in question. Clyde Seal's testimony is that they decided not to transfer title to the Sciannas because: "We just decided it was kind of a bad deal...."
However, we find that by this time by virtue of Stipulated Exhibits # 's 2, 3, and 4, a binding contract had been perfected between Patrinia M. Scianna and John C. Scianna on the one hand and Seal Lumber Company, Inc., on the other hand, which constituted a contract to sell, and required that Seal Lumber Company, Inc., proceed with a transfer of title to the Sciannas. The corporate officers of Seal Lumber Company, *634 Inc. were not free to change their minds because of the binding nature of the contract.
Stipulated Exhibits # 's 2, 3, and 4 were the product of negotiations between Seal Lumber Company, Inc., and the Sciannas in which Don Spiers Realty acted as an intermediary. Stipulated Exhibit # 's 2 and 3 were clearly intended, the record reveals, to be an offer to the world in general, and the Sciannas in particular, to sell the property in question for $60,000.00 with a 10% realtor's commission. The offer was made on behalf of Seal Lumber Company, Inc. as Edward Seal signed Stipulated Exhibit # 2 as President of Seal Lumber Company, Inc., under the letterhead of Seal Lumber Company, Inc.
Stipulated Exhibit # 4, styled "Agreement to Purchase", clearly constitutes an acceptance by the Sciannas of the offer made by Seal Lumber Company, Inc. to sell the property for $60,000.00. The Agreement to Purchase begins "I/We offer and agree to purchase ..." the property in question. The purchase price is given as $60,000.00. The instrument is signed by Patrinia M. Scianna and John S. Scianna. The execution of the instrument by the Sciannas embodies an acceptance by virtue of the very terms of the instrument itself ((W)e ... agree to purchase....") of the offer made by Seal Lumber Company, Inc. to sell the property for $60,000.00.
However, even if we construe the instrument to constitute on its face an offer to purchase for $60,000.00, rather than an acceptance of an offer to sell at that price, we see that the instrument must be legally construed as an acceptance. An offer to sell at a certain price followed by an offer to buy at a price more favorable to the seller, causes a contract to be completed at the seller's price, under the provisions of LSA-C.C. art. 1807, which reads as follows:
"When, however, from the circumstances of the case, the offer necessarily implies an assent to the modification of the acceptance, then the obligation is complete, although there be a difference in terms between the one and the other. If, for example, one offers to sell a certain article for one hundred dollars, and the other, not having yet received the offer, should on his part propose to give two hundred dollars, the proposal to give the greater sum necessarily implies an assent to take it for a less, and the contract is complete at the lowest sum."
If an offer of the buyer to purchase at a higher price than the price set by the seller in his offer to sell completes a contract (at the seller's price), then also an offer to purchase at the same price as that set by the seller in his offer to sell completes a contract. Even when cross offers are made on the same terms, so that there is no knowledge on the part of the parties making the original offers of the offer of the other party, under the Civilian tradition which Louisiana follows in this aspect of the law, there is a contract, because (1) there is a concurrence of wills and (2) the law favors the formation of contracts. See Litvinoff, Offer and Acceptance in Louisiana Law: A Comparative Analysis: Part IIAcceptance, 28 La.L.Rev. 153, 201 (1968). In the present case, applying this analysis we see that there was a mutually expressed concurrence of wills on the part of Seal Lumber Company and the Sciannas, that the property be sold by Seal Lumber Company and purchased by the Sciannas for the sum of $60,000.00.
We construe the Sciannas' "Agreement to Purchase" as constituting an acceptance of the offer contained in Seal Lumber Company's letter to sell for $60,000.00. Furthermore, under LSA-C.C. art. 1807, even if the "Agreement to Purchase" constitutes an offer, it conforms to the price set by the offer made by Seal Lumber Company, Inc. and thus a binding contract was formed.
The offer made in Stipulated Exhibit # 2 signed by Edward Seal as the designated President of Seal Lumber Company, Inc. was not supported by any resolution of the board of directors of Seal Lumber Company, Inc., written or verbal. As a general rule, a mandate authorizing an agent (officer) to buy or sell immovable *635 property must be express and in writing. LSA-C.C. art. 2997; Centanni v. A.K. Roy, Inc., 258 So.2d 219 (La.App. 4th Cir.1972); Tchoupitoulas, Inc. v. McCullough, 349 So.2d 346 (La.App. 4th Cir.1977), writ refused 351 So.2d 166 (1977). However, if a corporation is seeking to avoid an instrument conveying immovables confected by an agent (officer) clothed with the apparent authority to bind the corporation executing that instrument, and an innocent purchaser relies upon that apparent authority, the corporation is bound by the conveyance for the reason that the innocent purchaser cannot be permitted to be misled by a corporate officer that the corporation permits to hold himself out as acting with full authority. See Ideal Savings & Homestead Ass'n. v. Kerner, 208 La. 513, 23 So.2d 200 (1945). The apparent authority doctrine is obviously an exception to the general rule requiring that there must be an express written resolution of the board of directors authorizing the corporate officer to execute an instrument buying or selling immovables. In the present case, Edward Seal did not act under the express authority of a written resolution of the board of directors of Seal Lumber Company, Inc. However, he was clothed with the apparent authority to make an offer to sell the tract in question for the reason that he used the Seal Lumber Company, Inc. letterhead in that offer, and signed the letter in his apparent authority as corporate president. Furthermore, the sole two shareholders, Edward Seal and Clyde Seal, verbally held themselves out throughout the negotiations with Spiers Realty and indirectly the Sciannas as making an offer to sell on behalf of Seal Lumber Company, Inc. A more classic case of apparent authority could not exist.
It is true that the Agreement to Purchase executed by the Sciannas which constituted an acceptance of the offer contained in Stipulated Exhibit # 2, incorrectly described the tract in question as "belonging to Clyde & Edward Seal". However, the parties have stipulated that all the instruments in question describe the same property, and thus, any flaw in the description is of no moment. Furthermore, the incorrect description appears to have been entered in the handwriting of Mary W. Crain, agent of Spiers Realty, and not to be the result of any action on the part of the Sciannas or Edward or Clyde Seal.
The signatures of Edward Seal and Clyde Seal appear opposite the date 3/27/79 in the Agreement to Purchase. A contract to sell had already been confected by that time by virtue of the offer contained in Stipulated Exhibits # 's 2 and 3 and the acceptance that took place when the Sciannas signed the Agreement to Purchase on 3/23/79. Thus, the only possible legal significance of the affixing of the Seals' signatures to the Agreement to Purchase is that that act constitutes further support for the contract to sell already confected. Corporate shareholders of a corporation having but two shareholders may informally but in writing authorize (ratify) the execution of an option agreement after it is in fact executed by one of the two shareholders. Greenleaf Plantation, Inc. v. Kieffer, 403 So.2d 100 (La.App. 3d Cir.1981), writ refused 409 So.2d 675 (1981). Similarly, obviously the execution of a contract to sell may be informally authorized (ratified) in a writing subsequent to the execution of the contract to sell. Thus, the contract to sell acquired an additional support to its formation.
The Agreement to Purchase contains terms not in the Seal Lumber Company letter (stipulated Exhibit # 2), but these terms are either statements of existing law, inapplicable to the proposed transaction, or more favorable to Seal Lumber Company, Inc., than the terms of Stipulated Exhibit # 2. Thus, the differences are either legally irrelevant or fall under the general rule of LSA-C.C. art. 1807 finding a contract to be formed when the buyer offers to buy at a price more favorable to the seller than that contained in the offer to sell.
We, therefore, find that a binding contract to sell was perfected, and herein direct specific performance of the same.
On trial of the merits, counsel for the Sciannas stated he sought damages only *636 in the alternative. The pleadings pray for damages in addition to specific performance. Even if the demand for damages is not considered to be in the alternative, we find damages are not sufficiently proven. The Sciannas desired the property to build an ice plant. Expert witnesses testified to the increased cost of constructing an ice plant on the property because of the delay in transferring title. The testimony of the experts, however, was based solely upon plans prepared long after the mailing of the letter from Mr. Gallaspy calling for Seal Lumber Company, Inc. to transfer title. Thus the plans appear to have been an afterthought, and the cost of the ice plant at the time when the transfer of title was demanded by Mr. Gallaspy is too much a matter of conjecture to be a basis for the award of damages.
No mention is made of attorney's fees in brief before the court. Neither the contract to purchase nor any statute requires attorney's fees in the present situation. Attorney's fees are therefore denied. See Roberie v. Sinclair Refining Company, 252 So.2d 488 (La.App. 3d Cir.1971); Walters Air Condition Co. v. Firemen's Fund Ins. Co., 252 So.2d 919 (La.App. 2d Cir. 1971).
We find that Spiers Realty Company is entitled to the commission of $3,000.00 as awarded by the trial court. Because we order specific performance of the contract to sell, a commission is in order. The Agreement to Purchase calls for a commission of 5% of $60,000.00 or $3,000.00. The listing agreement calls for a commission of 10%. Spiers Realty prayed for a commission of 5%, which was awarded by the trial court. Spiers Realty has not answered the appeal. We affirm the action of the trial court in awarding a commission of $3,000.00.
Accordingly, judgment is rendered requiring specific performance. Because an exact property description is not in evidence, we remand the matter to the trial court to formulate a decree embodying the correct property description and ordering the transfer of title to the property in question from Seal Lumber Company, Inc. to Patrinia M. Scianna and John S. Scianna for a price of $60,000.00.
In all other respects the judgment of the trial court is affirmed. All costs shall be paid by Seal Lumber Company, Inc. in No. 82 CA 0147 and by Edward Seal and Clyde Seal in No. 82 CA 0146.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/810736/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1487
WILSON WORKS, INC., a West Virginia Corporation,
Plaintiff - Appellant,
v.
GREAT AMERICAN INSURANCE GROUP; GREAT AMERICAN E&S INSURANCE
COMPANY; COLUMBIA CASUALTY COMPANY, d/b/a CNA; NATIONAL
UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA; THE
TRAVELERS INDEMNITY COMPANY; TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA; TRAVELERS GROUP; THE CHARTER OAK FIRE
INSURANCE COMPANY,
Defendants - Appellees,
and
WELLS FARGO INSURANCE SERVICES; AMERICAN INTERNATIONAL
GROUP, INC.; AMERICAN INTERNATIONAL COMPANIES, d/b/a AIG,
Defendants.
Appeal from the United States District Court for the Northern
District of West Virginia, at Clarksburg. John Preston Bailey,
Chief District Judge. (1:11-cv-00085-JPB-JES)
Submitted: October 5, 2012 Decided: October 23, 2012
Before WILKINSON, DAVIS, and DIAZ, Circuit Judges.
Affirmed by unpublished per curiam opinion.
S. Sean Murphy, LAW OFFICES OF S. SEAN MURPHY, LC, Morgantown,
West Virginia, for Appellant. John A. Smith, FLAHERTY
SENSABAUGH BONASSO PLLC, Charleston, West Virginia; Stephen J.
Dalesio, SWARTZ CAMPBELL, LLC, Pittsburgh, Pennsylvania, for
Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Wilson Works, Inc. brought suit against its insurers
seeking a declaratory judgment that they are obligated to defend
it in an action filed against it by Walhonde Tools, Inc. The
district court granted the insurers’ motions for summary
judgment, and Wilson Works now appeals. We have reviewed the
record and find no reversible error. Accordingly, we affirm.
In 2009, Walhonde Tools filed suit against Wilson
Works, alleging patent infringement, tortious interference with
business relations, and conspiracy to interfere with business
relations, based on Wilson Works’ alleged manufacture, sale, and
marketing of tools that infringe Walhonde Tools’ patent. Wilson
Works argues that the infringement was an “accident” — that in
fulfilling custom orders it was deceived by its clients into
manufacturing infringing tools.
In 2011, Wilson Works filed suit against several
insurers through which it maintained commercial liability
policies, seeking a declaration of their duty to defend. The
insurers moved for summary judgment, and the district court
granted their motions. The district court first looked to
Walhonde Tools’ complaint, and found that it stated claims for
patent infringement, tortious interference with business
relations, and conspiracy to interfere with business relations.
The district court then looked to the various policies, and
3
found that they did not cover injuries arising from intentional
torts and patent infringement. While the policies covered
“property damage” caused by an “occurrence,” the district court
found that “occurrences” are “accidents,” necessarily excluding
intentional torts, and that “property damage” is limited to
physical injury to or loss of use of tangible property, thereby
excluding damage to intangible property like patents. The
policies also provided coverage for “advertising injuries,” but
this explicitly excluded intentional tort-based injuries, and
excluded patent infringement-based injuries either explicitly or
implicitly via the notable absence of the word “patent” from the
list of covered offenses. Finally, certain policies did not
provide coverage because Walhonde Tools’ alleged injuries
occurred outside of the policy periods. Wilson Works timely
appealed.
We review the district court’s grant of summary
judgment de novo. Temkin v. Frederick Cnty. Comm’rs, 945 F.2d
716, 718 (4th Cir. 1991). Summary judgment shall be granted if
the movant shows that there is no genuine issue of material fact
and that it is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(a). The movant initially bears the burden of showing
the absence of any genuine issue of material fact; then the
burden shifts to the nonmovant to present facts sufficient to
create a triable issue. Temkin, 945 F.2d at 718. A party
4
opposing or asserting the existence of a genuine issue of
material fact must support its position by citing to particular
parts of materials in the record, including depositions,
documents, affidavits, stipulations, admissions, and answers to
interrogatories. Fed. R. Civ. P. 56(c).
In a diversity action, state law controls the
construction of an insurance policy. Nationwide Prop. & Cas. v.
Comer, 559 F. Supp. 2d 685, 690 (S.D. W. Va. 2008). Here, there
is no dispute that West Virginia law governs construction of the
policy. Under West Virginia law, an insurer has a duty to
defend only if the claim stated in the underlying complaint
could, without amendment, impose liability for risks that the
insurance policy covers. W. Va. Fire & Cas. Co. v. Stanley, 602
S.E.2d 483, 490 (W. Va. 2004). In determining coverage, the
insurer must look beyond the bare allegations in the underlying
complaint and conduct a reasonable inquiry into the facts to
determine whether the claims might be interpreted as falling
within the scope of coverage. State Auto. Mut. Ins. Co. v.
Alpha Eng’g Servs., Inc., 542 S.E.2d 876, 879 (W. Va. 2000).
The policies at issue provide coverage for “property
damage” caused by “occurrences,” and for “advertising injury.”
On appeal, Wilson Works asserts that the district court erred in
constraining its coverage determination to the four corners of
Walhonde Tools’ complaint. Wilson Works argues that had the
5
district court followed West Virginia law and conducted a
reasonable inquiry into the facts, it would have found that
there was an occurrence, that Wilson Works’ actions were
accidental, and that Walhode Tools’ injuries are property damage
covered by the insurance policies.
However, the district court applied the appropriate
standard and correctly concluded that the insurers have no duty
to defend Wilson Works in the Walhonde Tools action. First, the
district court properly looked beyond Walhonde Tools’ bare
allegations and determined that its claims could not reasonably
be interpreted as falling within the scope of coverage. The
court’s opinion specifically cites to materials in the record
other than Walhonde Tools’ complaint, and includes the very same
standard that Wilson Works proposes. Second, the district court
correctly concluded that the insurance companies have no duty to
defend Wilson Works against Walhonde Tools’ claims. Its
conclusions that patent infringement is not damage to physical
property, intentional torts are not occurrences or accidents,
both types of claims are affirmatively excluded from coverage,
and in some cases Walhonde Tools’ alleged injuries did not occur
within the policy period, are unassailable. Accordingly, the
district court properly granted summary judgment in the
insurers’ favor.
6
Based on the foregoing, we affirm the judgment of the
district court. 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
7 | 01-03-2023 | 10-23-2012 |
https://www.courtlistener.com/api/rest/v3/opinions/8326567/ | Long, Keith C., J.
Introduction
Plaintiff Harvard College has a loan program which it offers certain faculty members to assist them in purchasing homes. It made such a loan to Anita Berizbeita (a newly-hired professor at its Graduate School of Design) and her husband Luis, who used its proceeds, along with a smaller loan from NE Moves and their own funds, to purchase the property at 410 Lexington Road in Concord.*
*602The Berizbeitas purchased the home from Peter and Lee Ann Bagley, who were small business owners in considerable financial difficulty.1 As a result of these difficulties, the Concord property was encumbered by a number of mortgages and liens. Harvard wanted its mortgage to be in second position, subordinate only to the NE Moves mortgage, and a title search was performed to determine what other liens existed on the property. What Harvard believed to be all of those obligations were tracked down and satisfied, many for less than face value because their total allegedly exceeded the property’s fair market value. One such lien, however, was missed—a prejudgment attachment in the amount of $182,212.50 in favor of defendants Robert Michaud and Squamscott Press, Inc., arising from a business debt allegedly owed the defendants by the Bagleys. The case in which the attachment was granted, Squamscott Press et al. v. Bagley, Middlesex Superior Court Civil Action No. 09-4315, has still not gone to judgment.
Harvard’s complaint seeks the discharge of defendants’ attachment, arguing that it was “valueless” at the time of the sale (it sat fourth after the mortgages and liens that were paid or discharged) or, in the alternative, to have the attachment “equitably subrogated” to Harvard’s mortgage. The defendants deny that their attachment should be discharged and have asserted a counterclaim arguing that Harvard violated G.L.c. 93A, §11 by not discovering and paying their attachment at or before the time of the closing.2 Harvard has moved to dismiss defendants’ counterclaim pursuant to Mass.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. Because G.L.c. 93A claims are outside the Land Court’s subject matter jurisdiction, the claim was transferred to Superior Court and I was interdepartmentally assigned to hear and resolve it.3 For the reasons set forth below, Harvard’s motion is ALLOWED and defendants’ G.L.c. 93A counterclaim is DISMISSED in its entirety, WITH PREJUDICE.
Standard of Review
A motion to dismiss for failure to state a claim upon which relief can be granted is governed by Mass.R.Civ.P. 12(b)(6). With certain exceptions not applicable here,4 all well-pleaded non-conclusory factual allegations by the claimant are accepted as true, as well as all reasonable inferences from these facts. In addition:
While a complaint attacked by a . . . motion to dismiss does not need detailed factual allegations ... a plaintiffs obligation to provide the “grounds” of his “entitle[ment] to relief’ requires more than labels and conclusions . . . Factual allegations must be enough to raise a right to relief above the speculative level... [based] on the assumption that all allegations in the complaint are true (even if doubtful in fact). What is required at the pleading stage are factual allegations plausibly suggesting (nor merely consistent with) an entitlement to relief, in order to reflect the threshold requirement of [Fed.R.Civ.P.] 8(a)(2) that the plain statement possess enough heft to sho[w] that the pleader is entitled to relief.
Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008), quoting from Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1969 (2007). The question then becomes whether these facts state a viable claim as a matter of law.
As noted above, defendants allege that Harvard failed to discover and pay off their attachment at or before the time of closing; the question to decide is whether that failure constitutes an “unfair method of competition” or an “unfair or deceptive practice” in the context of any trade or commerce. G.L.c. 93A, §2(a); G.L.c. 93A, §11.1 find that it does not.
Analysis
Defendants’ counterclaim charges plaintiff with violating G.L.c. 93A by not discovering and paying off the attachment, and with engaging in willful and knowing conduct in so doing. G.L.c. 93A, §11 liability requires “. . . unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”5 Because “unfair” and “deceptive” are not defined under the statute, courts “focus on the nature of [the] challenged conduct and on the purpose and effect of that conduct as the crucial factor in making a G.L.c. 93A fairness determination.” Mass. Employer Insurance Exchange v. Propac-Mass, Inc., 420 Mass. 39, 43 (1995) (holding that unilateral, self-serving conduct undertaken as leverage to destroy the rights of another amounts to an unfair act or practice under G.L.c. 93A). Moreover, courts also consider criteria under the Federal Trade Commission Act, 14 U.S.C. §45(a)(l)(1976). For example, the court in Levings v. Forbes & Wallace, 8 Mass.App.Ct. 498, 504 (1979), looked for conduct that was (1) within “at least the penumbra of some common-law, statutory, or other established concept of fairness; (2) . . . [was] immoral, unethical, oppressive, or unscrupulous . . .” 29 Fed. Reg. 8325, 8355 (1964) (holding that there was no G.L.c. 93A§11 violation where the purchase order contained no price, the buyer intended to pay for the reasonable value of the work performed, and he offered to pay more than half the amount of the bill it was tendered).
Harvard argues that G.L.c. 93A does not apply because its loan program is part of its educational activities and not “trade or commerce.” I am dubious of that argument. See Planned Parenthood Fed’n of Am., Inc. v. Pregnancy of Worcester, Inc., 398 Mass. 480, 492-93 (1986) (holding that an entity’s status as a charitable corporation is not itself dispositive of the issue of whether c. 93A applies). Its transaction with the Berizbeitas is a loan and mortgage after all, one of many made by Harvard on which it expects to make at least some measure of return, and the fact that it *603is allegedly part of an overall compensation package does not change that. Surely Harvard would not argue that allowing favored faculty members to invest in a fund it managed—an opportunity offered as part of their compensation package—would insulate Harvard from 93A claims if there were material misrepresentations or other misconduct in connection with such investments. See Bakis v. Nat’l Bank of Greece, No. 92-1561, 1998 Mass.Super.Lexis 731 (Mass.Super.Ct. Dec. 15, 1998). And surely Harvard would not argue that its faculty member could not bring a 93A action against it if there was fraud or deceit involved in the terms of the mortgage. Just because the loan and its associated mortgage are a “benefit” does not change their essential nature—an arm’s length transaction, reflected in detailed note and mortgage documents giving Harvard the right to take legal action if their terms are breached.
But I need not decide whether the loan and mortgage were made within the scope of “trade and commerce” because there is an independent, more fundamental reason why Harvard has no 93A liability to the defendants on the facts as alleged. That is because it is not an “unfair or deceptive” act to fail to pay off an existing encumbrance when a new loan is made secured by the same property, nor even to fail to give notice to existing lienholders of new (and, by law, subordinate) mortgages. G.L.c. 183, §4. Contrary to defendants’ argument, which contemplates a notice requirement akin to that found in foreclosure proceedings, a new lender (e.g. Harvard) simply has no duty or responsibility to do so. Under G.L.c. 244, §14, for example, a mortgagee has a good faith obligation to “secure and protect the interests of the mortgagor, the owner of the equity of redemption and junior lienors.” Bon v. Graves, 216 Mass. 440, 446 (1914); see also Citizens Bank of Mass. v. O’Connell, 15 LCR56 (2007) (holding that a lender must pay the junior lienholder damages to make it whole where the foreclosing lender failed to provide a junior lienholder with notice of the sale). But here, Harvard did not foreclose on the Concord property and, in the context of its role as lender and mortgagee, maintained a duty only to the borrowers, Luis and Anita Berizbeita. See Bank Boston, N.A. v. Yodice, 54 Mass.App.Ct. 901 (2002) (holding that an alleged failure to provide proper notice of a potential post-sale deficiency did not bar recovery by a bank which had no obligation to give notice under G.L.c. 244, §17B).
This argument is strengthened further by the threshold for measuring unfair dealings under G.L.c. 93A, §11. The standard set forth in Levings and Mass. Employer Insurance Exchange requires a deliberate, self-serving act that is then measured against the norms of fair dealing in good faith. For example, where parties are contractually bound, a mere breach of contract, “even if deliberate and for reasons of self-interest,” is insufficient to give rise to liability under G.L.c. 93A. Atkinson v. Rosenthal 33 Mass.App.Ct. 219, 226 (1992) (holding that a G.L.c. 93A violation arises from a “consistent pattern of the use of a breach of contract as a lever to obtain advantage for the party committing the breach in relation to the other party”). To rise to the level of a G.L.c. 93A violation, the breach of contract or conduct must possess an extortionate quality. Id. See also Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451 (1991) (holding that conduct taken as leverage to destroy the rights of the other pariy to the agreement gives rise to a G.L.c. 93A violation).
In the case at bar, defendants allege Harvard knew or should have known about the attachment and, in not making payments to satisfy the encumbrance on the Concord property, violated G.L.c. 93A. This charge of negligence does not satisfy the standard in Levings and Mass. Employer Insurance Exchange, which requires a deliberate, unfair or deceptive act. As noted above, Harvard had no relationship with defendants from which a duty would arise. Not paying defendants’ attachment does nothing to promote Harvard’s self-interest. Indeed, quite the contrary. To gain any chance of priority over the attachment, Harvard was required to bring this lawsuit. And even where the parties are contractually bound, a 93A violation requires a level of egregious conduct that, in the present case, does not exist. See Levings, 8 Mass.App.Ct. 498; Mass. Employer Insurance Exchange, 420 Mass. 39.
Further, the attachment at issue was prejudgment. There still has been no final adjudication that the obligation for which the attachment was granted is actually owed, or in what amount. It is undisputed that Harvard has no liability for the underlying debt.
Lastly, nothing Harvard did changed defendants’ position in any way. To the extent the defendants had a valid claim against the Bagleys before Harvard’s loan was made, that claim remains. To the extent the defendants had a valid, ultimately collectible attachment before Harvard’s loan was made, that too remains. See G.L.c. 233, §§62 et seq. (real estate attachments, properly recorded, run with the land).6 In these circumstances, it simply cannot be that a failure to pay off a prejudgment attachment is an unfair or deceptive trade practice.
Conclusion
For the foregoing reasons plaintiffs motion to dismiss defendants’ G.L.c. 93A, §11 counterclaim is ALLOWED.
Editor’s Note: The author is a Justice of the Land Court.
The Bagleys and their businesses subsequently filed for bankruptcy.
The defendants do not state explicitly that their claim was made pursuant to §11, but that is clear from the face of the counterclaim. The act alleged to violate G.L.c. 93A (Harvard’s failure to pay the defendants’ prejudgment attachment) is between two businesses (Harvard and defendants) and, among other things, no G.L.c. 93A, §9 demand letter was *604alleged to have been sent—a prerequisite to bringing a §9 action.
defendants voluntarily dismissed their other counterclaim (Count II), which was based on a theory of quantum meruit.
For example, allegations in a complaint (or here, a counterclaim) cannot contradict documents they purport to characterize. See Ng. Bros. Constr, Inc. v. Cranney, 436 Mass. 638, 647-48 (2002).
“ Trade’ and ‘commerce’ shall include the advertising, the offering for sale, rent or lease, the sale, rent, lease or distribution of any services and any property, tangible or intangible, real, personal or mixed, any security as defined in subparagraph (k) of section four hundred and one of chapter one hundred and ten A and any contract of sale of a commodity for future delivery, and any other article, commodity, or thing of value wherever situate, and shall include any trade or commerce directly or indirectly affecting the people of this commonwealth.” G.L.c. 93A, §1 (1992 ed.).
Note that it is Harvard that must bring an action to have the attachment removed, not the other way around. | 01-03-2023 | 10-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/1877831/ | 285 So. 2d 506 (1973)
In re Paul Warren BATES
v.
STATE.
Ex parte Paul Warren BATES.
SC 579.
Supreme Court of Alabama.
November 15, 1973.
Charles C. King, Huntsville, for petitioner.
William J. Baxley, Atty. Gen., and Kent Brunson, Asst. Atty. Gen., for the State.
BLOODWORTH, Justice.
Petition of Paul Warren Bates for Certiorari to the Court of Criminal Appeals to review and revise the judgment and decision of that Court in Bates v. State, 51 Ala.App. , 285 So. 2d 501.
Writ denied.
HEFLIN, C. J., and COLEMAN, McCALL and JONES, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1790194/ | 582 So. 2d 428 (1991)
Willie James LUCKETT
v.
STATE of Mississippi.
No. 89-KP-1339.
Supreme Court of Mississippi.
June 26, 1991.
Willie James Luckett, pro se.
*429 Mike C. Moore, Atty. Gen., Jackson, Patricia W. Sproat, Sp. Asst. Atty. Gen., Jackson, for appellee.
Before ROY NOBLE LEE, C.J., and SULLIVAN and BANKS, JJ.
ROY NOBLE LEE, Chief Justice, for the Court:
I.
Willie James Luckett appeals from the trial court's summary denial of his motion to vacate and set aside his 1980 convictions and sentences. Because Luckett was erroneously sentenced to life imprisonment after entering a plea of guilty to forcible rape, we reverse in part and remand to the trial court for resentencing. As to all other issues raised by Luckett, we affirm.
II.
On May 12, 1980, Willie James Luckett entered pleas of guilty in the Circuit Court of Leake County to forcible rape, two counts of kidnapping, and armed robbery. He was sentenced by the trial judge to life imprisonment on the rape conviction. The kidnapping convictions drew two (2) concurrent thirty (30) year terms, to be served consecutively to the life sentence. The armed robbery conviction drew a twenty (20) year sentence to run consecutive to the sentences imposed for rape and kidnapping.
On September 12, 1989, Luckett filed his motion to vacate and set aside his 1980 convictions and sentences. From summary denial of his motion, he appeals raising the following issues:
I.
Whether trial court was authorized to impose life sentence upon appellant when appellant entered plea of guilty to charge of "rape" and the law provided that such sentence was within the sole province of a jury.
II.
Whether indictments were fatally defective where grand jury which returned indictments was not sworn; grand jury did not return indictment into open court and presiding judge did not sign minutes of grand jury report all of which was required by state statutory language.
III.
Whether appellant's multiple pleas to crimes arising from one incident or from a continued transaction subjected appellant to double jeopardy in violation of the 5th and 14th amendments to the United States Constitution and the Constitution of the State of Mississippi.
IV.
Whether appellant's pleas of guilty were coerced, unintelligent and involuntary because appellant's attorneys misinformed appellant regarding the maximum and minimum sentences and because the court failed to inform appellant regarding the minimum and maximum sentence which could be imposed.
V.
Whether appellant was subjected to ineffective assistance of counsel in the trial court when counsel failed to investigate the evidence or basis for the pleas of guilty, failed to investigate and demur to the legality of the indictments, and failed to put on any defense to the court imposing life sentence on appellant for the crime of "rape," when the imposition of such sentence was in the sole providence of a jury.
VI.
Whether trial court erred in failing to require the state to file an answer to the post conviction relief motion and to conduct an evidentiary hearing into the claims of a fundamental denial of a constitutional right, where appellant asserted that he had been sentenced to a greater sentence than the statute allows a judge to impose after a conviction for rape, and whether the two kidnapping charges constituted double jeopardy under the Blockburger test.
*430 III.
Issue Numbers II, III, IV and V are time barred. Miss. Code Ann. § 99-39-5(2) (Supp. 1990). Individuals (as Luckett) convicted prior to April 17, 1984, had three (3) years from April 17, 1984, to file their petition for post-conviction relief. Freelon v. State, 569 So. 2d 1168 (Miss. 1990); Odom v. State, 483 So. 2d 343 (Miss. 1986). Luckett's application was filed more than nine (9) years subsequent to the entry of his guilty pleas. No appeal or other pleading for relief was filed by him prior to the application presented, and no exceptions to this procedural bar are applicable.
Issue VI is without merit insofar as it alleges error by the trial court in failing to require the state to file an answer to the post-conviction relief action. While we conclude that summary dismissal by the trial court pursuant to Miss. Code Ann. § 99-39-11 (Supp. 1990) was error, no prejudice or ensuing error resulted from failure to require the state to file an answer.
The erroneous life sentence is the only cognizable claim raised by Luckett's motion. This claim was verified by copies of the indictment and judgment of the trial court included as exhibits to Luckett's post-conviction relief motion.
The record reveals that in Cause number 7859, Luckett was indicted for forcible rape of a female over the age of twelve years in violation of Miss. Code Ann. § 97-3-65(2) (Supp. 1980). When Luckett entered his guilty plea to the indictment charging him with rape, Miss. Code Ann. § 97-3-65 (Supp. 1980) provided:
Every person who shall forcibly ravish any female of the age of twelve (12) years or upward, ... upon conviction shall be imprisoned for life in the state penitentiary if the jury by its verdict so prescribes; and in cases where the jury fails to fix the penalty at life imprisonment the court shall fix the penalty of imprisonment in the state penitentiary for any term as the court in its discretion, may determine.
A defendant convicted under this statute may not be sentenced to life imprisonment unless the jury fixes the penalty at life imprisonment. In cases where the jury does not fix the penalty at life imprisonment, the judge must sentence the defendant to a definite term reasonably expected to be less than life. Lee v. State, 322 So. 2d 751 (Miss. 1975); see also Cunningham v. State, 467 So. 2d 902, 906 (Miss. 1985). In fixing the sentence, the trial court should make a record of, and consider, the age and life expectancy of the defendant and any other pertinent facts which would aid in fixing a proper sentence. Stewart v. State, 372 So. 2d 257, 259 (Miss. 1979).
Luckett's complaint pertaining to the rape sentence is justified and excepted from the time limitations of Miss. Code Ann. § 99-39-5(2) (Supp. 1990). Errors affecting fundamental constitutional rights may be excepted from procedural bars which would otherwise prohibit their consideration, and this case discloses a denial of due process in sentencing. See Smith v. State, 477 So. 2d 191, 195-96 (Miss. 1985).
IV.
Accordingly, this case is reversed as to Issue I, and remanded to the trial court for the sole purpose of resentencing Luckett on his plea of guilty to the rape indictment. All other issues lack merit, and the action of the trial court in denying them is affirmed.
LOWER COURT'S DENIAL OF POST-CONVICTION RELIEF AFFIRMED IN PART, REVERSED IN PART AND REMANDED FOR RE-SENTENCING.
HAWKINS and DAN M. LEE, P.JJ., and PRATHER, ROBERTSON, SULLIVAN, PITTMAN and BANKS, JJ. concur.
McRAE, J., dissents without written opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1701580/ | 418 So.2d 777 (1982)
Martha WEATHERFORD, et al.
v.
Lequita Jerry MARTIN, Laura Jo Edwards, Martha Nell Johnson, Helen B. Nicholson and Ludell Allen.
No. 53331.
Supreme Court of Mississippi.
August 4, 1982.
Rehearing Denied September 8, 1982.
Pope & Pope, Moran M. Pope, Jr., Hattiesburg, for appellants.
Parsons & Matthews, Thomas M. Matthews, Jr., Wiggins, for appellees.
Before WALKER, P.J., and BROOM and ROY NOBLE LEE, JJ.
WALKER, Presiding Justice, for the Court:
This is an appeal from the Chancery Court of Forrest County, Mississippi, wherein five separate suits, brought by five teachers of the Hattiesburg Municipal Separate School District against the Trustees and Superintendent of the District were consolidated for trial. From a decision of the Chancery Court modifying the salary portion of the contracts to increase the gross salary of each teacher, the Hattiesburg Municipal Separate School Board appeals.
The facts of this case are not disputed by the parties. The appellees, Lequita Jerry Martin, Laura Joe Edwards, Martha Nell Johnson, Helen B. Nicholson and Ludell Allen (hereinafter teachers) brought suit in the Chancery Court of Forrest County, Mississippi, against the Hattiesburg Municipal Separate School District (hereinafter district) seeking the court to modify and correct the contracts they executed for the school year of 1979-1980. The teachers claimed that their salaries had not been properly computed by the Superintendent of Education and that the minutes of the school board had been misinterpreted.
The district contended that the teachers had notice of the district's policies with respect to requirements for receiving local supplements to their salary and that the teachers' gross salaries were properly calculated based on long-standing district policy. The requirements for earning local supplements to their salary were published in a "Teacher's Handbook" which were admittedly given to every teacher in the school system. All five of the teachers in this case knew of the policy requirements but did not understand it or agree with it.
*778 Schedules for local salary supplements were adopted by the school board but were not accompanied by the policy of the district applying the schedules. However, the salary schedule and policies of interpretation were included in the "Teacher's Handbook," which had been published by the school board for many years. The Handbook was generally recognized by teachers in the system as the official school policy.
The district had the authority to create additional incentives for teachers to receive local supplements and these same teachers were either actually or constructively aware of the requirements and policies with respect thereto of the district when they executed their contracts for the 1979-1980 school year.
Moreover, absent mutual mistake, fraud and illegality, the courts do not have the authority to modify, add to, or subtract from the terms of a contract validly executed between two parties. United States Fidelity & Guaranty Co. v. Gough, 289 So.2d 925 (Miss. 1974); Citizens National Bank of Meridian v. L.L. Glascock, Inc., 243 So.2d 67 (Miss. 1971); Travelers Indemnity Co. v. Chappell, 246 So.2d 498 (Miss. 1971); Employers Mutual Casualty Co. v. Nosser, 250 Miss. 542, 164 So.2d 426 (1964); Phenix Ins. Co. v. Dorsey, 102 Miss. 81, 58 So. 778 (1912). None of those elements were present here.
In conclusion, we hold that since the teachers had sufficient knowledge of the policies of the district and that they knowingly entered into a valid teaching contract with the district, they cannot now assert that the courts of this State should reform, modify, amend or interpret a contract which was unambiguous. See also Hartford Fire Ins. Co. v. Associates Corp., 313 So.2d 404 (Miss. 1974); United States Fidelity & Guaranty Co. v. Gough, 289 So.2d 925 (Miss. 1974).
Therefore, the decree of the chancery court modifying the contracts of Lequita Jerry Martin, Laura Joe Edwards, Martha Nell Johnson, Helen B. Nicholson and Ludell Allen with the Hattiesburg Municipal Separate School District for the 1979-1980 school year is reversed and the original contracts reinstated.
REVERSED AND RENDERED.
PATTERSON, C.J., SUGG, P.J., BROOM, ROY NOBLE LEE, BOWLING, HAWKINS, DAN M. LEE, and PRATHER, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1762956/ | 278 So.2d 428 (1973)
Whitson RAMPY et al.
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY.
No. 47127.
Supreme Court of Mississippi.
May 14, 1973.
Rehearing Denied June 5, 1973.
*430 Charles C. Finch, D. Briggs Smith, Jr., M. Collins Bailey, Richard T. Phillips, Batesville, for appellants.
Wise, Carter, Child, Steen & Caraway, William M. Dalehite, Jr., Jackson, Murray L. Williams, Water Valley, for appellee.
*429 RODGERS, Presiding Justice.
This action originated as a suit in contract against the appellee, State Farm Mutual Automobile Insurance Company, to enforce the provisions of an uninsured motorist policy issued to the driver of an automobile in which appellants' decedent was killed. The trial was conducted before the Circuit Court of the Second Judicial District for Yalobusha County, Mississippi. At the conclusion of appellants' presentation of their case, the court granted State Farm's motion for a directed verdict based upon appellants' failure to give State Farm notice of a prior tort action prosecuted in Federal District Court in Tennessee against the uninsured tort-feasor.
The accident in question occurred in Shelby County, Tennessee, on July 13, 1968. On that date, Doris Rampy, a resident of Water Valley, Mississippi, was a guest passenger in an automobile operated by Dianne Wooten, also of Water Valley. The Wooten vehicle was exiting from Interstate Highway 240 in Memphis, Tennessee, when an automobile operated by a Tennessee resident, William Alvin Diffee, collided with the rear of the Wooten automobile. A few hours after the accident, Miss Rampy died in a Memphis hospital of injuries sustained in the accident.
On July 1, 1969, the heirs of Doris Rampy, appellants herein, filed a wrongful death action against William Alvin Diffee in United States District Court for the Western District of Tennessee, Western Division. As a result of this tort action, appellants were awarded a forty thousand dollar ($40,000.00) judgment against Diffee. In attempting to execute this judgment, it became apparent that Diffee carried no liability insurance and was otherwise impecunious.
Subsequent to prosecution instituted by the State of Tennessee, Diffee pled guilty to a charge of involuntary manslaughter and was sentenced to eleven (11) months and twenty-nine (29) days in the Shelby County, Tennessee penal farm. Considering the admissions made in Diffee's deposition as well as the other testimony presented in the record, there is ample evidence to show that Diffee's negligence was the proximate cause of the automobile accident which caused Doris Rampy's death.
On March 2, 1970, appellants filed this action in the Circuit Court of Yalobusha County, Mississippi, in an effort to recover under the terms of an uninsured motorist policy issued to Joe Dean Wooten, the owner of the vehicle in which Miss Rampy sustained her fatal injuries. At the conclusion of appellants' case, State Farm moved for a directed verdict, alleging that appellants had failed to give notice to State Farm of the institution of the Tennessee tort action, and that due to the expiration of the Tennessee one-year statute of limitations on tort actions, State Farm had lost its rights of subrogation. In granting appellee's motion for a directed verdict, the circuit judge stated:
"The insurance contract pertinent to this action coupled with the provisions of Section 8285-53 and Section 8285-54 of the Mississippi Code of 1942, Recompiled, provides that notice to the insurer shall be given in any action, as defined therein, in order that the said insurer shall have the opportunity to protect its *431 rights by attempting to join in a defense of such action and the ultimate rights of subrogation."
In their appeal to this Court, appellants argue that the lower court committed reversible error in granting appellee's motion for a directed verdict. Appellants also contend that the trial court erred in applying the Tennessee tort statute of limitations to a Mississippi contract action, and in holding that appellants' failure to serve a copy of the summons on the insurance company in the Tennessee case was a bar to the present contract action.
The issues raised in this appeal with regard to the lower court's interpretation of the notice and subrogation provisions of the Uninsured Motor Vehicle Act [Mississippi Code 1942 Annotated Section 8285-51 et seq. (Supp. 1972)] are matters of first impression for this Court. After diligent consideration of the issues presented in this case, we are of the opinion that the trial court was in error in sustaining appellee's motion for a directed verdict. We, therefore, reverse the judgment of the trial court for the reasons hereafter shown.
The two Code sections on which the appellee bases its grounds for a directed verdict are in the following language:
"In the event the owner or operator of the uninsured vehicle causing injury or death is known and action is brought against said owner or operator by the named insured as defined by said policy, then a copy of the process served upon the owner or operator shall also be served by the circuit clerk mailing, registered mail, a copy of the process to the insurance company issuing the policy providing the uninsured motorist coverage as prescribed by law.
If the owner or operator of any motor vehicle which causes bodily injury to the insured be unknown, the insured, or someone on his behalf, or in the event of a death claim, someone on behalf of the party having such claim, in order for the insured to recover under the endorsement, shall report the accident as required by Section 8285-04, Mississippi Code of 1942, Recompiled." § 8285-53, Miss.Code 1942 Ann. (Supp. 1972.)
and
"An insurer paying a claim under the endorsement or provisions required by Section 1 [§ 8285-51] shall be subrogated to the rights of the insured to whom such claim was paid against the person causing such injury, death or damage, to the extent that payment was made; including the proceeds recoverable from the assets of the insolvent insurer; provided, that the bringing of an action against the unknown owner or operator or the conclusion of such an action, shall not constitute a bar to the insured, if the identity of the owner or operator who caused the injury or damages complained of becomes known, provided, that in any action brought against such owner or operator, the insurance company that has previously made payment as a result of the policyholder's claim against such owner or operator shall be mailed a copy of the summons issued for the defendant or defendants, and that any recovery against such owner or operator shall be paid to the insurance company to the extent that such insurance company paid the named insured in the action brought against such owner or operator, except that such insurance company shall pay its proportionate part of any reasonable costs and expense incurred in connection therewith, including reasonable attorney's fees." § 8285-54, Miss.Code, 1942 Ann. (Supp. 1972).
