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https://www.courtlistener.com/api/rest/v3/opinions/2608422/ | 72 Wash. 2d 226 (1967)
432 P.2d 562
DAVID WOLFF, Respondent,
v.
COAST ENGINE PRODUCTS, INC., et al., Appellants.[*]
No. 39245.
The Supreme Court of Washington, Department One.
October 13, 1967.
*227 Wallace B. Hager (of Hager & Young), for appellants.
Martin L. Potter (of Ruff & Potter), for respondent.
HILL, J.
This is an intersection-collision case. The action is brought on behalf of David Wolff, a minor, by Betty Wolff, his mother, as his guardian ad litem. David was injured when the motor scooter which he was driving collided with a pickup truck owned by the defendant, Coast Engine Products, Inc., and driven by its employee, Theodore R. Nelson, the other defendant.
David was proceeding south on an arterial street. Mr. Nelson, who was proceeding west on a nonarterial street, had stopped, as required, before proceeding across the arterial, and the front end of the pickup was just leaving the intersection when the motor scooter collided with its right front fender. There was a verdict against the defendants for $20,000, and a judgment was entered for that amount. The defendants appeal.
The defendants contend that though Nelson was a disfavored driver proceeding across an arterial at an intersection and was involved in a collision within the intersection with a favored driver proceeding lawfully through the intersection, nevertheless the presence of fog[1] made Nelson's negligence a question of fact for the jury rather than of law for the court. The argument is that the fog was such an obstruction to vision as to make it a jury question as to whether the disfavored driver came within the deception rule laid down in Martin v. Hadenfeldt, 157 Wash. 563, 289 P. 533 (1930).
[1] The presence of fog places added responsibilities on all drivers, but it does not lessen the obligation of a disfavored driver entering an intersection with an arterial to yield the right of way to drivers lawfully on the arterial, *228 and the trial court did not err in instructing the jury that defendant Nelson was negligent as a matter of law for his failure to accord the favored driver on the arterial that right of way. This holding disposes of a number of the assignments of error relating to instructions given and refused.
The fog (depending on how thick the jury found it to be) could have made the favored driver contributorily negligent in proceeding at 25-30 miles per hour through an intersection, and the trial court properly presented to the jury the issue of whether David Wolff, the favored driver, was contributorily negligent.
The defendants claim they were entitled to a requested instruction relative to the duty of David Wolff to maintain a lookout ahead. The trial court presented the duty of both drivers in the familiar language of the statute requiring that the driver of any vehicle upon the public highways of this state
[S]hall operate the same in a careful and prudent manner and at a rate of speed no greater than is reasonable and proper under the conditions existing at the point of operation, taking into account the amount and character of the traffic, weight of vehicle, grade and width of highway, condition of surface and freedom of obstruction to view ahead and consistent with any and all conditions existing at the point of operation so as not to unduly or unreasonably endanger the life, limb, property or other rights of any person entitled to the use of such public highways. (Instruction No. 9)
[2] This covered the defendants' requested instruction relative to duty of lookout and observation under the conditions then existing. The requested instruction, while a correct statement of the law, was not necessary. A litigant is not entitled to have instructions presented in his chosen phraseology.
The assignments of error relating to the refusal of the trial court to instruct that the issues of permanent disability, impairment of earning capacity, and the possibility of chronic pyelonephritis should each be withdrawn from the *229 consideration of the jury because of lack of evidence relative thereto, are without merit.
Any instruction relative to chronic pyelonephritis was uncalled for. It could not be withdrawn from the consideration of the jury because there was no such issue in the case.
The evidence with reference to impairment of earning capacity and permanent disability, while not extensive, was sufficient to make it arguable. David Wolff described his condition when he testified as to his continuing physical disability in June, 1966, 8 months after the accident. Dr. John Steele testified that he thought that anemia had resulted from the injury and that it would be permanent. Dr. Joseph Katterhagen testified:
I feel that he has protein in the urine in all probability because of infection in the kidney.