I.
In order to more fully understand the reasoning adopted by this Court with regard to the interpretation of Mississippi's Uninsured Motor Vehicles Act, it is appropriate to recall the history and purposes of uninsured motorist coverage in general. Uninsured motorist coverage or "family protection insurance", as it is sometimes *432 called, came into existence in 1956 at the behest of insurance companies in an effort on the part of the automobile insurance industry to alleviate some of the problems associated with the rapidly increasing number of uninsured vehicles. In effect, the uninsured motorist policy idea was adopted by the insurance industry as an alternative to publicly administered judgment-funds and compulsory insurance programs. Genesis of Uninsured Motorist Coverage, 32 Atl.L.J. 341 (1968). See J. Donaldson, Uninsured Motorist Coverage, 36 Ins. Coun.J. 397 (1969); D. Fairgrave and K. Forney, Uninsured Motorist Coverage, 31 Ins.Coun.J. 665 (1964).
In any case, many states, including Mississippi, now require that all automobile liability policies issued in the state include an uninsured motorist endorsement; thus, Mississippi Code 1942 Annotated Section 8285-51 (Supp. 1972) states:
"No automobile liability insurance policy or contract shall be issued or delivered after January 1, 1967, unless it contains an endorsement or provisions undertaking to pay the insured all sums which he shall be legally entitled to recover as damages for bodily injury or death from the owner or operator of an uninsured motor vehicle, within limits which shall be no less than those set forth in the Mississippi Motor Vehicle Safety Responsibility Act, as amended, under provisions approved by the Commissioner of Insurance. Provided, however, that the coverage required herein shall not be applicable where any insured named in the policy shall reject the coverage in writing and provided further, that, unless the named insured requests such coverage in writing, such coverage need not be provided in any renewal policy where the named insured had rejected the coverage in connection with a policy previously issued to him by the same insurer." § 8285-51, Miss.Code 1942 Ann. (Supp. 1972).
In interpreting similar, if not identical statutes, the vast majority of jurisdictions have stated that the purpose of such uninsured motorist laws is to provide protection to innocent insured motorists and passengers injured as a result of the negligence of financially irresponsible drivers. A fine pronouncement of the policy considerations underlying uninsured motorist legislation is as follows:
"A provision, drawn by the insurer to comply with the statutory requirement of uninsured motorist coverage, must be construed in light of the purpose and policy of the statute. Such a provision, drawn in pursuance of a statutorily declared public policy, is enacted for the benefit of injured persons traveling on the public highways. Its purpose is to give the same protection to the person injured by an uninsured motorist as he would have had if he had been injured in an accident caused by an automobile covered by a standard liability policy. Such provisions are to be liberally construed to accomplish such purpose. 7 Am.Jur.2d, Automobile Insurance, s. 135, p. 460; Bryant v. State Farm Mutual Automobile Ins. Co., 205 Va. 897, 140 S.E.2d 817; Storm v. Nationwide Mutual Ins. Co., 199 Va. 130, 97 S.E.2d 759, 69 A.L.R.2d 849; Travelers Indemnity Co. v. Kowalski, 233 Cal. App.2d 607, 43 Cal. Rptr. 843; Mills v. Farmers Ins. Exchange, 231 Cal. App.2d 124, 41 Cal. Rptr. 650; State Farm Mutual Automobile Ins. Co. v. Brower, 204 Va. 887, 134 S.E.2d 277." Stephens v. Allied Mutual Insurance Company, 182 Neb. 562, 156 N.W.2d 133, 136-137 (1968).
See also Continental Insurance Co. v. Wallace, 233 So.2d 195, 196 (3d Dist.Ct. App.Fla. 1970); Indiana Insurance Company v. Noble, 265 N.E.2d 419, 426 (Ind. App. 1970); Webb v. State Farm Mutual Automobile Ins. Co., 479 S.W.2d 148, 151 (Mo. Ct. App. 1972); Jones v. Southern Farm Bureau Casualty Company, 251 S.C. 446, 163 S.E.2d 306, 309 (1968) (Bussey, J., Dissenting).
*433 II.
The appellee argues on appeal that the family of Doris Rampy should not be allowed to collect the proceeds available under the uninsured motorist endorsement on the Wooten policy since the Rampys failed to give State Farm notice of the Tennessee tort action. It is argued, therefore, that since the Tennessee statute of limitations on torts had expired prior to State Farm's knowledge of the Rampy tort action, State Farm no longer enjoys rights of subrogation against the uninsured motorist. We disagree with the contentions of appellee for several reasons.
Without pausing to point out in detail that Section 8285-53, supra, obviously means process in suits begun in Mississippi courts and it is not a requirement to be performed by clerks of foreign courts, we move directly to the issue presented.
We take special note of the fact that Mississippi Code 1942 Annotated Section 8285-53 (Supp. 1972) of the Uninsured Motor Vehicles Act states that when the named insured brings an action against the uninsured tort-feasor, notice of the suit will be given to the insurer. It is significant that this Code section specifies the named insured as opposed to, for instance "all of those seeking to recover under the uninsured motorist endorsement," (as is the case with the family of Doris Rampy). We must, therefore, hold that Mississippi Code 1942 Annotated Section 8285-53 (Supp. 1972) does not require persons seeking to recover under the uninsured motorist provisions of an automobile liability policy to have given the insurer notice of a previous tort action against the uninsured motorist, unless the insured is a "named insured" in the liability policy, and then only when substantial prejudice to the rights of the insurer would result but for notice to the insurer from a party seeking to recover under the uninsured motorist endorsement on the judgment obtained in the tort action.
If the legislature had not intended that the notice be given by the "named insured," a contracting party, the legislature would have in effect imposed an impossible burden on persons who were not contracting parties and who did not have possession of the insurance policy, and could not notify an insurance company of which they had no knowledge about a suit against a negligent motorist, especially when they were ignorant of the fact that he was uninsured.
In the instant case, there is no indication in the record that appellants knew or had reason to believe that the tort-feasor was either uninsured or impecunious at the time the Tennessee tort action was filed. Apparently, appellants did not discover that the tort-feasor was uninsured and, for all practical purposes, judgment proof until after appellants' unsuccessful attempt to obtain execution of the Tennessee judgment. Since State Farm is in no way bound in terms of liability on the uninsured motorist policy by virtue of the Tennessee judgment, it appears that the appellants' failure to give notice to State Farm in no way resulted in prejudice to State Farm.
The courts in several other jurisdictions have examined the notice requirements of their statutes, which have often closely resembled those existing in Mississippi. For instance, in McDaniel v. State Farm Mutual Automobile Ins. Co., 205 Va. 815, 139 S.E.2d 806 (1965), the Supreme Court of Appeals of Virginia held:
"The uninsured motorist legislation is remedial in nature, enacted for the benefit of injured persons and is to be liberally construed so that the purpose intended may be accomplished. Storm v. Nationwide Ins. Co., 199 Va. 130, 135, 97 S.E.2d 759, 762, 69 A.L.R.2d 849; State Farm Mutual v. Brower, 204 Va. 887, 892, 134 S.E.2d 277, 281.
Moreover, it would place a difficult, if not impossible, burden on the plaintiff to *434 require him to ascertain in advance of bringing his suit that the insurance company which had issued a liability policy to the defendant had denied coverage thereunder." 139 S.E.2d at 809-810.
See also Gunnels v. American Liberty Insurance Company, 251 S.C. 242, 161 S.E.2d 822 (1968); P. Pretzel, Uninsured Motorists §§ 25.3-25.4, at 77-81 (1972). But cf. 7 Am.Jur.2d Automobile Insurance § 137, at 464 (1963); 19 G. Couch, Cyclopedia of Insurance Law 2d §§ 82.1:6-82.1:7, at 1072-1073 (1968).
III.
The appellee's argument that the insurer has lost a valuable right of subrogation against the defaulting Tennessee motorist in the instant case is not realistic, even if the deceased were a "named insured", because the testimony shows that the uninsured motorist was an indigent, sometimes called "... an impecunious derelict, someone who is mere flotsam and jetsam floating on the sea of economic irresponsibility." [Lovering v. Erie Indemnity Company, 412 Pa. 551, 195 A.2d 365 (1963)]. Moreover, the burden of proof is upon the insurer to show prejudice, because of the failure of the named insured to have process issued.
It is widely recognized that:
"The burden of proof is upon the insurer to show not only that the insured has failed to perform the terms and conditions invoked upon him by the policy contract but in addition that it was substantially prejudiced thereby. Pharr v. Canal Ins. Co., 233 S.C. 266, 104 S.E.2d 394, and Crook v. State Farm Mutual Ins. Co., 235 S.C. 452, 112 S.E.2d 241." Squires v. National Mutual Insurance Co., 247 S.C. 58, 145 S.E.2d 673, 677 (1965).
In California, the following test has been adopted in determining whether or not the insurer has suffered "substantial prejudice" on account of the insured's failure to give timely notice:
"We hold, therefore, that an insurer, in order to establish it was prejudiced by the failure of the insured to cooperate in his defense, must establish at the very least that if the cooperation clause had not been breached there was a substantial likelihood the trier of fact would have found in the insured's favor. A less stringent standard would not be consonant with our holding in Campbell [Campbell v. Allstate Insurance Company, 60 Cal.2d 303, 32 Cal. Rptr. 827, 384 P.2d 155 (1963)] that the insurer has the burden of showing it was substantially prejudiced by the insured's failure to cooperate." Billington v. Interinsurance Exchange of So. Cal., 71 Cal.2d 728, 79 Cal. Rptr. 326, 331, 456 P.2d 982, 987 (1969). (Parenthesis added)
There can be no question that the foregoing test of "substantial prejudice" imposes a very stringent burden of proof on the insurer. Nonetheless, considering the remedial purpose underlying our Uninsured Motor Vehicles Act, we are inclined to hold that the insurer must demonstrate to the satisfaction of the Court that the outcome of the insured's action against the uninsured tort-feasor would have been radically altered had the "named insured" complied with the notice provisions of Mississippi Code 1942 Annotated Section 8285-53 (Supp. 1972).
IV.
In the case of Harthcock v. State Farm Mutual Automobile Ins. Co., 248 So.2d 456 (Miss. 1971) this Court had an opportunity to examine Section 8285-55, Mississippi Code 1942 Annotated (Supp. 1972).
This Code section is in the following language:
"No such endorsement or provisions shall contain a provision requiring arbitration of any claim arising under any such endorsement or provisions. The insured *435 shall not be restricted or prevented in any manner from employing legal counsel or instituting or prosecuting to judgment legal proceedings, but the insured may be required to establish legal liability of the uninsured owner or opertor." § 8285-55, Miss.Code 1942 Ann. (Supp. 1972).
In interpreting the foregoing Code section, we stated:
"The last clause of this section does not require a suit against the uninsured motorist before recovery may be made by the insured; this clause only requires that the insured may be required to establish legal liability of the uninsured motorist. This can be done in a suit by the insured against the insurance company issuing the policy providing the uninsured motorists coverage. That was done in this case. The suit of the plaintiff in this case is on the contract of insurance. If suit is brought by an insured against the uninsured motorist it would be in tort. The joining of a suit in tort with one on a contract may not be maintained in this jurisdiction. Plaintiff could not have sued James P. Horne and the two insurance companies in the same suit." 248 So.2d at 460.
Therefore, appellee's argument is without merit wherein it contends that recovery under the uninsured motorist policy should be disallowed since the insurance company did not receive notice of the Tennessee tort action until the suit was concluded and the Tennessee one-year statute of limitations had expired. Here, appellants do not seek to use the Tennessee judgment as a basis for establishing State Farm's liability under the uninsured motorist policy (as in a garnishment proceeding). Furthermore, there is no indication that State Farm's interests have been prejudiced in any way by appellants' single-handed prosecution of the Tennessee tort action.
In summation, we hold as follows:
(1) Section 8285-53, Mississippi Code 1942 Annotated (Supp. 1972) is directory and not mandatory.
(2) The process required in a suit against the uninsured motorist applies only to the "named insured", one of the contracting parties. See Section 8285-52, Mississippi Code 1942 Annotated (Supp. 1972).
(3) In order to invoke a forfeiture against a "named insured" by an insurance company for the failure to have process served upon the insurance company in a suit against an uninsured motorist, it is necessary for the insurance company to show that it has been prejudiced because of the lack of notice.
(4) In any case, the failure to give a copy of the process to the insurance company of the original suit against an uninsured motorist does not work a forfeiture of the right to sue the insurance company under the uninsured motorist clause in the contract, unless the judgment obtained is used as the basis of a suit or garnishment against the insurance company sought to be charged.
(5) It is not necessary to first sue the faulting motorist in order to establish liability under the uninsured motorist clause in the policy, but suit may be brought directly against the insurance company under its insurance contract in the first instance.
The judgment of the trial court is hereby reversed and judgment entered here in favor of the appellants against the appellee State Farm Mutual Automobile Insurance Company in the sum of three thousand three hundred thirty-three dollars and thirty-three cents ($3,333.33), the balance of the money due under its uninsured motorist clause after having paid two other persons injured in the above mentioned accident.
Reversed and rendered.
INZER, SMITH, ROBERTSON and WALKER, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1824321/ | 145 B.R. 266 (1992)
In re Albert M. BUNNER, Laura L. Bunner, Debtors.
No. 92-70740.
United States Bankruptcy Court, C.D. Illinois.
September 24, 1992.
William A. Krajec, Springfield, Ill., for debtors.
John L. Swartz, Springfield, Ill., trustee.
Jerome Wolfson, Springfield, Ill., for Chrysler First Financial/Creditor.
OPINION
LARRY L. LESSEN, Chief Judge.
The issue before the Court is whether two or more transfers to a single creditor within ninety (90) days of the filing of a bankruptcy petition may be added together for the purpose of reaching the $600 minimum of 11 U.S.C. § 547(c)(7).
The material facts are not in dispute. Chrysler First Financial is a creditor of the Debtors. Pursuant to a wage garnishment action, Chrysler First Financial was garnishing the wages of Debtor Albert M. Bunner at the rate of $67 per week. In January 1992, the Circuit Court ordered the turnover of $519 to Chrysler First Financial. Another $514 was ordered to be turned over to Chrysler First Financial on March 27, 1992. The Debtors filed their petition pursuant to Chapter 7 of the Bankruptcy Code on March 27, 1991. On July 27, 1992, the Debtors filed a motion to avoid the two transfers to Chrysler First Financial.
The Debtors motion to avoid the transfers was brought under 11 U.S.C. § 547(b). Although preference actions are normally filed by the Trustee, 11 U.S.C. § 522(b) permits a debtor to avoid a preference if the property sought to be turned over may be exempted by the debtor and the Trustee has not attempted to avoid the transfer. Since these conditions are met in this case, the Debtors are authorized to bring this action.
It is apparent that all the elements of a preference are present in this case. Within ninety (90) days of the filing of the petition, there were two transfers of funds to Chrysler First Financial, a creditor of the Debtors, for the benefit of Chrysler First Financial on account of an antecedent debt owed by the Debtors before the transfer was made and these transfers allowed Chrysler First Financial to receive more than it would have received had the transfers not been made. The Debtors are presumed to be insolvent pursuant to 11 U.S.C. § 547(f).
The only issue in this case is the applicability of 11 U.S.C. § 547(c)(7), which provides that a preference may not be avoided "in a case filed by an individual debtor whose debts are primarily consumer debts [where] the aggregate value of all property that constitutes or is affected by such transfer is less than $600". In this case, each transfer was for less than $600, but the aggregate of the two transfers exceeds the $600 minimum. Under these circumstances, the Court believes that the plain language of § 547(c)(7) mandates that both transfers be added together in determining whether the minimum of $600 has been *267 met. In particular, the Court believes that the reference in the statute to "the aggregate value of all property" supports this conclusion. Any other interpretation of the statute would render the "aggregate" language meaningless.
For the foregoing reasons, the Debtors' motion for turnover of funds is allowed.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1752810/ | 879 S.W.2d 894 (1994)
EMSCOR MANUFACTURING, INC.; Walter P. Manning, Jr.; Cindy R. Ketcher, Individually and as Administratrix on Behalf of the Estate of Steven Ketcher; Carolyn J. Ketcher; Kristina Heilman Weaver, Individually and as Next Friend of Lyndsey Michelle Weaver and as Administratrix on Behalf of the Estate of Michael Weaver; and Charles D. Weaver, Appellants,
v.
ALLIANCE INSURANCE GROUP; Alliance Syndicate, Inc.; and Alliance General Insurance, Appellees.
No. B14-92-01121-CV.
Court of Appeals of Texas, Houston (14th Dist.).
Motion for Rehearing Granted, Majority and Dissenting Opinions February 3, 1994, Withdrawn.
Substitute Majority and Dissenting Opinions on Rehearing May 19, 1994.
Rehearing Denied June 23, 1994.
*896 Earl Landers Vickery, Houston, for appellants.
Linda M. Cipriani, Michael O. Connelly, of Houston, for appellees.
Before MURPHY, SEARS and DRAUGHN, JJ.
MAJORITY OPINION ON REHEARING
MURPHY, Justice.
This is an excess carrier insurance case. Appellants, Walter P. Manning Jr. (Emscor's *897 former President) and Emscor Manufacturing, Inc. (collectively referred to as "Emscor"), filed suit against appellees, Alliance Insurance Group, Alliance Syndicate, Inc., and Alliance General Insurance (collectively referred to as "Alliance"), claiming that Alliance was liable for wrongfully refusing to settle a negligence suit filed against Emscor. The trial court granted summary judgment in favor of Alliance on all of Emscor's causes of action and Emscor appealed. We affirm.
As we will detail, the relationship between Emscor and Alliance has a lengthy history. On February 28, 1987, Emscor purchased an excess insurance policy (the policy) from Alliance. The policy was effective from February 28, 1987, through February 28, 1988. It provided comprehensive general liability coverage in the amount of $500,000 as excess over and above a primary comprehensive general liability policy in the amount of $500,000 issued to Emscor by Stone Mountain Insurance Company (Stone Mountain). Pursuant to the policy, Alliance was required, when and if certain conditions were met, to indemnify Emscor up to $500,000 for losses which were covered by Stone Mountain's policy, and which were in excess of Stone Mountain's $500,000 policy limit. On April 25, 1987, a crane collapsed, injuring and ultimately causing the deaths of Steven Ketcher and Michael Weaver. In May 1987, the families of the dead men sued Emscor and several other defendants in connection with the accident (the Ketcher litigation).[1] On July 26, 1988, Stone Mountain was placed into receivership. Emscor subsequently tendered a bill for legal fees and expenses incurred in the Ketcher litigation to Alliance. On September 23, 1988, Alliance informed Emscor that it would not pay those fees and expenses because it was not obligated under the terms of the policy to "drop down" and replace the primary coverage in the event of the primary insurer's insolvency.
On January 26, 1990, Emscor filed a declaratory judgment action to determine whether Alliance was required by the terms of the policy to provide a defense to Emscor in the Ketcher suit. The trial court granted Alliance's motion for summary judgment based upon the language of the policy and denied Emscor's cross-motion for summary judgment. Emscor appealed the trial court's ruling to this court. See Emscor Mfg., Inc. v. Alliance Ins. Group, 804 S.W.2d 195 (Tex. App.Houston [14th Dist.] 1991, no writ).
During the pendency of that appeal, Emscor began settlement negotiations with the Ketcher plaintiffs. On March 7, 1990, counsel for Emscor wrote to Alliance, stating that "serious settlement negotiations" were about to begin in the Ketcher suit and demanding that Alliance tender the limits of its coverage. Emscor's counsel advised Alliance that unless it came forward "immediately" to tender the $500,000 in excess coverage, he would make "any arrangements or deals," with other counsel to protect his clients.[2] In response, almost two months later, Alliance asked to review the case with Emscor and inquired about a number of issues related to possible settlement of the Ketcher suit, including whether any monies were available from the [State Board of Insurance] Guaranty Fund and whether any specific settlement demands had been made. On May 10, 1990, Emscor expressed its willingness to review the case and advised that it was continuing to work with the Guaranty Fund to determine how much, if any, money would be available from the Fund. The meeting between the attorneys for Emscor and Alliance took place on May 22, 1990. Following that meeting, Alliance asked to be kept informed of all significant developments with respect to the Ketcher suit.
Throughout the next several months, Emscor attempted to obtain a commitment of settlement funds from the Guaranty Fund. In fact, in July 1990, Emscor sent Alliance a copy of a correspondence it had received from the Guaranty Fund. That correspondence *898 stated that the Proof of Claim forms filed by Emscor were "sufficient to provide up to $500,000 indemnity coverage to Emscor." In response, Alliance "congratulated" Emscor for apparently obtaining "the Board's commitment to step into the shoes of Stone Mountain and provide $500,000 in primary coverage to Emscor in connection with the Ketcher litigation." However, Alliance reiterated the fact that its policy was in excess of the primary policy and that it was not required to pay monies until the first $500,000 in primary coverage was exhausted. Alliance further stated that "as soon Alliance has received evidence that the Board has in fact paid $500,000 to Emscor and/or its attorneys in connection with this case, Alliance will make its coverage available."
In August 1990, Emscor notified Alliance that the Ketcher plaintiffs had agreed to settle against all of the Ketcher defendants for $8,000,000. Emscor reminded Alliance of the November 12, 1990, trial date and requested Alliance to "authorize" its policy limits for settlement. In response, Alliance asked for a case assessment and inquired about Emscor's progress with the Guaranty Fund. Emscor obliged and reassured Alliance that it was "working vigorously with the Texas Guaranty Fund to obtain a commitment to pay the $500,000 primary limits."
On September 17, 1990, Emscor notified the Guaranty Fund and Alliance that the Ketcher plaintiffs had settled with all of the defendants except Emscor. The letter sought confirmation from the Guaranty Fund on whether it had received "all information necessary to make a final determination on releasing settlement funds." One week later, Emscor reported to Alliance that it was continuing to "work closely" with the Guaranty Fund, but that the process was "slow and tedious." Emscor also inquired as to whether Alliance would contribute its excess coverage to add to any amount contributed by the Guaranty Fund and whether Alliance would assume Emscor's defense in the event that it did not exhaust its policy limits. Emscor further informed Alliance that it was considering an assignment of its "rights to any Guaranty Fund proceeds as well as a certain amount for excess coverage from Alliance." On September 25, 1990, Alliance objected to any assignment and stated that it would not authorize any of its excess coverage until the Guaranty Fund "at least authorizes" the payment of the initial $500,000. Alliance also asked for Emscor's commitment to settle the case "for as little as possible above $500,000" and repeated its pledge "to wrap up the case when and if the Guaranty Fund pays or agrees to pay $500,000."
On October 19, 1990, Emscor faxed to Alliance and the Guaranty Fund, the Ketcher plaintiffs' $1,000,000 settlement demand in the underlying suit. Although it indicated that Emscor had yet to obtain monies from the Guaranty Fund, the settlement demand stated that it was contingent upon Alliance's payment of its $500,000 policy limit. The demand also stated that it would expire on October 26, 1990. On October 24, 1990, two days before the Ketcher settlement demand was to expire, counsel for Alliance faxed a lengthy response to counsel for Emscor. In pertinent part, Alliance's counsel stated as follows:
Let me reiterate again as I have before, that we believe we have worked with you in the past and are working with you currently to make decisions regarding the Ketcher litigation, the resolution of that litigation, and the resolution of any other litigation against Emscor arising out of the April 1987 accident. I have told you before, and again tell you, that if and when the Texas Guaranty Fund and/or Emscor provides evidence to us that they have made arrangements to pay the first $500,000 of any settlement in this case, we will respond promptly to try to arrive at a mutually agreeable resolution of the litigation.
Alliance recognizes its obligations under the excess Alliance policy issued to your client, and is fully prepared to meet those obligations when the policy's provisions are invoked. The Plaintiffs' settlement demand has put Alliance on notice that the Plaintiffs in Ketcher are demanding an *899 amount of money that may invoke the provisions of the Alliance policy if: a) the Guaranty Fund and/or Emscor agrees to pay $500,000; and b) the Plaintiffs are unwilling to settle for $500,000. However, Alliance does not believe its policy, and I do not believe the Stowers doctrine or any other Texas case law or statute, requires us to now `assume the defense' or `settle the case' pursuant to the Plaintiffs' October 19, 1990, demand letter. I also do not believe Alliance can be held responsible for the apparent fact that the Texas Guaranty Fund has not yet made any commitment to you in terms of primary coverage. I appreciate your desire to resolve this case now, if it can be resolved, without going to the additional time and expense to present witnesses for deposition, complete discovery, and prepare for trial. I have been in that position before, and I know it is not pleasant. However, under its policy, Alliance is unable to move forward in any way until the Texas Guaranty Fund and/or Emscor pays the first $500,000 demanded by the Plaintiffs in this case.
[italics and bold added]
Alliance's counsel also stated that she was going to meet with her client to further discuss the case. The next day, October 25, 1990, Emscor sent a fax to Alliance, expressing its understanding "that Alliance would contribute all or part of its $500,000 coverage once the Texas State Board of Insurance Guaranty Fund or Emscor has paid the first $500,000." Emscor advised Alliance that it would take whatever steps were necessary to reach the first $500,000 in coverage, but that its efforts were not to be interpreted as a waiver of its position that Alliance "immediately meet the Ketcher plaintiffs' settlement demand and assume Emscor's defense." Emscor again faxed Alliance at 2:30 p.m. on October 26, 1990, the day the Ketcher settlement offer was to expire, and demanded Alliance's offer of settlement funds "today." That same day at 4:30 p.m., Emscor once again faxed Alliance, stating that Alliance's October 24 letter had set forth "unconscionable conditions" on payment. Emscor informed Alliance that it had been "unsuccessful thus far in obtaining settlement funds from the Texas Guaranty Fund" and that its "ability to continue business and meet its cash flow obligations would be severely impaired" if it were forced "to pay $500,000 of its own money." Alliance responded by fax on October 26, 1990. Alliance's counsel, stated in pertinent part:
In response to your October 26, 1990, fax and as I am sure the Plaintiffs are aware, Alliance is not in a position to respond to the Ketcher plaintiffs settlement demand unless and until the Texas Guaranty Fund or your insured, or both, give Alliance sufficient assurance that they have paid and/or have agreed to pay and/or have incurred expenses sufficient to invoke Alliance's excess policy coverage. As I sit here at 4:30, Alliance has not been given any of this information because to my knowledge, none of these events have occurred. The Plaintiffs should be told that if and when Alliance is given any of these assurances, Alliance will be prepared to respond to their current settlement proposal, and that I am meeting with Alliance on November 5, 1990, for just that purpose.
[emphasis added]
On October 31, 1990, five days after the Ketcher settlement demand was supposed to have expired, Emscor faxed a letter and attached a "Confirmation of Settlement Demand" to Alliance. Those documents, when taken together, state that Emscor had "agreed to obligate" itself to pay $500,000 to the Ketcher plaintiffs and that the Ketcher plaintiffs had "agreed to accept this $500,000 obligation" and release all claims "only if Alliance obligates itself to pay its $500,000 excess policy limits." [emphasis in original] Emscor also advised Alliance that it was willing to give a letter of guaranty to reflect its "obligation" and that it needed to know "immediately whether the guaranty will be sufficient to invoke the $500,000 excess coverage with Alliance." Emscor further informed Alliance that the deadline for acceptance of this latest settlement proposal was at 5:00 p.m., November 5, 1990.
*900 The next day, Alliance inquired as to when the money would be paid and whether the guaranty would be secured. More importantly, Alliance stated its position that "a promise to pay by Emscor to pay the Plaintiffs sometime in the future would not meet the requirements of the Alliance policy." Alliance suggested that "an irrevocable letter of credit over which the Plaintiffs had exclusive control, and which could be drawn down by the Plaintiffs when the necessary settlement documents and other Court approvals occurred, would, in all likelihood, meet the requirements of the Policy." Alliance stated that the guaranty described by Emscor "did not seem to meet" its requirements, but that it would reserve judgment until it could examine the guaranty.
On November 5, 1990, the day the settlement offer was to expire, Emscor finally faxed a copy of the executed Letter of Guaranty to Alliance. Part 3 and 4 of the Letter of Guaranty set out its terms as follows:
3. Terms:
For good and valuable consideration, the receipt of which is hereby acknowledged and confessed, and in further consideration the compromise and settlement of the subject litigation, Guarantors [Emscor] agree to the following terms:
a. Guarantors will pay Beneficiaries [the Ketcher plaintiffs] the difference, up to Five-Hundred Thousand Dollars ($500,000), between the amount of money that the Texas State Board of Insurance Guaranty Fund approves for payment as a result of the claims filed with the Guaranty Fund in the subject litigation, and the total sum of Five-Hundred Thousand Dollars ($500,000).
b. Before Guarantors are obligated to pay Beneficiaries anything, Beneficiaries are obligated to exhaust all efforts and remedies to collect up to Five-Hundred Thousand Dollars ($500,000) from the Texas State Board of Insurance Guaranty Fund.
c. After Beneficiaries have exhausted all efforts and remedies stated above in Paragraph 3(b) then Guarantors shall immediately become obligated upon thirty (30) days written demand of Beneficiaries to pay the amount due following the directives of Paragraph 3(a) above.
d. Guarantors' obligations to Beneficiaries are irrevocable and unconditional.
4. Security:
To secure this Guaranty, and as inducement to Beneficiaries to accept this Guaranty, Emscor, Inc. hereby grants to Beneficiaries a security interest in and to all assets and properties of Emscor, Inc. and Emscor, Inc. agrees to execute and cause to be filed financing statements to perfect such security interest.
In the accompanying letter, Emscor stated its own conclusion that the guaranty satisfied the requirements imposed by Alliance. Emscor also stated that it had met with representatives of the Guaranty Fund and "hope[d]" that the meeting would "culminate in payment of all or some of the proofs of claims filed...." Also, the same day, Emscor faxed a letter received from the Guaranty Fund, reflecting the Board's opinion that Stone Mountain would have tendered its policy limits had it not been in receivership.
Alliance faxed a response on November 5th, informing Emscor that the Letter of Guaranty and the Guaranty Fund letter, when taken together, did not satisfy the requirements of the excess policy because they did not demonstrate that the primary coverage had been paid or would be paid before the November 12th trial setting. Although it emphasized that its coverage had not been triggered, Alliance nevertheless offered to contribute $100,000 toward settlement only when the following occurred: (1) the Guaranty Fund actually paid $500,000 pursuant to the Stone Mountain policy; or, (2) Emscor actually paid the difference between $500,000 and the amount paid or determined to be paid by the Guaranty Fund, if less than $500,000; or, (3) Emscor made its "best effort to settle the Ketcher suit for $600,000 or less."
The Emscor appeal of the declaratory judgment was submitted to this court on *901 November 6, 1990. According to Alliance, the parties met after oral argument to discuss the Ketcher suit. There were no further contacts between the parties until November 14, 1990, when Emscor faxed to Alliance a copy of a $3,000,000 Agreed Final Judgment between Emscor and the Ketcher plaintiffs. That Agreed Judgment was rendered following a hearing on November 12, 1990. Alliance did not appear at that hearing. In a letter accompanying the copy of the Agreed Final Judgment, Emscor stated that it was "compelled" to agree to the judgment "in the wake of Alliance's refusal to settle" and it demanded tender of the Alliance policy limits. In a November 16, 1990, letter to Emscor, Alliance denied any "refusal to settle" and voiced its objections to Emscor's "unilateral" settlement and subsequent demand for tender of the policy limits. On January 17, 1991, this Court issued an opinion which affirmed the trial court's ruling that Alliance had no duty to defend under the terms of the policy. Emscor Mfg., Inc., 804 S.W.2d at 198-99 [emphasis added]. The opinion did not speak to the instant matters on appeal.
On May 9, 1991, Emscor filed this suit against Alliance, alleging that Alliance's failure to settle pursuant to G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex.Comm'n App.1929, holding approved), constituted breach of contract, breach of the duty of good faith and fair dealing, negligence, gross negligence, and violated provisions of the DTPA and the Insurance Code. Alliance answered with a general denial and asserted certain affirmative defenses, including that Emscor was barred from recovery by the terms of the excess policy. On May 22, 1992, Alliance moved for summary judgment contending, among other things, that Emscor failed to meet the conditions of coverage under the policy and failed to satisfy certain conditions precedent to suit under the policy. On June 22, 1992, Emscor filed a response, contending that it met those conditions or, in the alternative, that those conditions had been modified and waived. That same day, Emscor executed a written assignment of 75% of "all rights, claims, and causes of action against Alliance" to the Ketcher plaintiffs. Four days later, Alliance filed a reply to Emscor's response to the motion for summary judgment. On June 29, 1992, the trial court granted Alliance's motion for summary judgment. After its motion for new trial was overruled by operation of law, Emscor perfected this appeal.
In four points of error, Emscor contends that the trial court erred in granting Alliance's motion for summary judgment.
A movant for summary judgment has the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Nixon v. Mr. Property Management, 690 S.W.2d 546, 548-49 (Tex.1985). In deciding whether there is a disputed material fact issue precluding summary judgment, proof favorable to the non-movant is taken as true, the court indulging every reasonable inference and resolving any doubts in favor of the non-movant. Id. To prevail on summary judgment, a defendant must establish as a matter of law that there is no genuine issue of fact as to one or more of the essential elements of the plaintiff's cause of action. Gibbs v. General Motors Corp., 450 S.W.2d 827, 828 (Tex. 1970).
An insurer may be held liable for the wrongful refusal to settle a claim against the insured within policy limits. Stowers, 15 S.W.2d at 544. The basis for Emscor's lawsuit is Alliance's alleged wrongful refusal, despite Emscor's insistence that coverage under the policy had been triggered, to tender its policy limits during the "Stowers period."[3] At the outset, we note that the Stowers doctrine, as will discuss, has never been applied to an excess carrier like Alliance. *902 However, in the interest of justice, we will address Emscor's Stowers claim. The Stowers period extended from October 19, 1990, when Emscor first notified Alliance of the Ketcher plaintiffs' $1,000,000 settlement demand, until November 5, 1990, when the Ketcher plaintiffs' final settlement offer expired. Thus, the primary question confronting this court is whether Emscor complied with the conditions of coverage under the policy during the Stowers period.[4]
Insurance policies are contracts and as such are controlled by rules of construction which are applicable to contracts generally. Barnett v. Aetna Life Ins., 723 S.W.2d 663, 665 (Tex.1987). Normally, in the insurance context, the language and terms of a policy are chosen by the insurance company. Id. at 666. Therefore, when the language chosen is ambiguous or inconsistent, and susceptible to more than one reasonable construction, such policies should be construed strictly against the insurer and liberally in favor of coverage for the insured. See Gonzalez v. Mission Am. Ins. Co., 795 S.W.2d 734, 737 (Tex.1990); Barnett, 723 S.W.2d at 666. A strict construction against the insurer is required when the case involves an exception or limitation to liability under the policy. See id. Only when the insurance contract is expressed in plain and unambiguous language, is it unnecessary for a court to resort to the various rules of construction. See id. at 665. Here, the terms of the Alliance policy are plain and unambiguous.
Part 2 of the Insuring Agreements in the Alliance policy states as follows:
Limits of LiabilityUnderlying Limits: Liability under this policy shall attach to the Company only after the underlying insurers have paid or have been held to pay the full amount of their respective loss liability as described in the underlying limits and the limits of liability of the Company under this policy shall then be as shown in item 4 of the Declarations.
[emphasis added]
Condition 5 states as follows:
Attachment of LiabilityLiability under this policy shall not attach unless and until the underlying insurers shall have admitted liability for the underlying limits or unless and until the Insured has by final judgment been adjudged to pay a sum which exceeds such underlying limits.
[emphasis added]
Thus, Alliance's coverage would have been triggered during the Stowers period by Emscor's compliance with any one of the following conditions:[5]
(1) The underlying insurers have paid the full amount of their respective loss liability.
(2) The underlying insurers have been held to pay the full amount of their respective loss liability.
(3) The underlying insurers shall have admitted liability for the underlying limits.
(4) The insured has by final judgment been adjudged to pay a sum which exceeds such underlying limits.
Although Emscor contends that it complied with all four conditions of the policy during the Stowers period, a review of the summary judgment proof shows that Emscor never triggered Alliance's excess coverage.
*903 Condition 1Paid
Emscor conceded in the trial court that it had not actually paid the underlying limits as of the hearing on November 12, 1990. Indeed, on October 26, 1990, five days before the execution of the guaranty letter, Emscor told Alliance that it was financially unable to pay the first $500,000 itself. In addition, there is nothing in the record to show that Emscor has paid the $500,000 underlying limit as of the time of this appeal.
The policy does not expressly state that an "agreement to pay" triggers coverage. However, Emscor contends that Alliance waived reliance, or is estopped from relying on the "actual payment" terms of the policy because Alliance "modified" those terms by its October 24th and 26th letters, requiring only that the Guaranty Fund, Emscor or both "agree to pay" or "make arrangements to pay." See Employers Casualty Co. v. Tilley, 496 S.W.2d 552, 561 (Tex.1973). Emscor did not make this contention during the relevant period of time preceding this lawsuit but did so only after suit was filed and Alliance had moved for summary judgment. Nevertheless, Emscor argues that there is a "fact issue" concerning whether Emscor paid the full amount of its respective loss liability, i.e., the $500,000 underlying policy limit, by executing the Letter of Guaranty on October 31, 1990.
Emscor refuses to recognize, however, that circumstances are different when dealing with an insured and an excess insurer as opposed to a primary insurer. This difference was explained by the court in Union Indem Ins. Co. of New York v. Certain Underwriters at Lloyd's, 614 F. Supp. 1015 (S.D.Tex.1985):
Primary insurance coverage is insurance coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability. [citation omitted] An excess policy is one that provides that the insurer is liable for the excess above and beyond that which may be collected on primary insurance. [citation omitted] In a situation in which there are primary and excess insurance coverages, the limits of the primary insurance must be exhausted before the primary carrier has a right to require the excess carrier to contribute to a settlement. [citations omitted] In such a situation, the various insurance companies are not covering the same risk; rather, they are covering separate and clearly defined layers of risk. The remote position of an excess insurer greatly reduces its chance of exposure to a loss. This reduced risk is generally reflected in the cost of the excess policy.
614 F.Supp. at 1017. [emphasis added]
As this court recognized, an excess liability insurer has no duty to defend an insured in the event of the insolvency of the insured's primary liability insurer. Emscor, Inc., 804 S.W.2d 195, 198-99 (Tex.App.Houston [14th Dist.] 1991, no writ) (and cases cited therein). Yet, as a panel of the 5th Circuit in Arkwright-Boston Mfr. Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442, 445 (5th Cir.1991) observed, "the paradigm estoppel situation occurs when the insurer assumes the insured's defense of a claim arguably not covered by the policy, without reserving its right to deny coverage." In other words, estoppel ordinarily arises in circumstances involving a primary carrier where the insurer undertakes the insured's defense without first advising the insured that it might interpose a policy defense following adjudication of the injured claimant's suit against the insured.
In Arkwright, an excess maritime insurer, Arkwright, sought reimbursement from its insured, Aries, for the amount of the underlying primary limits paid by Arkwright to settle the claim of a worker injured aboard a vessel owned by Aries. 932 F.2d at 443-44. The primary insurer for Aries was insolvent and Aries employed counsel to defend itself. Id. at 444. Although the excess policy did not require Arkwright to defend Aries, Arkwright participated in settlement negotiations during the trial to protect its excess coverage. Id. at 444-45. When the settlement *904 agreement was reached, Aries, apparently believing that the excess policy "dropped down" in place of the primary policy, refused to tender the underlying limits requested by Arkwright and instead offered to pay only the primary policy deductible. Id. at 444. Rather than risking collapse of the agreement, Arkwright proceeded to pay the entire amount of the settlement. Id.
In the subsequent reimbursement action, Arkwright argued that the duty to disclaim coverage or reserve rights is part of the duty to defend and that the failure to reserve rights could not give rise to estoppel where there was no duty to defend. Id. at 445. Without directly addressing Arkwright's argument, the court held that Arkwright's participation in the settlement negotiations was not tantamount to an assumption of Aries' defense without a reservation of rights, and therefore, Arkwright was not estopped from denying responsibility under the policy for the entire amount of the settlement. Id. at 446.
Likewise, the doctrine of estoppel is inapplicable to the facts of this case. As in Arkwright, Alliance did not provide a defense to Emscor. In fact, when Emscor brought suit against Alliance to determine its rights under the policy, this court specifically held that Alliance had no duty to defend Emscor. Emscor, Inc., 804 S.W.2d at 198-99. While it was kept informed of the progress of negotiations between Emscor and the Ketcher plaintiffs and periodically requested case assessments, Alliance did not in any manner participate in those negotiations or conduct what could be considered an investigation. In fact, the ongoing communication between Emscor and Alliance was merely the product of Emscor's persistent demands that Alliance assume Emscor's defense and pay its excess limits, regardless of whether the primary coverage was exhausted. Alliance properly refused those demands. Even if it could be said that Alliance somehow participated in the investigation and negotiation of the Ketcher suit, that conduct did not give rise to an assumption of Emscor's defense sufficient to invoke principles of estoppel or waiver. See Arkwright, 932 F.2d at 446.
Finally, even if it could be said that Alliance somehow provided Emscor with a defense, Alliance did not voluntarily relinquish a known right or otherwise act inconsistent with the express conditions of the policy. See Warren v. American Nat'l Ins. Co., 826 S.W.2d 185, 188-89 (Tex.App.Fort Worth 1992, writ denied) (holding that excess carrier, who offered to defend insured's employee subject to reservation of rights, did not waive, or was not estopped, from asserting policy defenses). Although Alliance did not provide Emscor with a formal reservation of rights under the policy, Alliance never misrepresented its duties and obligations to Emscor. Alliance consistently told Emscor prior to the October 24th and 26th correspondence, and thereafter, that the underlying limits had to be "paid" or "exhausted" before the coverage under the Alliance policy could be triggered. In fact, in the October 24th letter which Emscor claims establishes waiver, Alliance reiterated that it was "unable to move forward in any way until the Guaranty Fund and/or Emscor pays the first $500,000." [emphasis added] When Emscor subsequently tried to take advantage of the "agree to pay" or "arrange to pay" language, Alliance immediately objected to any "agreement to pay" as a condition for triggering coverage under the policy.
More importantly, condition 10 of the policy expressly states that the terms of the policy cannot be "waived or changed except by endorsement." No such endorsement requiring only an "agreement to pay" or "arrangement to pay" the underlying limits was executed by the parties. Furthermore, the doctrine of estoppel cannot be used to create insurance coverage where none exists by the terms of the policy. Texas Farmers Ins. Co. v. McGuire, 744 S.W.2d 601, 602-3 (Tex.1988). Emscor asserts that Texas Farmers is inapplicable because there was no dispute about liability coverage but only about when coverage was triggered. This is a distinction without a difference. While *905 Emscor was not seeking to enlarge coverage for the claims asserted against it in the underlying litigation, it was improperly attempting to expand excess coverage by creating a condition of excess coverage where none previously existed.
Assuming the express language of the policy can somehow be interpreted as requiring merely an "agreement to pay" or an "arrangement to pay" rather than "actual payment," as Emscor suggests, the Letter of Guaranty does not as a matter of law establish a definite and binding agreement or promise by either Emscor or the Texas Guaranty Fund to pay the underlying policy limits by November 5, 1990, when the Ketcher plaintiffs' final settlement demand expired. Whether the guaranty letter was sufficiently definite and binding so as to satisfy the conditions of the policy, is a matter of contract interpretation and a question of law. See e.g., T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex.1992).
As we previously showed, the guaranty letter required the Ketcher plaintiffs "to exhaust all efforts and remedies" to collect the full $500,000 from the Guaranty Fund. It also granted the Ketcher plaintiffs a security interest in Emscor's assets and property and required Emscor, upon the exhaustion of "all efforts and remedies" and upon demand by the Ketcher plaintiffs, to pay "the difference up to $500,000" between the amount approved by the Guaranty Fund and $500,000, within thirty days after demand. However, the guaranty letter specifically stated that Emscor was not obligated to pay "anything," unless the Ketcher plaintiffs first attempted collection from the Guaranty Fund.
More importantly, the guaranty letter did not specify a time period or deadline for the Ketcher plaintiffs to undertake such efforts or to tender a demand, but only that such action would be taken some time in the future. In essence, Emscor was supposed to pay an uncertain amount at some time in the future after the Ketcher plaintiffs had at some point in time attempted to obtain an uncertain amount from the Guaranty Fund.
Although the guaranty letter stated that Emscor's "obligations" were "irrevocable" and "unconditional," that clause was meaningless because Emscor did not have any "obligations" that could be considered fixed or definite. Indeed, it is hard to imagine an agreement more vague or non-binding.
Moreover, the Guaranty Fund was not even a party to the arrangement and as Emscor now concedes, was limited by statute to a payment of $100,000 per covered claim. Tex.Ins.Code Ann. art. 21.28-C § 5(8) (Vernon Supp.1993). Yet, during the Stowers period, Emscor never mentioned this statutory limit and kept telling Alliance that it was trying to get the Guaranty Fund to pay the full $500,000. In fact, Emscor, after numerous attempts and despite representations to the contrary, never obtained a commitment from the Guaranty Fund to pay any amount, let alone the $200,000 maximum provided by statute.
Further, when notified on October 31, 1990, that Emscor intended to execute a letter of guaranty to reflect its "agreement to obligate itself to pay $500,000," Alliance immediately questioned the arrangement. When Emscor finally faxed an actual copy of the guaranty letter on November 5, 1990, the day the settlement demand was to expire, Alliance faxed an immediate response, notifying Emscor that the guaranty letter was insufficient. Rather than rejecting the settlement offer out of hand, Alliance countered with a $100,000 offer that, consistent with earlier representations, was contingent on the exhaustion of the underlying limits. Clearly, Alliance had no duty to tender its policy limits because neither Emscor nor the Guaranty Fund had ever paid or agreed to pay the $500,000 underlying limits.
Condition 2Held To Pay
Emscor contends that the phrase "held to pay," is synonymous with "agree to pay" and, therefore, ambiguous because it does not specify who could hold Emscor to pay. Emscor suggests that it could be held to pay by a court of competent jurisdiction or *906 could hold itself to pay by mere agreement or promise. The explanation set forth by the Emscor, however, does not make the phrase "held to pay," ambiguous. The question of whether an insurance contract is ambiguous is a question of law. State Farm Lloyds Inc. v. Williams, 791 S.W.2d 542, 545 (Tex.App. Dallas 1990, writ denied). Not every difference in the interpretation of a contract or an insurance policy amounts to an ambiguity. Forbau v. Aetna Life Ins., 876 S.W.2d 132, 134 (1994) (on motion for rehearing). Both the insured and the insurer are likely to take conflicting views of coverage, but neither conflicting expectations nor disputation is sufficient to create ambiguity. Id., 876 S.W.2d at 134 (emphasis in original).
When the Policy is viewed in its entirety without isolating or giving priority to any one phrase, sentence or section, it clearly demonstrates that the phrase "held to pay" is not ambiguous. That phrase, as we will detail, is consistent with the no-action clause of the policy and plainly posits that Emscor first be "held liable to pay" either by judgment after a trial on the merits or by settlement agreement. See, e.g., Hudson Ins. Co., v. Gelman Sciences Inc., 921 F.2d 92 (7th Cir.1990); Highlands Ins. Co. v. Gerber Products Inc., 702 F. Supp. 109 (D.Md. 1988); Vickodil v. Lexington Ins. Co., 412 Mass. 132, 587 N.E.2d 777 (1992). Neither of those circumstances existed during the Stowers period.
Assuming, for the reason stated by Emscor, the phrase "held to pay" is ambiguous and only Emscor's "promise to pay" was required, Emscor still did not satisfy this condition of the policy. As we explained, the guaranty letter executed on October 31, 1990, did not, as a matter of law, hold Emscor to pay the underlying limit because any payment was contingent solely on the Ketcher plaintiffs taking appropriate action at some time in the future against the Guaranty Fund. In addition, the Guaranty Fund was not a party to that arrangement or to the subsequent agreed judgment. Further, the Agreed Final Judgment, regardless of whether it was the result of a trial on the merits or a settlement agreement, was not rendered until seven days after the Stowers period had expired. Moreover, that agreed judgment did not obligate Emscor to pay the underlying limits because the covenant to postpone execution and assignment of rights entered into by the Ketcher plaintiffs and Emscor shortly thereafter, discharged Emscor from any liability for the judgment in the event that the Alliance lawsuit was compromised or settled. Emscor was plainly not "held to pay" the underlying limits, either by its own volition or by judgment during the Stowers period.
Condition 3Admitted Liability
Emscor contends that it "admitted liability" for the underlying limits in certain correspondence forwarded to Alliance. Generally, an admission is a "confession, concession or voluntary acknowledgment by a party of the existence of certain facts." Black's Law Dictionary 44 (5th ed. 1979). A "liability" refers generally "to an obligation one is bound in law or justice to perform; every kind of legal obligation, responsibility or duty; that which one is under obligation to pay, or for which one is liable." Black's Law Dictionary 823 (5th ed. 1979) (citing Reconstruction Finance Corp. v. Gossett, 130 Tex. 535, 111 S.W.2d 1066, 1073 (1938)). None of the correspondence described by Emscor obligated it, legally or otherwise, to pay the underlying limits.
While Emscor predicted in the letters of March 7th and October 19th that a verdict or judgment in the Ketcher litigation would probably exceed the limits of both policies, it never confessed, conceded or acknowledged any legal obligation to pay the $500,000 underlying policy limits. Also, Emscor's "agreement to obligate itself" as noted in the October 31st letter was tied solely to the Letter of Guaranty, which, as we already stated, did not obligate Emscor to pay the underlying limits. Moreover, the Letter of Guaranty did not contain a recital that confessed or conceded Emscor's legal *907 obligation to pay the underlying limits. In fact, it said nothing about Emscor's liability for the underlying limits. Rather, as we previously pointed out, it declared that Emscor did not have to pay anything in the absence of collection efforts by the Ketcher plaintiffs and spoke primarily of Emscor's future payment of an amount less than $500,000. Obviously, Emscor did not admit liability for the underlying limits during the Stowers period.
Condition 4Adjudged To Pay By Final Judgment
As we earlier stated, the Agreed Final Judgment was executed on November 12, 1990, after the Stowers period expired, and that judgment, along with the subsequent covenant to postpone execution and assignment of rights, did not obligate Emscor to pay the underlying limits. Hence, Emscor was not adjudged to pay the underlying limits during the Stowers period.
Because Emscor failed during the Stowers period to comply with any of the conditions of coverage under the Alliance policy, Alliance never had a duty to settle. Therefore, this suit is barred. This lawsuit is also barred by the no-action clause.
The "No-Action" Clause
Condition 8 of the policy, i.e., the no-action clause, states the prerequisites for bringing suit against Alliance:
Action Against Company: No action shall lie against the Company unless as a condition precedent thereto, the Insured shall have fully complied with all the terms of this policy, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the claimant and the Company.
[emphasis added]
The operative language of the above clause is that "no action shall lie against the Company [Alliance] ... unless ... nor until" certain events occurred. Specifically, the no-action clause requires Emscor's full compliance with all the terms of the policy and a determination of Emscor's obligation to pay either by judgment after actual trial or by written agreement of Emscor, the Ketcher plaintiffs, and Alliance. The validity of this type of clause has long been recognized in Texas. See Guaranty County Mut. Ins. Co. v. Kline, 845 S.W.2d 810, 811 (Tex.1993) (per curiam); Street v. The Honorable Second Court of Appeals, 756 S.W.2d 299, 302 (Tex.1988); Gulf Ins. Co. v. Parker Prods., Inc., 498 S.W.2d 676, 679 (Tex.1973); Great Am. Ins. Co. v. Murray, 437 S.W.2d 264, 265 (Tex. 1969). Thus, even if Emscor had triggered coverage under the policy, Emscor could not bring this suit unless it satisfied either the "actual trial" or "written agreement" requirement of the no-action clause.
Written Agreement
It is undisputed that Alliance did not appear at the November 12th hearing and was not a party to the Agreed Final Judgment. Thus, the Agreed Final Judgment did not constitute a "written agreement of the Insured, the claimant, and the Company [Alliance]" as required by the no-action clause. Similarly, the Letter of Guaranty did not satisfy the requirements of the no-action clause because not only was Alliance excluded as a party to that arrangement, but also the instrument itself did not constitute a determination of Emscor's obligation to pay or a release of Emscor's liability. Nonetheless, Emscor contends that it complied with the no-action clause because the November 12th hearing was an "actual trial."
Actual Trial
Emscor points out that the judge heard testimony from witnesses before giving his approval to the settlement. In support of its argument, Emscor cites Gulf Ins. Co. v. Vela, 361 S.W.2d 904 (Tex.App.Austin 1962, writ ref'd n.r.e.) and Pioneer Casualty Co. v. Jefferson, 456 S.W.2d 410 (Tex. *908 App.Houston [14th Dist.] 1970, writ ref'd n.r.e.). In Vela, the plaintiff sought recovery against an insurance carrier who refused to defend or cover the defendant/insured in the underlying auto collision suit. 361 S.W.2d at 905. The Austin Court of Appeals held that there was an "actual trial" where a jury heard testimony from the plaintiff and the plaintiff's doctor in the underlying suit and the court rendered judgment for the plaintiff. Id. at 908. In Jefferson, this Court, on underlying facts similar to Vela, held there was an "actual trial" where the attorney for the insured appeared before the court and "admitted liability" and where, as in Vela, the judgment recited that the pleadings and sworn testimony had been heard by the court. 456 S.W.2d at 413.
Alliance contends there was no "actual trial" because the trial court did not hear evidence, made no findings, and did not determine liability or damages. Alliance is correct. Michael Weaver's widow, Kristina Weaver, and Emscor's President, Jim Jenson, testified at the November 12th hearing, according to the Ketcher plaintiffs' attorney, "to prove up the settlement" on behalf of the minor, Lyndsey Michelle Weaver. In actuality, the parties had already agreed before the hearing to the ad litem fees to be taxed against the other settling defendants and then agreed at the hearing to defer "other ad litem matters" with respect to Emscor, pending the outcome of the suit against Alliance.
Thus, the only "evidence" the trial court heard was the parties respective understanding of the agreement. Mrs. Weaver acknowledged that for consideration of the $3,000,000 settlement, she was foregoing the option of "going to trial against" Emscor and "obtaining a judgment that [she] may not collect." She also recognized that she was to give Emscor a covenant to postpone execution of the judgment until such time as attempts were made to collect funds from the Guaranty Fund and until Emscor prosecuted the suit against Alliance.
Mr. Jenson acknowledged the Ketcher plaintiffs' covenant to postpone execution of the judgment "until all efforts to recover funds from [Alliance] have failed." He also acknowledged that in exchange for the Ketcher plaintiffs' promise, Emscor would assign 75% of its cause of action and continue to engage in business. Finally, Mr. Jenson stated his belief that Emscor was not to blame for the accident "in any way" and that Emscor was taking this course of action as a prudent business decision. The Agreed Final Judgment itself recites that Emscor's agreement "to this judgment was not an admission of any liability, and was not to be construed as such, but that [Emscor] was compelled to agree to this judgment in an effort to limit its exposure ... without any admission of guilt."
The term "judgment following actual trial" contemplates "a contest of issues leading up to a final determination by court or jury in contrast to a resolving of the same issues by agreement of the parties, i.e., without a contest." Wright v. Allstate Ins. Inc., 285 S.W.2d 376, 379-80 (Tex.App.Dallas 1956, writ ref'd n.r.e.). There is no question that disposition of the Ketcher litigation was by "friendly suit" or consent judgment where, upon hearing, the only objective of the parties was to obtain the court's approval of their agreement and to memorialize that agreement as the judgment of the court. See Gulf Ins. Co. v. Texas Casualty Ins. Co., 580 S.W.2d 645, 648 (Tex.App.Fort Worth 1979, writ ref'd n.r.e.); see also Wright, 285 S.W.2d at 379. The November 12th hearing did not involve a "contest of issues" regarding liability, damages or any other matter. The trial court did not hear "evidence" or make findings related thereto, and the judgment contains no such recitals as described in Vela and Jefferson. The trial court did approve the parties' agreement on the record; however, had the court withheld its approval, the parties still would not have litigated the matters raised at the hearing. See Gulf Ins. Co., 580 S.W.2d at 648.
Emscor asserts that Alliance cannot rely on the no-action clause under the exception set out in Gulf Ins. Co. v. Parker Prods. Inc. In that case, decided after Vela and Jefferson, *909 the Supreme Court held that an insurance company may ordinarily insist upon compliance with the no-action clause for its own protection, but the company may not do so after it is given the opportunity to defend the suit or to agree to settlement and refuses to do either on the erroneous ground that it has no responsibility under the policy. Gulf Ins. Co., 498 S.W.2d at 679; see also First Nat'l Indem. Co. v. Mercado, 511 S.W.2d 354, 358 (Tex.App.Austin 1974, no writ). [emphasis added]
This exception has only been applied to situations involving primary carriers who ordinarily have a contractual duty to defend when an occurrence falls within coverage provisions of the policy. See, e.g., Gulf Ins. Co., 498 S.W.2d at 679; Ranger Ins. Co. v. Robertson, 707 S.W.2d 135, 143-44 (Tex. App.Austin 1986, writ ref'd n.r.e.); Theode v. International, Service Ins. Co., 600 S.W.2d 389, 391 (Tex.App.Houston [14th Dist.] 1980, writ ref'd n.r.e.); Young Men's Christian Assoc. v. Commercial Standard Ins. Co., 552 S.W.2d 497, 504 (Tex.App.Fort Worth 1977), writ ref'd n.r.e., 563 S.W.2d 246 (Tex. 1978) (per curiam).; Liberty Mut. Ins. Co. v. General Ins. Corp., 517 S.W.2d 791, 798 (Tex. App.Tyler 1974, writ ref'd n.r.e.); Mercado, 511 S.W.2d 358.
However, this case concerns an excess carrier who had no contractual duty to defend. Emscor, Inc., 804 S.W.2d at 199-98; Harville v. Twin Fire Ins. Co., 885 F.2d 276, 279 (5th Cir.1989). Emscor points out that it does not complain that Alliance erroneously refused to defend Emscor in the Ketcher litigation, but only that Alliance wrongfully and erroneously refused to settle the case for the excess policy limits during the Stowers period. Alliance might have wrongfully refused settlement only if Emscor had satisfied one of the four conditions of coverage. As we stated, Emscor did not do so and, as is apparent from the record, had no intention of doing so.
Failure To State A Stowers and Bad Faith Cause of Action
There is simply no authority in this State establishing a cause of action by an insured against its excess insurer for negligence, bad faith, or for unfair and deceptive practices in the handling of a claim brought by a third-party. The Stowers doctrine has been applied in Texas in only two circumstancesto the insured's right to sue a primary carrier for wrongful refusal to settle a claim within policy limits, see G.A. Stowers Furniture Co. v. American Indem., Co., 15 S.W.2d 544, 547-48 (Tex.Comm'n App.1929, holding approved), and to an excess carrier's right to sue a primary carrier, under the theory of equitable subrogation, to protect the excess carrier from damages for a primary carrier's wrongful handling of a claim, see American Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480, 483 (Tex.1992). Neither of those circumstances are present in the instant case.
Under Stowers, the insurer's duty to the insured, extends to the full range of the agency relationship as expressed in the policy. See Ranger County Mut. Ins. Co. v. Guin, 723 S.W.2d 656, 659 (Tex.1987). [emphasis added]. That duty may include investigation, preparation for defense of the lawsuit, trial of the case, and reasonable attempts to settle. See American Physicians Ins. Exchange v. Garcia, 876 S.W.2d 842, 849 (Tex.1994) (opinion on motion for rehearing). Here, Alliance had no duty to investigate, negotiate or defend Emscor under the terms of the excess policy or at law, and never undertook those responsibilities on its own. See Emscor, 804 S.W.2d at 197-99. Therefore, Alliance had no duty under Stowers and Emscor has failed to state a Stowers cause of action.
Similarly, Emscor has failed to state a cause of action for bad faith. No Texas court has applied the duty of good faith and fair dealing to an excess insurer. None of the federal cases applying Texas law, which are cited by the dissent, expressly recognizes a common-law duty of good faith and fair dealing on the part of an excess carrier to an insured. Those cases merely assume without deciding that such a duty exists. Harbor Ins. Co. v. Urban Constr. Co., 990 F.2d 195, 202 (5th Cir.1993); Beaumont Rice Mill, Inc. *910 v. Mid-American Indem. Ins. Co., 948 F.2d 950, 952 (5th Cir.1991); McCracken v. U.S. Fire Ins. Co., 802 F. Supp. 30, 36 (W.D.Tex. 1992). Having no duty to "handle" the Ketcher plaintiffs' claim for Emscor, Alliance could not have breached a duty and Emscor therefore had no cause of action to assign to the Ketcher plaintiffs.[6] To subject Alliance to such potential liability, would be to forge a cause of action not previously recognized in this State. It is not for an intermediate appellate court to create new causes of action.
No Recovery
Assuming Emscor has stated a cause of action, it has failed to establish recovery as a matter of law. Emscor asserts that Alliance is at least liable on the policy because there is now an agreed judgment. Again, Alliance was not a party to the agreed judgment nor was the agreed judgment rendered after a trial on the merits. In addition, the record shows that Alliance never refused to tender its policy limits; rather, it promised to do so, provided that Emscor paid the underlying limits in accordance with the insurance contract. More importantly, as we previously noted, there is nothing in the record to indicate that Emscor has ever paid the $500,000 underlying limit. Thus, Emscor is not entitled to recover as a matter of law on its breach of contract cause of action.
Likewise, Emscor cannot recover on its bad faith or Stowers claim. Texas law recognizes the duty of an insurer to deal fairly and in good faith with its insured in the processing and payment of claims and, when assuming the insured's defense, to act as an ordinary prudent person would act in the management of his or her own business affairs. Arnold v. Nat'l County Mutual Fire Ins. Co., 725 S.W.2d 165, 167 (Tex.1987); Ranger County Mut. Ins. Co. v. Guin, 723 S.W.2d 656, 659 (Tex.1987) (citing Stowers, 15 S.W.2d at 547). To recover for breach of the duty of good faith and fair dealing, a plaintiff must prove: (1) the absence of a reasonable basis for denying or delaying payment of policy benefits; and (2) that the insurer knew or should have known that there was no reasonable basis for denying or delaying payment. See National Union Fire Ins. Co. v. Dominguez, 873 S.W.2d 373 (1994) (citing Aranda v. Insurance Co. of North Am., 748 S.W.2d 210, 212-13 (Tex.1988)). However, an insurer maintains the right to deny invalid or questionable claims and is not subject to liability for an erroneous denial of a claim. See Lyons v. Millers Casualty Ins. Co. of Texas, 866 S.W.2d 597, 600 (citing Aranda, 748 S.W.2d at 213). Whether there is a reasonable basis for denial is judged by the facts before the insurer at the time the claim is denied. Viles v. Security Nat'l Ins. Co., 788 S.W.2d 566, 567 (Tex.1990).
If the conditions of coverage are truly ambiguous, i.e., susceptible of more than one reasonable interpretation, as Emscor suggests, then Alliance's denial of coverage based on its interpretation of the policy terms cannot be anything but reasonable. See McCracken, 802 F.Supp. at 36-37. Indeed, the Texas Supreme Court has recently held that evidence that merely shows a bona *911 fide dispute about the liability on the insurance contract does not rise to the level of bad faith. Transportation Ins. Co. v. Moriel, 37 Tex.Sup.Ct.J. 450, 455, (February 2, 1994); see Lyons, 866 S.W.2d at 601. Nor is bad faith established when the trier of fact, with the benefit of hindsight, decides the insurer was simply wrong about the factual basis for its denial of the claim or about the proper construction of the policy. See Moriel, 37 Tex.Sup.Ct.J. at 455. [emphasis added]
"The issue of bad faith focuses not on whether the claim was valid, but on the reasonableness of the insurer's conduct in rejecting the claim." Lyons, 866 S.W.2d at 601. The summary judgment proof establishes that there was, at most, a "bona fide controversy" about whether Emscor satisfied the conditions of coverage. See St. Paul's Ins. v. Fong Chun Huang, 808 S.W.2d 524, 526 (Tex.App.Houston [14th Dist.] 1991, writ denied); see also Beaumont Rice Mill, 948 F.2d at 952. Because a dispute about coverage does not as a matter law rise to the level of bad faith or connote such a lack of ordinary care so as to give rise to an action in negligence under Stowers, the summary judgment in favor of Alliance on those causes of action was proper. See id.[7]
Lastly, summary judgment on Emscor's Insurance Code and DTPA claims was proper. Emscor alleged in its pleadings that Alliance "made representations to [Emscor] in order to induce [Emscor] to purchase the Policy" and that "the falsity of these representations came to light when [Emscor] discovered... that Alliance refused to provide [Emscor] with coverage and [refused] to settle the underlying [Ketcher] litigation." The summary judgment proof does not reveal the precise nature of Alliance's alleged misrepresentations. Assuming that Emscor's allegations are true, however, its claims are barred by limitations.
An action under article 21.21 of the Insurance Code and under the DTPA must be commenced within two years after the deceptive act or practice or within two years after the plaintiff discovered, or in the exercise of reasonable diligence, should have discovered the deceptive act or practice. Tex.Ins.Code Ann. art. 21.21 § 16(d) (Vernon Supp.1994); Tex.Bus. & Com.Code Ann. § 17.565 (Vernon 1987). Emscor purchased the Policy in 1987, but asserts that it did not learn of Alliance's alleged misrepresentations until Alliance "refused to provide coverage and refused to settle." Emscor does not say exactly when that occurred. The summary judgment proof shows that on September 23, 1988, Emscor was notified by Alliance that Alliance's excess policy would not "drop down to pick up the coverage that the primary carrier provided." Emscor filed suit on May 9, 1991, more than two years after Emscor discovered that the Alliance excess policy did not provide coverage. Thus, Emscor's DTPA and Insurance Code claims are barred.
Even if limitations do not preclude those claims, Emscor is still not entitled to recovery. Breach of the Stowers duty alone does not constitute a violation of article 21.21 or the DTPA. Garcia, 876 S.W.2d at 847. There is nothing in the record that shows that Alliance ever misrepresented its duties and obligations under the policy or that Alliance otherwise engaged in unfair or deceptive acts or practices as defined by article 21.21 of the Insurance Code and section 17.46 of the DTPA. Tex.Ins.Code Ann. art. 21.21 §§ 4, 16 (Vernon Supp.1994); Tex.Bus. & *912 Com.Code Ann. § 17.46 (Vernon 1987). Hence, Emscor could not recover on these claims.
Conclusion
It is obvious from Emscor's communications with Alliance and the Guaranty Fund and from its negotiations with the Ketcher plaintiffs that Emscor was financially unable to pay the first $500,000 of primary coverage. Indeed, the summary judgment proof reflects that Emscor had no intention of paying the underlying limits. Rather, Emscor tried to get the Guaranty Fund to pay the first $500,000. Emscor never obtained the Guaranty Fund's commitment and even if it had, the Fund could not have paid the entire $500,000. Nor did Emscor ever actually pay or unconditionally promise to pay the first $500,000. When these efforts failed, Emscor attempted circumvent the actual payment provision of the policy by asserting at the "last minute" that it had satisfied the policy conditions as "modified" and, finally, by executing the Agreed Final Judgment which never obligated it to pay the underlying limits. Yet, throughout these sequence of events, Emscor continued to insist that Alliance tender its excess policy limits. Had Alliance done so without assurance that Emscor would ever pay the underlying limits, it would have been left in the position of the primary insurer, contrary to the express terms of the excess policy and contrary to the laws of this State. Placing such a burden on the excess carrier would defeat the very purpose of excess liability insurance and make such coverage more expensive and inaccessible. See Emscor, Inc., 804 S.W.2d at 198 (quoting Harville v. Twin City Ins. Co., 885 F.2d 276, 279 (5th Cir.1989)).
In Laster v. American Nat'l Fire Ins. Co., 775 F. Supp. 985 (N.D.Tex.1991), aff'd, 966 F.2d 676 (5th Cir.1992), a case with strikingly similar facts, the court held that summary judgment in favor of an excess carrier on causes of action brought by a personal injury plaintiff as assignee of the insured was proper where the insured had not paid the underlying policy limit and where the insured's defense of the underlying personal injury claim was in disregard of the excess insurer's rights. 775 F.Supp. at 992-1000. The court warned of the injustice which now confronts Alliance:
The requirement that such payment be made by the insured before [the excess insurer] can become liable is an acceptable and reasonable condition precedent. It has as its objective the prevention of an arrangement by which the insured would seek to cause liability to be imposed on the insurance company for an amount in excess of the retained limit without first experiencing any financial detriment himself.
* * * * * *
If the policy did not contain such a condition, [the insurer] could be subjected to fraudulent and collusive transactions of a kind to which an excess insurer becomes particularly vulnerable when the primary insurer refuses, or is unable, to perform its obligation to protect the insured by providing him an appropriate investigation and defense related to claims arising from a covered occurrence.... [The excess insurer] had no duty to defend [the insured] in the damage suit though it had the option to do so. If an excess carrier elects not to provide a defense, and if the primary carrier fails or refuses to defend the insured, there is the temptation on the part of the insured to join with the injured party in a collusive arrangement that would give the insured immunity from any financial exposure while at the same time providing the injured party an opportunity to seek collection under the excess insurance policy. When there is a requirement, such as the one contained in the [excess insurer's] policy, that the excess insurer cannot be liable unless the insured has first made a significant payment of his own, the risk that the insured and the injured will take unfair advantage of the excess insurer is greatly reduced.
775 F.Supp. at 993; see also State Farm Fire & Cas. Co. v. Gandy, 880 S.W.2d 129, 138 (Tex.App.Texarkana 1994, writ pending) (observing that an agreed judgment executed *913 contemporaneously with a covenant not to execute violates public policy because it perpetrates a fraud on the court).
Because Emscor failed to satisfy the conditions of the Alliance policy and failed to state a cause of action, summary judgment in favor of Alliance on Emscor's contractual and extra-contractual causes action was proper. Accordingly, we overrule Emscor's points of error and affirm the judgment of the trial court.
SEARS, Justice, dissenting.
Perhaps the most significant observation that illustrates the inequity embraced by the majority opinion is in the letter dated October 25, 1990, from Emscor attorneys to Alliance attorneys:
... It is certainly not Emscor's fault that its primary insurance company has become insolvent. There is also no doubt that had the primary insurance company not become insolvent this case would have been settled by now with the full $500,000.00 primary being paid, along with the full $500,000.00 excess coverage with Alliance whom you represent. It would be grossly unfair to allow Alliance the windfall of not having to pay its $500,000.00 excess coverage simply because of the historical accident of Emscor's primary insurance carrier becoming insolvent....
I concur in the foregoing and respectfully dissent from the majority opinion. I would reverse the summary judgment because Emscor satisfied the express conditions of the Alliance policy during the Stowers period. Alternatively, I would hold that there is a fact question as to whether Alliance modified or waived the conditions of the policy during the Stowers period and, therefore, under the doctrines of waiver or estoppel, could not require Emscor to comply with those conditions.
Initially, Alliance contends that the first three conditions that could trigger the excess coverage could only be satisfied by the underlying insurer, Stone Mountain, or its receiver, the Texas Guaranty Fund. The Policy reads that:
(1) The underlying insurers have paid the full amount of their respective loss liability;
(2) the underlying insurers have been held to pay the full amount of their respective loss liability;
(3) the underlying insurers shall have admitted liability for the underlying limits; and
(4) the insured has by final judgment been adjudged to pay a sum which exceeds such underlying limits.
Alliance's interpretation that only Stone Mountain can satisfy those conditions is unreasonable. In other words, under Alliance's interpretation, only condition (4) could have triggered coverage under the policy once Stone Mountain became insolvent, because condition (4) was the only condition that omitted a reference to compliance by the "underlying insurer". Such a construction of the policy favors exclusion of coverage and is unreasonable. See National Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.1991).
Consistent with the rule that ambiguities and inconsistencies in insurance contracts are to be strictly construed in favor of coverage, I would hold that Emscor could "step into the shoes" of the underlying insurer for the purpose of satisfying the policy conditions. See id.; see also Stonewall Ins. Co. v. Modern Exploration, Inc., 757 S.W.2d 432, 434-35 (Tex.App.Dallas 1988, no writ) (holding that third-party beneficiary of an excess policy could step into the shoes of the insured in order to satisfy conditions of a policy where excess insurer provided defense upon a reservation of rights). This interpretation is consistent with Alliance's September 23, 1988, letter acknowledging that "Emscor would be responsible for the primary level of coverage."
Because Emscor could properly step into the shoes of its primary carrier, Stone Mountain, *914 the question becomes whether Emscor satisfied the conditions of the Alliance policy during the Stowers period. As the majority correctly observes, Emscor did not comply with conditions (1) and (4) during the Stowers period. Emscor had not actually paid the underlying limits as of the November 12th hearing, and the Agreed Final Judgment resulting from that hearing was not rendered until seven days after the Stowers period had expired. However, Emscor only had to comply with 1 of the 4 conditions in order to trigger the excess coverage.
Condition 2Held To Pay
The majority opinion takes the position that "held to pay" is only satisfied when Emscor is held liable to pay by "judgment". However, the cases cited by the majority opinion clearly show that compliance with the contract requirement that the insured be "held to pay" may be satisfied by "settlement agreement". In the three cases cited by the majority opinion to uphold this position, the majority misstates the holdings of those cases, as will be shown below.
Case No. 1: Hudson Insurance Co. v. Gelman Sciences, Inc., 921 F.2d 92 (7th Cir. 1990).
Hudson issued a $4,000,000 excess insurance policy to Gelman, to cover Gelman's liability between $21,000,000 and $25,000,000. Mission Insurance Company covered liability from $2,000,000 to $21,000,000. When an incident occurred for which Gelman's liability was $1,000,000 over its primary policy, the primary carrier paid. Mission was insolvent, and Gelman demanded that Hudson "drop down" and cover the excess $1,000,000. The 7th Circuit held that Hudson was not required to "drop down." Contrary to this majority opinion, the 7th Circuit did not define or interpret the term "held to pay" or "held liable to pay". The 7th Circuit only held that the phrase in the policy, "held liable to pay", did not require Hudson to "drop down" into the shoes of the insolvent carrier. The Hudson case is inapposite to the appeal before this court, because Emscor did not request Alliance to "drop down" into the shoes of the insolvent carrier. Instead, Emscor stepped into the shoes of the insolvent carrier, executed a settlement agreement, and agreed to pay the primary coverage of $500,000. Emscor then demanded that Alliance, as excess carrier, pay its excess coverage of $500,000.
Case No. 2: Highlands Insurance Co. v. Gerber Products Co., 702 F. Supp. 109 (D.Maryland 1988).
Gerber carried primary insurance with Liberty Mutual, first-level excess with Mission National, and second-level excess with Highlands, AIU, American and Federal. Gerber settled a lawsuit for one million dollars in excess of its primary coverage. The second level excess carrier, Mission National, was bankrupt. Gerber then sought to have Highlands, AIU, American and Federal "drop down" and provide first level excess coverage. Like the Emscor policy, the Highlands policy had language providing that Highlands would not become liable until the underlying carriers had paid or had been "held liable to pay." The majority opinion indicates that the Maryland Court holding was that the phrase, "held liable to pay" meant that the insured be held liable to pay by "judgment or a settlement." However, that was not the holding of the Court. The Maryland District Court held that the phrase "held liable to pay" was "merely an acknowledgment that attachment of [the excess carriers] liability need not wait for actual payment of the underlying amount." The Court then correctly held that Highlands did not have to "drop down." However, it is significant to this appeal that the Maryland court held that the triggering of the excess carrier liability "need not wait" for actual payment of the primary coverage.
Case No. 3: Vickodil v. Lexington Insurance Co., 412 Mass. 132, 587 N.E.2d 777 (1992).
Vickodil was a plaintiff in a lawsuit against Amrak and received a judgment of $1,473,934.10. Amrak's primary carrier Aetna, provided coverage up to $100,000.00. Amrak's *915 first-level excess carrier, Northeastern, provided coverage between $100,000.01 and $999,999.99, and Amrak's second-level excess carrier, Lexington, provided coverage starting at $1,000,000.00. Aetna paid the full limits of their primary liability, $100,000.00. Northeastern was bankrupt, and the Guaranty Fund paid $299,000 to Vickodil on behalf of the first-level excess carrier. Lexington then paid $473,934.10, which was the amount in excess of a million dollars. Vickodil sued Lexington for the remaining $601,000.00, claiming that Lexington had an obligation to "drop down" and pay that amount which Northeastern could not pay. Lexington's insurance contract also contained the language "had paid or had been held liable to pay." That court determined that "held liable to pay" meant that the insured had been "held liable to pay the plaintiff." Again, the majority opinion is incorrect in stating that the court held the phrase "held liable to pay" means that they be held to pay by a judgment. The court simply found that the insured, under the facts of this case, had been held liable to pay because a judgment had been rendered. However, the majority fails to point out that the court determined that "held to pay" meant "held liable to pay the plaintiff." Clearly, by the settlement agreement which will be discussed later in the opinion, Emscor was "held liable to pay the plaintiff" during the Stowers period.
While the majority opinion clearly states that all three of the foregoing cases hold that "held to pay" requires that a "judgment" be rendered prior to triggering the liability of an excess carrier, that is not the law, and was not the law as stated in those opinions. While there is no Texas law that defines "held to pay", or "held liable to pay," all of the caselaw which I can find from our sister states clearly do not require that a judgment be rendered in order to satisfy the "held to pay" provision of an excess carrier's insurance policy. The majority opinion appears to confuse this appeal with "drop down" case. This is not a "drop down" case. This is a case where the excess carrier refused to pay the excess coverage after the insured stepped into the shoes of the bankrupt primary carrier, executed a settlement agreement, and held itself liable to pay the full limits of the primary policy.
I have found a case that is remarkably similar to some important aspects of this appeal. United States Fid. and Guaranty Co. v. Safeco Ins., 555 S.W.2d 848 (Missouri App.1977). Although Safeco is a complex case, involving the payment of interest accumulated while the insurance companies litigated their respective liabilities, it involves an additional question that we are faced with in this appeal: can settlement between the insured and the plaintiffs of the primary policy limits trigger the obligation of excess carriers to pay? Safeco, like Alliance, maintains that excess carriers have no liability until the primary carrier has discharged its responsibility by "paying the full policy limit." Also, like Alliance, Safeco contends that payment, not settlement, discharges a primary carriers liability and triggers the excess coverage. However, the enlightened Supreme Court of Missouri held that the primary carriers "liability was exhausted by the settlement with the [plaintiffs], and Safeco's liability as the excess carrier arose." (emphasis added).
Also of particular interest in the Safeco case is that the plaintiffs settled with the insured because the primary carrier was insolvent. In the terms of the settlement, the plaintiffs agreed not to pursue the insured's personal assets to satisfy any judgments they might recover, but instead agree to seek relief only from the solvent excess carriers involved. In exchange for that concession, the insured admitted liability.
Emscor is in a much better position than the insured in Safeco in that Emscor has: (1) settled, (2) admitted liability, and (3) held itself to pay the full amount of the primary coverage. The Safeco court cited an earlier case and held "while emphasizing that exhaustion of the primary insurance was a necessary condition precedent to liability under the excess policy, such condition is complied with when the insured proves that the claims *916 aggregating the full amount of the specific policy had been settled thereunder and full liability of the insurer discharged." Handleman v. U.S.F. & G. Co., 223 Mo.App. 758, 18 S.W.2d 532 (1929). (emphasis added).
Settlement Agreement/Guaranty Letter
The majority holds that the guaranty letter was not definite or binding, because it did not specify a deadline for the Ketcher plaintiffs to undertake efforts to collect the full $500,000 from the guaranty fund or to tender a demand to Emscor. However, as the above cases show, there is no requirement that the plaintiffs collect in full from the insured on the underlying policies. There is only a requirement that they enter into a settlement agreement which they accept as satisfaction of the coverage due under the primary policy.
The terms of the letter of guaranty are as follows: "for good and valuable consideration, the receipt of which is hereby acknowledged and confessed and in further consideration of the compromise and settlement of the subject litigation, guarantors agreed to the following terms:"
3(a) Guarantors will pay beneficiaries the difference, up to five-hundred thousand dollars ($500,000), between the amount of money the Texas state board of insurance guaranty fund approves for payment as the result of claims filed with the guaranty fund in the subject litigation, and the total sum of five-hundred thousand dollars ($500,000).
(b) Before guarantors are obligated to pay beneficiaries anything, beneficiaries are obligated to exhaust all efforts and remedies to collect up to five-hundred thousand dollars ($500,000) from the state board of insurance guaranty fund.
(c) After beneficiaries have exhausted all efforts and remedies stated in paragraph 3(b) then guarantors shall immediately become obligated upon thirty (30) days written demand of beneficiaries to pay the amount due following the directives of paragraph 3(a) above.
(d) Guarantors obligations to beneficiaries are irrevocable and unconditional.
Further, paragraph 4 shows that as security to the beneficiaries, Emscor "hereby grants to beneficiaries a security interest in and to all assets and properties of Emscor, Inc. and Emscor, Inc. agrees to execute and cause to be filed financing statements to perfect such security interests."
In spite of all of Emscor's attempts to comply with the policy conditions, as they existed and as they were modified, and to convince Alliance to settle the Ketcher plaintiffs' excess claims, Alliance defiantly refused.
Condition 3Admitted Liability
Emscor contends that it "admitted liability" for the underlying limits of the primary coverage and thereby satisfied condition 3. For the majority opinion to ignore the satisfaction of condition 3, the majority must believe that only Stone Mountain and not Emscor could be responsible for the primary coverage. However, Alliance specifically told Emscor that Emscor would be responsible for its own primary coverage as a result of the underlying insurers insolvency. Further, in an attempt to fulfill that responsibility, and in accordance to Alliance's instructions and modified conditions, Emscor executed the letter of guaranty. The letter of guaranty satisfies all of plaintiffs' claims against Emscor and is an admission of liability.
Condition 5
Condition 5 of the policy states as follows:
Attachment of LiabilityLiability under this policy shall not attach unless and until the underlying insurers shall have admitted liability for the underlying limits or unless and until the insured has by final judgment been adjudged to pay a sum which exceeds such underlying limits. (emphasis added).
*917 The majority opinion interprets the underlined portion of Condition 5 to mean that "the underlying insurers have paid the full amount of their respective loss liability." (emphasis added). Further, by footnote 5, the majority disputes that Emscor can "step into the shoes of the underlying insurer." This interpretation that the insurer must "pay the full amount" is clearly erroneous and is simply not a requirement of Condition 5. The majority belief that payment in full is required is not supported by any part of the excess insurance policy issued by Alliance to Emscor.
Clearly, Emscor can step into the shoes of the bankrupt primary carrier, and clearly Emscor "admitted liability for the underlying limits." Therefore, summary judgment for Alliance was error.
Modification/Waiver/Estoppel
Even if it can be said that Emscor failed to comply with the express conditions of the policy, a material fact question exists as to whether Alliance modified the express conditions and was prohibited by the doctrines of waiver or estoppel from demanding strict compliance with those conditions. See Employers Casualty Co. v. Tilley, 496 S.W.2d 552, 561 (Tex.1973); see also State Farm Lloyds, Inc. v. Williams, 791 S.W.2d 542, 552 (Tex.App.Dallas 1990, writ denied). Although the terms are often used interchangeably, "waiver" and "estoppel" are two distinct doctrines. Id. at 552. "Waiver" requires the voluntary and intentional relinquishment of a known, existing right, or intentional conduct inconsistent with claiming that right. Id. citing Utilities Ins. Co. v. Montgomery, 134 Tex. 640, 138 S.W.2d 1062, 1064 (Tex. Comm'n App.1940, opinion adopted); Swiderski v. Prudential Property & Cas. Ins., 672 S.W.2d 264, 268 (Tex.App.Corpus Christi 1984, writ dism'd) (and cases cited therein).