[3] There was also the removal of the spleen which, whatever might be the differing views as to its effects, was certainly permanent. The jury was also entitled to consider the effect of injuries, such as those sustained by David Wolff, on a person having Marfan's syndrome.[2]
[4] We have held that where there is evidence of permanent injury, future loss of earnings, or future pain and suffering, an instruction on life expectancy is proper. Lofgren v. Western Wash. Corp. of Seventh Day Adventists, 65 Wash. 2d 144, 396 P.2d 139 (1964); DeKoning v. Williams, 47 Wash. 2d 139, 286 P.2d 694 (1955). This holding disposes of the assignment of error objecting to the giving of the standard instruction on life expectancy.
Error is also assigned to the failure to give a requested instruction regarding relative rights of way at intersections, *230 and the failure to give a requested instruction relative to the burden of proof. The jury was adequately and properly instructed on both matters, and these assignments of error are without merit.
We have now passed upon all assignments of error, except the first and last.
The first relates to the admission of parts of exhibit No. 1, the hospital record; and the last to the refusal to grant a new trial.
[5] We have recognized that a hospital record is admissible in evidence under Laws of 1947, ch. 53 (The Uniform Business Records as Evidence Act), which is codified as RCW 5.45.010 -920; Young v. Liddington, 50 Wash. 2d 78, 309 P.2d 761 (1957).
The act, however, does not make all material contained in such a record admissible. Allen v. Fish, 64 Wash. 2d 665, 393 P.2d 621 (1964). This is particularly true of expressions of opinion which otherwise would be inadmissible. Benjamin v. Havens, Inc., 60 Wash. 2d 196, 373 P.2d 109 (1962); Young v. Liddington, supra.
Both of the lawyers who tried this case and the trial judge were well aware of what we have indicated to be the proper procedure in such a case, i.e., counsel objecting to the hospital record must point out the portions to which he is objecting, thus giving the trial court an opportunity to pass upon the question of what should be deleted from the record at the time it is offered. Kerr v. Cochran, 65 Wash. 2d 211, 396 P.2d 642 (1964); Allen v. Fish, supra.
Considerable time was spent going over the hospital record, with defense counsel making his objections to various items; and several portions of the record were excluded.
The assignment of error with reference to the hospital record is limited to two items:
A. A portion of the operative record of Dr. Ralph Stagner (pages 7 and 8 of exhibit No. 1) was claimed to be contradictory to his testimony "that no repair work was done on the kidney."[3]
*231 To show that there is no contradiction between Dr. Stagner's testimony relating to the kidney (when all of the testimony is considered) and his operative record, we have set forth in some detail (in note 3) portions of the testimony and the operative record.
It seems clear to us that when the doctor testified that they did nothing to the kidney, he was referring to the kidney as a working organ of the body. Certainly, it is clear that in cutting "through the fibrous investments of the kidney" and "through the fat which surrounds the kidney," certain repairs would have to be made which had nothing to do with the kidney as a working organ. We see no contradiction between the quoted portions of the doctor's testimony and his operative record; and, if there is, it was in nowise prejudicial to the defendants.
B. Page 4 of the hospital record was the report of an examination by Dr. Dumont Staatz not called as a witness. It contained the statement,
The major problem was urological ... going over the patient quickly; he could move all his extremities with the exception of straightening the fingers and the thumb of the left hand. He had good sensation there, this was just a radial nerve lesion....
The error claimed is that the jury might draw horrendous conclusions from the statement concerning a "radial nerve lesion." As stated in the defendants-appellants' brief,
The admission of Dr. Staatz's conclusion by way of the hospital record added a completely new item of injury not related to any medical testimony.
If the testimony of Dr. Staatz was desired, he should have been called as a witness. The trial court might well have sustained the objection to page 4 of the hospital record.
[6] However, we do not believe that admission of this unsworn statement concerning a radial nerve lesion was so prejudicial as to warrant a retrial. There is nothing to indicate that any juror ever read it, or was in any way *232 influenced by it.[4] None of the four doctors who testified (three in person; one by deposition) made any reference to it. The defendants did not at the time of trial regard it as of sufficient importance to ask any of the three doctors who testified, after the hospital record was produced, to explain what it was.
The final assignment of error is the failure to grant a new trial; and as we find no prejudicial error in the various assignments separately stated, we find none in them when urged collectively as the basis for a new trial.
The judgment appealed from is affirmed.