"Estoppel," on the other hand, arises "where by fault of one, another has been induced to change his position for the worse." Id. at 268 (citations omitted); see Stonewall Ins., 757 S.W.2d at 436. In the insurance context, it ordinarily requires a showing that the insured was prejudiced by the conduct of the insurer. Williams, 791 S.W.2d at 552 (citing Tilley, 496 S.W.2d at 560). Assuming that Alliance's summary judgment proof established Emscor's non-compliance with the conditions of the policy, the burden was on Emscor, the non-movant, to adduce evidence of waiver or estoppel which was sufficient to raise a fact issue necessary to defeat summary judgment. See Swiderski, 672 S.W.2d at 268.
The October 24th and 26th letters written by Alliance were attached to Emscor's response to the Alliance's motion for summary judgment. Those letters show that when Emscor was trying desperately to avoid excess liability that would destroy the company, Alliance told Emscor that it could trigger Alliance's coverage by "arranging to pay" or "agreeing to pay" the first $500,000. In other words, Alliance told Emscor it could satisfy the "pay" or be "held to pay" condition if Emscor would "arrange to pay" or "agree to pay." After Emscor subsequently executed the Letter of Guaranty, Alliance rejected the guaranty and denied coverage, thereby exposing Emscor to liability in excess of its ability to pay. Emscor certainly changed its position for the worse based on Alliance's offer to modify the conditions by complying with Alliance's definition of the condition.
Performance of a condition precedent can be modified by word or deed by the party to whom the obligation was due. Ames v. Great Southern Bank, 672 S.W.2d 447, 449 (Tex. 1984). Clearly, a material fact question exists as to whether Alliance, by word or deed, changed the conditions of the policy to Emscor's detriment and, therefore, waived reliance, or was estopped from relying on Emscor's strict compliance with the express conditions of the policy.
Alliance and the majority maintain that the doctrines of waiver and estoppel cannot be used to create insurance coverage where none exists by the terms of the policy. Texas Farmers Ins. Co. v. McGuire, 744 S.W.2d 601, 602-3 (Tex.1988) (opinion on rehearing). *918 "In other words, waiver and estoppel cannot create a new and different contract with respect to risks covered by the policy." Id. (quoting Great Am. Reserve Ins. Co. v. Mitchell, 335 S.W.2d 707 (Tex.App.San Antonio 1960, writ ref'd)). Here, there was no dispute that the risks covered by the Alliance policy included the personal injury claims that were asserted against Emscor in the underlying litigation. Because there was no dispute about the risks covered by the policy, but only about when coverage was triggered, Texas Farmers is inapplicable.
The "No-Action" Clause
Notwithstanding the fact issue regarding Emscor's compliance with the express or modified condition of the policy, the majority points out that this suit is barred by the no-action clause. According to the majority, Emscor's obligation to pay was never determined by judgment "after actual trial", or by written agreement, to which Alliance was a party. However, even if that were true, there is still the question of whether Alliance was entitled to rely on the no-action clause under the exception recognized in Gulf Ins. Co. v. Parker Products Inc., 498 S.W.2d 676 (Tex.1973). As the majority observes, the Texas Supreme Court held in Gulf Ins. that an insurance company may ordinarily insist upon compliance with a no-action clause except where it was given the opportunity to defend a suit, or to agree to a settlement, and refused to do either on the erroneous ground that it had no responsibility under the policy. Id. at 679. Whether Alliance's refusal to agree to settle was erroneous is the precise fact question that a jury must decide.
Stowers Doctrine
The majority, citing Ranger County Mutual Ins. Co. v. Guin, 723 S.W.2d 656, 659 (Tex.1987), held that Alliance owes no duty to Emscor because Alliance was not required by the terms of the policy to assume control of the investigation, negotiation, or defense of the claim by the Ketcher plaintiffs. Guin in no way stands for the proposition that a policy must contain such terms to enable the insurer to be "Stowerized." In fact, in American Physicians Ins. Exchange v. Garcia 876 S.W.2d 842, 848-49 (1992) (opinion on motion for rehearing), cited by the majority, the Texas Supreme Court, citing Guin, stated without reservation that the insurer's duty of ordinary care under Stowers includes investigation, preparation for defense of the lawsuit, trial of the case, and reasonable attempts to settle. More importantly, the court suggested that this duty might extend to "excess insurers". Id. at 855 n. 25. In any event, Alliance thoroughly involved itself in the investigation and settlement of the Ketcher suit before refusing the settlement offer proposed by the Ketcher plaintiffs and recommended by Emscor.
As for the reasonableness of the $3,000,000 settlement, Alliance and the majority assert that Emscor failed to take reasonable steps to minimize Alliance's legal liability primarily because the settlement was three times greater than the original demand. Neither Alliance nor the majority cite any authority for the proposition that the amount of the judgment alone is sufficient to establish that a settlement was per se unreasonable. Contrary to the majority's assertion, there is nothing in Alliance's summary judgment proof which undermines the "reasonableness" of the settlement. At the very least, there is a question of fact as to the reasonableness of the settlement.
Breach Of The Duty Of Good Faith And Fair Dealing
The majority, citing a host of cases, holds that Emscor cannot assert a bad faith claim because Texas law does not recognize a cause of action by an insured against its insurer for bad faith in the handling of a third-party claim. In one of those cases, Charter Roofing Co. v. Tri-State Ins. Co., 841 S.W.2d 903, 905-6 (Tex.App.Houston [14th Dist.] 1992, no writ), the insured brought a bad faith suit against its insurer for denying a third party's claim. This court observed that there was no authority to support such a claim but did *919 not expressly rule out such a claim, and in fact proceeded to review whether the insurer had acted in bad faith. 841 S.W.2d at 905-6. Here, Emscor presents an entirely cognizable cause of action. See, e.g., Harbor Ins. Co. v. Urban Constr. Co., 990 F.2d 195, 202 (5th Cir.1993); Beaumont Rice Mill, Inc. v. Mid American Indem. Ins. Co., 948 F.2d 950, 952 (5th Cir.1991); McCracken v. U.S. Fire Ins. Co., 802 F. Supp. 30, 36 (W.D.Tx 1992) (recognizing that excess carrier may have duty of good faith and fair dealing).
In direct compliance with Alliance's instructions, Emscor "held" itself to pay the underlying limits by the Letter of Guaranty. After Alliance subsequently refused to tender its policy limits, a judgment was rendered against Emscor in excess of both its primary and excess coverage. Emscor is entitled to have a jury determine whether that excess judgment resulted from Alliance's bad faith or negligence.
Finally, although not addressed by the majority, Alliance contends that Emscor's cause of action for breach of the duty of good faith and fair dealing is barred by limitations. The statute of limitations governing a cause of action for breach of the duty of good faith and fair dealing is "two years after the day the cause of action accrues." Tex.Civ.Prac. & Rem.Code Ann. § 16.003(a) (Vernon 1986). A bad faith cause of action ordinarily accrues when an insurer fails to pay an insured under the policy; in other words, when there is a denial of coverage. Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 829 (Tex.1990).
Alliance asserts that limitations accrued when Emscor learned on September 23, 1988, that Alliance would not provide primary coverage as a result of Stone Mountain's insolvency. Emscor did not file this suit until May 9, 1991. However, Alliance's denial of primary coverage is irrelevant for purposes of this lawsuit because Emscor was seeking to invoke excess coverage, not primary coverage. Thus, the significant event in determining when the limitations period accrued is Alliance's denial of excess coverage, which occurred November 5, 1990, when Alliance rejected the Letter of Guaranty. Suit was filed only six months later and well within the limitations period. Therefore, Emscor's bad faith claim is not barred by limitations.
Violations Of The Insurance Code and DTPA
Alliance also contends and, the majority agrees, that the Emscor's DTPA and Insurance Code claims are barred by limitations and that the Ketcher plaintiffs lack standing under those statutes. Tex.Bus. & Com.Code Ann. §§ 17.45(4), 17.565 (Vernon 1987); Tex. Ins.Code Ann. art. 21.21 § 16(a), (d) (Vernon Supp.1994). These contentions are also without merit. As the majority notes, Emscor claimed that it learned of misrepresentations made by Alliance with respect to coverage when Alliance refused to provide coverage and to settle the Ketcher suit. As we previously stated, the limitations period did not accrue until Emscor learned of Alliance's refusal to provide its excess coverage. That occurred sometime after the beginning of settlement negotiations in March 1990, which was fourteen months before suit was filed. Thus, Emscor's DTPA and Insurance Code claims are not barred by limitations.
I am aware of the Texas Supreme Court's recent opinion in Allstate Ins. Co. v. Watson, 876 S.W.2d 145 (Tex.1994) (opinion on motion for rehearing), holding that a third-party has no standing under article 21.21 to sue an insurer directly for unfair settlement practices. However, the court in Watson was concerned with the potential conflict that could exist if an insurer owed a duty to deal in good faith with its insured as well as an injured third-party. 876 S.W.2d at 150. No such conflict exists here. The plaintiff in Watson was a third-party claimant, with whom the insurer had no contractual duty. The Ketcher plaintiffs are not third-party claimants per se, but are assignees of the contractual rights of Emscor. See e.g. Garcia, 876 S.W.2d at 871-72. (Justice Hightower dissenting). As Emscor's assignees, the Ketcher plaintiffs can enforce the obligations and duties that Alliance owed to Emscor *920 under the excess coverage policy. The Ketcher plaintiffs' covenant to postpone execution on the judgment in return for Emscor's assignment of its negligence and bad faith claims against Alliance, entitled the Ketcher plaintiffs to more than just recovery on the policy; it allowed them recovery on the entire excess judgment. Id.
As we noted earlier, plaintiffs may settle their lawsuit against an insured for the primary coverage, and take an assignment of the insured's cause of action against an excess carrier for its refusal to pay. Safeco, 555 S.W.2d at 854. Emscor purchased or acquired insurance services from Alliance and claimed that Alliance engaged in unfair settlement practices and deceptive acts during the sale of the policy. See Garcia, 876 S.W.2d at 847 (breach of the Stowers duty alone does not constitute a violation of the Insurance Code or of the DTPA); see also Allstate Ins. v. Kelly, 680 S.W.2d 595, 603 n. 4 (Tex.App.Tyler 1984, writ ref'd n.r.e.). Because Emscor has standing under the Insurance Code, and is a consumer under the DTPA, the same is true for it's assignees, the Ketcher plaintiffs.
Good Faith & Fair Dealing
The duty of "good faith and fair dealing" exists because of a special relationship between the insurer and the insured. It does not emanate from specific terms of the insurance contract. Further, it exists because of the unequal bargaining power between the two parties, and the tendency for that imbalance to encourage the strong to take advantage of the weak. See Arnold v. National County Mutual Fire Insurance Co., 725 S.W.2d 165 (Tex.1987). The duty also exists because of that "special relationship", created by the imbalance, which gives insurers the power and exclusive control over "evaluation, processing, and denial of claims." Id. at 167. Because of the imbalance of power, and the special relationship existing between insurer and insured, a breach of the duty of good faith and faith dealing gives rise to a cause of action for tort damages, rather than simple liability for breach of contract.
I cannot conceive of a more deserving situation to apply the duty of good faith and fair dealing, than the present appeal. There is no good reason at law or in equity to deny an insured protection from abuse of the imbalance of power by an excess insurance carrier.
I would hold that Emscor has satisfied the requirement of "held to pay" as a matter of law, have executed a settlement agreement with the plaintiffs, and that they have admitted liability. Upon the occurrence of any one of the foregoing, Alliance was obligated to provide its excess coverage. In the alternative, there is at least a fact question as to whether the foregoing occurred and if so whether they triggered the requirement for Alliance to provide the excess coverage.
There is also material question of fact as to whether Alliance defined or modified the express conditions of the policy and, therefore, waived the necessity of compliance with those conditions, or is estopped from demanding compliance.
In conclusion, summary judgment in favor of Alliance was error. Accordingly, all of Emscor's points of error should be sustained, the trial court's judgment should be reversed, and this case should be remanded to the trial court for proceedings consistent with this opinion.
NOTES
[1] The families are parties to this appeal as judgment creditors and partial assignees of Emscor.
[2] All communication discussed herein, unless otherwise indicated, involved correspondence which was sent to, and/or received by, the respective counsel for Emscor and Alliance.
[3] Emscor focused all of its contractual and extra-contractual claims below on whether the conditions of the policy were satisfied during the Stowers period. However, Emscor did not necessarily have to satisfy the Policy conditions during the Stowers period for purposes of its contract claim. Nonetheless, as we will discuss, Emscor is barred from recovering on the policy by the no-action clause.
[4] Alliance argues that this Court, by holding that Alliance had no duty to defend in the event of the underlying insurer's insolvency, also determined that Alliance's coverage was not triggered. See Emscor Mfg., Inc., 804 S.W.2d at 198-99. However, "when coverage is triggered" presents a different question than "whether there is a duty to defend." In Emscor, we reviewed the identical policy to determine whether it obligated Alliance to defend Emscor in the Ketcher litigation. 804 S.W.2d at 197-98. [emphasis added]. As we earlier stated, while we found the policy was in the nature of an excess policy, we expressed no opinion regarding whether the coverage under that policy had been triggered. Id. To the extent that Alliance argues otherwise, it misinterprets our holding in Emscor.
[5] Alliance disputes whether Emscor could properly "step into the shoes" of the underlying insurer in order to satisfy the conditions of coverage. We need not decide this issue because even if Emscor could step into Stone Mountain's shoes, it did not satisfy the conditions of coverage under the excess policy.
[6] Even if Emscor had such a cause of action, Emscor was expressly prohibited from assigning it to the Ketcher plaintiffs. Condition 11 of the Policy forbids an "assignment of interest under [the] policy" without Alliance's consent. Further, the Ketcher plaintiffs were without standing to bring the type of claims asserted. Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 149-50 (Tex. 1994) (opinion on motion for rehearing); Wheelways Ins. Co. v. Hodges, 872 S.W.2d 776, No. 06-93-00044-CV, slip op. at 11 (Tex.App.Texarkana 1994, n.w.h.); Charter Roofing v. Tri-State Ins., 841 S.W.2d 903, 905-6 (Tex.App.Houston [14th Dist.] 1992, no writ); CNA Ins. Co. v. Scheffey, 828 S.W.2d 785, 791-92 (Tex.App. Texarkana 1992, writ denied); Bowman v. Charter General Agency Co., 799 S.W.2d 377 (Tex. App.Corpus Christi 1990, writ denied); Caserotti v. State Farm Ins., 791 S.W.2d 561, 566 (Tex.App.Dallas 1990, writ denied); Chaffin v. Transamerica Ins. Co., 731 S.W.2d 728, 731-32 (Tex.App.Houston [14th Dist.] 1987, writ ref'd n.r.e.) (and cases cited therein); see also Cowley v. Texas Snubbing Control, 812 F. Supp. 1437, 1444-50 (S.D.Miss.1992). As judgment creditors, the Ketcher plaintiffs could only bring suit on the Policy, provided that there was compliance with the no-action clause. As we described, there was no such compliance.
[7] As Alliance points out, any potential Stowers cause of action against Alliance entails scrutiny of Emscor's conduct during settlement negotiations. See Warren, 826 S.W.2d at 188 (and cases cited therein). Alliance's uncontroverted summary judgment proof shows that Emscor's conduct during negotiations was, at best, suspect. The Agreed Final Judgment was three times greater than the Ketcher plaintiffs' Stowers demand. On the date that demand was to expire, Emscor could have responded with a $600,000 counter-offer, i.e. $100,000 from Alliance and $500,000 from Emscor or the Guaranty Fund. There is nothing in the record to indicate that Emscor made such an offer or that Emscor attempted to keep Alliance abreast of the status of settlement negotiations. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1806648/ | 619 So.2d 900 (1993)
Kenneth Ray CHURCHILL, Jr.
v.
PEARL RIVER BASIN DEVELOPMENT DISTRICT, a Corporate Political Subdivision of the State of Mississippi, Pike County, Mississippi, a Political Subdivision of the State of Mississippi.
No. 07-CA-59194.
Supreme Court of Mississippi.
February 25, 1993.
Rehearing Denied June 24, 1993.
*901 Alfred L. Felder, McComb, Donald R. Rogers, Hattiesburg, for appellant.
John B. Clark, Wilton V. Byars III, Daniel Coker Horton & Bell, Jonathan B. Fairbank, Cupit Jones & Fairbank, Jennifer Lynn Welsh, Dove Chill & McNamara, Jackson, Wayne Dowdy, Magnolia, Mike Smith, McComb, for appellee.
EN BANC.
McRAE, Justice, for the Court:
This appeal arises from an April 14, 1988, order of the Pike County Circuit Court granting the Appellees' motions for summary judgment on the basis of sovereign immunity on claims of negligence, strict liability in tort and breach of implied contract. Finding that Churchill's charge of breach of implied contract, which he sought to propound in his motion for leave to amend the complaint, was not precluded by the sovereign immunity defense and that sovereign immunity is waived to the extent that the governmental entity is covered by liability insurance, we reverse and remand for a trial consistent with this opinion.
PROCEDURAL HISTORY
On August 1, 1981, while using the recreational facilities of the Bogue Chitto Water Park, which was developed by the Pearl River Basin Development District (hereinafter "the District") and maintained by Pike County (hereinafter "the County"), Kenneth Ray Churchill, Jr., sustained serious injuries which left him permanently paralyzed. On June 26, 1987, Churchill filed a complaint in the Circuit Court of Pike County against the District and the County, seeking recovery for compensatory and exemplary damages on the basis of negligence and strict liability in tort. He later filed a motion for leave to amend his complaint, asserting that the District and the County breached their implied contract with him to provide a safe place for the activities for which he had paid an admission fee.
The defendants filed motions for summary judgment, raising the defense of sovereign immunity, the District claiming it was entitled to dismissal because Miss. Code Ann. § 51-11-3 (1972) makes it an "agency of the state and a body politic and corporate;" and the County because of the exemption from liability granted to governmental entities by Miss. Code Ann. § 11-46-9 (1972). Because the District carried liability insurance, Churchill then filed a motion to estop the District from asserting the defense of sovereign immunity.
Citing Strait v. Pat Harrison Waterway District, 523 So.2d 36 (Miss. 1988), the Circuit Court found that neither the breach of implied contract which Churchill attempted to raise nor his plea of estoppel would avail him. Accordingly, motions for summary judgment filed by the District and the County were granted.
FACTS
Churchill, as a part of a group, paid an admission fee to the Bogue Chitto Water Park and rented an inner tube. As alleged in his complaint, he "dived into the water from a man-made platform and swing and struck his head against the bottom of said river." In so doing, he suffered severe injuries to his "spine, spinal cord and nervous system," and was rendered a quadriplegic, permanently and totally disabling him.
The Bogue Chitto Water Park was designed and constructed by the District, pursuant to the authority vested in it by Miss. Code Ann. §§ 51-11-31, et seq. (1972). Although the Park was subject to oversight, supervision, expansion, renovation and inspection by the District, the District had no involvement with the daily operation and management of the facilities. The Park was maintained and operated by the Pike County Board of Supervisors between 1974 *902 and 1987, which retained all admission and equipment rental fees collected by its employees. The District had forwarded a copy of its "Management Program for Recreation Sites" to the County in December, 1980, and May, 1981, which recommended posting signs at the swimming area and checking the swimming area for hazardous conditions. No such signs were posted at the time of Churchill's accident.
The District carried a public liability insurance policy to cover accidents such as Churchill's. Issued by Travelers' Insurance Company, the Comprehensive General Liability Policy covered bodily injury to the extent of $500,000 for each occurrence and property damage to the extent of $250,000 for each occurrence. The District further maintained a $1,000,000 umbrella policy with Lincoln Insurance Company, giving it a total of $1.5 million liability protection. Premiums on the two policies cost approximately $5,544.00 per year. Coverage was procured by the District's Board under its general powers, because no statutory authority specifically provides it with the power to obtain liability insurance. Pike County, however, does not carry any general liability insurance for the Bogue Chitto Water Park. If any other insurance was available, it was not made a part of the record before us.
STANDARD OF REVIEW
This Court conducts a de novo review of the record on appeal from a grant of a motion for summary judgment. Pace v. Financial Security Life of Mississippi, 608 So.2d 1135 (Miss. 1992); Short v. Columbus Rubber and Gasket Co., 535 So.2d 61, 63 (Miss. 1988). In Pace, this Court reiterated the initial standard to be used in considering a motion for summary judgment:
The trial court must review carefully all of the evidentiary matters before it admissions in pleadings, answers to interrogatories, depositions, affidavits, etc. The evidence must be viewed in the light most favorable to the party against whom the motion has been made. If in this view the moving party is entitled to judgment as a matter of law, summary judgment should forthwith be entered in his favor. Otherwise the motion should be denied.
Id. at 1138, quoting Brown v. Credit Center, Inc., 444 So.2d 358, 362 (Miss. 1983) (emphasis added); See also, Lovett v. Anderson, 573 So.2d 758, 760 (Miss. 1990); Pearl River County Board v. South East Collections, 459 So.2d 783, 785 (Miss. 1984).
CHURCHILL'S BREACH OF IMPLIED CONTRACT CLAIM
In his motion for leave to amend, Churchill sought to raise the theory of breach of implied contract, alluded to in Strait v. Pat Harrison Waterways District, 523 So.2d 36 (Miss. 1988). He charged that his injuries resulted from a breach of an implied contract to provide a safe place for the activities for which he had paid an admission fee. Although some courts have held that an admission ticket merely grants the holder a license to use the facility for which a fee has been paid, Churchill cites the Alabama Supreme Court's decision in Sims v. Etowah County Board of Education, 337 So.2d 1310 (Ala. 1976), for the proposition that
a ticket to a place of public entertainment constitutes a contract between the proprietor and the purchaser of the ticket; whatever contractual duties grow out of that relation, it has been held, must be performed by the proprietor or he must respond in damages for breach of contract.
Id. at 1314. See also, Walker v. City of Birmingham, 342 So.2d 321, 322 (Ala. 1977).
Thus, in an action brought for injuries sustained when a bleacher collapsed during a high school football game for which Mr. and Mrs. Sims had purchased admission tickets, the Alabama Court found that the trial judge had properly dismissed the negligence counts but erred in dismissing the plaintiff's breach of implied contract claim. Analyzing the contract claim, the Court stated:
What we have here is a unilateral contract, with the promisor-board of education *903 as proprietor, upon receiving the admission price, promising admission by ticket and the performance of all other contractual duties arising from the circumstances, including the implied promise that the premises are reasonably safe for the purpose of viewing the athletic contest.
Sims, 337 So.2d at 1314.
Likewise, in the case sub judice, the appellees had charged Churchill's group an admission fee as well as a fee for renting an inner tube. The receipt of that fee promised not only admission to the water park, but also carried with it the implied promise that the premises were safe for the enjoyment of water sports. Accordingly, we find that there existed an implied contract between the appellees and those who paid an admission fee to use the water park facility.
Sovereign immunity does not bar actions against the state or its political subdivisions brought on a breach of contract theory. Miss. State Department of Welfare v. Howie, 449 So.2d 772 (Miss. 1984); Cig Contractors v. Miss. State Bldg. Comm'n, 399 So.2d 1352 (Miss. 1981). As we stated in Cig Contractors:
The general rule is that when the legislature authorizes the State's entry into a contract, the State necessarily waives its immunity from suit for a breach of such contract. 81A C.J.S. States § 172 (1977). Where the state has lawfully entered into a business contract with an individual, the obligations and duties of the contract should be mutually binding and reciprocal. There is no mutuality or fairness where a state or county can enter into an advantageous contract and accept its benefits but refuse to perform its obligations.
Id. at 1355.
The legislature has vested the District with the power to enter into contracts in Miss. Code Ann. § 51-11-11(g) (1972). Likewise, § 51-11-11(b) empowers the District to sue and be sued. Section 51-11-43, which authorizes the District to act jointly with other governmental agencies further states, in relevant part:
The several counties, municipalities, districts, political subdivisions, public agencies, commissions and instrumentalities of this state are authorized and empowered to enter into contracts and joint funding agreements with the district in the performance of the purposes and services authorized in this chapter and for the planning, construction, operation and maintenance of projects approved by the district, including but not limited to flood control projects, parks and recreational projects of the district.
Although the County is not afforded express statutory power to sue and be sued with regard to any contracts or agreements entered into with the District, a contract claim raised against it should be actionable. Howie, 449 So.2d at 776-777. Accordingly, we find that Churchill had a viable claim in contract against both the District and the County which was not barred by the doctrine of sovereign immunity.
CHURCHILL'S NEGLIGENCE AND STRICT LIABILITY CLAIMS
In his initial complaint, Churchill raised the theories of negligence and strict liability in tort. He argued that both Pearl River Basin Development District and Pike County were liable for the "dangerous and defective" condition of the river. Both the District and County asserted the defense of sovereign immunity. The Circuit Court judge entered summary judgment for both entities, holding that neither had waived sovereign immunity. At the time Churchill filed his complaint, Mississippi Code § 11-46-6 (Supp. 1987) read:
Section 4. This act, being Chapter 495, Laws of 1984, as reenacted and amended by Chapter 474, Laws of 1985, as amended by Senate Bill No. 2166, 1986 Regular Session, shall apply only to causes of action that accrue on or after July 1, 1987, as to the state, and on or after October 1, 1987, as to political subdivisions. Causes of action that accrue prior to July 1, 1987, as to the state or, prior to October 1, 1987 as to political subdivisions, shall not be affected by this act but shall continue to be governed by *904 the case law governing sovereign immunity as it existed immediately prior to the decision in the case of Pruett v. City of Rosedale, 421 So.2d 1046, and by the statutory law governing sovereign immunity in effect from and after the passage of Chapter 474, Laws of 1985.
This statute, having been enacted after Churchill's August 1, 1981, injury, is not applicable. Moreover, in Presley v. Mississippi State Highway Commission, 608 So.2d 1288 (Miss. 1992), we found § 11-46-6 to be unconstitutional.
Further, because the injury occurred prior to our decision in Pruett, we apply sovereign immunity case law prior to Pruett. However, we must first address the status § 11-46-6, following this Court's decision in Presley.
In Presley, Part I, this Court held Miss. Code Ann. § 11-46-6 unconstitutional. That section of the opinion received votes from a majority of the full Court. Part II of the opinion holds that the statute is unconstitutional prospectively only. However, Part II of the opinion only received a plurality vote of four justices. Of the remaining five votes, three justices concurred with Part I, but dissented from Part II, writing the holding should not be purely prospective. Two justices wrote that the statute was not unconstitutional.
In Lakewood v. Plain Dealer, 486 U.S. 750, 108 S.Ct. 2138, 100 L.Ed.2d 771 (1988), the U.S. Supreme Court observed that it is settled jurisprudence that "when no single rationale commands a majority, `the holding of the Court may be viewed as that position taken by those members who concurred in the judgmen[t] on the narrowest grounds.' Marks v. United States, 430 U.S. 188, 51 L.Ed.2d 260, 97 S.Ct. 990 (1977)." 486 U.S. at 764, 108 S.Ct. at 2148, 100 L.Ed.2d at 787, n. 9. It has been noted that normally a majority vote of all sitting judges is required to create precedent:
Constitutional or statutory provisions requiring that a designated number of judges shall concur in an opinion in order that there may be a valid and binding adjudication by the court, or in order that a statute be declared unconstitutional, must be complied with. The general rule, however, unless the law provides otherwise, is that a concurrence of a majority of the judges sitting is necessary or sufficient although those concurring are not a majority of all the judges of the court.
Where the necessary number have concurred in an opinion, the decision rendered is the decision of the court, at least on the points as to which the required number have concurred, although not on points as to which fewer have concurred. A change in the personnel will not warrant a reopening of the controversy unless the court itself orders a reargument.
21 C.J.S. Courts § 138 (1990). In Dean v. State, 173 Miss. 254, 162 So. 155 (1935) this Court[1] held:
When this court is sitting in [sic] banc, there must be at least four of its judges present; and no action can be taken by it unless a majority of the judges present concur therein. When a cause is brought to the court on appeal, the judgment of the trial court is presumed to be correct and must remain in effect unless and until the court enters an order on its minutes reversing or setting it aside. This can be done only when a majority of the judges participating in the decision concur therein. ...
Dean, 162 So. at 157 (emphasis added).
Thus, it is a logical conclusion for this Court to recognize that a plurality vote does not create a binding result. The narrowest holding in Presley, in which a majority of the sitting justices concurred, was that Miss. Code Ann. § 11-46-6 is unconstitutional. As there is no majority vote for Part II, we can only note that it has no precedential value.
It is our holding in Pruett that will determine the outcome of this particular issue. In Pruett, we abolished judicially-created sovereign immunity, but made the action prospective, except as to Pruett. Id. at 1052. The opinion only applied to actions *905 which accrued on or after July 1, 1984. Id. In the case sub judice, Churchill was injured on August 1, 1981, thus the prospective holding in Pruett ostensibly protects both the District and the County from tort liability. See Jagnandan v. Mississippi State University, 373 So.2d 252 (Miss. 1979), cert. denied 444 U.S. 1026, 100 S.Ct. 690, 62 L.Ed.2d 660, reh'g denied, 448 U.S. 914, 101 S.Ct. 34, 65 L.Ed.2d 1177 (1980); Rolph v. Board of Trustees of Forrest County General Hospital, 346 So.2d 377 (Miss. 1977); and Berry v. Hinds County, 344 So.2d 146 (Miss. 1977) (all overruled prospectively from July 1, 1984, by Pruett v. City of Rosedale, 421 So.2d 1046 (Miss. 1982)).
Churchill, however, argues that the District should be estopped from asserting its defense of sovereign immunity because it had purchased public liability insurance in the amount $1.5 million. This insurance was purchased under the general powers of the District, because no statutory authority specifically provided it the power to obtain liability insurance.
In French v. Pearl River Valley Water Supply District, 394 So.2d 1385 (Miss. 1981), we held that the mere purchase of liability protection by a governmental body does not waive sovereign immunity. Id. at 1388. In Joseph v. Tennessee Partners, Inc., 501 So.2d 371 (Miss. 1987), we further stated that a governmental body does not give up its protection of sovereign immunity "simply because it has obtained liability insurance without express statutory authority." Id. at 375. As we noted in Strait, "In both French and Joseph, there was no statutory authority for the governmental entities' purchase of insurance and no statutory implication that the legislature intended sovereign immunity to be waived." 523 So.2d at 39.[2]
We find that French and its progeny perpetuate the ill-advised policy of eschewing the notion that an insurance company is accountable for that which it has been paid a premium. Thus, we overrule French and hold that the Pearl River Basin Development District is amenable to suit to the extent of coverage of any available liability policy or indemnification plan.
In his brief, but well-reasoned, dissent in French, former Chief Justice Patterson set out the question and, in our view, the correct answer quite succinctly:
[An] issue is presented in this case of sovereign immunity and that is whether a public entity may purchase liability insurance with public funds, the use and expenditure of such funds being subject to legislative approval, and thereafter interpose a defense of sovereign immunity to protect the insurance carrier? I think not. The case of Thomas v. Broadlands Community Consolidated School District, 348 Ill. App. 567, 109 N.E.2d 636 (1952) presents the better and more practical reasoning for the resolution of this issue. In my judgment the insurance, to the extent that it protects the public funds removes the reason for immunity from suit.
394 So.2d at 1388 (Patterson, C.J., Dissenting).
In Thomas, a minor brought a negligence suit against a school district after the minor, a student, lost an eye during recess. Thomas v. Broadlands Community Consolidated District, 348 Ill. App. 567, 109 N.E.2d 636, 637 (1952). The school district raised sovereign immunity as a defense. Id. The Illinois Appellate Court held that, where a political subdivision has insured itself from tort liability, no justification exists for insulating the insurance carrier from a claim under the doctrine of sovereign immunity. Id., 109 N.E.2d at 640-41. "Liability insurance, to the extent that it protects the public funds, removes the reason for, and thus immunity to, suit." Id.
*906 Waiver of immunity in light of insurance coverage has been upheld by appellate courts in other states as well. Howard v. Village of Chisholm, 191 Minn. 245, 253 N.W. 766, 767 (1934) (village could have raised sovereign immunity defense but elected not to in light of the fact that it was insured); Crowell v. School Dist. No. 7, 247 Mont. 38, 805 P.2d 522, 533-34 (1991) (state legislature intended, through enactment of statute authorizing school districts to purchase insurance, to allow school districts to waive immunity up to policy limits); Marshall v. City of Green Bay, 18 Wis.2d 496, 118 N.W.2d 715, 717 (1963) ("[t]he power of a city to waive its tort immunity need not rest upon an express grant of statutory immunity").
Strait, Joseph and French held that the mere purchase of insurance coverage, absent express statutory authority, does not constitute a waiver of sovereign immunity. Strait, 523 So.2d at 39; Joseph, 501 So.2d at 374-75; French, 394 So.2d at 1387. In particular, the French Court wrote:
Although the doctrine of sovereign immunity is of common-law origin and was first pronounced in this State by the Supreme Court, we have consistently held since that time that there can be no liability against the State or its political subdivisions or agencies unless it is expressly or impliedly created by statute. We have also held steadfast to the proposition that, although the courts have the authority to abolish the doctrine of governmental immunity, the Legislature is in a better position to limit and restrict claims that can be asserted because the Legislature must provide the ways and means for paying, by taxation or appropriation, such claims it should see fit to allow.
French, 394 So.2d at 1387.
Although written after Pruett was decided, Strait and Joseph relied on the holding in French that a political entity remains immune from suit unless a statute explicitly removes immunity from any subdivision which purchases insurance. Strait, 523 So.2d at 39-40; Joseph, 501 So.2d at 374-75. As no statutory authority stripped the governmental respondents in Strait and Joseph of immunity, even though the respondents purchased insurance, the Court held the respondents maintained their immunity. Strait, 523 So.2d at 39-40; Joseph, 501 So.2d at 375. These holdings fly in the face of Pruett, however, as they assume the existence of immunity based on a legislative failure to act rather than an affirmative statement from the legislature extending immunity to governmental subdivisions which have purchased insurance.[3]
While it is clear that Pruett operates only prospectively for purposes of the abolition of the immunity, its declaration that immunity was judicially created is but recognition of a fact. Applying that recognition to the French circumstances supports the finding of an implicit waiver of the doctrine by the authorization or purchase of insurance, thus subjecting a judicial doctrine to judicial permutations based on public policy considerations expressed or implied in legislative actions.
We find, therefore, that the trial court erred in granting summary judgment to the District and the County on Churchill's claim of breach of implied contract. We affirm the trial court's ruling on sovereign immunity on the tort claims since the injury occurred prior to our ruling in Pruett. We expressly overrule French, Strait, Joseph and their progeny, allowing Churchill to seek recovery on his tort claims to the extent of liability insurance coverage.
Accordingly, we reverse and remand for a new trial consistent with this opinion.
*907 REVERSED AND REMANDED FOR A NEW TRIAL CONSISTENT WITH THIS OPINION.
HAWKINS, C.J., DAN M. LEE and PRATHER, P.JJ., SULLIVAN and PITTMAN, JJ., concur.
BANKS, J., concurs in part with separate written opinion.
ROBERTS and SMITH, JJ., not participating according to Supreme Court Internal Rules.
BANKS, Justice, concurring in part:
I concur with all that is held by the majority. I do not join its unnecessary discussion of Miss. Code Ann. § 11-46-6 (Supp. 1992) and Presley v. Mississippi State Highway Commission, 608 So.2d 1288 (Miss. 1992). The accident here in question occurred prior to Pruett v. City of Rosedale, 421 So.2d 1046 (Miss. 1982). It follows, therefore, that Section 11-46-6 has no relevance whatever to this case and the treatment of that section in Presley is similarly irrelevant.
NOTES
[1] In 1935, the Mississippi Supreme Court was comprised of six (6) members.
[2] In Strait the Court found that although the governmental entity did have specific statutory authority to purchase liability insurance, the statute was silent as to waiver of sovereign immunity. Thus, the Court held, waiver was not implied and the governmental entity could avail itself of the sovereign immunity defense. Strait v. Pat Harrison Waterway District, 523 So.2d 36, 39 (Miss. 1988).
[3] Strait, in particular, takes moment to stare at this inconsistency and then proceeds to decide the issue in contra-position to Pruett. According to Strait, of the 29 statutes authorizing state subdivisions to purchase liability insurance, some expressly reserved immunity from damages even if the subdivision purchases insurance, others state immunity is waived up to the policy limits while others are silent on the liability issue. Strait, 523 So.2d at 39. The statute in Strait fell into this final category. Id. Nonetheless, relying on French and its progeny, the Strait Court concluded that a silent statute is a statute which does not waive immunity. Id. at 40. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1953442/ | 518 So.2d 895 (1987)
FLORIDA POWER & LIGHT COMPANY, Petitioner,
v.
S.B. JENNINGS a/k/a Bryan Jennings, Jr., et al., Respondents.
FLORIDA POWER & LIGHT COMPANY, Petitioner,
v.
Virginia S. ROBERTS, et al., Respondents.
Nos. 68593, 69069.
Supreme Court of Florida.
September 3, 1987.
Barry R. Davidson, of Steel, Hector & Davis, Miami, for petitioner.
David W. Foerster, of David W. Foerster, P.A., Jacksonville, for respondents.
H. Rex Owen and Bruce Crawford, of Owen & McCrory, and Harry A. Evertz, III, St. Petersburg, and Sheila McDevitt, Tampa, for Florida Power Corp. and Tampa Elec. Co., amici curiae.
Anita L. Shepperd and William H. Chandler, of Chandler, Gray, Lang & Haswell, P.A., Gainesville, for Florida Rural Elec. Cooperatives Ass'n., amicus curiae.
EHRLICH, Justice.
We have consolidated for our review two eminent domain cases, Florida Power & Light Company v. Jennings, 485 So.2d 1374 (Fla. 1st DCA 1986), and Florida Power & Light Co. v. Roberts, 490 So.2d 969 (Fla. 5th DCA 1986),[1] as both cases involve the identical issue. The district court in Jennings certified the following question of great public importance:
IS EVIDENCE OF THE EXISTENCE OF FEAR AND ITS EFFECT ON MARKET VALUE ADMISSIBLE AS A FACTOR IN PROPERTY VALUATION, IF IT IS SHOWN THAT THE FEAR IS REASONABLE.
485 So.2d at 1379. We have jurisdiction. Art. V, § 3(b)(4), Fla. Const. We hold that all evidence relevant to the issue of full compensation is admissible in eminent domain proceedings. The public's "fear" as a factor which may be relevant to the issue of just compensation may be utilized as a basis for an expert's valuation opinion regardless of whether this fear is objectively reasonable.
The "fear" at issue here concerns the public's perception of health and safety *896 hazards arising from human proximity to 500,000 volt (500 kV) transmission lines. The petitioner, Florida Power & Light (FPL), initiated condemnation proceedings for a perpetual utility easement for FPL's planned 500 kV transmission lines; these lines are supported by 115-125 foot high structures with 99 foot crossarms. FPL's real estate appraiser testified below that there were no severance damages to the remainder of the landowners' property and further testified that the landowners would still retain some uses of the condemned easements. The property owners presented expert testimony from, inter alia, a professional planning consultant and three real estate brokers and appraisers. These real estate witnesses' testimony covered comparable sales of property in other counties located on either a 500 kV or 240 kV line and opined that the landowners had suffered damages on the taken parcels greater than those claimed by FPL's appraiser and that the landowners had suffered severance damages to their remaining land.
The issue presented here centers on two of the landowners' scientific expert witnesses, Dr. Norgard and Dr. Wertheimer, who testified concerning the adverse health effects of 500 kV transmission lines. Norgard, a professor of electrical engineering, testified about the coupling effect of electrical energy from power lines into the human body. Norgard concluded that there is a long-term chronic effect on humans from exposure to these fields. Wertheimer, an epidemologist, had undertaken field studies of leukemia in children; she had published findings that demonstrated a link between cancer in children and their proximity to power lines. Wertheimer testified below that recent studies from other countries indicate that constant exposure to high voltage electromagnetic fields promotes cancer.
FPL had filed a motion in limine to exclude these scientific experts from testifying. FPL argued that Casey v. Florida Power Corp., 157 So.2d 168 (Fla. 2d DCA 1963), represented the law in Florida on this issue and that such evidence was inadmissible unless a property appraiser could testify that his valuation opinion is based on the fact that potential purchasers of real property in the relevant county are knowledgeable about the alleged adverse effects and that these buyers would depreciate the land adjacent to a power line before they would buy it. The landowners responded to FPL's argument by pointing out that within the previous eighteen months, numerous articles had been published concerning the adverse effects of high voltage transmission lines. Consequently, the landowners argued, the public is aware of the issue and the market place reflects this fact. The landowners intended on introducing comparable sale studies, including one from another 500 kV line located in Hernando County; the landowners argued that the scientific experts' testimony was necessary to show the causes of the depreciation in value which the comparable sales studies would reflect.
The trial court denied FPL's motion and ruled that the scientific testimony was admissible; the court ruled this evidence was relevant not only to the issue of damages to the taken property but was also relevant to the issue of severance damages. The jury returned verdicts for each of the taken parcels which was greater than the valuation given by FPL's appraiser and also awarded severance damages for each parcel.
On appeal, the district court affirmed and rejected FPL's assertion that it was error for the trial court to refuse to follow Casey. While holding that admitting the testimony of the landowners' scientific experts was not an abuse of discretion by the trial court, 485 So.2d at 1379, the district court rejected the reasoning employed in Casey which held that "opinion evidence as to value in a condemnation case, based upon fear of a steel tower and high voltage transmission lines, is too speculative and conjectural to be considered as an element of damage to adjacent land." Casey v. Florida Power Corp., 157 So.2d at 170. Sub judice, the district court opted for what was characterized in Casey, 157 So.2d at 170, as the intermediate rule:
*897 Under this rule, evidence of the existence of fear and its effect on market value may be admitted into evidence as a factor or circumstance to be considered by the trier of fact in a property valuation proceeding, so long as it is shown that the fear has a reasonable basis.
485 So.2d at 1379.
At the outset, we agree with the district court's rejection of Casey. Casey was premised, at least in part, on a characterization by the court that a potential buyer who would offer less than the "true value" for the property because of transmission lines and towers would do so because of timidity or ignorance, 157 So.2d at 170, and that such "ignorance and fear" cannot serve as the basis for a jury award. Id. at 171. We reject Casey for two reasons. First, the above quoted language referring to a potential buyer who would offer less than the "true value" of the property because of fear or ignorance is a conclusory and contradictory statement. The issue in eminent domain proceedings is a determination of what is the "true value" of the land taken for a public purpose.[2] The second reason flows from the first. If potential buyers entertain fears concerning transmission lines and towers and would, therefore be willing to pay less for the property in question, then Casey's rationale excludes evidence which is extremely relevant to the central issue of what is full compensation to the landowner.
The district court's endorsement of the so-called intermediate rule which allows fear to be considered by the jury if the fear is reasonable has superficial appeal. We perceive the court's concern with the reasonableness of the public's fear to be based on an assumption that a jury award based upon an objectively unreasonable fear would in effect allow the jury to base its award on speculation and conjecture, which of course it may not do. See, e.g., Walters v. State Road Department, 239 So.2d 878, 882 (Fla. 1st DCA 1970) (a jury verdict based on such factors is in derogation of constitutional guarantee of full compensation). FPL and amici argue that the district court's rejection of Casey and its adoption of the intermediate rule with its requirement of a reasonable basis for fear, in fact exacerbates the problem of speculative jury awards, because it allows the jury to compensate a landowner for an inherently subjective and speculative element. We reject petitioner's argument in this context because its premise is unsound: The scientific testimony below was purportedly admitted to show one of the reasons why land adjacent to transmission lines decreases in value. As stated, the scientific testimony was deemed admissible evidence by the trial court because it would explain the decrease in land value which the landowner's comparable sales evidence would show. Contrary to petitioner's characterization, therefore, this scientific testimony concerning the alleged adverse health effects of a 500 kV transmission line was not introduced on the theory that the jury could consider the adverse health effects of these lines as an additional and independent basis for compensation.
We do, however, find merit in FPL's other arguments against the intermediate rule, and, therefore, we disapprove the district court's adoption of the intermediate rule. We reject as irrelevant the requirement that the landowner must prove to the jury that the public's fear of the alleged adverse health effects from these transmission lines has a reasonable scientific basis. Adverse health effects vel non is not the issue in eminent domain proceedings: full compensation to the landowner for the property taken is. Allowing such scientific testimony into evidence, albeit under the guise of explaining why the presence *898 of transmission lines depreciates the value of adjacent property, is irrelevant to the issue of full compensation. Not only does allowing such scientific testimony into evidence confuse the true issue, it also presents the unacceptable risk that the jury will feel obliged, if it believes the landowners' experts, to fashion an award that encompasses possible future injuries to persons. Eminent domain proceedings are actions in rem, See Peeler v. Duval County, 66 So.2d 247 (Fla. 1953); Wilson v. Jacksonville Expressway Authority, 110 So.2d 707 (Fla. 1st DCA 1959); allowing a jury to compensate a landowner for possible future personal injuries would transform the proceedings into an in personam action. Such a change is unwarranted in order to ensure the constitutional guarantee of full compensation for property taken for a public purpose.
As stated, the issue in eminent domain proceedings is to determine what is full compensation for both the property taken and for damages to the remaining property. Typically this involves real property brokers or appraisers who give valuation testimony based on, e.g., the current or potential use of the property in question, the population growth and development of the surrounding area, and sales of similar property. Sub judice, the landowners' real property experts extensively relied on sales of comparable property in other counties located adjacent to a 240 kV or 500 kV transmission line. Depending on the county and the size of the transmission line, this testimony tended to show a decrease in value ranging from twenty-seven to forty-seven percent for property along transmission lines. When asked to explain the reasons for the decrease, one of the landowners' experts explained:
My investigations reveal that there was a definite concern on the part of the buying public in two specific areas, principally two, and these specific areas were the matter of aesthetics, and the matter of the unsightliness of the lines for one, and secondly, the matter of the health hazards.
We hold that the scientific testimony introduced below was irrelevant and unnecessary. It could not be seriously suggested that the first factor relied on by the expert quoted above to explain the devaluation-aesthetics needed to be supported by the testimony of "aesthetic experts" who could testify that there is a "reasonable basis" for the fact that potential buyers would pay less for the property because of the unsightliness of transmission lines and towers. Whether this aesthetic factor could be shown to be objectively reasonable is irrelevant: the only relevant consideration in this context is whether, in fact, property adjacent to these transmission lines sells for less after the towers are present than it did before. This also holds true for the question of alleged health hazards.
We join the majority of jurisdictions who have considered this issue and hold that the impact of public fear on the market value of the property is admissible without independent proof of the reasonableness of the fear.[3] This view is perhaps best represented by the sixth circuit's decision in Hicks v. United States, 266 F.2d 515, 521 (6th Cir.1959), which held:
The apprehension of injuries to person or property by the presence of power lines on the property is founded on practical experience and may be taken into consideration in so far as the lines and towers affect the market value of the land.
(citations omitted). The sixth circuit in United States ex rel. TVA v. Easement and Right of Way, 405 F.2d 305 (6th Cir.1968), had occasion to reevaluate its decision in Hicks when the condemning authority, the TVA, insisted that its recent studies show such transmission lines were, in *899 fact, safe. The court adhered to its decision in Hicks, holding:
TVA has conducted numerous safety studies and has concluded from them that apprehension of injuries is not founded on practical experience and should not be considered in awarding incidental damages. The TVA studies conducted on this issue are also creditable. However, in final analysis, we are concerned only with market value. Although these studies may show objectively the complete safety of these structures, we are not convinced that certain segments of the buying public may not remain apprehensive of these high voltage lines, and therefore might be unwilling to pay as much for the property as they otherwise would.
Id. at 309.
The experts' scientific testimony introduced below was irrelevant to any fact at issue. "The theory of allowing evidence of an expert witness to be received by the triers of fact is to understand and determine an issue of fact." Wright v. State, 348 So.2d 26, 31 (Fla. 1st DCA 1977), cert. denied, 353 So.2d 679 (Fla. 1977). The scientists who testified below on behalf of the landowners added nothing to aid the jury in determining the value of the taken property and any severance damages to the remainder. Instead, the scientific testimony altered the focus of the trial and confused the issue to be determined. Under the rule we adopt today, the reasonableness of fear is either assumed or is considered irrelevant. See Willsey v. Kansas City Power & Light Co., 6 Kan. App. 2d 599, 605-606, 631 P.2d 268, 274 (1981) (and cases cited therein). We agree with the observation made by the court in Willsey that "[a] certain amount of fear and a healthy wariness in the presence of high voltage lines strikes us as eminently reasonable." Id. at 614, 631 P.2d at 279. We believe that a jury is certainly capable of determining whether an experts' valuation opinion is reasonable that explains the devaluation of property adjacent to high voltage lines in part, because of the public's fear of health hazards. By the same token, we believe that a jury could also determine the reasonableness of a valuation opinion which explains the devaluation of such adjacent property on the grounds that, e.g., the buying public is fearful that transmission lines attract alien being in flying saucers. In short, whether a real property expert's valuation opinion is based on reasonable factors may be determined by the jury without resort to other expert witnesses' testimony or documentary evidence concerning the reasonableness of the buying public's fears.
In addition to the fact that the scientific testimony introduced below was irrelevant to any fact at issue and only tended to obfuscate the issue of full compensation, we reject the intermediate rule for another reason. Under the guise of showing the reasonableness of the public's fear, the jury below was allowed to hear testimony that the electric field from high voltage lines can produce a coupling effect of electrical energy into the human body and that the result is a long-term chronic effect. The jury was also allowed to hear that constant exposure to high voltage electromagnetic fields promotes cancer in children and adults. This irrelevant testimony is so inflammatory and prejudicial that we find a new trial is warranted. If these dire scientific predictions do, in fact, transpire, those so injured will have their day in court. Redress for future personal injuries is not proper in an in rem eminent domain proceeding.
In conclusion, we hold that any factor, including public fear, which impacts on the market value of land taken for a public purpose may be considered to explain the basis for an expert's valuation opinion. Whether this fear is objectively reasonable is irrelevant to the issue of full compensation in an eminent domain proceeding. The introduction into evidence of independent expert's scientific testimony is, therefore, unnecessary and only serves to confuse the actual issue before the jury. Because this irrelevant scientific testimony was prejudicial and inflammatory, we quash the decision of the district court below and remand for a new trial in accordance *900 with this opinion.[4] The trial court's awards of attorneys' fees are reversed for redetermination at the conclusion of the litigation on remand.
It is so ordered.
McDONALD, C.J., and OVERTON, SHAW, BARKETT, GRIMES and KOGAN, JJ., concur.
NOTES
[1] The First District Court's decision in Jennings preceded the decision of the Fifth District in Roberts, and it was upon Jennings that Roberts relied. 490 So.2d at 971. Both district courts rejected the reasoning employed in Casey v. Florida Power Corp., 157 So.2d 168 (Fla. 2d DCA 1963). Simply for clarity, we will refer only to the decision below in Jennings.
[2] Art. X, § 6 of the Florida Constitution provides for "full compensation" to a landowner for property taken for a public purpose. We read the phrase "true value" employed in Casey as the court's chosen expression that full compensation to the landowner should entail paying the owner the true value of his taken property. There is no single test for determining what is full compensation. We have held that fair market value (comparing pre- with-post-condemnation values) is merely a tool in determining full compensation, and that "all facts and circumstances which bear a reasonable relationship to the loss" must be taken into account. Jacksonville Expressway Authority v. Henry G. Du Pree Co., 108 So.2d 289, 291 (Fla. 1958).
[3] In Willsey v. Kansas City Power & Light Co., 6 Kan. App. 2d 599, 605-607, 631 P.2d 268, 274-275 (1981), relied upon by all the parties, the court noted that at least eleven states plus the United States Court of Appeals, 6th Circuit, follow the rule we adopt today; nine states follow the rule adopted by the district court sub judice, and four states follow the rule announced in Casey. With our disapproval of Casey herein, this latter category presumably now contains only three states.
[4] FPL raises two other issues related solely to the decision below in Roberts. Like the district court in Roberts, 490 So.2d at 972, we find no merit to these contentions. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/4517089/ | UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 19-7647
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
ANDREW TIMOTHY JONES,
Defendant - Appellant.
Appeal from the United States District Court for the Western District of North Carolina, at
Charlotte. Frank D. Whitney, Chief District Judge. (3:03-cr-00055-FDW-DCK-1;
3:07-cv-00373-FDW)
Submitted: March 12, 2020 Decided: March 17, 2020
Before KING, KEENAN, and FLOYD, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Andrew Timothy Jones, Appellant Pro Se.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Andrew Timothy Jones seeks to appeal the district court’s order denying his Fed. R.
Civ. P. 60(b) motion for relief from the district court’s prior order denying relief on his 28
U.S.C. § 2255 (2018) motion. The order is not appealable unless a circuit justice or judge
issues a certificate of appealability. 28 U.S.C. § 2253(c)(1)(B) (2018). See generally
United States v. McRae, 793 F.3d 392, 400 & n.7 (4th Cir. 2015). A certificate of
appealability will not issue absent “a substantial showing of the denial of a constitutional
right.” 28 U.S.C. § 2253(c)(2) (2018). When the district court denies relief on the merits,
a prisoner satisfies this standard by demonstrating that reasonable jurists would find the
district court’s assessment of the constitutional claims debatable or wrong. See Buck v.
Davis, 137 S. Ct. 759, 773-74 (2017). When the district court denies relief on procedural
grounds, the prisoner must demonstrate both that the dispositive procedural ruling is
debatable and that the motion states a debatable claim of the denial of a constitutional right.
Gonzalez v. Thaler, 565 U.S. 134, 140-41 (2012) (citing Slack v. McDaniel, 529 U.S. 473,
484 (2000)).
We have independently reviewed the record and conclude that Jones has not made
the requisite showing. Accordingly, we deny a certificate of appealability and dismiss the
appeal. We dispense with oral argument because the facts and legal contentions are
adequately presented in the materials before this court and argument would not aid the
decisional process.
DISMISSED
2 | 01-03-2023 | 03-17-2020 |
https://www.courtlistener.com/api/rest/v3/opinions/4561336/ | In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 17‐1650, 17‐2854, 17‐2858, 17‐2877, 17‐2899, 17‐2917,
17‐2918, 17‐2931, 17‐3063, & 17‐3449
UNITED STATES OF AMERICA,
Plaintiff‐Appellee,
v.
BYRON BROWN, et al.,
Defendants‐Appellants.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
Nos. 13 CR 288 & 13 CR 774 — John J. Tharp, Jr., Judge.
____________________
ARGUED JUNE 3, 2020 — DECIDED AUGUST 28, 2020
____________________
Before SYKES, Chief Judge, and WOOD and ST. EVE, Circuit
Judges.
WOOD, Circuit Judge. This case offers a window into the vi‐
olent and ruthless world of the Hobos street gang, which op‐
erated in Chicago from 2004 to 2013. With the credo, “The
2 Nos. 17‐1650 et al.
Earth is Our Turf,” the Hobos worked to build their street rep‐
utation and control certain areas on Chicago’s south side. Ten
gang members were charged and convicted for violations of
the Racketeer Influenced and Corrupt Organizations (RICO)
Act, among other crimes. Nine of those defendants have
joined in the present appeals: Byron Brown, Gabriel Bush,
Gregory Chester, Arnold Council, William Ford, Rodney
Jones, Paris Poe, Derrick Vaughn, and Stanley Vaughn. We
find no reversible error in the convictions for any of the de‐
fendants. Nor do we find any error in any of the sentences,
except for Chester’s, which must be revisited.
I
A
The defendants now before us were the core group that
formed the Hobos. Although the Hobos did not have a struc‐
ture as firmly hierarchical as that found in many gangs, it did
have a leader (Chester) and senior members (Council, Bush,
and Poe). Most members had roots in other gangs, such as the
Gangster Disciples (GDs) and Black Disciples (BDs).
We need not recount all of the Hobos’ multifarious crimi‐
nal activities. We focus instead on the specific incidents the
government emphasized at trial. Where necessary, we include
further details. Generally speaking, those activities fell into
three broad categories: drug trafficking, murder (including at‐
tempted murder), and robbery.
Drug Trafficking. The Hobos ran many drug lines through‐
out Chicago’s south side. Defendant Bush managed two her‐
oin lines, known as “Cash Money” (identifiable by the bag‐
gies’ green dollar signs) and “X‐Men” (identifiable by the red
Xs on the baggies). Ford and others sold the Cash Money line
Nos. 17‐1650 et al. 3
at 47th Street and Vincennes Avenue, and Hobo‐associate
Kevin Montgomery sold Cash Money at 51st Street and Mar‐
tin Luther King Drive. Members of another gang known as
Met Boys sold X‐Men at 51st Street and Calumet Drive. Bush
also had a drug line at the Ida B. Wells housing project.
Council and other Hobos oversaw drug lines at the Robert
Taylor Homes, selling “Pink Panther” marijuana and crack co‐
caine (so named for the Pink Panther logo on their baggies).
Derrick Vaughn (to whom we refer as Derrick, to differentiate
him from his brother and co‐defendant, to whom we refer as
Stanley) sold cocaine at 47th and Vincennes. The Hobos also
supplied drugs to each other: Council provided marijuana
and crack cocaine to various Hobos, and Chester supplied
heroin.
Murders and Attempted Murders. The Hobos liberally used
violence to retaliate against rival gangs, harm people who co‐
operated with law enforcement, and defend their drug traf‐
ficking territory. The Hobos had long‐running rivalries with
several other gangs, including the BDs and associated BD fac‐
tions such as New Town and Fifth Ward, the Row GDs, and
the Gutterville Mickey Cobras. These rivalries precipitated
numerous shootings.
For example, in April 2006, Fifth Ward BD Cordale Hamp‐
ton and his uncle were driving when they were shot at by a
passenger in a car driven by Stanley. Both were hit—Hamp‐
ton on his neck, side, leg, and arm, and his uncle on his head—
but both survived. Two months later, in June 2006, Chester
was leaving his girlfriend’s apartment, which was located in
the New Town BDs’ territory, when he was shot (amazingly
not fatally) 19 times. In September 2006, occupants of a car
4 Nos. 17‐1650 et al.
shot at Chester while he was at a southside car wash. The bul‐
lets struck him but did not kill him, and Poe fired back at the
car to protect Chester. Chester, believing the BDs were re‐
sponsible for these shootings, put out a $20,000 bounty on the
leader of the New Town BDs, Antonio Bluitt. The bounty,
however, did not intimidate Bluitt. Instead, Bluitt announced
a retaliatory bounty on Chester and Council, sparking more
violence.
In February 2007, Derrick was at a local Hobos hangout, a
barbershop, when he saw Fifth Ward BD Devin Seats outside
a nearby shop. Derrick opened fire, hitting Seats multiple
times. In June 2007, while riding in a car with Ford, Council,
and Chad Todd (a Hobo‐turned‐cooperator), Bush shot at
Bluitt‐associate Andre Simmons and Simmons’s cousin Dar‐
nell. He hit them several times, causing Andre to lose an eye.
Later that month, Bush, Todd, and the Vaughn brothers shot
New Town BD Jonte Robinson nine times as he was walking
into a daycare center to pick up his son.
In July of the same year, Bush, Ford, and Todd spotted sev‐
eral teenagers they thought were Fifth Ward BDs. Bush and
Ford shot the teenagers, striking one of them in the face. The
Hobos were mistaken: the victims had no gang affiliation. A
month later, Council and Bush shot New Town BD Eddie
Jones.
In September 2007, Bush, Council, Derrick, Ford, Stanley,
and others made good on Chester’s bounty by killing Bluitt
and Fifth Ward BD Gregory Neeley in a drive‐by ambush.
Bluitt, Neeley, and others were sitting in a Range Rover after
leaving a funeral when the attackers drove by in a four‐car
caravan, firing at the Range Rover. That same month, Bush
Nos. 17‐1650 et al. 5
and Council killed Terrance Anderson, who managed a com‐
peting drug line. Bush and Council shot Anderson five times
while he was attending a reunion party for the Robert Taylor
Homes.
Rival gang members were not the Hobos’ only targets.
They also retaliated against cooperators. The trial evidence
highlighted two such victims—Wilbert Moore and Keith Dan‐
iels—both of whom the defendants killed because of their
work for law enforcement.
Moore dealt drugs in the Ida B. Wells housing projects. In
2004, he started cooperating with the Chicago Police Depart‐
ment (CPD). Information he provided led to the search of an
apartment from which Council supplied crack cocaine. Dur‐
ing the search, CPD officers seized cocaine, crack cocaine, her‐
oin, cannabis, and firearms from the apartment. Council fig‐
ured out that Moore was the informant.
In January 2006 Council and Poe, with Bush’s assistance,
killed Moore. Bush spotted Moore’s car parked outside of a
barbershop and made a phone call. Council and Poe quickly
arrived on the scene. As Moore left the barbershop, Poe fired
at him from Council’s car. Moore attempted to flee, but he
tripped in a nearby vacant lot, allowing Council and Poe to
catch up to him. Poe immediately shot him in the face.
Daniels was Council’s brother and a Hobo. In 2011 he be‐
gan providing information about the Hobos to law enforce‐
ment. He also participated in three controlled buys of heroin
from Chester and another Hobo, Lance Dillard. Suspecting
something, the Hobos decided to silence him. Ford sneaked
into Daniels’s apartment, pulled out a gun, and told Daniels
to take a ride with him. Daniels refused and, soon after, the
6 Nos. 17‐1650 et al.
FBI temporarily relocated him. But that did not prove to be
enough.
On April 4, 2013, Daniels testified about the Hobos and his
controlled buys before a federal grand jury. A week later,
Chester was arrested on a criminal complaint that alleged that
Chester distributed heroin to Daniels. Chester told the arrest‐
ing agents that he knew Daniels was the informant. Shortly
after Chester’s arrest, Poe cut off his electronic monitoring
bracelet, and on April 14, 2013, Poe murdered Daniels in front
of Daniels’s girlfriend and children.
Robberies. The Hobos frequently conducted robberies,
home invasions, and burglaries. A few vivid examples suffice.
At a nightclub in June 2006, Poe robbed NBA basketball
player Bobby Simmons of a $100,000 necklace. A car chase fol‐
lowed, and Poe shot at Simmons’s car from Council’s car.
Later in 2006, Brown, Jones, and a Met Boy entered a drug
dealer’s home and shot, punched, and stabbed him for infor‐
mation about the location of his drugs. They took $20,000
worth of marijuana and gave some to Council.
In 2007, Bush, Council, and Stanley robbed a heroin sup‐
plier. In July 2008, Brown and Jones burglarized a home.
While fleeing from police, they crashed into a car driven by
Tommye Ruth Freeman, an elderly woman, killing her. In No‐
vember 2008, Council and three other Hobos robbed a cloth‐
ing store called Collections, stealing merchandise worth
$17,488.
We could go on, but the picture is clear: the Hobos were a
violent, dangerous gang, and each of the defendants in this
case was an active participant in its activities.
Nos. 17‐1650 et al. 7
B
Before we proceed to the defendants’ many contentions,
we offer a brief overview of the charges. Of the nine defend‐
ants involved in these appeals, three pleaded guilty to one
count of RICO conspiracy, in violation of 18 U.S.C. § 1962(d)
(Count 1): Brown, Jones, and Stanley. Brown also pleaded
guilty to one count of murder in aid of racketeering, in viola‐
tion of 18 U.S.C. § 1959(a) (Count 4), for the murder of Eddie
Moss. The remaining six defendants proceeded to trial. The
following chart shows who among the latter group was con‐
victed and for what:
Council
Chester
Derrick
Bush
Ford
Poe
# Charge (Violated Statute)
1 RICO Conspiracy (18 U.S.C. G1 G G G G G
§1962(d))
Murder of Moore in Aid of
2 Racketeering (18 U.S.C. G G
§1959(a)(1))
Murder of Anderson in Aid of
3 Racketeering (18 U.S.C. G
§1959(a)(1))
Murder of Bluitt in Aid of
4 Racketeering (18 U.S.C. G
§1959(a)(1))
1 The letter “G” indicates guilty; “NG” indicates not guilty.
8 Nos. 17‐1650 et al.
Murder of Neeley in Aid of
5 Racketeering (18 U.S.C. G
§1959(a)(1))
Obstruction of Justice through
6 Murder of Daniels G
(18 U.S.C. §§1503(a) & (b)(1))
Use of Firearm During Crime
7 of Violence (Robbery of Collec‐ G
tions) (18 U.S.C. §924(c))
8 Possession of Firearm by a G
Felon (18 U.S.C. §922(g))
Possession with Intent to Dis‐
9 tribute Marijuana (21 U.S.C. G
§841(a)(1))
Possession of Firearm in Fur‐
10 therance of Drug Trafficking NG
Crime (18 U.S.C. §924(c))
The trial lasted about four months, and more than 200 wit‐
nesses testified. The jury found all six defendants guilty of all
counts, except for the charge against Ford in Count 10. The
district court sentenced all the defendants to lengthy terms in
prison.
Eight of the defendants have appealed from their convic‐
tions, their sentences, or both; defendant Jones’s attorney has
filed a no‐merit brief pursuant to Anders v. California, 386 U.S.
738 (1967). We have sorted the myriad arguments before us
into five different major headings: Section II addresses the
sufficiency of the evidence presented at trial; Section III tack‐
les various evidentiary challenges; Section IV addresses sen‐
tencing contentions; Section V discusses Brown’s individual
Nos. 17‐1650 et al. 9
arguments; and Section VI addresses the Anders brief for de‐
fendant Jones.
II
We begin with the defendants’ challenges to the suffi‐
ciency of the evidence. Such challenges face a high hurdle: we
afford great deference to jury verdicts, view the evidence in
the light most favorable to the jury’s verdict, and draw all rea‐
sonable inferences in the government’s favor. United States v.
Moreno, 922 F.3d 787, 793 (7th Cir. 2019). We may set aside a
“jury’s verdict on the ground of insufficient evidence only if
no rational trier of fact could have agreed with the jury.”
Cavazos v. Smith, 565 U.S. 1, 2 (2011).
A. Count 1 – RICO Conspiracy
1. Joint Arguments
Chester, Council, Bush, Derrick, Ford, and Poe all argue
that there was insufficient evidence to support the jury’s
guilty verdicts on Count 1. As we noted before, Count 1
charged these six under RICO with conspiring to engage in a
racketeering enterprise known as the Hobos, in violation of 18
U.S.C. § 1962(d). To prove a RICO conspiracy, “the govern‐
ment must show (1) an agreement to conduct or participate in
the affairs (2) of an enterprise (3) through a pattern of racket‐
eering activity.” United States v. Olson, 450 F.3d 655, 664 (7th
Cir. 2006); see Salinas v. United States, 522 U.S. 52, 61–66 (1997).
The defendants contend that there was insufficient evidence
that the Hobos were an enterprise.
Under the RICO statute, an “enterprise” includes “any in‐
dividual, partnership, corporation, association, or other legal
entity, and any union or group of individuals associated in
10 Nos. 17‐1650 et al.
fact although not a legal entity.” 18 U.S.C. § 1961(4). An asso‐
ciation‐in‐fact includes any “group of persons associated to‐
gether for a common purpose of engaging in a course of con‐
duct.” Boyle v. United States, 556 U.S. 938, 946 (2009). The Su‐
preme Court reads this definition broadly. An association‐in‐
fact under RICO need not have any structural features beyond
“a purpose, relationships among those associated with the en‐
terprise, and longevity sufficient to permit these associates to
pursue the enterprise’s purpose.” Id.
The defendants argue that the government failed to prove
the necessary agreement. They admit that they came together
at different times to engage in crimes, but they contend that
they were no more than “independent participants involved
in unrelated criminal activity operating [without a] common
purpose.” They emphasize that the Hobos had no rules. Alt‐
hough most gangs allegedly have initiations, treasurers, dues,
and manifestos, the Hobos did not bother with those formali‐
ties.
The defendants also dispute the government’s contention
that the Hobos’ loyalty and protection of one another was in‐
dicative of common purpose. The evidence on which the gov‐
ernment relies, they argue, showed only that this bond existed
in certain individual cases, rather than being a feature for all
members of the gang. For example, while Chad Todd initially
claimed that the Hobos protected one another, he later admit‐
ted that he was willing to kill only for Bush and not for any
other Hobo. Todd also testified that at one point Bush wanted
to kill the Vaughn brothers for attempting to extort him.
Finally, the defendants assert that the government failed
to prove that the Hobos had an internal hierarchy, and with‐
Nos. 17‐1650 et al. 11
out any pecking order, there could be no coordination or com‐
mon purpose. The government labeled Chester as the leader
of the Hobos, but Todd testified that he never saw Chester
send money down to any members of the gang below him,
and he never saw people send money up to Chester. Each of
the six of them, the defendants argue, did no more than en‐
gage in “[a]ccidentally parallel” criminal activity that hap‐
pened occasionally to overlap; they shared no coordinated
purpose.
Perhaps that is one way to view the evidence, but it is not
the only one. The defendants’ course of conduct, “viewed in
the light most favorable to the verdict, was neither independ‐
ent nor lacking in coordination.” United States v. Hosseini, 679
F.3d 544, 558 (7th Cir. 2012). Together the defendants worked
to control an exclusive territory. They earned money through
drug dealing and robberies, protected each other, and killed
rival gang members and others who posed threats, including
government cooperators.
Many witnesses testified that the gang was a distinct, iden‐
tifiable group. We name a few. Jones and Todd (Hobos who
became cooperators) confirmed that an organization called
the Hobos existed and they were members. Todd considered
Derrick, Stanley, and Ford to be Hobos, and Chester to be the
leader of the Hobos. He also said that Council, Poe, and Bush
each had a “position of authority.” The jury reasonably could
see this as evidence of a hierarchy, albeit a loose one. Jones
testified that Council, Bush, Derrick, Ford, and Chester,
among many others, were also Hobos. Bland and Montgom‐
ery described the Hobos as a gang. Cashell Williams, a Fifth
Ward BD, testified that his gang had a rivalry with the Hobos.
12 Nos. 17‐1650 et al.
Additional evidence showed that the Hobos were not just
a group of criminals acting individually. They protected each
other and retaliated on behalf of one another. For example, all
the trial defendants except for Poe were involved in the mur‐
ders of Bluitt and Neeley. In so doing, they were carrying out
Chester’s orders. In addition, Bush, Council, Ford, and Todd
shot the Simmonses, and Bush, Derrick, Todd, and others shot
Jonte Robinson. The jury was entitled to conclude that the Ho‐
bos shot the BDs to retaliate against a rival gang and to control
Hobos territory.
And this was not all. Many other crimes illustrated the re‐
lationships among the Hobos and their network. Council and
Poe murdered Moore based on a tip from Bush. Council and
Bush murdered Anderson. Council and Poe robbed Bobby
Simmons. And the Hobos shared weapons to commit these
crimes.
The jury also heard evidence about the defendants’ coop‐
erative drug trafficking. As we noted earlier, Bush ran the
Cash Money and X‐Men drug lines, supplying the drugs and
receiving the proceeds. Council operated the Pink Panther
drug line. They did not run these drug lines alone. Ford man‐
aged certain Cash Money drug spots, and Montgomery col‐
lected money for Bush. Bush and Council occasionally used
the same apartment to package drugs. This was evidence
showing that the Hobos’ drug activity was interconnected
and a source of income for the gang.
The Hobos also showed their unity through tattoos and
hand signs. Chester’s tattoo says “Hobo” and “The Earth Is
Our Turf,” with images of firearms, a bag of money, and two
buildings. Poe has Hobos tattoos. One says “Cheif [sic] Hobo”
and the other says “The Earth Is Our Turf” and “Hobo.”
Nos. 17‐1650 et al. 13
Ford’s tattoo says “hobo 4Life.” Poe, Chester, and other Ho‐
bos also stitched “Hobo” into their cars’ headrests.
Although there is much more evidence to the same effect
in the record, we have no need to rehearse all of it. Bearing in
mind the standard of review for challenges to the sufficiency
of the evidence, we have no trouble concluding that the evi‐
dence before this jury was sufficient to establish a RICO en‐
terprise.
2. Derrick Vaughn
Derrick contends that even if there was a Hobos enter‐
prise, he was not a member of it and he did not conspire with
the Hobos. He concedes that he sold a small quantity of drugs
and was present at the scene of several Hobos crimes, but he
insists that there was no evidence that he was a participant
(rather than a mere bystander) in those crimes.
In order to support Derrick’s conviction on Count 1, the
government was required to prove “that another member of
the enterprise committed ... two predicate acts and that [Der‐
rick] knew about and agreed to facilitate the scheme.” United
States v. Faulkner, 885 F.3d 488, 492 (7th Cir. 2018) (internal
quotation marks omitted). “It did not … need to show that he
was personally involved in two or more of the predicate acts.”
Id.
The record contains ample evidence of Derrick’s partici‐
pation in the Hobos’ racketeering activity. For example, in
recorded conversations between Derrick and Courtney John‐
son (a government cooperator), Derrick admitted to Johnson
that he participated in the Bluitt and Neeley murders. He de‐
scribed hearing his co‐conspirators’ gunshots and mentioned
that he saw the victims dead. Even though Derrick may not
14 Nos. 17‐1650 et al.
specifically have uttered the word “Hobos,” he nevertheless
revealed his ties to and knowledge of the Hobos when he
commented that the purpose of the murders was to retaliate
on Chester’s behalf because the BDs earlier had shot Chester.
Derrick also described shooting Seats: “So I come from
around the gate I boom, boom, boom[.]” And Derrick dis‐
cussed the Hobos’ attempts to eliminate the BD’s competing
drug trafficking: “[T]hey had a line down there … we put a
stop to that.”
Several of Derrick’s co‐defendants also implicated him. In
a recorded conversation, Ford mentioned Derrick’s involve‐
ment in the Bluitt and Neeley murders. Jones similarly testi‐
fied that Derrick was a passenger in Ford’s car during the
drive‐by murders of Bluitt and Neeley and that Derrick was
armed.
The jury was entitled, based on the evidence before it, to
conclude that Derrick shot Seats as part of the conspiracy.
Todd testified that he saw Derrick shoot Seats. Although Seats
himself did not see the shooter, Seats testified that he saw Der‐
rick’s Grand Prix near the barbershop where he was shot and
that Derrick had threatened to kill him earlier the same day.
Derrick emphasizes that Seats described their dispute as per‐
sonal and unrelated to their respective gang affiliations, and
so, in his view, the shooting could not have been part of a con‐
spiracy. But once again, the jury did not have to accept that
interpretation of the evidence. And this jury did not. There
was also a recorded conversation in which Derrick told John‐
son that he shot Seats after seeing Fifth Ward BDs near the
barbershop. The jury evidently credited this admission and
found that the shooting furthered the conspiracy. In sum,
Derrick’s individual attack on the sufficiency of the evidence
Nos. 17‐1650 et al. 15
to support his conviction on Count 1 fares no better than the
collective argument.
B. Count 2 and Additional Findings – Moore’s Murder
Council and Poe were the only two defendants charged
with Moore’s murder. They both argue that there was insuffi‐
cient evidence to support their convictions on this Count,
which charged them with murdering Moore in aid of the Ho‐
bos racketeering conspiracy, in violation of 18 U.S.C.
§ 1959(a)(1). Bush also joins this argument insofar as it bears
on the jury’s special findings in Count 1 connecting him to
Moore’s murder. The jury made the Additional Findings that
the murder was committed “because Moore was a witness in
any prosecution or gave material assistance to the State of Il‐
linois in any investigation or prosecution, either against the
defendant or another person,” and that “[the murder] was
committed in a cold, calculated, and premeditated manner
pursuant to a preconceived plan, scheme, and design to take
a human life by unlawful means, creating a reasonable expec‐
tation that the death of a human being would result there‐
from.”
The record contains ample evidence that supports both
Council’s and Poe’s convictions and the Additional Findings.
Several witnesses implicated the three defendants. Kevin
Montgomery, who managed one of Bush’s drug lines, testi‐
fied that he was in Bush’s car near 43rd Street and Langley
Avenue when he heard Bush say on his phone that “this blue
thing is out here,” referring to a blue car parked in front of the
barbershop. Montgomery also testified that a few minutes
later, Council and Poe pulled up in a Chevy Malibu. Mont‐
gomery saw Poe fire a .40 caliber firearm from the back pas‐
senger window. Bush and Montgomery then left the scene.
16 Nos. 17‐1650 et al.
That night, Bush reported to Montgomery that Moore had
been killed. Bush remarked, “I just seen that whip [car] out
there, you know. I wasn’t looking forward to that either. … So
I made that call.” He also told Montgomery that Council and
Poe “got” Moore, explaining that Council and Poe chased
Moore, Moore was “whipping” Council, and then Poe walked
up and shot him. Bush said they killed Moore because Moore
“sent the feds to [Council’s] crib” and they “found a half a
book [kilo] of coke and a chopper [assault rifle].”
People who lived in the surrounding area corroborated
this account. Alan Pugh lived in an apartment building on
Langley Avenue. Through a window he saw a Black man
“running for his life,” chased by another Black man as a red
Mitsubishi Galant drove parallel to them. The first man ran
into a vacant lot, where he slipped near a van. The second was
“upon him almost instantly” and shot him in the head. A third
man got out of the red car, walked to the victim, and then the
two men “calmly” left in their car. Tiajuana Jackson, who
lived nearby, testified that she heard gunshots, ran down‐
stairs, and saw a maroon vehicle speeding east on 43rd Street
before making a left on Langley.
Offering further support, Marcus Morgan, a Met Boy, tes‐
tified that, while housed together at Cook County Jail, Poe
told him that he killed Moore. Rodney Jones testified that
Council told him that Moore had sent the police to Council’s
house. And Poe told Jones that Moore was holding his hands
up, but Poe shot him anyway. Brian Zentmyer, Poe’s cellmate,
testified that Poe bragged about Moore’s murder and ex‐
plained that he killed Moore because Moore “turned state ev‐
idence on another Hobo,” Council.
Nos. 17‐1650 et al. 17
Physical evidence corroborated the witnesses’ testimony.
Casings were recovered near the barbershop and near
Moore’s body, suggesting that the shooting started near the
barbershop and continued into the vacant lot. A .40 caliber
cartridge was found near the blue car, corroborating Mont‐
gomery’s testimony about the type of weapon. Moreover,
toolmark analysis established that one of the guns used in
Moore’s murder had also been used in the shooting of
Cordale Hampton and his uncle—also a Hobos operation.
Council, Poe, and Bush argue that Montgomery’s and
Jones’s testimony was incredible as a matter of law. They
point to several inconsistencies. First, Montgomery described
Council’s car as a burgundy “boxed” Chevy Malibu, whereas
Pugh described a red Mitsubishi Galant. In addition, Mont‐
gomery originally stated that Bush was driving his own tan
Pontiac Bonneville, but then later he said that Chester owned
the car. Montgomery also testified that Bush had told him that
Poe shot and killed Moore after Moore and Council were
fighting. Yet Pugh did not mention a fight in his testimony. In
addition, the defendants point to discrepancies between
Montgomery’s and Pugh’s descriptions of the route Council
took in following Moore. They also note that while Jones tes‐
tified that Poe told him that he put his gun “up under a van”
to shoot Moore, no shell casings were found under the van.
The defendants urge that these inconsistencies, added to the
fact that Montgomery and Jones had “every incentive to
falsely tailor a story to fit … law enforcement’s needs,” render
the testimony incredible as a matter of law.
Defendants overstate the problems. A determination that
testimony is incredible is reserved for extreme situations
18 Nos. 17‐1650 et al.
where, for example, “it would have been physically impossi‐
ble for the witness to observe what he described, or it was im‐
possible under the laws of nature for those events to have oc‐
curred at all.” United States v. Conley, 875 F.3d 391, 400 (7th
Cir. 2017). Nothing of that magnitude exists here; we see only
ordinary failures to recall with specificity, or perhaps dissem‐
bling. We do not dispute the basic point that there were incon‐
sistencies among the witnesses’ accounts, but the jury was en‐
titled to decide which parts to credit and which to reject. As
the district court noted, “for all we know, the jurors did reject
the entire testimony of one or more of these witnesses, which
would still leave sufficient evidence to convict.” Moreover,
“[i]t is the jury’s job, and not ours, to gauge the credibility of
the witnesses and decide what inferences to draw from the
evidence.” United States v. Stevenson, 680 F.3d 854, 857 (7th Cir.
2012). “We do not second guess such determinations on ap‐
peal.” Id. The jury believed that the three defendants partici‐
pated in the murder of Moore, and they have given us no rea‐
son to question that decision.
Next, the defendants argue that even if they actually com‐
mitted the murder, the government failed to present sufficient
evidence that it was “for the purpose of … maintaining or in‐
creasing position in” the Hobos enterprise, as required under
18 U.S.C. § 1959(a)(1). The question here is whether there was
evidence permitting the jury to “infer that the defendant com‐
mitted his violent crime because he knew it was expected of
him by reason of his membership in the enterprise or that he
committed it in furtherance of that membership.” United
States v. DeSilva, 505 F.3d 711, 715 (7th Cir. 2007) (internal quo‐
tation marks omitted).
Nos. 17‐1650 et al. 19
The government’s theory was that Moore was murdered
because he cooperated with the authorities and was the (un‐
named) affiant on a search warrant for Council’s residence.
The defendants respond that there is no documentary evi‐
dence that supports this contention, and that the theory is
based entirely on the testimony of CPD Officer Edwin Utre‐
ras, who prepared the search warrant affidavit. Moreover, the
defendants argue, even if Moore was the informant, there was
no evidence that Council knew this, nor any evidence that this
information was communicated to Poe or Bush. Finally, the
defendants say, even if we accept the government’s position
that Council knew that Moore was the informant, “at best the
government’s evidence established that the murder of Wilbert
Moore was committed for personal revenge.” The criminal
case that resulted from the search was dismissed well before
the murder, and so (they conclude) the only possible motive
for the murder would be revenge.
We begin with the defendants’ argument that there was
insufficient evidence that Moore had cooperated against
Council. As the district court noted, this argument was “fully
vetted at a Franks [v. Delaware, 438 U.S. 154 (1978)] hearing on
the subject of whether the search warrant for Council’s apart‐
ment was based on false information.” The hearing estab‐
lished that “Moore had in fact acted as an informant and sup‐
plied the basis for the search warrant.” We see no reason to
overturn that assessment.
Next, contrary to the defendants’ contentions, there was
evidence that the Hobos knew that Moore had snitched on
Council. Montgomery testified that Bush told him Moore was
killed because Moore “sent the feds to [Council’s] crib,”
where they “found a half a book of coke and a chopper.”
20 Nos. 17‐1650 et al.
Council also told Jones that Moore sent the police to his house,
and Poe told Zentmyer that he killed Moore because Moore
“turned state evidence” on Council. The jury chose to credit
at least one of these witnesses. Moreover, although at the time
of Moore’s murder Council no longer faced charges based on
the search, there was ample evidence that the Hobos had an
interest in punishing cooperators and deterring further coop‐
eration. Personal revenge might have been a factor in Moore’s
demise, but a jury could reasonably find that maintaining or
advancing their position in the Hobos was another.
Finally, the defendants argue that there was insufficient
evidence that Moore’s murder was “committed in a cold, cal‐
culated and premeditated manner pursuant to a preconceived
plan, scheme and design.” Under Illinois law, first‐degree
murder does not carry a life sentence unless certain aggravat‐
ing factors exist. Premeditation is one such factor. It requires
a “substantial period of reflection or deliberation.” People v.
Williams, 193 Ill. 2d 1, 31 (2000). That deliberation must take
place over “an extended period of time.” Id. at 37. The defend‐
ants argue that Moore’s murder does not satisfy that element,
because only a few minutes elapsed between when Bush
placed a call stating that the “blue thing is out here” and when
Council and Poe drove up and began shooting at Moore.
But there is no reason why we should limit the relevant
time to the period between Bush’s call and the shooting. A ra‐
tional jury could conclude that the group had hatched its plan
to murder Moore much earlier. Bush made a call referring
only to “the blue car,” yet Council and Poe knew just what he
meant. They showed up instantly and began shooting. Fur‐
thermore, the search of Council’s “crib” occurred about 18
months before Moore’s murder. This was enough to permit
Nos. 17‐1650 et al. 21
the jury to find that Moore’s murder was cold, calculated, and
premeditated.
C. Count 3 – Anderson’s Murder
Count 3 alleged that Bush murdered Terrance Anderson
in aid of the racketeering enterprise, in violation of 18 U.S.C.
§ 1959(a). Bush argues, once again, that there was insufficient
evidence to support the jury’s guilty verdict. Council joins
Bush in attacking the sufficiency of the evidence for the jury’s
related special findings that Council’s and Bush’s racketeer‐
ing activity included the commission, or at least aiding and
abetting, of Anderson’s murder.
Bush does not challenge the finding that he shot Anderson
at the reunion party for the Robert Taylor Homes. He argues
instead that he did not have the requisite “intent to kill” An‐
derson. It is hard to take this point seriously, given the fact
that Bush pleaded guilty in state court to the second‐degree
murder of Anderson. There he stated under oath that he was
guilty of the charge that he “without lawful justification, in‐
tentionally and knowingly shot and killed Terrance Anderson
while armed with a firearm, and that, at the time of the killing
[he] believed the circumstances to be such that if they existed
would justify or exonerate the killing under the principle [of
self‐defense], that his belief in this was unreasonable, and con‐
stitutes a violation of [second‐degree murder statute].” These
admissions easily support the finding that he intended to kill
Anderson.