FINLEY, C.J., ROSELLINI and HALE, JJ., and LANGENBACH, J. Pro Tem., concur.
NOTE 3
The statement quoted is from the brief of the defendants-appellants. It is also stated in the brief: "Dr. Stagner testified that nothing was done to the left kidney during the operation."
The doctor's testimony was by deposition taken before trial. His testimony was that a preliminary study suggested that there was a possibility of damage to the left kidney. A further study, known as a cystoscopy, was performed to determine whether there was any actual rupture of the kidney.
A. On the basis of this finding it was my feeling that the patient had had a severe kidney contusion, but that in view of the fact that no major leakage of contrast from the kidney was noted, that simply observing him would be all that was indicated at the moment.
The doctors subsequently became suspicious that there was bleeding in the peritoneal cavity.
A. On the 4th of October we explored the left side of the flank, and it was apparent at the time of approaching the kidney that there was not a large accumulation of blood around the kidney, but in examining the kidney it was apparent that the kidney had suffered a severe contusion because on the kidney surface there *233 were numerous lacerations, you might say, or contusions, measuring from just surface cracks to those measuring perhaps an eighth of an inch in depth.
The kidney, however, generally was of good color. There was no overtly remarkable bleeding from its surface and we could see no evidence of any rupture into its internal collecting system.
On the basis of these findings it was our decision that the problem that the patient was suffering must possibly come from elsewhere, and at this point we opened the body cavity.
It was discovered that the source of the blood which had been perplexing the doctors was not from the kidney but from the spleen, and they removed that organ.
Q. Was there any injury to the kidney itself?
A. Yes, as I have outlined previously there seemed to be severe contusion.
....
Q. Did you do anything to the kidney itself while you were in the course of this operation?
A. No, sir, we did not.
Q. You did not have to? Was the kidney displaced in any way?
A. No, sir.
....
Q. Will you describe how you get from the surface of the skin into the peritoneal cavity?
A. You simply proceed through the muscle layers down and then through the fibrous investments of the kidney through the fat which surrounds the kidney until the kidney is visualized.
....
Q. I believe that you stated that you found a rather large stellate wound in the kidney, star shaped wound in the kidney. The term "large," is that correct, doctor, that you did find it?
A. Yes, I think so.
Q. The term "large" in this respect would be what in inches or fractions of an inch?
A. This would be difficult to define because actually the whole surface of the kidney was bruised, the mid-portion perhaps a little worse than the outer areas, but I don't think you could measure it in terms of inches. I think you would have to say that pretty much the whole side of the kidney showed evidence of injury.
Q. How large is a kidney possibly, doctor?
A. In this boy, if my recollections serve me, it would probably be somewhere in the neighborhood of five inches in length by maybe four inches in diameter and maybe an inch and a half thick.
Q. Outside of these bruises and so forth was the kidney essentially normal?
A. Yes, sir, I would say it was.
*234 Q. There was no evidence of disease or anything else?
A. No, sir, I didn't see anything else.
The description of the operation, as dictated by Dr. Stagner, is found at pages 7 and 8 of the hospital record; it is divided into "Findings" and "Procedure." Under "Findings," he says:
The kidney was then explored and found to have a large, stellate wound in its posterior surface at approximately the midportion. The capsule was lacerated from the renal hilum on the posterior aspect all the way around laterally in the midsection. This was approximated with sutures of mattress type which accomplished hemostasis. No actual break in the renal collecting system could be identified....
Under "Procedure," he says:
Attention was then directed to the renal area. Gerota's fascia was opened posteriorly and the perirenal fascia was stripped free from the kidney capsule where there was evidence of a fairly large stellate injury to the midportion of the kidney. Horizontal mattress sutures of atraumatic 2-0 chromic catgut tied over a small tabs of fat through the renal capsule were used to provide hemostasis and reapproximate the lacerated edges. No openings in the collecting system could be seen. Various small bleeders were tied with 3-0 plain catgut. Prior to suturing the kidney the renal pedicle was cross clamped with a Satinsky clamp for a total of 7 minutes while major vessels were controlled with the horizontal mattress sutures. At the conclusion of the repair of the kidney, it was replaced in the renal fossa.
NOTES
[*] Reported in 432 P.2d 562.