Other evidence reinforces that finding. For instance, Jones
testified that Council told him that Council and Bush mur‐
dered Anderson: Council “grabbed [Anderson], slammed
him to the ground and hit him,” and then Bush “grabbed him
22 Nos. 17‐1650 et al.
and slammed him and shot him.” Todd testified about several
conversations about Anderson he had with Bush. Bush told
Todd that Anderson was one of his rivals, because Anderson
sold drugs at the Ida B. Wells projects, where Bush also sold
drugs. Another time, Todd was sitting in a car with Bush,
Council, and Ford, when they saw Anderson walking on the
street. Ford suggested that Bush should shoot Anderson, but
Bush dismissed the idea because there were pole cameras in
the area. In addition, after Anderson shot Bush, Bush told
Todd that he had been “stalking” Anderson’s prison release
date so that he could kill him.
In a recorded conversation, Ford told Todd that one of the
Brown twins saw Bush kill Anderson. Kevin Montgomery tes‐
tified that Bush had told him about the Anderson murder.
Bush described how he caught Anderson off guard: he “crept
up through the bushes” where Anderson was dancing and
“started busting at [him].” When Anderson ran, Council be‐
gan “busting at him from the other direction.”
Anderson’s girlfriend confirmed the hostility between
Bush and Anderson. She had seen Anderson shoot Bush in the
hand. Anderson’s brother attended the Robert Taylor reunion
party with Anderson. He saw Bush shooting a firearm (alt‐
hough he could not see the intended target), and then he saw
Bush and Council run and jump into a vehicle.
Physical evidence also supported these accounts. A base‐
ball hat containing Council’s DNA was recovered from the
scene. In addition, Anderson’s autopsy showed that bullets
entered from both his front and back, suggesting multiple
shooters.
Nos. 17‐1650 et al. 23
This evidence amply supports the jury’s finding that Bush
shot Anderson with the intent to kill him. In any event, an in‐
tent to kill is not essential to find a first‐degree murder under
Illinois law. A person commits first‐degree murder if he in‐
tends to kill, intends to do great bodily harm to another per‐
son, knows that his acts would cause the death of another per‐
son, or knows that his acts create a strong probability of death.
720 ILCS 5/9‐1. Bush’s intentionally shooting at Anderson was
enough to allow the jury to find that Bush knew, at a mini‐
mum, that his actions created a strong probability of Ander‐
son’s death. The evidence of Council’s involvement, summa‐
rized above, was also sufficient.
Bush and Council also argue that Bush did not kill Ander‐
son for the purpose of maintaining or increasing his position
within the Hobos enterprise. See DeSilva, 505 F.3d at 715. In‐
stead, they say, the evidence showed that Anderson and Bush
had personal animosities dating from an earlier incident in
which Anderson shot Bush. They postulate that there was no
evidence that the murder was related to the Hobos because
Bush was not carrying out an order.
A rational jury, however, could conclude that Bush killed
Anderson because Anderson was cutting into his drug sales
at the Ida B. Wells Homes, which Bush viewed as Hobos’ ter‐
ritory. Drug trafficking was a key source of revenue for the
Hobos, and controlling drug lines was crucial to maintaining
that income. Ample evidence supported this conclusion. An
explicit order is not required for a finding that the crime “was
expected of [Bush] by reason of his membership in the enter‐
prise or that he committed it in furtherance of that member‐
ship.” Id.
24 Nos. 17‐1650 et al.
Last, Council and Bush argue (as they did for Count 2) that
Anderson’s murder was not cold, calculated, and premedi‐
tated. They tactlessly state that “[s]hootings like the Anderson
murder occur in Chicago regularly. They involve personal
vendettas and crowded areas. There is nothing about this
murder that sets it [apart] from such ordinary shootings.”
The jury was not required to adopt such a cynical view.
Moreover, the government produced evidence allowing the
jury to find that Anderson’s murder in particular was pre‐
meditated. Bush and Anderson had a long‐standing dispute
over drug territory, and Anderson shot Bush in 2005 as a re‐
sult of this dispute. Anderson was arrested, and Bush told
Todd that he was “stalking” Anderson’s prison‐release date
so that he could kill him. He was a man of his word: Bush
seized the opportunity to attack while Anderson was on a
weekend pass from a halfway house. Council, Bush, and Ford
had also talked about shooting Anderson, but Bush passed
over one chance because of the pole cameras in the area. The
jury reasonably concluded that Anderson’s murder was the
result of discussion and planning.
D. Counts 4 and 5 – Bluitt’s and Neeley’s Murders
Derrick argues that there was insufficient evidence to sup‐
port the jury’s guilty verdicts on Counts 4 and 5, which
charged him with murdering Bluitt (Count 4) and Neeley
(Count 5) in aid of the racketeering enterprise, in violation of
18 U.S.C. § 1959(a)(1). Council, Bush, and Ford join Derrick in
arguing that the evidence was also insufficient to support the
jury’s special findings that their racketeering activity included
the commission, or aiding and abetting, of Bluitt’s and
Neeley’s murders.
Nos. 17‐1650 et al. 25
Derrick concedes that he was present at the funeral when
the murders happened, but he denies that he participated in
them. The evidence at trial permitted the jury to find other‐
wise. Cashell Williams, a Fifth Ward BD, testified that he at‐
tended the funeral with Bluitt, Neeley, and others. After they
paid respects, they got into Bluitt’s Range Rover, made a
U‐turn, and were idling when he heard Bluitt say “it’s on.”
Several cars then drove by, Williams heard gunshots, and
Bluitt and Neeley were fatally hit. Williams did not see the
shooters, but he saw Ford drive by shortly after the shooting.
In Derrick’s recorded conversations with cooperator John‐
son, Derrick described the murders. He told Johnson that the
murders were meant to retaliate against the BDs for shooting
Chester. He identified both the guns that he and Stanley car‐
ried and the cars and people involved. He also mentioned that
he tried to shoot at Bluitt and Neeley, but his gun jammed.
Jones testified that with Bush, the Vaughn brothers, Coun‐
cil, Ford, and others, he killed Bluitt and Neeley. Council had
pulled up to the spot where several Hobos were hanging out
and asked them if they had “poles,” meaning guns. He told
them that he knew where Bluitt was, mentioned the bounty
that Chester had placed on Bluitt, and stated that he was
“ready to kill for the money.” They told a Met Boy to get some
guns. Jones gave one to Brown’s twin, Brandon, and then got
in the car with Council and Brandon. They met up with Bush,
Ford, Derrick, and others in an alley. Once Bluitt was in his
car, Bush yelled “[g]o, go, go.” Council’s car was in front, with
Brandon in the front seat and Jones in the backseat. Bush was
in the second car; Stanley was in the third car; and Ford and
Derrick were in the fourth and final car. Jones testified that he
saw Derrick shooting from Ford’s car. Jones received clothes
26 Nos. 17‐1650 et al.
from Council as a reward, and Chester later arranged for
Dillard to give Jones heroin.
In recorded conversations, Ford told Todd about his par‐
ticipation in the murders. He mentioned that he expected a
reward, but Bush got offended because he was “one of the
guys.” Todd also testified. He stated that in response to Ches‐
ter’s getting shot, he went with Bush to look for and kill Bluitt.
Chester offered $20,000 for the kill, but the pair’s plan did not
work. Todd was out of town when the murders happened,
but he discussed them with Bush. Bush said he and other Ho‐
bos were in four cars and took turns shooting.
Physical evidence corroborated the testimony. A firearms
examiner testified that cartridge casings from the scene were
fired by the same gun that was used to kill Daniels. In addi‐
tion, on the day of the murders, Council changed rental cars
twice, before and after the murders. The car he was driving
during the murders, a red sedan, was consistent with eyewit‐
ness testimony.
Despite all this evidence, Derrick argues that the govern‐
ment relied almost exclusively on the recorded conversations
between Derrick and Johnson, and he contends that in these
conversations he admitted only his presence, not his partici‐
pation in the murder. Derrick emphasizes that his gun did not
work, and so he could not have participated in the murders.
He also asserts that the only other evidence to establish his
guilt came from Jones, but he argues that Jones’s testimony
was “so vague, contradictory, and incredible that it could
never be found to support a verdict of guilt beyond a reason‐
able doubt by any rational jury.”
Nos. 17‐1650 et al. 27
The jury, however, was not required to credit Derrick’s as‐
sertion that his gun did not work. And even if it did, it could
reasonably find that Derrick participated in the murders,
without shooting, on an accountability theory. Regardless of
whether he fired the gun, Derrick took affirmative steps in
furtherance of the murders by conducting surveillance before
the murders and serving as back‐up. A jury easily could find
that he helped the other Hobos kill Bluitt and Neeley. In ad‐
dition, the jury was entitled to credit Jones’s testimony. Once
again, any inconsistencies in that testimony were for the jury
to resolve. See Stevenson, 680 F.3d at 857.
The defendants also contend that the evidence of the Bluitt
and Neeley murders was insufficient to support the jury’s
special findings. Some witnesses did not see Council, Bush,
and Ford at the crime scene. Others, who did place them
there, allegedly provided inconsistent testimony. And de‐
fendants again urge that Todd and Jones were unreliable.
Once again, bearing in mind the standard of review, we
find the evidence sufficient to support the findings relating to
Council, Bush, and Ford. Jones detailed his cooperation with
them to conduct the drive‐by shooting. Ford and Derrick im‐
plicated themselves in recorded conversations. Bush orches‐
trated the caravan and yelled “go.” Williams testified that he
saw Ford during the shooting. This is enough, particularly re‐
calling again that the jury was entitled to make credibility de‐
terminations.
Finally, the defendants contend that no jury could find
that the Bluitt and Neeley murders were cold, calculated, and
premeditated. “At best,” they urge, “the evidence provided by
the government showed a haphazard and hurried collection
of people and resources to quickly confront [Bluitt] and
28 Nos. 17‐1650 et al.
[Neeley] out on the street.” They assert that nothing demon‐
strated a detailed and organized plan, thoughtfully consid‐
ered over time, which was executed in cold blood.
If the trial testimony is credited, however, premeditation
is clear. A rational jury could reasonably conclude that the
Hobos had been planning to murder Bluitt because of the
long‐running rivalry between the Hobos and BDs. The BDs
had shot Chester, and Chester had placed a bounty on Bluitt’s
head. Bush, Ford, and Todd then devised a plan to kill Bluitt.
On the day of the murders, the defendants learned that the
BDs were attending the funeral, but they did not act immedi‐
ately. Instead, Council recruited participants, they gathered
weapons, and then they met in an alley where they discussed
their plan of attack. Finally, they carried out the plan. This was
more than enough to support the jury’s finding that the two
murders were cold, calculated, and premeditated.
E. Shooting of Andre and Darnell Simmons
Bush challenges the jury’s special findings that his racket‐
eering activity included the commission, or aiding and abet‐
ting, of the attempted first‐degree murders of Andre Simmons
and Darnell Simmons. Bush argues that the only evidence in‐
troduced against him in this respect was the unreliable testi‐
mony of cooperator Chad Todd.
At trial, Todd testified that on the day of the shootings,
Bush called him and asked to meet at a nearby grocery store.
Once Todd arrived, he saw Bush sitting in the driver’s seat of
a white Impala that was parked on a side street next to the
grocery store. Ford was in the front passenger seat, and Coun‐
cil was in the rear passenger seat. Todd got into the car behind
Bush. The group sat and waited, watching a black Nissan
Nos. 17‐1650 et al. 29
Maxima that was parked in the grocery store parking lot.
When the Maxima pulled out, they followed it. Todd testified
that, at this point, Ford and Bush somehow switched seats,
Ford now driving and Bush in the front passenger seat.
After trailing the Maxima for a short time, Todd testified
that Bush pulled the sunglasses compartment down, reached
in, and pulled out a FN 5.7 firearm. Bush then instructed Ford
to lean back, Ford did so (Todd reported to the point of crush‐
ing Todd’s legs), and Bush fired past Ford’s face. Todd said
that he saw bullet holes going through the front passenger
window and heard glass shattering. Then he heard sirens and
saw an unmarked squad car behind them. They briefly eluded
the unmarked squad car, but after they got out of their car and
ran, Todd and Council were both apprehended and taken into
custody.
Bush asks us to find that Todd’s testimony is incredible.
He emphasizes that Todd did not describe how Ford and
Bush switched seats, or how it would even be possible given
the sizes of Bush and Ford and the center console in the vehi‐
cle. Bush emphasizes that Todd’s testimony throughout the
trial was riddled with inconsistencies. Todd admitted to lying
on earlier occasions to law enforcement. Furthermore, setting
aside the sufficiency of the proof that he committed the at‐
tempted murders, Bush argues that the government failed to
present sufficient evidence showing that his purpose was to
maintain or increase his position within the enterprise or that
the attempted murders were part of his racketeering activity.
The government counters that Todd’s testimony was well‐
corroborated. Todd testified that a friend of Bush’s girlfriend
rented the Impala. That friend testified at trial and confirmed
that she rented the car for Bush. After the shooting, Bush’s
30 Nos. 17‐1650 et al.
girlfriend told the friend that the car had been stolen, but dur‐
ing a later search of the car, police found documents in Bush’s
name, as well as Council’s and Bush’s fingerprints. In addi‐
tion, the police recovered cartridge casings from the scene.
The casings matched the type of gun Todd described in his
testimony and also matched the gun that was used in the
Jones and Robinson shootings. The officer who arrested
Council after the car chase corroborated this portion of Todd’s
testimony. The Simmonses also both corroborated Todd’s ac‐
count of the shooting at trial. The Simmonses testified that
they were in Andre’s Nissan in a turn line when they heard
multiple gun shots and that Andre ducked down and contin‐
ued driving, ultimately crashing into a CTA bus stop. Moreo‐
ver, in secretly recorded conversations between Todd and
Ford, Ford discussed the shooting and said that he gave away
a leather jacket to a person who helped him flee after they
crashed the car. The government finally argues that the jury
reasonably found that the murder was part of the racketeering
conspiracy because Andre Simmons was Bluitt’s friend, and
the Hobos were determined to retaliate against New Town
BDs.
The evidence relating to the Simmonses’ shooting is not
the strongest we have ever seen. Nevertheless, the jury was
entitled to credit Todd’s account, as corroborated by the evi‐
dence cited by the government. In any event, the shooting was
only one of many predicate acts on Count 1 for which the jury
found Bush responsible; it was not the subject of a substantive
act. Any error would therefore be harmless.
F. Count 6 – Obstruction of Justice
On Count 6, Poe was convicted of obstruction of justice in
violation of the “catchall” clause in 18 U.S.C. § 1503, which
Nos. 17‐1650 et al. 31
provides that a crime occurs when a person “corruptly ... in‐
fluences, obstructs, or impedes, or endeavors to influence, ob‐
struct, or impede, the due administration of justice….” After
he was convicted, Poe moved for acquittal. The district court
found that ample evidence supported Poe’s guilt, and so it
denied his motion.
We already have noted that Council’s brother, Keith Dan‐
iels, cooperated with law enforcement to make controlled
buys of heroin from Chester and Dillard. Recall, too, that after
Daniels was relocated for his safety, he testified before the fed‐
eral grand jury on April 4, 2013. On April 10, Chester was ar‐
rested on a criminal complaint charging him with distributing
heroin. The supporting affidavit provided to Chester did not
name Daniels, but it summarized the controlled transactions
and gave specific details about the buys. Chester told arrest‐
ing agents that he “knew who the informant was” and “all
[he] ever did was take [him] under my arm.” Another Hobo,
Walter Binion, was at the scene when Chester was arrested.
He left separately and later “got the paperwork” for Chester’s
case. That night, Poe cut off his electronic monitoring bracelet.
Two days later, on April 12, Chester spoke to a woman on
the phone while he was detained at Kankakee County Jail.
The conversation was recorded. Chester told the woman that
“[a] motherfucker wore a wire on me in 2011. He was working
with the Feds.” The following day, Chester spoke to Poe in
coded language. They referenced catching someone who
would end up dead. Chester told Poe, “They coming with
some other shit and god damn it, probably real soon.”
On April 14, Daniels was in the passenger seat of a car
driven by his girlfriend, Shanice Peatry. Their children were
in the back seat. Peatry testified that after she parked the car
32 Nos. 17‐1650 et al.
in front of their apartment, Poe walked toward them. He be‐
gan shooting at the driver’s seat, but then he turned his aim
to Daniels in the passenger seat as he got closer. To try to pro‐
tect his family from the gunfire, Daniels jumped out of the car.
He was knocked over by bullets. Poe walked even closer,
stood over Daniels, and then fired additional bullets at him.
Peatry testified that Poe’s face was covered by something
black, but she was able to recognize his eyes, dreadlocks, and
his distinctive gait.
After Poe left, Peatry called 911. She knew Poe from pre‐
vious interactions and identified him repeatedly: in the 911
call, a post‐incident photo array, and at trial. She also told the
911 operator that Poe’s getaway car was a gold Trailblazer.
Some evidence indicated that a second person was driving the
car and may also have fired at Daniels.
Surveillance footage corroborated Peatry’s testimony. It
showed a tan SUV driving in the area of Daniels’s apartment
at 7:27 and at 7:43 in the evening. Peatry called 911 at 7:44 p.m.
A neighbor testified that she heard gunshots and then saw a
tan SUV driving away from the scene. At 8:19 p.m., Chester
spoke to a woman on the phone, asking if she heard from Poe.
She said that she had not, and Chester told her, “He didn’t
even have to do that.” Chester said that it “was crazy” but he
“understand[s] too” because it was“[b]etter [to] be safe than
sorry.” An hour later, Chester spoke to an unidentified man.
The man told Chester, that they “got it under control. That’s
all you need to know.” The man also referenced Poe pulling
up in a “lil’ Trailblazer truck.” Chester said, “Played me like
a straight bitch,” and the man replied, “you know what you
got to resort to.” After the murder Poe left Chicago, switching
Nos. 17‐1650 et al. 33
hotels frequently. He also cut his dreadlocks. The FBI arrested
him on May 2, 2013.
In addition, the government produced evidence from
other sources. FBI Special Agent Bryant Hill testified that, con‐
sistent with Peatry’s 911 call, he had seen Poe walk with a
limp on several occasions. Zentmyer, Poe’s cellmate and a jail‐
house lawyer, testified that Poe admitted that he killed Dan‐
iels because Daniels was going to testify against Chester in a
heroin case. Poe said he cut off his electronic monitoring band,
went to Dolton, and shot Daniels in front of his kids and girl‐
friend. Last, the day after the murder Council spoke to his
(and Daniels’s) mother on the phone. Council’s mother told
him that Daniels had been killed and Council replied, “[W]hat
that boy doin’… he can’t do that in the street …I ain’t shed a
tear.”
To sustain a conviction under section 1503’s catchall pro‐
vision, “the government must prove: (1) a judicial proceeding
was pending; (2) the defendant knew of the proceeding; and
(3) the defendant corruptly intended to impede the admin‐
istration of that proceeding.” Torzala v. United States, 545 F.3d
517, 522–23 (7th Cir. 2008). A grand jury investigation can con‐
stitute a pending judicial proceeding. United States v. Aguilar,
515 U.S. 593, 599 (1995).
Poe argues that there was insufficient evidence that he
murdered Daniels. He emphasizes that there was no physical
evidence linking him to the murder—no DNA, fingerprints,
or trace evidence. Poe also asserts that he did not confess any
crimes to Zentmyer. Instead, Zentmyer came up with his
story by researching the charges against Poe using publicly
available case documents, newspapers, television programs,
and Poe’s discovery materials. In fact, Poe argues, Zentmyer
34 Nos. 17‐1650 et al.
claimed that Poe bragged about personally shooting and kill‐
ing a man in a Range Rover in front of a funeral home. This
was a reference to the Bluitt/Neeley murders, but it is undis‐
puted that Poe was in custody when they occurred.
Realizing that Peatry’s testimony stands in his way, Poe
attempts to discount her account. Poe contends that Peatry
was in a romantic relationship with Arsenio Fitzpatrick and,
in the ten days leading up to Daniels’s death, she had con‐
tacted Fitzpatrick more than 1,000 times by call and text.
Shortly after Daniels was killed, she deleted all her text and
call records from her phone. Peatry’s affair and the timing of
those deletions, Poe contends, was suspicious. Poe also high‐
lights the fact that Peatry did not initially tell law enforcement
that the shooter was wearing a mask, making them think she
could clearly identify the shooter. Moreover, at trial, she tes‐
tified for the first time that she identified Poe as the shooter
based primarily on his gait. She never mentioned this to the
police or the grand jury.
Poe tried to point the finger at other possible perpetrators:
Ricky Royal and Lamar Murphy. He notes that Royal and
Murphy had greater reason to fear Daniels’s cooperation than
he did. Daniels had never committed any crimes with Poe, but
he had committed a home invasion, robbery, and kidnapping
with Murphy and Royal. Additionally, Peatry had seen Dan‐
iels meet with Murphy and Royal while Daniels was cooper‐
ating. Peatry testified that on the day he was killed, Daniels
received a text message from his cousin warning him that two
people from “out west” were planning to kill him. Royal and
Murphy were from the west side; Poe was not. Poe also argues
that in the recorded calls between Chester and the unknown
Nos. 17‐1650 et al. 35
male, the unknown male was Murphy, indicating his connec‐
tion to the murder.
Once again, the choice between Poe’s version of these
events and the government’s was for the jury. Its conclusion
that Poe killed Daniels was adequately supported by the trial
evidence. It was the jury’s prerogative to credit both Peatry’s
and Zentmyer’s testimony. Peatry identified Poe in her 911
call and testified that she recognized Poe’s eyes, dreadlocks,
and gait. Zentmyer added details of the murder that were not
in the complaint or the news, such as that Daniels was mur‐
dered in Dolton, that Daniels was Council’s brother, and that
Daniels’s girlfriend and children saw the murder. As for the
other possible perpetrators, in the recorded jail calls, Chester
spoke to a woman, asking for Poe and telling her that “he”
“didn’t even have to do that,” seemingly referring to Poe. In
addition, the jury may reasonably have questioned why Poe
cut off his electronic monitoring bracelet, fled Chicago, cut his
distinctive dreadlocks, and moved from hotel to hotel. Juries
are “permitted to consider flight as evidence of consciousness
of guilt and thus of guilt itself.” United States v. Starks, 309 F.3d
1017, 1025 (7th Cir. 2002).
Poe follows up with an attack on the sufficiency of the ev‐
idence to show that, in killing Daniels, he intended to obstruct
a pending judicial proceeding. This is a more difficult ques‐
tion.
Three judicial proceedings bear on Count 6: the grand
jury’s investigation into Chester and Dillard; the drug charges
that were brought against Chester and Dillard; and the grand
jury’s RICO investigation. The government argues that there
was sufficient evidence that Poe was aware of both Chester’s
case and the ongoing grand jury investigation.
36 Nos. 17‐1650 et al.
As evidence that Poe knew about the grand jury’s RICO
investigation, the government points to the conversation be‐
tween Chester and Poe in which they talked about “some
other shit” coming “real soon.” It argues that the jury in the
present case could conclude that this statement was a coded
reference to the grand jury’s proceedings. The government
also notes that when Zentmyer was helping Poe with his legal
issues, Zentmyer wrote a note asking, “Was confidential
source working for state or state prosecution?” Poe crossed
out “state” and wrote “federal” and “joined [sic] task, state
and federal.”
In addition, the government argues, Poe was aware of the
more immediate federal drug charges against Chester. Fellow
Hobo Binion was present when the FBI arrested Chester, and
then there was a lengthy discussion about Daniels and Ches‐
ter’s arrest among the Hobos. Poe absconded the night of
Chester’s arrest, even though his parole was about to expire,
indicating that he learned about the arrest from Binion or an‐
other Hobo. And Poe spoke to Chester while he was in cus‐
tody, confirming that Poe knew Chester had been arrested.
Binion went to federal court after the arrest to get copies of
the “paperwork” in Chester’s case.
In response to all this, Poe admits that he knew that Ches‐
ter was in jail, but he says that he was unaware of the charges
against Chester, let alone that they were federal. With respect
to the grand jury investigation, Poe asserts that, at most, he
was informed that charges were coming, but that he was un‐
aware of any ongoing federal grand jury investigation.
We agree with Poe that the evidence supporting a finding
that he knew about the grand jury’s RICO investigation was
Nos. 17‐1650 et al. 37
weak. Although Poe may have known the FBI was investigat‐
ing the Hobos as an enterprise, “it is not enough that there be
an intent to influence some ancillary proceeding, such as an
investigation independent of the court’s or grand jury’s au‐
thority.” Aguilar, 515 U.S. at 599. It is speculative at best that
Poe knew that the investigation had reached the level of a
grand jury.
Nevertheless, there was sufficient evidence to allow a ra‐
tional jury to find that Poe knew about the pending federal
drug charges against Chester. Poe spoke to Chester while he
was in custody, and so he knew Chester had been arrested.
Chester was aware that Daniels had been working with fed‐
eral agents. In a recorded call before Daniels’s murder, he said
“A motherfucker wore a wire on me in 2011. He was working
with the Feds.” A jury could infer other Hobos also knew
Daniels was working with federal agents and knew there
would be federal charges against Chester. In addition, Zent‐
myer testified that Poe admitted to killing Daniels because he
was going to testify against Chester. When asked why Poe
committed the murder, Zentmyer stated: “He said that this
guy [Daniels] had made heroin buys off of Bowlegs [Chester].
And that’s what Bowlegs was in custody for, and this was the
main guy to testify against Bowlegs.” This is enough to sup‐
port the district court’s decision to deny Poe’s motion for ac‐
quittal on Count 6.
G. Count 7 – Robbery of Collections store
Count 7 charged Council with aiding and abetting the use,
carrying, or brandishing of a firearm during the robbery of the
Collections store, in violation of 18 U.S.C. § 924(c). “[T]o con‐
vict a defendant of a § 924(c) violation as an accomplice, the
government must prove that he had advance knowledge of
38 Nos. 17‐1650 et al.
his collaborator’s plan to use or carry a gun during the com‐
mission of the crime.” Farmer v. United States, 867 F.3d 837, 841
(7th Cir. 2017). Council concedes that he was present during
the robbery, but he contends that the government failed to
show that he had advance knowledge that his accomplices
would use firearms.
This time, we have no trouble finding ample evidence to
support the conviction. At trial, Bland testified that he, Ah‐
mad Hicks, and Pierre Skipper were sitting in a vehicle with
firearms on their laps, when Council approached them. Coun‐
cil suggested that they rob Collections, and, after they agreed,
Council passed out masks and laundry bags. The four of them
entered the store together. According to Bland, during the
robbery, Hicks had his firearm “upped,” meaning it was visi‐
ble in his hand. Once inside the store, Council and Skipper
gathered expensive jackets and other clothes while Hicks and
Bland moved the store’s employees to a backroom at gun‐
point. Store employees testified that as they were moved, they
saw a gun in one robber’s sleeve and another robber carrying
one in his hand.
Council argues that Bland’s testimony does not suffice. He
emphasizes that Bland testified at trial in order to reduce his
sentence and that inconsistencies plagued his testimony.
Originally, Bland told law enforcement that he did not know
anything about the guns used during the robbery. Then he
testified that they were not his guns. Then he testified that the
guns belonged to Hicks and Skipper, only later to testify that
the guns belonged to Hicks, but that Hicks gave him one gun
that he held for a minute and then returned.
Nos. 17‐1650 et al. 39
In addition to these problems, Council highlights the in‐
consistencies between Bland’s testimony at trial and his testi‐
mony before the federal grand jury. Bland told the grand jury
that just before the robbery, when Council approached the
car, he asked the group if they had weapons on them and they
said yes. At trial, however, Bland testified that the guns were
already sitting on their laps when Council approached.
These are minor or easily explained discrepancies. Re‐
gardless of whether Council asked his coconspirators about
guns or merely saw guns on their laps, the evidence showed
that he had advance knowledge of the guns. And although
Bland’s statements about who owned the guns were incon‐
sistent, Council’s advance knowledge did not depend on who
owned the weapons. More importantly, Bland’s testimony
about other details, such as the make and model of the guns,
was consistent. It was the jury’s job to unravel whatever dis‐
crepancies or credibility issues Bland presented.
It appears likely that the jury credited Bland’s testimony
because it was corroborated by the video captured by Collec‐
tions’ security cameras. The footage shows the robbers enter‐
ing the store and Bland and Hicks carrying guns. The employ‐
ees were herded to the back of the store while Council was
gathering jackets and other clothing items. As the district
court noted, “[n]o physical force was used to compel the em‐
ployees … which is consistent with testimony that guns were
used to gain their swift compliance. With such an orderly pro‐
cess, the jury could reasonably infer from the videotape that
using guns was part of the plan from the start.”
The evidence was therefore sufficient for the jury’s guilty
verdict on Count 7. Based on the same evidence, we also reject
Council’s related argument that the evidence failed to support
40 Nos. 17‐1650 et al.
the jury’s special finding that in the course of the robbery he
aided and abetted the “brandishing” of a firearm (as opposed
to using or carrying one).
We also briefly address, though it is not a sufficiency
argument, Council’s other challenge to Count 7. The predicate
offense for this section 924(c) charge was robbery affecting
commerce in violation of 18 U.S.C. § 1951(a) (Hobbs Act
robbery). “Robbery” under the Hobbs Act is defined as “the
unlawful taking or obtaining of personal property from the
person or in the presence of another, against his will, by
means of actual or threatened force, or violence, or fear of
injury, immediate or future, to his person or property, or
property in his custody or possession, or the person or
property of a relative or member of his family or of anyone in
his company at the time of the taking or obtaining.” 18 U.S.C.
§ 1951(b).
Council contends that Hobbs Act robbery is not a crime of
violence under 18 U.S.C. § 924(c)(3)(A) because it is possible
to commit this type of robbery without the use or threatened
use of force. We have squarely rejected this argument. United
States v. Rivera, 847 F.3d 847, 849 (7th Cir. 2017) (“Because one
cannot commit Hobbs Act robbery without using or
threatening physical force, … Hobbs Act robbery qualifies as
a predicate for a crime‐of‐violence conviction.”).
Alternatively, Council contends that even if Hobbs Act
robbery is a crime of violence, an inchoate offense such as
aiding and abetting does not qualify as a crime of violence.
Again, the rule is otherwise for inchoate offenses. See Hill v.
United States, 877 F.3d 717, 719 (7th Cir. 2017) (attempted
crimes); United States v. García‐Ortiz, 904 F.3d 102, 109 (1st Cir.
2018) (aiding and abetting); United States v. Grissom, 760 F.
Nos. 17‐1650 et al. 41
App’x 448, 454 (7th Cir. 2019). We thus reject both of these
legal challenges to Council’s conviction on Count 7.
H. Count 9 – Possession with Intent to Distribute
This time we address one of Ford’s convictions: one for
possession of marijuana with the intent to distribute it, in vi‐
olation of 21 U.S.C. § 841(a)(1). In February 2013, during a
lawful search of Ford’s residence, CPD officers found approx‐
imately 50 plastic baggies of user quantities of marijuana, to‐
taling 10.6 grams. The baggies were divided among five larger
bags, which were, in turn, put into one bag. Two witnesses,
an FBI agent (testifying as an expert) and a CPD officer, testi‐
fied that the marijuana was packaged for distribution.
There are three elements required for a conviction under
21 U.S.C. § 841(a)(1): (1) knowing or intentional possession of
a substance with (2) the intent to distribute it, and (3)
knowledge that the material is a controlled substance—here,
marijuana. United States v. Campbell, 534 F.3d 599, 605 (7th Cir.
2008). Ford does not dispute that the baggies of marijuana
were his, or that he knew they contained marijuana. He con‐
tends only that the evidence of intent to distribute fell short.
He emphasizes that the government never detailed whether
the 50 baggies contained different quantities of marijuana and
whether some were empty. Nor did the government present
any evidence of scales, wrappers, or money, items typically
surrounding drug dealing.
This evidence permitted the jury to conclude that Ford in‐
tended to distribute the marijuana. United States v. Bernitt, 392
F.3d 873, 879 (7th Cir. 2004) (“[T]he quantity and packaging
of drugs … can be sufficient to support the inference of an in‐
42 Nos. 17‐1650 et al.
tent to distribute.”). The FBI agent’s expert testimony con‐
firmed that the marijuana was packaged for distribution. And
Ford’s own statements reinforce the conclusion that he in‐
tended to distribute the marijuana. In a recorded conversation
between Ford and Todd, Ford stated that although he did not
“smoke weed” himself, he was going to get a pound of “kush”
(marijuana) to sell once he was released from prison. No more
was necessary.
We also briefly comment on Ford’s contention that he
should not have been tried at all in the case as a whole, be‐
cause he was not named in the Second Superseding Indict‐
ment. Ford was charged in four counts of the Superseding In‐
dictment: Count 1 (racketeering conspiracy), Count 8 (felon in
possession of a firearm), Count 9 (possession with intent to
distribute marijuana), and Count 10 (possession of a firearm
in connection with the marijuana offense). In the same indict‐
ment, Ford’s co‐defendant, Poe, was charged in Count 6 for
obstruction of justice.
About one week before trial, Poe moved to dismiss Count
6, on the ground that it failed to allege the obstruction of a
specific pending judicial proceeding. The grand jury speedily
returned a Second Superseding Indictment against only Poe.
The Second Superseding Indictment cured the deficiency Poe
had mentioned by alleging the specific judicial proceedings
that were obstructed.
During jury selection, Ford’s counsel requested clarifica‐
tion of “[w]hat indictment” was the subject of trial. The dis‐
trict court answered that the trial was proceeding on the Su‐
perseding Indictment, with the exception of Count 6, as to
which Second Superseding Indictment replaced the earlier
version of Count 6 with a new Count 6. A week into trial, Ford
Nos. 17‐1650 et al. 43
asked the district court to dismiss him from the case. He ar‐
gued that the Second Superseding Indictment nullified the
Superseding Indictment and, because he was not named in
the Second Superseding Indictment, there were no longer
charges pending against him. He argued that the government
was required to select only one indictment on which to pro‐
ceed to trial. The district court denied the motion, rejecting
“the premise that a superseding indictment wholly replaces
previous ones.” Ford now echoes this argument before us.
We are not persuaded. First, Ford’s motion came too late,
as it is among those that Federal Rule of Criminal Procedure
12(b)(3)(B) requires to be raised before trial. Second, it is not
the case that “a superseding indictment zaps an earlier indict‐
ment to the end that the earlier indictment somehow vanishes
into thin air.” United States v. Bowen, 946 F.2d 734, 736 (10th
Cir. 1991). “An original indictment remains pending prior to
trial, even after the filing of a superseding indictment, unless
the original indictment is formally dismissed.” United States
v. Yielding, 657 F.3d 688, 703 (8th Cir. 2011). Here, the govern‐
ment did not move to dismiss the Superseding Indictment,
and it was entitled to proceed to trial against Ford on it. This
objection is meritless.
III
We now turn to the defendants’ challenges to the court’s
rulings on the admission of evidence.
A. Forfeiture by Wrongdoing
Bush, Chester, Council, Ford, and Derrick contend that the
admission of Keith Daniels’s out‐of‐court statements pursu‐
ant to the forfeiture‐by‐wrongdoing doctrine violated their
Sixth Amendment Confrontation Clause rights. Poe joins this
44 Nos. 17‐1650 et al.
argument only to the extent that he asserts that the district
court erred in requiring the government to prove the elements
of forfeiture by wrongdoing only by a preponderance of the
evidence. The government argues that Daniels’s statements
were properly introduced, and even if they were not, any er‐
ror was harmless. “Where the defendant’s Sixth Amendment
right to confront witnesses is directly implicated, our review
is de novo.” United States v. Ochoa, 229 F.3d 631, 637 (7th Cir.
2000).
The Sixth Amendment’s Confrontation Clause provides
that “[i]n all criminal prosecutions, the accused shall enjoy the
right ... to be confronted with the witnesses against him.” U.S.
CONST. amend. VI. In 2004, the Supreme Court held that the
right to confrontation prohibits “admission of testimonial
statements of a witness who did not appear at trial unless he
was unavailable to testify, and the defendant ... had a prior
opportunity for cross‐examination.” Crawford v. Washington,
541 U.S. 36, 53–54 (2004). Yet Crawford permits courts to admit
testimonial statements “where an exception to the confronta‐
tion right was recognized at the time of the founding.” Giles
v. California, 554 U.S. 353, 357 (2008).
One such exception is common‐law forfeiture by wrong‐
doing. Codified in Federal Rule of Evidence 804(b)(6), the for‐
feiture‐by‐wrongdoing doctrine allows testimonial state‐
ments to be admitted, even if unconfronted, when the defend‐
ant’s own conduct caused the declarant to be unavailable at
trial. Rule 804(b)(6) describes this as “[a] statement offered
against a party that wrongfully caused—or acquiesced in
wrongfully causing—the declarant’s unavailability as a wit‐
ness, and did so intending that result.” Giles requires the gov‐
Nos. 17‐1650 et al. 45
ernment to prove that the defendant’s actions were under‐
taken for the purpose of preventing the witness from testify‐
ing. 554 U.S. at 367−68.
At trial, the government sought to admit Daniels’s out‐of‐
court statements—his grand jury testimony—against all the
defendants, not just against Poe (the person who directly
caused Daniels’s unavailability by murdering him). It argued
that it could do so under the theory of liability recognized in
Pinkerton v. United States, 328 U.S. 640 (1946). Pinkerton pro‐
vides that a person is liable for an offense committed by a co‐
conspirator when its commission is reasonably foreseeable to
that person and is in furtherance of the conspiracy. Id. at 647.
According to the government, “[i]t would make little sense to
limit forfeiture of a defendant’s trial rights to a narrower set
of facts than would be sufficient to sustain a conviction and
corresponding loss of liberty.” United States v. Cherry, 217 F.3d
811, 818 (10th Cir. 2000).
The district court agreed with the government, relying on
United States v. Thompson, 286 F.3d 950 (7th Cir. 2002). In
Thompson, we stated that under Federal Rule of Evidence
804(b)(6), a defendant who “acquiesces in conduct intended
to procure the unavailability of a witness” waives his hearsay
objection. Id. at 964. We noted that by using the term “acqui‐
esce,” the drafters of Rule 804(b)(6) expressed an intent to al‐
low for the imputation of waiver. Id. Therefore, “if a murder
is reasonably foreseeable to a conspirator and within the
scope and in furtherance of the conspiracy, the conspirator
waives his right to confront that witness just as if he killed the
witness himself.” Id. at 963. “Without a rule of coconspirator
waiver, the majority of the members of a conspiracy could
benefit from a few members engaging in misconduct. Such a
46 Nos. 17‐1650 et al.
result is at odds with the waiver‐by‐misconduct doctrine’s eq‐
uitable underpinnings.” Id. at 964.
The defendants, however, argue that the decisions in
Crawford and Giles have undermined Thompson’s approach,
and that their holdings rule out the use of Pinkerton to impute
waiver of a defendant’s Sixth Amendment right to confronta‐
tion under the forfeiture‐by‐wrongdoing concept. They note,
accurately, that courts did not recognize Pinkerton liability at
common law; from that, they conclude that any exception to
the confrontation right based on Pinkerton was not recognized
at the founding. The defendants also contend that Pinkerton is
inconsistent with Giles’s requirement that forfeiture of con‐
frontation rights occurs only if the defendant acts with the spe‐
cific purpose of precluding the witness’s testimony.
Several of our sister circuits have found, post‐Crawford,
that Pinkerton liability allows the admission of testimonial
statements under a forfeiture‐by‐wrongdoing theory. They
permit the inference of waiver for coconspirators who reason‐
ably could foresee that a fellow conspirator would engage in
premeditated murder in furtherance and within the scope of
the conspiracy. See United States v. Cazares, 788 F.3d 956, 975
(9th Cir. 2015) (“The district court should have articulated
that the … murder was within the scope of and in furtherance
of the conspiracy, and that the murder was reasonably fore‐
seeable to the defendants other than Martinez and Avila so
that the forfeiture by wrongdoing doctrine applied to all who
had ‘acquiesced in wrongfully causing—the declarant’s una‐
vailability.’”); United States v. Dinkins, 691 F.3d 358, 386 (4th
Cir. 2012) (“We conclude that the district court properly ad‐
mitted the … hearsay statements against [the defendant who
Nos. 17‐1650 et al. 47
did not commit the murder] under the forfeiture‐by‐wrong‐
doing exception to the Confrontation Clause pursuant to
Pinkerton principles of conspiratorial liability.”); United States
v. Carson, 455 F.3d 336, 364 (D.C. Cir. 2006) (“[T]he reasons
why a defendant forfeits his confrontation rights apply with
equal force to a defendant whose coconspirators render the
witness unavailable, so long as their misconduct was within
the scope of the conspiracy and reasonably foreseeable to the
defendant, as it was here.”). But these cases do not analyze
whether Pinkerton liability was recognized at common law,
and so we are reluctant to jump onto that bandwagon.
Pinkerton itself was not decided until 1946, and it was con‐
troversial from the outset. One scholar had this to say about
it:
In the years following Pinkerton, the decision was al‐
most universally condemned by the academic commu‐
nity. And, although no statistics exist, Pinkerton liabil‐
ity appears to have been rarely utilized until the 1970’s.
Indeed, in 1962 the drafters of the Modal Penal Code
rejected Pinkerton liability and by 1972, LaFave and
Scott’s influential Handbook on Criminal Law declared
that the Pinkerton rule had never gained broad ac‐
ceptance.
Alex Kreit, Vicarious Criminal Liability and the Constitutional Di‐
mensions of Pinkerton, 57 AM. U. L. REV. 585, 597−98 (2008)
(quotation marks and citations omitted). Rule 804(b)(6) was
codified in 1997, long after the ratification of the Sixth Amend‐
ment in 1791. In the 18th century, criminal liability was gen‐
erally limited to those who acted as principals or those who
aided and abetted. Under a strict reading of Crawford and
Giles, it seems that Thompson may no longer be good law.
48 Nos. 17‐1650 et al.
This is an important question, but it is one that we can save
for another day. Our problem is a simple one: was one con‐
spirator acting as the agent for the others, while acting within
the scope of the conspiracy? If yes, then ordinary agency prin‐
ciples suggest that the act can be attributed to all of them.