[1] The appellants (defendants) in their brief envision the intersection as "saturated with fog." David Wolff says that he could see a block ahead.
[2] Marfan's syndrome or Marfan's disease was described by Dr. Katterhagen as a "rare disease ... of the connective tissue or cement substance of the body. It's a genetic-transmitted disease."
The doctor testified that David Wolff had this disease, and that while the disease was not aggravated by the collision or the injuries resulting therefrom, a person suffering from the disease "who is subjected to severe trauma, which David underwent, would in all probability suffer more than a young, healthy male the same age," and that it would take him longer to recover from his injuries.
[3] (Because of the length of note 3, it will appear at the end of the opinion.)
[4] We are sure that complete hospital records are of inestimable value to counsel in examining and cross-examining witnesses and are frequently of great value in demonstrating the care, or lack of it, given a patient. We are equally sure that most of those we see represent very little of value to a jury in the absence of explanatory testimony, and trial courts should not, on proper objection, hesitate to remove portions of the record that bear no relation to the testimony and have no probative value. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2608425/ | 6 Ariz. App. 376 (1967)
432 P.2d 924
The VALLEY NATIONAL BANK OF ARIZONA, Appellant,
v.
James C. HASPER, Appellee.
No. 1 CA-CIV 464.
Court of Appeals of Arizona.
October 30, 1967.
*377 Gust, Rosenfeld and Divelbess, by Fred H. Rosenfeld, Phoenix, for appellant.
Fenton J. McDonough, Scottsdale, for appellee.
HATHAWAY, Chief Judge.
A writ of garnishment was filed against the Valley National Bank by James C. Hasper. The superior court granted Hasper's motion for judgment on the pleadings and denied the bank garnishee's motion for summary judgment and the bank appeals.
On November 15, 1965, James C. Hasper brought suit on a promissory note against Charles H. Morgan, and on the same day filed a writ of garnishment against the Valley National Bank. At the time of the filing of these pleadings the defendant, Morgan, was a nonresident of the state, as witnessed by the plaintiff's affidavit of nonresidency. The bank was served with the writ of garnishment on November 15, 1965.
In its answer to the writ of garnishment the garnishee stated:
"Garnishee states that at the time said Writ was served upon him, and at the time of answering said Writ, there stood upon its books on account in the name of Morgan Radiator Service with Charles H. Morgan as sole owner in which there was a balance of Twenty-seven Hundred Forty-five and 72/100 Dollars ($2,745.72);
"Garnishee further states that said Morgan Radiator Service was indebted to garnishee on certain installment loans in the total sum of Twenty-two Hundred Forty-nine and 83/100 Dollars ($2,249.83); that said loans are past due and Garnishee believes these loans to be in jeopardy; that it has, therefore, exercised its right of set off and applied the sum of Two Thousand Two Hundred Forty-nine and 83/100 Dollars ($2,249.83) to the payment of said loans, and is withholding the sum of FOUR HUNDRED NINTY-FIVE and 89/100 Dollars ($495.89) subject to the orders of this court."
The garnishee bank, in its answer to the plaintiff's Tender of Issues, stated that it held a promissory note from the defendant which was payable in monthly installments on the fifteenth day of each month up to and including April 15, 1966, and:
"That the installment due on the 15th day of November, 1965, in the amount of One Hundred Fifty-one and 39/100 Dollars ($151.39) was not paid on said day or thereafter by said defendant Charles H. Morgan and was in default, *378 and that garnishee defendant, having learned that said defendant had closed his business and moved to the State of Missouri, deemed itself insecure, and declared the entire balance of said indebtedness due and payable forthwith, and applied the sum of Eight Hundred Eighty-six and 14/100 Dollars ($886.14) from the bank account of said defendant to the satisfaction of said indebtedness by its right of setoff."
The bank further answered that the defendant was also indebted to it in the sum of $1,363.69 on a conditional sales contract for a lathe. The monthly payments on this contract were due on the 20th day of each month but the bank admitted that the defendant was not in default on the conditional sales contract at the time of the service of the writ of garnishment.
The pertinent provisions of this conditional sales contract are as follows:
"The Buyer [defendant] accepts and acknowledges receiving the goods and agrees that until the full purchase price is paid he will not * * * remove or permit them to be removed from Morgan Radiator Shop, 29 South Brown, Scottsdale * * *.
* * * * * *
"If Buyer * * * fails to perform any provision of this contract * * * or if Seller deems himself insecure then all amounts then owing hereon shall at Seller's option become immediately due and payable * * *."
After service of the writ of garnishment, the garnishee went to the premises of Morgan Radiator Shop and discovered that Charles H. Morgan had taken the lathe to Missouri with him.
The plaintiff stipulates that the bank had a right of set-off as to the defendant's promissory note held by it. However, the plaintiff contends that after the service of the writ of garnishment, the bank could not thereafter set-off from the defendant's general deposit with the bank the amount owed the bank by the defendant on the conditional sales contract when the defendant was not in default of payment on said contract. The plaintiff argues that since the conditional sales contract gave the bank only an "option" to accelerate the contract and demand payment, the indebtedness had not yet matured as the bank had not exercised that option. The bank, on the other hand, argues that the removal of the lathe from the state by the defendant were acts which gave rise to the bank's right to accelerate the contract under the option and, therefore, the subsequent service of the writ of garnishment should not prohibit the bank from exercising said option.
In American Surety Company v. De Escalada, 47 Ariz. 457, 461, 56 P.2d 665, 666 (1936) the court stated:
"* * * where one is indebted to a banking institution which also had in its possession assets of the debtor, the latter may apply these assets to the payment of a matured debt * * *."
See also United Bank and Trust Company v. Washburn and Condon, 37 Ariz. 223, 226, 292 P. 1025 (1930); 6 Am.Jur.2d Attachment and Garnishment § 374, p. 822; and, 106 A.L.R. 62. Of course, application of the rule is dependent upon the facts of each case including the contracts involved.
The rule is limited in that a garnishor cannot obtain rights against a garnishee superior to the rights held by the judgment debtor against the garnishee at the time of garnishment. Ellery v. Cumming, 40 Ariz. 512, 14 P.2d 709, 83 A.L.R. 1081 (1932). In the Ellery case the bank was indebted to the defendant upon general deposits at the time the plaintiff filed and served its writ of garnishment upon the bank. Before disposition of the garnishment the bank became insolvent. The trustee in bankruptcy claimed that the *379 plaintiff must take his pro rata share. The plaintiff argued that because of the garnishment he should be given a creditor's preference. The court stated:
"* * * it would appear that, when a bank, which is the garnishee, becomes insolvent after a garnishment * * * the debt owed by the bank is such that the judgment debtor could claim no more than a right to participate pro rata in the assets of the bank with its ordinary creditors, it would seem but reasonable that the garnishor should have the same right and no more."
40 Ariz. at 515, 14 P.2d at 710.
See also J.H. Mulrein Plumbing Supply Company v. Walsh, 26 Ariz. 152, 222 P. 1046 (1924).
In the instant case the debt evidenced by the conditional sales contract between the defendant and the Valley National Bank had not "matured" before or at the time of service of the writ of garnishment since the defendant was not in default of payments nor had the bank exercised its option to accelerate the contract. Had the defendant sued the bank for recovery of its deposits, the bank would have had a valid right to accelerate the contract (since the defendant had moved to Missouri and taken the lathe with him which was a breach of the contract affording the bank basis to "deem itself insecure").
In the garnishment proceedings the plaintiff seeking to harvest defendant's goods held by the bank is, like the defendant, subject to any rights or defenses gained by the bank through the conditional sales contract. We conclude that the bank, having basis to deem itself insecure, could exercise its right to accelerate the contract and set-off any deposits of the defendant against the breached contract. American Surety Company v. De Escalada, supra.
The plaintiff cites as authority for his position Melson v. Bank of New Mexico, 65 N.M. 70, 332 P.2d 472 (1958). The facts in the Melson case coincide with the facts before us and hold contra to our above stated conclusions. However, Melson shows both in the majority opinion and in the dissent the lack of uniformity among the decisions in this country upon the question presented. The dissent in this case points out, as is found by this court, that the court applies the minority rule which is supported by only three other states besides New Mexico.[1] The majority decisions are based either on statutes similar to the California Code or upon case law based upon the reasoning taken from the cases construing the California Code.