Moreover, we are confident that any error in admitting Dan‐
iels’s out‐of‐court statements was harmless. “[C]onstitutional
error that is harmless will not cause an otherwise valid con‐
viction to be set aside. … The test is whether the reviewing
court can determine beyond a reasonable doubt that the error
did not contribute to the verdict.” Ochoa, 229 F.3d at 639–40
(internal citation omitted).
The statements at issue came from Daniels’s grand jury
testimony. The defendants objected to the admissibility of cer‐
tain passages on various grounds, such as a failure to indicate
the basis of Daniels’s personal knowledge. The district court
conducted a line‐by‐line review, excised substantial portions
of the testimony, and admitted the remainder.
The jury heard that Daniels testified before the grand jury
on April 4, 2013, and offered the following information. Coun‐
cil is his older brother. Daniels was familiar with the Hobos
through Council and others. Chester was the leader of the Ho‐
bos, and Council, Poe, Bush, and Ford were members. The
Hobos had a hand sign, and “Hobo” was stitched on some
members’ cars’ headrests. Council sold drugs in the Robert
Taylor Homes, and Bush and Stanley also sold drugs.
Daniels also mentioned robberies and rivalries. He stated
that the Hobos committed robberies together. Daniels himself
participated in one that Chester had arranged. Afterwards,
Chester took some of the proceeds. On another occasion,
Chester told Daniels he was planning a robbery. Daniels also
Nos. 17‐1650 et al. 49
saw Chester with $100,000 cash. As for gang rivalries, Daniels
identified the Hobos’ conflict with the Met Boys, which
started when Jones stole marijuana and was shot. The Hobos
also had a feud with the Mickey Cobras.
Daniels also testified that he accompanied Chester when
he bought a loaded firearm for Poe, and Chester told him that
Chester was trying to get as many guns as possible. Poe told
Daniels he planned to kill a BD, and Ford told Daniels he and
Brandon Brown were part of the group that shot up the fu‐
neral home. Daniels discussed his drug transactions with
Chester and Dillard.
Overall, what remained after the district court’s redactions
was information that was largely duplicated by other wit‐
nesses. Daniels’s grand jury statements provided general in‐
formation about the Hobos and their criminal activity. There
is no meaningful chance that they contributed to the jury’s
verdict. Our finding that any error that may have occurred in
their admission was harmless makes it unnecessary for us to
address some related arguments, namely, whether the court
erred in applying a preponderance of the evidence standard
to the elements of forfeiture by wrongdoing, or whether there
was insufficient evidence to establish that Chester partici‐
pated in or conspired to murder Daniels in order to prevent
his testimony at trial.
B. Guilty Pleas
Bush, Chester, Council, Ford, Poe, and Derrick argue that
the district court should not have admitted their guilty pleas
to underlying racketeering activity (such as murders, rob‐
beries, and narcotics activity) that was part of the enterprise
and for which defendants were prosecuted in state court. In
50 Nos. 17‐1650 et al.
allowing the evidence, the court relied on the dual‐sovereign
doctrine, which permits the federal government to prosecute
a defendant under a federal statute even if a state has prose‐
cuted him for the same conduct under state law. The defend‐
ants ask us to overrule the dual‐sovereign doctrine, arguing
that it violates the Double Jeopardy Clause of the Fifth
Amendment.
Their effort to preserve this issue for possible Supreme
Court review made sense at the time, but events have out‐
stripped them. After the defendants filed their briefs, the Su‐
preme Court addressed dual sovereignty and held that the
doctrine is consistent with the text of the Fifth Amendment,
its history, and “a chain of precedent linking dozens of cases
over 170 years.” Gamble v. United States, 139 S. Ct. 1960,
1962−69 (2019). The district court acted properly in admitting
the guilty pleas.
C. Toolmark Analysis
Bush, Chester, Council, Ford, Poe, and Derrick argue that
the district court improperly admitted expert testimony on
toolmark analysis, allowing them to argue that “these seem‐
ingly unrelated crimes were committed by the same group of
people.” At trial, the government called four firearms experts:
Illinois State Police firearms examiners Marc Pomerance, Kurt
Murray, and Aimee Stevens, and a scientist with the FBI’s
Firearms‐Toolmarks Unit, Rodney Jiggets. Notably, the de‐
fendants do not challenge the qualifications of any of these
four experts. Rather, the defendants challenge only the relia‐
bility of toolmark analysis as a discipline for expert testimony.
Pomerance testified that toolmark analysis, a discipline
within the forensic sciences, is used to determine whether a
Nos. 17‐1650 et al. 51
bullet or casing was fired from a particular firearm. It can also
be used to determine whether two bullets or casings were
fired from the same firearm. An examiner can make these de‐
terminations by looking through a microscope to see mark‐
ings that are imprinted on the bullet or casing by the firearm
during the firing process. Firing pins impart marks, and
scratches are made as the bullet travels down the barrel.
These markings are either (1) “class characteristics,” which
are features that a group shares, (2) “sub‐class characteris‐
tics,” which are shared by a subset of items, or (3) “individual
characteristics,” which are microscopic imperfections on the
surface of the object that are unique to a particular firearm.
Firearms examiners can conclude that two items, such as cas‐
ings, were fired from the same firearm when the class and in‐
dividual characteristics of two items, such as casings, match.
Pomerance examined 9mm cartridge casings that were re‐
covered from the area where Cordale Hampton and his uncle
were shot. He compared them to 9mm cartridge casings from
an October 2005 shooting. The individual characteristics were
the same on both, and so he determined that they were fired
by the same firearm. Pomerance also compared a 5.7 x 28mm
cartridge casing from the Eddie Jones shooting to a 5.7 x
28mm cartridge casing from the Simmons shooting. The
markings matched.
Murray found a match between 5.7 x 28mm casings from
the Jonte Robinson shooting and comparable casings from the
Simmons shooting. Murray also found that a FN firearm
seized from Bush’s storage locker fired the cartridge casings
from the Eddie Jones shooting. Stevens found a match be‐
tween .40 caliber cartridge casing from the Wilber Moore
murder and the same type from the October 2005 shooting.
52 Nos. 17‐1650 et al.
Jiggets testified that the .45 caliber cartridge casings recovered
from the Bluitt/Neeley murder scene matched casings found
at the Daniels murder scene. In response, the defense called a
forensic metallurgist, William Tobin, who testified that tool‐
mark identification lacks scientific foundation.
The defendants argue that the district court erred in deny‐
ing their motions to exclude this toolmark evidence on relia‐
bility grounds. Federal Rule of Evidence 702 governs the ad‐
missibility of expert testimony. Under Rule 702, if “scientific,
technical, or other specialized knowledge will help the trier of
fact,” then “a witness who is qualified as an expert by
knowledge, skill, experience, training, or education may tes‐
tify in the form of an opinion … .”
A district court “holds broad discretion in its gatekeeper
function of determining the relevance and reliability of the ex‐
pert opinion testimony.” Krik v. Exxon Mobil Corp., 870 F.3d
669, 674 (7th Cir. 2017). We use a two‐step standard of review
where a defendant challenges a district court’s admission of
expert testimony. United States v. Johnson, 916 F.3d 579, 586
(7th Cir. 2019). First, we consider de novo whether the district
court properly applied the Rule’s framework. If so, we review
the ultimate decision to admit or exclude the evidence only
for abuse of discretion, understanding that the district court
abuses its discretion only when no reasonable person could
take the court’s view. Id. at 586−87.
Although it is hard to show abuse of discretion, the de‐
fendants urge that it occurred in this instance when the dis‐
trict court found that the toolmark analysis is sufficiently reli‐
able. They assert that the “premise underlying the field of fire‐
arms analysis—that no two firearms will produce the same
microscopic features on bullets and cartridge cases—[i]s, at
Nos. 17‐1650 et al. 53
best, an unproven hypothesis.” They also complain that there
are no objective, quantitative standards for determining
whether two ammunition components “match.”
The defendants’ argument has respectable grounding. It is
based largely on a report issued by the President’s Council of
Advisors on Science and Technology (PCAST). The report
states that the “foundational validity can only be established
through multiple independent black box studies,” and it iden‐
tifies only one such study, the Ames Study. According to
PCAST, the other available studies could not estimate the re‐
liability of firearms analysis because they employed “artificial
designs that differ[ed] in important ways from the problems
faced in casework,” which “seriously underestimate[d] the
false positive [match] rate.” Ultimately, the PCAST report
found that firearms analysis “[fell] short of the criteria for
foundational validity.” The defendants also emphasize that
even the Ames Study had not been published or subject to
peer‐review at the time of trial. Moreover, they contend, the
government’s experts misled the jury by testifying about the
Ames Study’s error rate, because that rate is not representa‐
tive of the “entire discipline of firearms analysis.”
The defendants brought the PCAST report to the district
court’s attention, but the district court chose not to give it dis‐
positive effect, and that choice was within its set of options.
See General Electric Corp. v. Joiner, 522 U.S. 136, 142–43 (1997)
(appellate review of expert‐evidence rulings is only for abuse
of discretion). Rule 702(c) requires testimony to be “the prod‐
uct of reliable principles and methods.” Courts frequently
look to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S.
579 (1993), which the Rule largely reflects, to assess that point.
Under Daubert, to determine reliability, a court considers
54 Nos. 17‐1650 et al.
whether the theory or technique has been (1) tested, (2) sub‐
jected to peer review and publication, (3) analyzed for known
or potential error rate, and (4) generally accepted within the
specific scientific field. Daubert, 509 U.S. at 592−94.
Taking these criteria into account, the district court found
the toolmark evidence was admissible. It noted that the Asso‐
ciation of Firearms and Toolmark Examiners (AFTE) method‐
ology used by the government’s witnesses had been “almost
uniformly accepted by federal courts.” See, e.g., Cazares, 788
F.3d at 989. The AFTE method has been tested and subjected
to peer review. Three different peer‐reviewed journals ad‐
dress the AFTE method, and several reliability studies have
been conducted on it. Although the error rate of this method
varies slightly from study to study, overall it is low—in the
single digits—and as the district court observed, sometimes
better than algorithms developed by scientists. The court also
noted that firearm and toolmark analysis is widely accepted
beyond the judicial system.
The district court used the methodology prescribed by the
Rule, and we see no abuse of discretion in its application of
these principles. Almost all the defendants’ contentions were
issues that could be raised on cross‐examination. These argu‐
ments go to the weight of the evidence, not its admissibility.
Expert testimony is still testimony, not irrefutable fact, and its
ultimate persuasive power is for the jury to decide.
D. Recorded Conversations
Chester, Council, Bush, Poe, Ford, and Derrick argue that
the district court erred in admitting Jodale Ford’s recorded
Nos. 17‐1650 et al. 55
conversations. Again, we review this ruling for abuse of dis‐
cretion. United States v. McGee, 408 F.3d 966, 981 (7th Cir.
2005).
At trial, Chester called Jodale Ford (to whom we refer as
“Jodale” to avoid confusing him with his brother, defendant
William Ford) as a witness. Jodale was then in state custody
for murder and home invasion. Jodale contradicted most of
the elements of the government’s case. He testified that he did
not rob a jewelry store with Chester, that there was no Hobos
gang, and that he was not a leader of the Hobos. On cross‐
examination, Jodale testified that, while in prison, he did not
receive updates about the defendants and did not send letters
to Council. He also denied remembering anything about Dan‐
iels’s murder or receiving money from the Hobos while in
prison.
In rebuttal, the government sought to introduce some of
Jodale’s jail calls. In these conversations, Jodale asked for up‐
dates on some members of the Hobos and identified himself
as “Hobo.” Callers also gave Jodale information about the
Daniels murder.
The defense objected, arguing that they needed to con‐
front Jodale with the calls before they could be introduced as
prior inconsistent statements under Federal Rule of Evidence
613, which states: “Extrinsic evidence of a witness’s prior in‐
consistent statement is admissible only if the witness is given
an opportunity to explain or deny the statement and an ad‐
verse party is given an opportunity to examine the witness
about it, or if justice so requires.” Fed. R. Evid. 613(b). The
government responded that it was not introducing the calls
under Rule 613.
56 Nos. 17‐1650 et al.
Instead, it said, it was planning to introduce the calls un‐
der Rule 608(b), which governs extrinsic evidence of conduct.
Rule 608(b) forbids the use of such evidence to attack a wit‐
ness’s character for truthfulness, but it allows its admission
on cross‐examination if the conduct “[is] probative of the
character [of the witness] for truthfulness or untruthfulness.”
The government argued that Jodale’s phone calls, i.e., his
prior conduct, was evidence that contradicted his testimony
that he had no relationship to the Hobos.
We have explained the difference between Rules 608(b)
and 613 this way:
In our view, Rule 613(b) applies when two statements,
one made at trial and one made previously, are irrec‐
oncilably at odds. In such an event, the cross‐examiner
is permitted to show the discrepancy by extrinsic evi‐
dence if necessary—not to demonstrate which of the
two is true but, rather, to show that the two do not jibe
(thus calling the declarant’s credibility into question).
In short, comparison and contradiction are the hall‐
marks of Rule 613(b).…In contrast, Rule 608(b) ad‐
dresses situations in which a witness’ prior activity,
whether exemplified by conduct or by a statement, in
and of itself casts significant doubt upon his verac‐
ity.…So viewed, Rule 608(b) applies to a statement, as
long as the statement in and of itself stands as an inde‐
pendent means of impeachment without any need to
compare it to contradictory trial testimony.
McGee, 408 F.3d at 982 (quoting United States v. Winchenbach,
197 F.3d 548, 558 (1st Cir. 1999)). Here, no comparisons are
necessary. The calls themselves cast doubt on Jodale’s testi‐
mony. Jodale testified that he knew nothing about the Hobos
Nos. 17‐1650 et al. 57
and that he did not receive updates on them while incarcer‐
ated. Yet the calls show Jodale engaging in conduct that
demonstrates his leadership within the Hobos, including re‐
ceiving updates on the Hobos and giving directions. At any
rate, any error in admitting the calls was harmless. United
States v. Olano, 507 U.S. 725, 734 (1993). The calls were only a
small part of the evidence presented, and, quite frankly, we
suspect that it would have been more prejudicial if Jodale had
been required to explain the calls under Rule 613(b).
E. Chester’s Motion to Suppress
Chester argues that the district court erroneously admitted
statements he made on October 22, 2008, when the police
stopped a car in which he was a passenger, took him to the
station, and questioned him. He argues that the officers who
stopped him did not have probable cause.
On June 26, 2008, the FBI and CPD executed a search of an
apartment at 1221 North Dearborn Street in Chicago, pursu‐
ant to a search warrant. The officers found 99.6 grams of her‐
oin. Four months later, on October 22, some of the officers
who had been involved in the Dearborn search headed to
Shark’s Fish & Chicken. When Binion and Chester’s vehicle
pulled out of the restaurant’s parking lot, the officers stopped
it, took Chester to a CPD facility, and interviewed him. After
Chester waived his Miranda rights, he made incriminating
statements.
Before trial, Chester moved to suppress his October 22
statements, arguing that they were the result of an illegal de‐
tention that was not supported by probable cause. The district
court held a suppression hearing in June 2016 to explore the
issue. Both Chester and Binion testified. They stated that they
58 Nos. 17‐1650 et al.
were pulled over, handcuffed, and transported to the police
station involuntarily. Officer Sanchez testified about the stop,
and both Sanchez and Agent Hill testified about the interview
that followed. Sanchez’s testimony was riddled with incon‐
sistencies. As one example, Sanchez provided inconsistent
testimony about what led officers to Shark’s Fish. Originally,
he stated that Agent Hill had received a tip that Chester was
engaging in criminal activity there. Later, after reviewing a
CPD report, he stated that he had actually been the one to re‐
ceive the tip.
As a result, the government filed a post‐hearing brief in
which it abandoned any attempt to justify the stop based on
Sanchez’s testimony. Instead, it argued that, regardless of any
subjective reasons for stopping Chester, the October stop was
lawful because it was supported by probable cause to believe
that Chester unlawfully possessed heroin on June 22, 2008.
The district court agreed that the heroin found during the
Dearborn search provided probable cause to detain and ques‐
tion Chester on October 22 and denied Chester’s motion to
suppress.
At trial the jury thus heard Chester’s incriminating state‐
ments. During the interview, Chester had told officers that he
was the Hobos’ most successful drug dealer and that he
robbed drug dealers with other Hobos. Chester was shown
photographs of the seized heroin, and he did not deny that it
was his. Chester had also offered to cooperate with law en‐
forcement, but he refused to testify publicly.
“Probable cause to make an arrest exists when a reasona‐
ble person confronted with the sum total of the facts known
to the officer at the time of the arrest would conclude that the
Nos. 17‐1650 et al. 59
person arrested has committed … a crime.” Venson v. Altami‐
rano, 749 F.3d 641, 649 (7th Cir. 2014). Contrary to Chester’s
contentions, it does not matter whether the officers who
stopped him did so with the intent of arresting him for the
heroin found months earlier during the Dearborn apartment
search. The officers’ subjective intentions are irrelevant so
long as there was probable cause to detain him for any crime.
See Devenpeck v. Alford, 543 U.S. 146, 154–55 (2004). “What
matters, and all that matters, is whether the facts known to the
arresting officers at the time they acted supported probable
cause to arrest.” White v. Hefel, 875 F.3d 350, 357 (7th Cir.
2017). Here, the fact was that Chester had possessed almost
100 grams of heroin. This supplied probable cause to arrest
him. While some time had passed since the search and the ar‐
rest, that “does not necessarily dissipate the probable cause
for an arrest.” United States v. Haldorson, 941 F.3d 284, 291 (7th
Cir. 2019).
Chester argues that the police, particularly Officer
Sanchez, did not have enough information to link the drugs
found at the Dearborn address to him. But there was evidence
connecting him to the apartment. The search was based on in‐
formation provided by Todd, who stated that he had seen
Chester with a gun in the apartment. Surveillance officers saw
Chester enter and exit the Dearborn apartment building, and
women who were present during the search identified Ches‐
ter as the apartment’s resident. As for Sanchez’s knowledge
specifically, the government contends that collective
knowledge of CPD, the agency he works for, is imputed to
him.
At oral argument, we were concerned with a different as‐
pect of what the arresting officers, particularly those who
60 Nos. 17‐1650 et al.
stopped Binion’s car, knew before they make the stop: how
did they know that Chester was a passenger in the car?
Sanchez had testified about this aspect of the stop, but the dis‐
trict court totally rejected his testimony as unreliable, and the
government concedes we cannot rely on him. We therefore
asked the parties to submit post‐argument letters under Fed‐
eral Rule of Appellate Procedure 28 addressing the question
whether Detective Brogan, one of the officers involved in
stopping the car, covered this base.
The short answer is that he offered no such testimony at
the suppression hearing. He did, however, testify at trial that
he saw Chester in a Nissan’s passenger seat. The Nissan was
initially parked in a parking lot, before it left and was then
stopped by officers. The government asserts that we “may
consider trial testimony in reviewing a pretrial suppression
ruling.” United States v. Howell, 958 F.3d 589, 596 (7th Cir.
2020). Chester begs to differ and points out that in any event,
Detective Brogan’s testimony about whether he identified
Chester before the detention of Binion’s automobile was am‐
biguous at best. Moreover, he argues, “it simply does not mat‐
ter if Officer [B]rogan happened to identify Mr. Chester before
the stop,” because there is no evidence he communicated such
information to the arresting officer.
The circumstances surrounding the stop of the car are un‐
clear. We ultimately need not wade through the evidence,
however, because any error in admitting Chester’s October 22
statements was harmless. “The test for harmless error is
whether, in the mind of the average juror, the prosecution’s
case would have been ‘significantly less persuasive’ had the
improper evidence been excluded.” United States v. Emerson,
501 F.3d 804, 813 (7th Cir. 2007). This trial lasted over four
Nos. 17‐1650 et al. 61
months, and the evidence of Chester’s guilt on Count 1 was
overwhelming. The evidence included Jones’s testimony that
Chester was the leader of the Hobos and that Chester ordered
other Hobos to distribute drugs. Todd testified about Ches‐
ter’s role as a heroin supplier. Recorded conversations of Ford
revealed Chester’s role in the Hobos and certain robberies he
committed. Jail calls also linked Chester to the Daniels mur‐
der. This is only some of the relevant evidence. Although a
person’s own admissions may be powerful in front of a jury,
there was too much other evidence to find that the prosecu‐
tion’s case would have been significantly less persuasive had
Chester’s October 22 statements been excluded.
F. In‐Court Identifications of Derrick Vaughn
Derrick argues that it was prosecutorial misconduct to ask
two government witnesses to identify him in court in the pres‐
ence of the jury. He did not object to the prosecutor’s state‐
ments at trial, however, and so we review his claim of prose‐
cutorial misconduct for plain error. Rosales‐Mireles v. United
States, 138 S. Ct. 1897 (2018). In order to establish plain error,
a defendant must show (1) “an error that has not been inten‐
tionally relinquished or abandoned;” (2) that was “clear or ob‐
vious;” (3) that “affected the defendant’s substantial rights,”
meaning that there is a “reasonable probability that but for
the error, the outcome of the proceeding would have been dif‐
ferent;” and (4) that “seriously affect[ed] the fairness, integ‐
rity, or public reputation of the judicial proceedings.” Id. at
1904–05 (internal citations and quotation marks omitted).
At trial Detective Brogan testified about the joint federal
and state investigation of the Hobos. He described his partic‐
ipation in the execution of a search warrant at a residence as‐
sociated with Bush. During this testimony, Brogan was
62 Nos. 17‐1650 et al.
handed a photograph that had been confiscated during the
search. The government asked Brogan to identify the people
in the photo. After identifying Poe both in the photo and in
court, Brogan identified Stanley. The government asked if
Stanley had a younger brother. Brogan replied that he has two
younger brothers, Ingemar Vaughn and Derrick. The govern‐
ment asked Brogan to point out Derrick in court. Brogan did
so without a peep from the defense. The government then
asked Brogan to identify three additional defendants (Bush,
Chester, and Council) in the photograph and in court.
Maurice Perry, a Fifth Ward BD, was the second witness to
identify Derrick. He testified about the rivalry between the
Fifth Ward and the Dirty Low and mentioned that Stanley
was associated with the Dirty Low. Perry was asked if Stanley
had any brothers. Perry replied that he had two: “Boo [Inge‐
mar] and D‐Block [Derrick].” Derrick stipulated to the in‐
court identification that followed.
Derrick complains that these witnesses identified him as
Stanley’s younger brother and then gave additional testimony
regarding events—including a double murder in Perry’s
case—without ever mentioning Derrick again. He contends
that these identifications were extremely prejudicial in that
they encouraged the jury to find him guilty by association.
We are not convinced that there was any prosecutorial
misconduct here. In any event, Derrick failed to establish that
any error affected his substantial rights. Rosales‐Mireles, 138 S.
Ct. at 1905. Derrick concedes that the in‐court identifications
were accurate. In addition, the identifications were only a
small part of a four‐month trial. The jury heard plenty of evi‐
dence of his guilt beyond his familial association to the Ho‐
bos. Moreover, the court instructed the jury that a defendant
Nos. 17‐1650 et al. 63
is “not a member of a conspiracy just because he knew and/or
associated with people who were involved in a conspiracy,”
lessening the risk of potential prejudice. Cf. Zafiro v. United
States, 506 U.S. 534, 539 (1993) (“[L]imiting instructions … of‐
ten will suffice to cure any risk of prejudice.”).
IV
We now turn to sentencing, where we review claims of
procedural error de novo, United States v. Gill, 889 F.3d 373, 377
(7th Cir. 2018), and those about substantive reasonableness
for abuse of discretion. Id. at 378.
A. Life Sentence Eligibility
Chester, Council, Bush, Ford, Poe, and Derrick argue that
the district court erred in sentencing them to more than 20
years in prison on Count 1 (RICO conspiracy). Chester was
sentenced to 40 years and the other trial defendants were sen‐
tenced to life. They contend that these sentences were im‐
proper because the statutory maximum penalty that may be
imposed upon a defendant found guilty of RICO conspiracies
is 20 years unless the government proves the “violation is
based on a racketeering activity for which the maximum pen‐
alty includes life imprisonment.” 18 U.S.C. § 1963(a). They ar‐
gue the government did not meet this burden.
These defendants’ violations were based on their partici‐
pation in murders in Illinois. As we noted briefly earlier, un‐
der Illinois law first‐degree murder is normally punishable by
a 20‐ to 60‐ year sentence. 720 ILCS 5/9‐1(a); 730 ILCS 5/5‐4.5‐
20(a). A life sentence is permissible, however, when aggravat‐
ing factors are present. Two aggravating factors are relevant
here: (1) where the murder was “… with intent to prevent the
murdered individual from testifying or participating in any
64 Nos. 17‐1650 et al.
criminal investigation or prosecution…,” 720 ILCS 5/9‐1(b)(8),
and (2) where the murder was “committed in a cold, calcu‐
lated and premeditated manner pursuant to a preconceived
plan, scheme or design to take a human life by unlawful
means, and the conduct of the defendant created a reasonable
expectation that the death of a human being would result
therefrom.” 720 ILCS 5/9‐1(b)(11).
The jury found that the murders of Bluitt, Neeley, Daniels,
Moore, and Anderson qualified as aggravating under at least
one of those two provisions. It also found that each defend‐
ant’s racketeering activity included at least one aggravated
first‐degree murder. The district court therefore determined
that the defendants were eligible for life imprisonment.
The defendants disagree. They argue that 18 U.S.C.
§ 1962(d) criminalizes the agreement to commit an act, not the
act itself. Looking for some symmetry, they contend that the
proper analogous state‐law offense is conspiracy to commit
murder. Unfortunately for the defendants, however, section
1963 requires that the “violation”—in this case, the conspir‐
acy—be “based on a racketeering activity for which the max‐
imum penalty includes life imprisonment.” The defendants’
conspiracies were all based on murders for which the maxi‐
mum penalty includes life imprisonment.
The defendants also argue that the “categorical approach”
in Mathis v. United States, 136 S. Ct. 2243 (2016), ought to apply
in a RICO prosecution. This would require us to discern a “ge‐
neric” definition of RICO’s predicate offenses and then to
limit the government to generic murder, rendering life im‐
prisonment unavailable under Illinois law. This argument is
not consistent with the text of the statute. Section 1963 con‐
Nos. 17‐1650 et al. 65
templates a statutory enhancement when qualifying circum‐
stances exist. See United States v. Warneke, 310 F.3d 542, 549–
50 (7th Cir. 2002) (affirming life sentences for RICO conspir‐
acy based on Illinois aggravated murder predicate).
Next, the defendants argue that their enhanced sentences
were based on allegations not presented to, or found by, the
grand jury, in violation of the Presentment Clause of the Fifth
Amendment. U.S. CONST. amend. V. They add that the statu‐
tory enhancement is impermissible because the facts increas‐
ing the statutory maximum were not alleged in the indictment
and proven beyond a reasonable doubt at trial, as required by
Apprendi v. New Jersey, 530 U.S. 466 (2000).
An example helps to illustrate this argument. Count 1
charged the defendants with RICO conspiracy. It alleged that
the defendants engaged in murder and attempted murder in
violation of Illinois law. Paragraphs 8(r) and (s) specified
seven murders and five attempted murders that were com‐
mitted in aid of the enterprise. For instance, Paragraph 8(r)(i)
alleged that the “murders committed by members and associ‐
ates of the enterprise in the conduct of the affairs of the enter‐
prise” included “[t]he murder of Wilbert Moore by ARNOLD
COUNCIL and PARIS POE.” The Notice of Special Findings
alleged that each of the murders identified in Paragraphs
8(r)(i)‐(iv) and 8(r)(vii) was committed in a cold, calculated,
and premeditated manner pursuant to a preconceived plan.
The Notice of Special Findings also alleged that Moore and
Daniels were murdered to prevent their testimony or because
they gave material assistance to law enforcement. The Special
Findings, to the extent the jury made them, would make de‐
fendants eligible for enhanced penalties. Using this example,
the defendants argue that only Council and Poe had notice
66 Nos. 17‐1650 et al.
that the jury could return a Special Finding against them, be‐
cause they were the “named defendants.”
We are not persuaded. In the example, every defendant
was placed on notice that the murder of Moore was commit‐
ted by Council and Poe to prevent his testimony, or because
he gave material assistance to law enforcement. Although
Council and Poe were the only “named defendants,” the other
defendants were placed on notice that the conspiracy—the
RICO violation—was based upon racketeering activity
(Moore’s murder) for which the maximum penalty includes
life imprisonment. The indictment’s identification in Para‐
graph 8(r) of specific coconspirators who committed particu‐
lar murders does not affect the potential coconspirator liabil‐
ity of the remaining defendants.
Chester individually argues that the government con‐
structively amended the superseding indictment by improp‐
erly shifting from a solicitation theory to coconspirator liabil‐
ity. At trial, the government argued that Chester’s racketeer‐
ing activity included Bluitt’s murder under a Pinkerton theory
of liability. Pinkerton liability need not be specifically alleged
in an indictment, and so there was no constructive amend‐
ment.
B. Chester’s Sentence
Recall that Chester faced federal drug charges stemming
from Daniels’s controlled heroin buys. In that heroin case,
(No. 13 CR 288 in the district court), Chester was convicted at
trial of two counts: (1) conspiracy to distribute and (2) know‐
ingly and intentionally distributing heroin. In July 2014 the
Probation Officer prepared a Presentence Investigation Re‐
port (“PSR”). The PSR listed Chester’s offense level as 26 and
Nos. 17‐1650 et al. 67
his criminal history category as III, resulting in a Guidelines
range of 78 to 97 months’ imprisonment. After the PSR was
submitted, the parties agreed to continue the heroin sentenc‐
ing until the conclusion of the RICO trial. The parties later
agreed that the heroin case would be transferred to Judge
Tharp, who was presiding over the RICO trial, No. 13 CR 774,
for joint resolution.
On August 4, 2017, the district court conducted a joint sen‐
tencing hearing for all defendants to calculate their offense
levels under the Sentencing Guidelines. For Chester, it deter‐
mined that his racketeering activity resulted in an offense
level of 51, reduced to 43 (the top level) and that his Guide‐
lines range and statutory maximum for the racketeering of‐
fense was life imprisonment. The court did not explicitly cal‐
culate the Guidelines range for Chester’s heroin case.
Six days later, on August 10, the court conducted Chester’s
sentencing hearing. It imposed a below‐Guidelines sentence
of 40 years’ imprisonment in the racketeering case. In the her‐
oin case, the district court imposed a term of 20 years for each
of the two counts, which were to run consecutively to each
other and concurrently to the term of 40 years in the racket‐
eering case.
Chester argues that the district court’s imposition of a sen‐
tence so far above the recommended Guidelines range in the
heroin case, without comment or explanation, was both pro‐
cedurally and substantively unreasonable. At sentencing, dis‐
trict courts must calculate the Guidelines range, give the de‐
fendant an opportunity to identify section 3553(a) factors that
might warrant a non‐Guidelines sentence, and explain its sen‐
tence in relation to the section 3553(a) factors. United States v.
68 Nos. 17‐1650 et al.
Gall, 552 U.S. 38, 49–50 (2007); United States v. Dorsey, 829 F.3d
831, 836−37 (7th Cir. 2016).
The district court did not follow those steps for the heroin
case. This was plain error, especially considering that the size
of the departure from the recommended Guidelines range
and the lack of explanation. The government contends that
the court “dedicated almost 30 pages of transcript to explain‐
ing why a 40‐year sentence was necessary and appropriate.”
But this explanation was focused on the racketeering conspir‐
acy. The government also argues that any error in sentencing
Chester in the heroin case was harmless because the sentence
added no additional time: it was concurrent to the 40 years’
imprisonment on the racketeering count. But this rationale
overlooks possible future developments. Suppose that Con‐
gress passes a retroactive statute that caps RICO conspiracy
sentences at 30 years. That may seem unlikely now, but Con‐
gress has passed other retroactive sentencing laws such as the
Fair Sentencing Act. Such a law would leave the 40‐year her‐
oin sentence untouched. We therefore vacate Chester’s sen‐
tence in the heroin case, No. 13 CR 288, and remand for fur‐
ther proceedings consistent with this opinion.
C. Stanley Vaughn’s Sentence
Stanley was one of the few defendants who chose not to
go to trial. After he pleaded guilty to Count 1, the RICO con‐
spiracy, his case was severed from that of his co‐defendants.
The government elected not to seek an enhanced statutory
sentence, and so Stanley proceeded directly to sentencing.
On June 29, 2017, the Probation Officer prepared a PSR. In
calculating Stanley’s offense level, Probation took the position
that his racketeering activity included participation in (1) the
Nos. 17‐1650 et al. 69
Bluitt/Neeley murders; (2) the attempted murders of Jonte
Robinson, Cashell Williams, and Roosevelt Walker; and (3)
drug trafficking. Each of these was treated as a separate group
under Guideline § 3D1.1. The PSR calculated a total offense
level of 45, reduced to 43 pursuant to Guideline § 4B1.3. Stan‐
ley had a criminal history category of VI, resulting in a Guide‐
lines “range” of life imprisonment. This was reduced to 20
years to reflect the statutory maximum.
At his sentencing hearing, Stanley objected to the determi‐
nation that his racketeering activity included the murders, at‐
tempted murders, and drug trafficking mentioned in his PSR.
The court overruled his objections, based largely on the evi‐
dence presented at his co‐defendants’ trial for the
Bluitt/Neeley murders. This evidence established that Stanley
“participate[d] in this ambush.” Although there were some
inconsistencies in the details, the court found no reason to dis‐
credit “the much larger and much more significant consisten‐
cies in the evidence about how this transpired,” particularly
considering the ambush’s quick nature. Recorded statements
of Derrick, Stanley’s brother, implicated Stanley. Ford and
Jones also placed Stanley within the caravan that ambushed
Bluitt and Neeley.
As for the drug trafficking, the court looked to Todd’s and
Jones’s testimony and Ford’s proffer and found that Stanley
“manag[ed] drug lines at 47th and Vincennes.” It noted that
Stanley was “the leader of the effort to drive the Black Disci‐
ples out of this area and to take it over for the Hobos,” refer‐
ring to an altercation between Stanley and the BDs. The court
also concluded that the evidence was sufficient for the at‐
tempted murders. To each racketeering act, it added an ob‐
struction enhancement that increased the proposed offense
70 Nos. 17‐1650 et al.
level by two levels. With grouping, the combined adjusted of‐
fense level was 49, reduced to 43. This again resulted in a
Guidelines range of life; that in turn was reduced to the 20‐
year statutory maximum.
On August 10, 2017, the court held a second sentencing
hearing to consider the section 3553(a) factors. Stanley and the
government both argued for a 20‐year sentence. They dis‐
puted, however, whether it should run consecutively or par‐
tially concurrently to an undischarged sentence that Stanley
was serving based on a conviction in the Central District of
Illinois. That conviction, which carried a 262‐month sentence,
was based on Stanley’s distribution of heroin in Springfield.
The court held that the Springfield drug trade was relevant
conduct in the racketeering case, but it decided to run Stan‐
ley’s 20‐year sentence for the latter consecutively to the
Springfield term. It explained that it was necessary to account
for the violent activity and “personal participation in murders
and attempted murders” that were part of the racketeering
case. The Springfield drug trafficking, the court thought,
“pale[d] in significance to the conduct” in which the Hobos
enterprise engaged. While there was “some overlap,” it said,
the racketeering case “concerns a far broader and more seri‐
ous range of conduct than was at issue in the Central District
case.” Moreover, it noted that Stanley had a lengthy criminal
record and “has had a second chance, a third, fourth, fifth,
sixth, seventh chance. At each opportunity that has been pre‐
sented to him to put his criminal conduct behind him, he has
instead concluded to escalate his criminal conduct … .”
Stanley raises two arguments on appeal: first, he accuses
the district court of relying on unreliable trial evidence to cal‐
Nos. 17‐1650 et al. 71
culate his offense level; and second, he contends that the evi‐
dence underlying the district court’s determination that his
racketeering activity included the murders and attempted
murders was incredible and full of inconsistences. These
make essentially the same point, and so we treat them to‐
gether.
With respect to the Bluitt/Neeley murders, Jones testified
that Stanley was in the third car of the four‐car caravan, but
Derrick told Johnson that Stanley was in the first car. Ford’s
proffer suggested yet a different lineup. The district court
chalked these inconsistencies up to the quick and chaotic na‐
ture of an ambush. It also disregarded the fact that neither of
Todd’s two sources mentioned Stanley as a participant.
Stanley also argues that the finding that he participated in
the shooting of Jonte Robinson was based on unreliable, in‐
consistent, and untrustworthy evidence. The district court
chose to credit Todd’s testimony, which implicated Stanley.
Stanley had rented the car that a witness saw during the inci‐
dent, and he later returned that car to the rental company
without license plates and traded it for a different car. Stanley
argues that Todd was an admitted perjurer who could not be
trusted, and that his testimony conflicted with the testimony
of Robinson on details such as the type of car Stanley had and
where he was shot. Ford told law enforcement that Derrick,
not Stanley, was the shooter.
These discrepancies were for the district court to resolve.
The government needed to satisfy only the preponderance of
the evidence standard. United States v. England, 555 F.3d 616,
622 (7th Cir. 2009). In addition, although due process requires
reliable evidence, the rules of evidence and the Confrontation
Clause do not apply at sentencing, and so the court may rely
72 Nos. 17‐1650 et al.
on hearsay even if the defendant did not have an opportunity
to cross‐examine witnesses. See United States v. Bogdanov, 863
F.3d 630, 635 (7th Cir. 2017).
Although the witnesses did not agree on the details, Jones,
Derrick, and Ford all placed Stanley at the scene of Robinson’s
shooting. “[A] sentencing court may credit testimony that is
totally uncorroborated and comes from an admitted liar, con‐
victed felon, or large scale drug‐dealing, paid government in‐
formant.” United States v. Clark, 538 F.3d 803, 813 (7th Cir.
2008) (internal quotation marks omitted). That is what the
court did, accepting Todd’s testimony that he met Stanley and
Derrick in front of a daycare center. Stanley was in a GMC
vehicle and Derrick was in a white Grand Am. Stanley
pointed Robinson out and then someone in the Grand Am be‐
gan shooting. Bush, who was with Stanley, also began shoot‐
ing. Todd’s testimony was corroborated by a CPD officer’s
testimony that an eyewitness to the shooting reported a li‐
cense plate of a vehicle at the scene. The report matched Na‐
tional Car Rental records showing that Stanley rented a blue
GMC SUV that was returned on the day of the shooting with‐
out license plates.
Next, Stanley asserts that the district court abused its dis‐
cretion by running Stanley’s sentence consecutively to his un‐
discharged sentence for the Springfield drug conviction. The
government points us to 18 U.S.C. § 3584(a), which says that
if a defendant is “already subject to an undischarged term of
imprisonment,” the court may run a term of imprisonment
“concurrently or consecutively” to the undischarged term.
The default rule is that “[m]ultiple terms of imprisonment im‐
posed at different times run consecutively unless the court or‐
ders that the terms are to run concurrently.” 18 U.S.C.
Nos. 17‐1650 et al. 73
§ 3584(a). Section 3584(b) instructs a court to consult the sec‐
tion 3553 factors when it makes its decision between the two
options. As we indicated earlier, that is just what the court did
here.
Stanley responds in two ways. First, he emphasizes that
the Springfield conduct was relevant conduct to the racketeer‐
ing case. See U.S.S.G. § 1B1.3(a)(1)(B). Accordingly, Guideline
§ 5G1.3(b) applies. It states: “If … a term of imprisonment re‐
sulted from another offense that is relevant conduct to the in‐
stant offense of conviction … the sentence for the instant of‐
fense shall be imposed to run concurrently to the remainder
of the undischarged term of imprisonment.” Stanley seizes on
the word “shall” to argue that a concurrent sentence was man‐
datory.
But nothing in the Guidelines is mandatory anymore.
United States v. Booker, 543 U.S. 220 (2005), “made all Guide‐
lines advisory; the judge must understand what sentence the
Guidelines recommend but need not impose it.” United States
v. Bangsengthong, 550 F.3d 681, 682 (7th Cir. 2008). We have
recognized that courts are “free to disagree with a guidelines
recommendation, as the court did here when it rejected con‐
current sentences under section 5G1.3(b).” United States v.
Moore, 784 F.3d 398, 404 (7th Cir. 2015). The district court in
the present case thus was free to choose to impose consecutive
sentences.
Stanley also urges that the court should at least have im‐
posed a partially concurrent sentence because he was sen‐
tenced as a career offender in the Springfield case. Although
the career‐offender designation was correct at the time of sen‐
tencing, Stanley argues, his earlier Illinois Residential Bur‐
glary conviction is no longer a qualifying predicate offense for
74 Nos. 17‐1650 et al.
the enhancement. Because of this, instead of 262 months, he
argues that he would have received only 120 months for the
Springfield conviction, as there is nothing in the record to sug‐
gest the sentencing judge would have imposed an upward
variance of 142 months. He concludes that a partially concur‐
rent sentence was necessary to avoid a composite sentence
that is greater than necessary.
We see no abuse of discretion on the district court’s part.
The Springfield sentence was imposed post‐Booker, and so
that court had the discretion to depart from the Guidelines. It
chose not to do so. Here, the district court explained in detail
why it was choosing consecutive sentences, and we have no
reason to overturn its decision.
V
We have hardly spoken of Byron Brown so as not to add
unnecessary length to an already long opinion, but Brown
was also actively involved with the Hobos. We need not delve
into all his criminal activity, which included drug dealing,
home invasions, robbery, shootings, and murder. It is enough
to give a brief summary of the facts pertinent to his individual
contentions.
On August 27, 2014, Brown pleaded guilty to Count 1,
racketeering conspiracy in violation of 18 U.S.C. § 1962(d),
and Count 4, murder in aid of racketeering in violation of 18
U.S.C. § 1959(a). He was represented by two appointed attor‐
neys, Robert Loeb and Keith Spielfogel, during the proceed‐
ings in the district court, including at the change‐of‐plea hear‐
ing. (Under 18 U.S.C. § 3005, as a person facing potential cap‐
Nos. 17‐1650 et al. 75
ital charges, Brown was entitled to representation by two at‐
torneys, at least one of whom was knowledgeable about the
defense of death penalty cases.)
At the change‐of‐plea hearing, the district court found that
Brown was competent to enter a guilty plea. Brown stated
multiple times, under oath, that he was satisfied with both of
his attorneys’ representation. He confirmed that he had an op‐
portunity to review with his attorneys the proposed plea
agreement, and he stated he did not need more time to discuss
the plea agreement with counsel. Brown confirmed that he
did not have any questions that were left unresolved in his
mind about whether he should enter into the plea agreement.
Brown also confirmed that he had reviewed and signed the
plea agreement, and that no one had threatened him or pres‐
sured him to do so.
The district court discussed the terms of the plea agree‐
ment’s cooperation provision with Brown. Although the mur‐
der‐in‐aid‐of‐racketeering charge carried a mandatory mini‐
mum term of life imprisonment and the possibility of the
death penalty, the agreement specified an agreed sentence of
35 to 40 years’ imprisonment, conditioned on Brown’s contin‐
ued cooperation with the government. At the request of the
district court, the government summarized what would be re‐
quired of Brown under this provision, telling him that he was
expected to give “complete and truthful testimony in any
criminal, civil, or administrative proceeding[.]” Brown con‐
firmed that he understood and agreed to do so. He also con‐
firmed that he understood that the government had sole dis‐
cretion to determine whether he lived up to that obligation.
76 Nos. 17‐1650 et al.
Brown also acknowledged that he would not be able to
withdraw his guilty plea, and he confirmed his understand‐
ing that he would be subject to life imprisonment if the gov‐
ernment determined he had not kept up his end of the bar‐
gain. Next, the court established a factual basis for Brown’s
guilty plea. Afterward, it returned to the issue of voluntari‐
ness, confirming that no one had threatened or forced Brown
to plead guilty. The court then accepted his guilty plea.
The prosecutors later discovered that Brown had provided
materially false information to the government. He did so
during interviews and during testimony before the federal
grand jury. Accordingly, the government told Brown that it
would not seek a reduced sentence on Brown’s behalf.
On November 17, 2015, the district court set a sentencing
date. One month later, on December 23, Brown filed a pro se
demand for special appearance and a motion to strike his
guilty plea. On January 21, 2016, Brown’s lawyers filed a mo‐
tion to withdraw, which the court granted. It then struck the
sentencing date and appointed new counsel for him.
On May 20, 2016, Brown moved to withdraw his guilty
plea. He alleged that he received ineffective assistance from
Robert Loeb before pleading guilty. Brown asserted that Loeb
had threatened and coerced him to plead guilty even though
he knew Brown had testified falsely before the grand jury.
The district court denied Brown’s motion a month later
without an evidentiary hearing, finding that Brown’s accusa‐
tions were “exceedingly unreliable,” and that “summary de‐
nial without a hearing [was] warranted.” On March 14, 2017,
the district court sentenced him to concurrent terms of life im‐
prisonment on the two counts.
Nos. 17‐1650 et al. 77
Brown argues that the district court erred when it decided
not to hold an evidentiary hearing to investigate whether he
should be allowed to withdraw his guilty plea. Brown claims
that counsel was ineffective, as defined in Strickland v. Wash‐
ington, 466 U.S. 668 (1984), by (1) failing adequately to advise
him that he would be required to testify at trial and (2) failing
to investigate the circumstances surrounding his untruthful‐
ness, possible coercion by law enforcement, and the possibil‐
ity of correcting misstatements in the grand jury.
Guilty pleas, as we have stressed in the past, should not
lightly be withdrawn. See, e.g., United States v. Chavers, 515
F.3d 722, 724 (7th Cir. 2008). Only a few grounds merit this
relief: “where the defendant shows actual innocence or legal
innocence, and where the guilty plea was not knowing and
voluntary.” United States v. Graf, 827 F.3d 581, 583 (7th Cir.
2016). “A defendant who contends that his guilty plea was not
knowing and intelligent because of his lawyer’s erroneous ad‐
vice must show that the advice was not within the range of
competence demanded of attorneys in criminal cases.” United
States v. Trussel, 961 F.2d 685, 690 (7th Cir. 1992) (internal quo‐
tation marks omitted). Moving to withdraw a guilty plea does
not automatically entitle a defendant to an evidentiary hear‐
ing. See United States v. Collins, 796 F.3d 829, 834 (7th Cir.
2015). A defendant must offer substantial evidence support‐
ing his claim, and “if the allegations advanced in support of
the motion are conclusory or unreliable, the motion may be
summarily denied.” Id.
We begin with Brown’s contention that his counsel did not
advise him that he would be required to testify at trial against
his co‐defendants. The record shows otherwise. As we noted,
the district court ensured that Brown was fully informed
78 Nos. 17‐1650 et al.
about the plea agreement and his cooperation obligations.
Brown is simply experiencing buyer’s remorse; the district
court acted within its discretion in crediting his statements,
made under oath, at the change‐of‐plea hearing.
Brown’s assertion that his lawyers failed to investigate his
truthfulness, coercion by law enforcement, and the possibility
of correcting misstatements in the grand jury strikes us as
somewhat bizarre. In any event, Brown did not present this
theory to the district court. We therefore review Brown’s ar‐
gument for plain error, which requires error that is plain, ob‐
vious, and prejudicial. United States v. Fuentes, 858 F.3d 1119,
1120−21 (7th Cir. 2017). Brown has come nowhere near meet‐
ing that standard.
Moreover, even assuming Brown received ineffective as‐
sistance of counsel, he cannot show prejudice. “[I]n order to
satisfy the ‘prejudice’ requirement, the defendant must show
that there is a reasonable probability that, but for counsel’s
errors, he would not have pleaded guilty and would have in‐
sisted on going to trial.” Hill v. Lockhart, 474 U.S. 52, 59 (1985).
We find this unlikely, as Brown was deciding between a plea
and a possible death sentence. In addition, under Brown’s
plea agreement, the government had the sole discretion to de‐
cide whether Brown provided complete and truthful cooper‐
ation deserving of a § 5K1.1 motion.
VI
Rodney Jones pleaded guilty pursuant to a plea agreement
to one count of RICO conspiracy in violation of 18 U.S.C.
§ 1962(d). He was sentenced to 450 months in prison, reduced
by 110 months to account for time that he already had served
in a related state case. Jones filed a timely notice of appeal, but
Nos. 17‐1650 et al. 79
his appointed counsel has moved to withdraw under Anders
v. California, 386 U.S. 738 (1967), because she believes an ap‐
peal to be without merit or possibility of success. Pursuant to
Circuit Rule 51(b), Jones was notified of the opportunity to re‐
spond to his counsel’s motion to withdraw, but he did not do
so. Having considered counsel’s brief, which addresses the
topics one would expect to see in this situation, we grant her
motion to withdraw and dismiss the appeal.
Jones was a member of the Hobos and participated in
many of the crimes discussed above and others, including
armed robbery of a marijuana dealer, the attempted murder
of Courtney Johnson, home invasion and attempted robbery,
the murder of Daniel Dupree, and the home invasion and fel‐
ony murder of Tommye Freeman (the elderly woman whose
car he struck while trying to elude law enforcement). Jones
was charged with RICO conspiracy, and in February 2016, he
pleaded guilty and admitted to facts regarding the predicate
RICO acts.
In the plea agreement, the parties agreed to the relevant
guidelines calculations. In addition, Jones promised to pro‐
vide complete and truthful information to the government
and give complete and truthful testimony if called upon to do
so. In exchange, the government agreed that “[a]t the time of
sentencing, the government shall make known to the sentenc‐
ing judge the extent of defendant’s cooperation. If the govern‐
ment determined that defendant has continued to provide full
and truthful cooperation as required by this Agreement, then
the government shall move the Court, pursuant to Guideline
§ 5K1.1, to depart from the low end of the applicable guideline
range, and to impose the specific sentence agreed to by the
parties as outlined below.” The agreement specified that if the
80 Nos. 17‐1650 et al.
government so moved, “the parties have agreed that the sen‐
tence imposed by the Court be a term of imprisonment in the
custody of the Bureau of Prisons of not less than 360 months
and not more than 504 months.” The court was to have dis‐
cretion to reduce the sentence below 360 months only to ac‐
count for time Jones served in state custody pursuant to
charges brought against him by the Cook County State’s At‐
torney’s Office in People v. Rodney Jones, 09‐CR‐1125729, as the
underlying offense conduct in that state case was part of the
offense conduct in the present case. The Cook County case
was for the felony murder of Freeman. In it, Jones was found
guilty of this offense in March 2013, and he was sentenced to
42 years in state prison. After an agreement between the par‐
ties to the federal case and the State’s Attorney, that state sen‐
tence was reduced to 25 years on July 2016. Critically, the fed‐
eral plea agreement also included a waiver of Jones’s right to
appeal his conviction and sentence.
In November 2017, the government filed a sentencing
memorandum. Pursuant to section 5K1.1, it asked for a sen‐
tence of 297 months based on Jones’s cooperation and testi‐
mony at trial. The government indicated that this sentence
was calculated based on a total sentence of 418 months in
prison for the federal case, which was then reduced by 121
months for the time Jones had spent in prison for the Freeman
murder. Jones requested a total sentence of 239 months based
on various mitigating factors.
The district court held a sentencing hearing on November
20, 2017. It rejected both requests and chose a sentence of 450
months, which it then reduced by the 110 months that it cal‐
culated Jones had already served for the Freeman case. This
Nos. 17‐1650 et al. 81
resulting in a federal sentence of 340 months, to be served con‐
currently with the remainder of the state court sentence. The
court imposed restitution of $22,272.16 for two victims, but it
declined to impose a fine. Jones also received a special assess‐
ment of $100 and a three‐year term of supervised release.
Counsel first considers whether any challenge to Jones’s
conviction would be frivolous. Jones indicated to her that he
wants to withdraw his guilty plea, and so a potential issue for
appeal would be whether his plea was knowing and volun‐
tary. Because Jones did not move to withdraw his guilty plea
in the district court, our review is limited to determining
whether plain error occurred. United States v. Driver, 242 F.3d
767, 769 (7th Cir. 2001).
Counsel identifies two Rule 11 omissions by the district
court during the change‐of‐plea hearing. First, the court did
not inform Jones of some of the rights he was waiving by
pleading guilty. These rights included the right to plead not
guilty, the right to assistance of counsel, and the right to con‐
front witnesses. See Fed. R. Crim. P. 11(b)(1)(B), (D), & (E).
“Compliance with Rule 11 is not meant to exalt ceremony
over substance.” United States v. Coleman, 806 F.3d 941, 944
(7th Cir. 2015). “If the record reveals an adequate substitute
for the missing Rule 11 safeguard, and the defendant fails to
show why the omission made a difference to him, his substan‐
tial rights were not affected.” Id. at 944–45. Here, Jones knew
he could plead not guilty because he previously had pleaded
not guilty. In addition, Jones knew that he had the right to
counsel’s assistance because he had been continuously repre‐
sented since his arraignment. And Jones’s plea agreement ad‐
vised him that he had the right to confront witnesses at trial.
82 Nos. 17‐1650 et al.
Thus, any error made by the omission did not affect Jones’s
substantial rights. See Rule 11(h).
The court also failed to discuss the appeal waiver con‐
tained in Jones’s plea agreement. See Rule 11(b)(1)(N). To
show that this omission affected his substantial rights, Jones
would have to show that there is a reasonable probability that,
but for the Rule 11 error, he would not have pleaded guilty.
United States v. Dominguez Benitez, 542 U.S. 74, 76 (2004). The
appeal waiver is unambiguous, and Jones told the district
court multiple times that he had read the agreement and dis‐
cussed it with his attorney. He also acknowledged in the plea
agreement that his attorneys had explained the rights he was
waiving, that he had read and reviewed each provision with
his attorney, and that he understood and accepted every term.
Counsel notes that it is difficult to see how the omission of the
appellate waiver warning by the district court at the change‐
of‐plea hearing could have affected Jones’s decision to plead
guilty, given the benefits he received under the agreement, in‐
cluding a sentence that falls well below the guidelines recom‐
mendation of life in prison. We agree and find no plain error.
Counsel next considered whether any challenge to Jones’s
sentence would be frivolous. Jones explicitly waived the right
to appeal his sentence in his plea agreement, and we review
the enforceability of a waiver of appeal rights de novo. United
States v. Woods, 581 F.3d 531, 534 (7th Cir. 2009).
Because Jones’s guilty plea was knowing and voluntary,
his waiver of appellate rights in the plea agreement was also
knowing and voluntary. We will honor that waiver unless
“the trial court relied on a constitutionally impermissible fac‐
tor (such as race), or … the sentence exceeded the statutory
maximum.” Jones v. United States, 167 F.3d 1142, 1144 (7th Cir.
Nos. 17‐1650 et al. 83
1998). Neither exception applies here. Jones’s sentence of 450
months was within the statutory maximum (life imprison‐
ment) and it was within the parties’ agreed range. Jones’s sen‐
tence was also not the result of a constitutionally impermissi‐
ble factor. Therefore, we grant counsel’s motion to withdraw,
and we dismiss Jones’s appeal.
VII
In the end, almost the entirety of this complex criminal
trial will remain undisturbed thanks to Judge Tharp’s excel‐
lent handling of the case. We AFFIRM the convictions of all the
defendants. We also AFFIRM the sentences of all the defend‐
ants except for Chester. We VACATE Chester’s sentence in
13 CR 288, appeal No. 17‐3063, and order a limited remand
for further proceedings consistent with this opinion. In
Jones’s case, No. 17‐3449, we GRANT Counsel’s motion to
withdraw and DISMISS the appeal. | 01-03-2023 | 08-28-2020 |
https://www.courtlistener.com/api/rest/v3/opinions/2984677/ | Motion Granted; Appeal Dismissed and Memorandum Opinion filed
February 25, 2014.
In The
Fourteenth Court of Appeals
NO. 14-13-01026-CV
KHALED ALATTAR, Appellant
V.
MESIA HUTTNER HACHADORIAN, Appellee
On Appeal from the 113th District Court
Harris County, Texas
Trial Court Cause No. 2012-54501
MEMORANDUM OPINION
This is an appeal from a judgment signed November 11, 2013. On February
12, 2014, appellant filed a motion to dismiss the appeal. See Tex. R. App. P. 42.1.
The motion is granted.
Accordingly, the appeal is ordered dismissed.
PER CURIAM
Panel consists of Justices Boyce, McCally, and Busby. | 01-03-2023 | 09-22-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2279738/ | 73 Cal. Rptr. 3d 87 (2008)
160 Cal. App. 4th 653
Jack RUSSELL, Plaintiff and Appellant,
v.
Charrie FOGLIO, Defendant and Respondent.
No. B190168.
Court of Appeal of California, Second District, Division Eight.
February 28, 2008.
*88 McPherson & Kalmansohn, McPherson & Associates, Edwin F. McPherson, Los Angeles, and Tracy B. Rane for Plaintiff and Appellant.
Cohen and Cohen, Evan S. Cohen and S. Martin Keleti, Los Angeles, for Defendant and Respondent.
COOPER, P.J.
Plaintiff Jack Russell appeals following the grant of defendant Charrie Foglio's special motion to strike his complaint for slander and false light invasion of privacy, under Code of Civil Procedure section 426.15, the anti-SLAPP statute (undesignated section references are to the Code of Civil Procedure), and from the denial in part of his motion to tax costs, with respect to defendant's attorney fees. We conclude that plaintiff has failed to perfect an appeal from the anti-SLAPP order. We affirm the attorney fees order.
FACTS
The material allegations of the complaint were as follows. In February 2003, plaintiff was leader of the band Great White, which underwent a catastrophe when pyrotechnic effects it employed at a Rhode Island nightclub ignited polyurethane wall and ceiling installations, precipitating a fire that caused extensive loss of life and injuries.
Shortly after the fire, plaintiff decided that the band would tour the United States performing, to raise money for victims of the fire. Defendant, who had experience in the music industry and had known plaintiff for 20 years, was assigned by a management company to handle publicity for the band. Defendant also was deputized to work with a fire victims' fund, to which the band would be giving all profits from its tour.
Defendant allegedly performed poorly and dishonestly in various ways, and the management company terminated her. She then demanded that plaintiff fire the company and hire her as his personal manager. When plaintiff refused, defendant threatened that if she did not receive severance pay, she would tell the press or a Rhode Island grand jury that plaintiff and *89 the head of the management company (Steinman) were embezzling money from the victims' fund. Defendant proceeded to claim, falsely, that plaintiff and Steinman were stealing money from the tour. She allegedly made such statements to the press, people in the music industry, and Rolling Stone magazine, and they were republished by CNN Headline News.
The complaint alleged that defendant's statements were false, defamatory on their face, and made with knowledge or reckless disregard of their falsity (hereafter constitutional malice). As a result, plaintiff suffered damages personally, and several tour concerts were cancelled by their venues. Plaintiff alleged malice and prayed punitive damages. The second cause of action reiterated the first, and alleged that defendant's statements had placed plaintiff in a false light before the public. A third cause sought injunctive relief against further defamatory statements.
Defendant moved to strike the complaint under section 425.16, subdivision (b)(1). She averred that her alleged statements came within the free speech and public interest protections of section 425.16, subdivision (e)(4), and that many of the complaint's charges were themselves false.
In opposition to the motion, plaintiff submitted declarations by himself, Steinman, a former member of the band (Lardie), and the victims' fund's president (Potvin). The latter two testified, respectively, that defendant had told them that plaintiff was stealing and embezzling from the fund. Among other things, Steinman recounted that defendant had shared all of the tour's accounting records. He also stated that defendant had falsely told the fund and the press that he and plaintiff were stealing from the fund. Plaintiff testified to defendant's threat to claim theft unless she were paid severance. Principally based on Steinman's declaration regarding defendant's knowledge of the tour's finances, plaintiff argued that defendant had made her false accusations with knowledge or reckless disregard of their falsity.
Defendant, now in pro. per., filed extensive evidence in reply, including a declaration by a member of the fund's board. Plaintiff filed objections to much of this evidence, which included magazine and internet articles.
On March 4, 2005, the court rendered its order granting defendant's motion to strike. The court ruled that the statements allegedly made to Steinman and Potvin were privileged under Civil Code section 47, subdivision (c), which concerns communications between interested persons, without malice.[1] Absence of such malice was established by reason of the court's conclusion that plaintiff had not shown constitutional malice by clear and convincing evidence. The court ruled that the claim that defendant had made her statements because she had not been paid severance was insufficient to establish constitutional malice. The court stated the statement to Lardie had not been believed, and therefore had not caused special damages.
The 12-page "Order on Submitted Motion" was signed by the court, file-stamped, and accompanied by a clerk's endorsement of the date of mailing to the parties. The order concluded, "Defendant is ordered to submit a proposed form of judgment within 15 days." Defendant did not submit any form of judgment in response.
*90 Plaintiff proceeded to file a motion for reconsideration, on March 14, 2005. Plaintiff offered further evidence, and argued he could sustain his burden of showing "minimal merit" as to each element of his slander claim. (Navellier v. Sletten (2002) 29 Cal. 4th 82, 89, 95, & fn. 11, 124 Cal. Rptr. 2d 530, 52 P.3d 703.)
Defendant again filed voluminous opposition, to which plaintiff filed numerous objections. Plaintiff then filed further declarations. The court held two hearings, the second being an evidentiary one concerning plaintiffs claim that defendant had submitted a forged declaration by the band's former tour manager. At these hearings, defendant was represented by new counsel, Keith Bray.
On June 9, 2005, the court filed its order denying the motion for reconsideration, on the basis the evidence plaintiff had tendered had been available for the original motion. (See § 1008, subd. (a).) The court ruled for defendant on the forgery question. The order stated that defendant could file a new bill of costs, to account for her attorney fees and costs for the reconsideration motion. The order concluded, "Defendant is to submit a form of judgment within 10 days." No such form was submitted.
On July 9, 2005, defendant's attorney Bray filed a memorandum of costs, claiming attorney fees of $10,140, witness fees of $3,090 for a questioned documents examiner, and $1,500 for a private investigator.
In support of the claimed attorney fees, Bray attached his declaration, stating he had been retained by defendant on April 29, 2005, three days before the first reconsideration hearing, at $300 per hour. He had spent a total of 33.8 hours on the case, about half of that in attending the two reconsideration hearings, and the rest principally in interviewing defendant and witnesses in preparation, and attending an earlier hearing on costs.
Plaintiff moved to tax costs. He argued that (1) the expert's fees were statutorily unrecoverable (§ 1033.5, subd. (b)(1)); (2) the same was true of investigator's fees (§ 1033.5, subds.(b)(2), (c)(2)); and (3) the attorney fees were unreasonable and excessive. Plaintiff observed that Bray had been admitted to the bar in June 2002, and had graduated from an apparently unaccredited law school. Plaintiff also submitted declarations from partners at two law firms. One stated that 2002 admittees at his firm were generally billed at $135 to $150 per hour, and that a law firm rate "anywhere near $300 per hour" for attorneys of that vintage was unknown to him. The other declarant stated that he too was unaware of any firm billing that rate for 2002 admittees; that it would be unreasonable; and that at no firm at which he had been a principal had lawyers in practice less than four years been billed at over $175 per hour.
Responding at the hearing, Bray averred that he was an independent family law practitioner, who had substantial trial experience (which he described) and overall experience and responsibility greater than and different from law firm associates of two years. He also represented that $300 was his normal rate, which his clients agreed to.
The trial court granted the motion to tax with respect to the expert's and investigator's fees, but denied it as to the attorney fees. The court found Bray's experience, the time constraint under which he undertook defendant's representation, his performance in defeating the forgery claim, and defendant's agreement to the $300 per hour fee all supported the fees claimed. The court also awarded fees for three further hours, or $900, for the hearing.
*91 On November 7, 2005, the court filed a "judgment," submitted by Bray, which adjudged the rulings on the motion to tax costs. On March 27, 2006, plaintiff filed a notice of appeal from this judgment. The notice of appeal recited that defendant had served the judgment the preceding month, and it attached and incorporated a copy of that judgment. This was the only notice of appeal plaintiff filed in the case.
DISCUSSION
1. Plaintiff Has Failed to Appeal From the Anti-SLAPP Order.
Plaintiffs arguments on appeal seek review and reversal of the anti-SLAPP order striking his complaint, as well as the subsequent "judgment" denying the motion to tax costs with respect to defendant's attorney fees. However, plaintiffs notice of appeal, upon which this appeal is based, addresses only the judgment regarding costs. Given the absence of a notice of appeal from the order granting the motion to strike, and that the notice of appeal before us was filed more than a year after the motion was granted, we requested and received briefing from the parties regarding whether we have jurisdiction to review the anti-SLAPP order. We conclude that we do not.
Plaintiffs time to commence an appeal from the order granting the anti-SLAPP motion expired well before plaintiff filed its only notice of appeal, in March of 2006. The trial court denied the motion to strike on March 4, 2005. That order was specifically, statutorily appealable. (§§ 425.16, subd. (i), 904.1, subd. (a)(13).) On the same date, the superior court clerk mailed a file-stamped copy of the order to plaintiff. Under California Rules of Court, former rule 2(a)(1) and (f) (8.104(a)(f))[2], plaintiff had 60 days from this notification, or until May 3, 2005, in which to file a notice of appeal from the order. Because plaintiff filed a motion for reconsideration, the time for filing the notice of appeal was extended by former rule 3(d)(2) (8.108(e)(2)) to May 3, 2005 (90 days after the motion to reconsider was filed). Plaintiff did not, however, file any notice of appeal before that time expiredor until nearly 10 months later, when the notice of appeal re costs was filed.
Plaintiff disputes this analysis on several premises, but none of them is valid. First, plaintiff argues that mailing of the March 4, 2005 order did not commence the time for appeal under former rule 2(a)(1) (8.104(a)), because the order was not entitled "Notice of Entry," as the rule states. (Cf. Sunset Millennium Associates, LLC v. Le Songe, LLC (2006) 138 Cal. App. 4th 256, 41 Cal. Rptr. 3d 273.) But the "Notice of Entry" requirement is only an alternative one: under former rule 2(a)(1) (8.104(a)), the time for notice of appeal runs from the clerk's mailing of either "a document entitled `Notice of Entry' of judgment or a file-stamped copy of the judgment, showing the date either was mailed." Here plaintiff was mailed a file-stamped copy of the order granting the motion to strike.[3]
Plaintiff further argues that the court's March 4, 2005 order granting the motion to strike was not an appealable order, *92 because the order directed defendant to prepare a form of judgment, and she did not do so. Plaintiff relies primarily on former rule 2(d)(2) (8.104(d)(2)), which provides that for purposes of former rule 2 (8.104) the date of entry of an appealable order, "if the minute order directs that a written order be prepared ... is the date the signed order is filed." Assuming arguendo that the present order came within this provision, the rule would not deprive the order of appealability. What former rule 2(d)(2) (8.104(d)(2)) does is demarcate the time of entry of an appealable order, for purposes of that rule. It does not purport to determine what is appealable; indeed, it applies by its terms to appealable orders. (See In re Marriage of Taschen (2005) 134 Cal. App. 4th 681, 685-686, 36 Cal. Rptr. 3d 286 [minute order statutorily appealable; written order set time of entry].)
Moreover, the order granting the motion to strike did not come within the quoted language of former rule 2(d)(2) (8.104(d)(2)). The order was not a minute order, but a lengthy signed order. There was no need for a further signed order to finalize the adjudication. And in fact, the order directed that defendant prepare not a further, more formal order, but a judgment. That was what should have followed, the court having granted a motion to strike plaintiffs entire complaint. (Cf. Sunset Millennium, LLC, v. Le Songe, LLC, supra, 138 Cal.App.4th at p. 258, 41 Cal. Rptr. 3d 273 ["The granting of the Code of Civil Procedure section 425.16 special motion to strike terminated the entire lawsuit as to defendant. Defense counsel submitted a proposed judgment...."] Although such a judgment would itself have been appealable, so was the order granting the motion to strike, by the terms of sections 425.16, subdivision (j) and 904.1, subdivision (a)(13).[4]
The time for filing an appeal from the anti-SLAPP order thus expired, long before plaintiff did file a notice of appeal not from that order, but from the costs order. Plaintiff proposes certain means to permit that appeal to include an appeal from the anti-SLAPP order, but they are not appropriate.
First, plaintiff suggests that the appeal may be saved by amending the judgment re costs to include denial of the anti-SLAPP order. Plaintiff bases this request on cases that have amended incomplete and hence nonappealable judgments to render them appealable. (E.g., Gombos v. Ashe (1958) 158 Cal. App. 2d 517, 322 P.2d 933.) But the problem here is not the absence of an appealable order, granting the motion to strike. As we have explained, there was one, but plaintiff did not timely appeal from it.
Second, plaintiff invokes the doctrine that a notice of appeal should be liberally construed. ` (E.g., rule 1(a)(2) (8.100(a)(2)).) But as stated in plaintiffs lead authority, "notices of appeal are to be liberally construed so as to protect the right of appeal if it is reasonably clear what appellant was trying to appeal from...." (Luz v. Lopes (1960) 55 Cal. 2d 54, 59, 10 Cal. Rptr. 161, 358 P.2d 289.) This doctrine applies primarily, as in that case, where the notice of appeal has misdescribed the judgment or order sought to be appealed from. Here, however, plaintiffs notice of appeal addressed and explicitly describedto the point of attaching a copyonly the judgment re costs. It would be beyond liberal construction to *93 view that notice of appeal as relating to a further and different order, rendered a year previously. Moreover, even if plaintiffs notice of appeal were construed as directed at the anti-SLAPP order, the appeal from it would be untimely and would have to be dismissed.
Accordingly, we are unable to find that an appeal from the anti-SLAPP order is properly before us.
2. Attorney Fees.
The award of defendant's attorney fees, recoverable under section 425.16, subdivision (c), is subject to review under established rules. "The reasonableness of attorney fees is within the discretion of the trial court, to be determined from a consideration of such factors as the nature of the litigation, the complexity of the issues, the experience and expertise of counsel, and the amount of time involved. [Citation.]" (Wilkerson v. Sullivan (2002) 99 Cal. App. 4th 443, 448, 121 Cal. Rptr. 2d 275; accord, PLCM Group, Inc. v. Drexler (2000) 22 Cal. 4th 1084, 1096, 95 Cal. Rptr. 2d 198, 997 P.2d 511.) The trial court possesses personal expertise in the value of the legal services rendered in the case before it. (Ibid.) On appeal, a fee award is reviewed for abuse of discretion. (Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal. App. 4th 659, 686, 43 Cal. Rptr. 3d 148.)
Plaintiff attacks the award for Attorney Bray on grounds the $300 per hour rate claimed and allowed was excessive. Plaintiff so contends based on the facts that Bray had been a lawyer only since June 2002, that he had graduated from an unaccredited law school, and that his experience was in family law as opposed to defamation. These facts do not establish an abuse of discretion in the trial court's ruling.
From the standpoint of Bray's capability, experience, and performance, the identity of his law school made no difference. In the same respects, that Bray had become a lawyer two years and eleven months before he undertook the case also was not dispositive.[5] The trial court recognized Bray's representation that he brought to the case far more extensive trial experience than an average junior associate at a law firm would have had. That Bray's experience had arisen in the family law context was also not discrediting. What the court perceived as relevant about that experience was its practical extent. The court referred to Bray's "family law experience" simply as shorthand for his in-court experience.
Plaintiffs arguments also fail to take into account the court's observations concerning the quality of Bray's performance and the time constraints under which he undertook representation of defendant. These factors supported the court's determination of the value of counsel's work.
Ultimately, while expressing awareness of plaintiffs submission regarding junior associates' billing rates, the court concluded that Bray's experience, the exigency of the case, and "the demonstrated level of performance by counsel" justified the hourly fee level. Given all the circumstances, that ruling was not an abuse of discretion.
DISPOSITION
The judgment regarding costs is affirmed. The parties shall bear their own costs on appeal.
*94 We concur: RUBIN and EGERTON[*], JJ.
RUBIN, J.
I concur.
The plain meanings of Code of Civil Procedure section 425.16, subdivision (i) (formerly subd. (j)) and section 904.1, subdivision (a)(13) made the trial court's order granting respondent's motion to strike immediately appealable. I therefore agree with the majority that, because the appeal here was untimely, we do not have jurisdiction to reach the merits of the anti-SLAPP order. Our inability to address the merits may be an example of an unintended consequence that the Legislature did not anticipate when it made granting a motion to strike under the anti-SLAPP law an immediately appealable order. I therefore write this separate concurrence to suggest that the Legislature may wish to consider amending the statutes involving such an appeal.
It makes sense that denial of a motion to strike a complaint under the anti-SLAPP law is immediately appealable. Forcing a defendant to wait until a final judgment that might be months or years away arguably would frustrate the anti-SLAPP statute's purpose, which is to expeditiously end lawsuits that chill public participation. (Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal. 4th 180, 194, 25 Cal. Rptr. 3d 298, 106 P.3d 958 ["The Legislature found it necessary to enact subdivision (j) because, without the ability to appeal, a SLAPP `defendant will have to incur the cost of a lawsuit before having his or her right to free speech vindicated.'"].) As the Assembly committee report discussing appeals under the anti-SLAPP statute noted:
"This bill furthers the purpose of the Anti-SLAPP Law ... by allowing the defendant to immediately appeal a denial of a special motion to strike. Without this ability, a defendant will have to incur the cost of a lawsuit before having his or her right to free speech vindicated. When a meritorious anti-SLAPP motion is denied, the defendant, under current law, has only two options. The first is to file a writ of [mandate], which is discretionary and rarely granted. The second is to defend the lawsuit. If the defendant wins, the Anti-SLAPP Law is useless and has failed to protect the defendant's constitutional rights." (Assem. Com. On Judiciary, com. on Assem. Bill No. 1675 (1999 Reg. Sess.) April 20,1999.)
A plaintiff in SLAPP litigation occupies a different position than a defendant, and few plaintiffs, if any, are likely to have interests the anti-SLAPP law was designed to protect. Recall that the plaintiff initiates the lawsuitit is the defendant who claims the lawsuit chills the defendant's constitutional rights. There is no particular reason a plaintiff at the losing end of a successful anti-SLAPP motion to strike has any interests greater or more pressing than any other plaintiff who loses a dispositive pretrial motion, such as a demurrer or motion for summary adjudication or judgment. The plaintiff may be unhappy with the pretrial result, but, unlike a defendant subject to a SLAPP complaint, such a plaintiff bears no obviously greater burden in being forced like other plaintiffs to wait until the final judgment to appeal.
The legislative history of the appeal provision of the anti-SLAPP law does not illuminate why the Legislature made orders *95 granting a motion to strike immediately appealable, other perhaps than to offer balance between plaintiffs and defendants. As originally introduced in the Assembly Judiciary Committee, the appeal provision addressed only denial of a motion to strike. (A.B. 1675, subd (j); Stats.1999, ch. 960.) But several months later, the Senate Judiciary Committee amended the bill to make an order granting a motion to strike appealable. In discussing its amendment, the Senate report recited the reasons the Assembly had found for making denials immediately appealable. The Senate report then added: "The author is submitting amendments in Committee to clarify that the right to appeal would apply to motions granted or denied in order to assure that both the plaintiff and defendant are given equal rights to appeal an adverse order"in other words, balance. (Sen. Com. on Judiciary, com. on Assem. Bill No. 1675 (1999-2000 Reg. Sess.) June 29, 1999, pp. 3-4.)
In reaching for balance, the Legislature may have grabbed hold of unintended consequences, instead. One of two scenarios typically unfolds after a trial court grants an anti-SLAPP motion to strike. Under the first scenario, the court dismisses the entire complaint, freeing the defendant to move for its attorney's fees and an eventual final judgment; that scenario is the one that happened here. Under the second scenario, some causes of action remain and the case proceeds on those claims toward an eventual final judgment (which may include attorney's fees for the successful motion to strike). Under either scenario, no public policy reason exists to justify the cost to the parties and the courts of two separate appealsone from the granting of the motion to strike, and a second from the attorney's fee order and final judgment. Moreover, splitting the proceedings into two appeals creates a trap for the unwary, who may lose their right to appeal from the order granting the motion to strike while they await the final judgment. This is especially true in cases in which the trial court, as what happened here, grants the motion to strike the entire complaint. It is hard to imagine any benefit to the plaintiff in requiring it to appeal before final judgment is entitled.
And the trap is not limited to the unwary. At least one published decision shows even highly regarded and experienced counsel can overlook that an order granting a motion to strike is immediately appealable. In that decision, Maughan v. Google Technology, Inc. (2006) 143 Cal. App. 4th 1242, 49 Cal. Rptr. 3d 861, plaintiffs counsel sued Google. The trial court granted Google's motion to strike the complaint under the anti-SLAPP statute, effectively ending the lawsuit. (Id. at p. 1245, 49 Cal. Rptr. 3d 861.) A few months later, the trial court awarded Google its attorney's fees and costs and entered judgment in its favor. The plaintiff appealed from the final judgment. On review, the appellate court found the appeal was untimely as to the motion to strike, and refused to address the merits of the order granting the motion. (Id. at pp. 1246-1247, 49 Cal. Rptr. 3d 861.) Because the statutory language was plain, the Maughan court, like the majority here, correctly applied the law governing the timing of an appeal from an order granting a motion to strike a SLAPP complaint. I respectfully suggest, however, that the Legislature consider changing the statute.
NOTES
[1] Steinman actually had not claimed that defendant had published her charges of theft to him.
[2] The California Rules of Court were renumbered after the proceedings below. Using the term "rule," we cite the former rules, which governed, with parenthetical notation of the present rule numbers.
[3] Plaintiff observes that not until later did he receive a copy of a document entitled "judgment" (the judgment re costs). But former rule 2(f) (8.104(f)) provides that as used in rule 2(a) (8.104(a)), "judgment' includes an appealable order if the appeal is from an appealable order."
[4] Because the order was not preliminary to a further order granting defendant's anti-SLAPP motion, Herrscher v. Herrscher (1953) 41 Cal. 2d 300, 259 P.2d 901, cited by plaintiff, is not on point.
[5] It is incorrect for plaintiff to refer to Bray as a "second-year'' lawyer. Bray had more than three years licensure when he handled the crucial evidentiary hearing on reconsideration.
[*] Judge of the Los Angeles Sup.Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/810494/ | Case: 11-51238 Document: 00512024552 Page: 1 Date Filed: 10/18/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
October 18, 2012
No. 11-51238
Summary Calendar Lyle W. Cayce
Clerk
UNITED STATES OF AMERICA,
Plaintiff - Appellee
v.
JUAN ALBERTO MURELLO-GOMEZ,
Defendant - Appellant
Appeal from the United States District Court
for the Western District of Texas
USDC No. 3:11-CR-2043-1
Before DAVIS, BARKSDALE, and ELROD, Circuit Judges.
PER CURIAM:*
Juan Alberto Murello-Gomez appeals his within-Guidelines guilty-plea
sentence for illegal reentry after deportation or removal. He was sentenced,
inter alia, to 41-months imprisonment. Murello challenges the substantive
reasonableness of the sentence, claiming it is greater than necessary to achieve
the sentencing goals of 18 U.S.C. § 3553(a). He contends his sentence fails to
account for certain mitigating factors, such as cultural assimilation and his
reasons for returning to the United States.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
Case: 11-51238 Document: 00512024552 Page: 2 Date Filed: 10/18/2012
No. 11-51238
Although post-Booker, the Sentencing Guidelines are advisory only, and
a properly preserved objection to an ultimate sentence is reviewed for
reasonableness under an abuse-of-discretion standard, the district court must
still properly calculate the Guideline-sentencing range for use in deciding on the
sentence to impose. Gall v. United States, 552 U.S. 38, 48-51 (2007). In that
respect, its application of the Guidelines is reviewed de novo; its factual findings,
only for clear error. E.g., United States v. Cisneros-Gutierrez, 517 F.3d 751, 764
(5th Cir. 2008); United States v. Villegas, 404 F.3d 355, 359 (5th Cir. 2005).
Murello’s failure to object at sentencing to the reasonableness of his
sentence triggers plain error review. United States v. Peltier, 505 F.3d 389, 391-
92 (5th Cir. 2007). To show plain error, Murello must show, inter alia, a
forfeited error that is clear or obvious. Puckett v. United States, 556 U.S. 129,
135 (2009). He fails to do so.
The district court considered the factors Murello raises on appeal, and
made an individualized sentencing decision based on the facts, and in the light
of the § 3553(a) factors. Gall, 552 U.S. at 49-50. Murello’s within-Guidelines
sentence is entitled to a presumption of reasonableness. E.g., United States v.
Cooks, 589 F.3d 173, 186 (5th Cir. 2009). He fails to show the presumption
should not apply. The district court did not abuse its discretion in imposing a
sentence within the advisory sentencing range. E.g., Gall, 552 U.S. at 50-51.
Our court has consistently rejected Murello’s challenges to: application of
plain error review if there is no objection to the sentence’s substantive
reasonableness after the sentence is imposed, Peltier, 505 F.3d at 391-92; the
presumption of reasonableness accorded to within-Guidelines sentences imposed
under § 2L1.2, United States v. Duarte, 569 F.3d 528, 529-31 (5th Cir. 2009); and
the alleged unwarranted disparity created by the Western District of Texas’ lack
of a “fast-track” disposition program, United States v. Gomez-Herrera, 523 F.3d
2
Case: 11-51238 Document: 00512024552 Page: 3 Date Filed: 10/18/2012
No. 11-51238
554, 562-64 (5th Cir. 2008). He raises these issues only to preserve them for
possible future review.
AFFIRMED.
3 | 01-03-2023 | 10-18-2012 |
https://www.courtlistener.com/api/rest/v3/opinions/810463/ | Case: 11-10887 Document: 00512023249 Page: 1 Date Filed: 10/17/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
October 17, 2012
No. 11-10887 Lyle W. Cayce
Clerk
POLY-AMERICA, L.P.,
Plaintiff-Appellee
v.
STEGO INDUSTRIES, LLC,
Defendant-Appellant
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:08-CV-2224
Before DAVIS, SMITH, and DENNIS, Circuit Judges.
PER CURIAM:*
Poly-America, L.P. (“Poly-America”) filed suit against Stego Industries,
LLC (“Stego”), seeking declaratory judgment that: (1) Stego did not have a claim
for trademark infringement under the Lanham Act, 15 U.S.C. §§ 1051-1127; (2)
Stego’s yellow color mark for vapor barrier is not a registrable trademark in the
United States Patent and Trademark Office (“PTO”); (3) Stego had no common
law right to its trademark and could not assert trade dress protection under §
43 of the Lanham Act, 15 U.S.C. § 1125; and (4) Stego engaged in unfair
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
Case: 11-10887 Document: 00512023249 Page: 2 Date Filed: 10/17/2012
No. 11-10887
competition by making false or fraudulent declarations to the PTO. The district
court issued a declaratory judgment, holding that Stego’s trademark of the color
yellow in vapor barrier is not registrable under the Lanham Act and that Stego
has no common law trademark rights to yellow vapor barrier, and enjoined Stego
Industries from pursuing infringement litigation against Poly-America. The
district court also held that Poly-America failed to show that Stego fraudulently
procured PTO registration for its yellow color mark. Both parties now appeal.
A product feature is de jure functional and therefore cannot be registered
or protected by trademark law “when it is essential to the use or purpose of the
device or when it affects the cost or quality of the device.” Traffix Devices, Inc.
v. Marketing Displays, Inc., 532 U.S. 23, 32 (2001); see also Qualitex Co. v.
Jacobson Prods. Co., Inc., 514 U.S. 149, 165 (1995); Inwood Laboratories, Inc. v.
Ives Laboratories, Inc., 456 U.S. 844, 850 n.10 (1982). “[I]f a product feature is
‘the reason the device works,’ then the feature is functional.” Eppendorf-
Netheler-Hinz GMBH v. Ritter GMBH, 289 F.3d 351, 355 (5th Cir. 2002). The
district court determined that the yellow color mark in vapor barrier—which is
a plastic sheeting laid beneath concrete slab foundations—was de jure functional
because the color made it easier to spot and therefore fix holes and gaps in the
plastic sheeting that prevented moisture and vapor gas from migrating from the
ground into the concrete slab foundation of buildings; and because it decreased
heat absorption on worksites, which kept worksites cooler and prevented the
expansion of vapors beneath the vapor barrier. The district court then concluded
that Stego had no common law right to trade dress protection, because “trade
dress protection may not be claimed for product features that are functional.”
Traffix, 532 U.S. at 29; see also 15 U.S.C. § 1125(a)(3). The district court also
determined that Poly-America failed to prove that Stego fraudulently procured
its registration. Stego’s application contained Stego advertisements that
2
Case: 11-10887 Document: 00512023249 Page: 3 Date Filed: 10/17/2012
No. 11-10887
discussed the yellow color mark’s utilitarian purposes and Poly-America did not
show that Stego otherwise attempted to deceive the PTO.
After reviewing the record, studying the briefs, and listening to oral
arguments, we AFFIRM the judgment of the district court for essentially the
same reasons given by the district court in its Memorandum Opinion and Order
of July 27, 2011.
AFFIRMED.
3 | 01-03-2023 | 10-17-2012 |
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