As representing the majority authority in the area the garnishee cites Brown v. Maguire's Real Estate Agency, 343 Mo. 336, 121 S.W.2d 754 (1938) and State National Bank of Decatur at Oneonta v. Towns, 36 Ala.App. 677, 62 So. 2d 606 (1952). Both of these cases are based on almost the identical facts as in the instant case. In the Towns case the court expresses clearly the position of the majority of jurisdictions:
"* * * the garnishee is entitled to the benefit of any set off, which, in his hands, could be made available by way of set off in any of the modes provided by law, if the proceedings were one directly against the garnishee by its creditor for the enforcement of the liability [citations omitted]. It is clear that under the terms of the note that the bank would have had a right to set off the amount of the note had there been a suit against it by the judgment defendant. *380 * * * Nor was this right to accelerate the note affected by the service of the writ of garnishment. [citations omitted] By the garnishment the judgment plaintiff acquired only the rights of the judgment defendant. As to the judgment defendant the bank, as a result of the acceleration clause in the note, had a right of set off against any claim of the judgment defendant in a suit against it."
We hold that the garnishee properly exercised its right of set-off under the terms of the conditional sales contract.
Reversed and ordered that judgment be entered for the appellant, Valley National Bank, with costs.
MOLLOY and KRUCKER, JJ., concur.
NOTE: This cause was decided by the Judges of Division Two as authorized by A.R.S. § 12-120, subsec. E.
NOTES
[1] Seaboard Finance Company v. Shire, 117 Utah 546, 218 P.2d 282 (1950); Forastiere v. Springfield Institute for Savings, 303 Mass. 101, 20 N.E.2d 950; 96 A.L.R. 1240 (1939); and, California Code of Civil Procedure § 726. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2612015/ | 77 Wash. 2d 105 (1969)
459 P.2d 648
THE STATE OF WASHINGTON, Respondent,
v.
ALBERT KRUGER et al., Petitioners.[*]
No. 40685.
The Supreme Court of Washington, Department Two.
October 9, 1969.
Bell, Ingram, Smith, Johnson & Level, by Edward E. Level, for petitioners.
The Attorney General and Theodore O. Torve, Assistant, for respondent.
HILL, J.
This is a review by certiorari of an order of the Superior Court for Snohomish County granting a new trial in a condemnation proceeding after a jury verdict of $60,300 for the property owners, Albert Kruger and Erna Kruger, his wife.
In the condemnation proceedings, the State of Washington was the petitioner and the property owners were the respondents. On the application for a writ of certiorari, the property owners were the petitioners and the state was the respondent. In this opinion, to avoid confusion, we shall refer to the parties as the state and the Krugers.
The Krugers own a wooded tract with a frontage of 160 feet on the west side of Broadway in Everett. The depth of the tract is 350 feet (56,000 square feet). They built their home[1] on the northeast portion of the tract. The entire tract *106 was zoned R-1 (single residence). Their expert real-estate appraiser testified that the highest and best use of the tract would be to use a portion 80 x 150 feet (12,000 square feet) for its present use as a single family residence and to use the rest of the tract (44,000 square feet) "for some sort of multiple dwelling," which would require a rezoning to R-3. He testified that his valuation of $60,300[2] was based on its present valuation, taking into account the probability of such a rezoning.
To support his testimony as to the probability of a rezoning, he pointed out the proximity of the Kruger property to an existing interchange involving Interstate Highway 5 and State Highway 2-J, the Bothell-Everett Highway, which has become a major traffic flow point for traffic to and from the new Boeing plant at Paine Field. It is because of this increased traffic flow that the state is constructing a major access road (called the Casino Road Project) between Interstate 5 and Paine Field. It is for this project that the Kruger property is being condemned.
The witness also pointed out that the Kruger property is in something of a pocket. While the area immediately north of it is zoned R-1, it is hemmed in on the south and west by property belonging to a cemetery association, which, although it has not yet been developed for cemetery purposes, is adjacent to a large cemetery. On the east is Broadway, with the property on the east side of that street being zoned to permit use for small businesses with the freeway still further to the east.
Countering this, it was established that, even though plans for the Casino Road Project were known when Everett adopted its Comprehensive Master Plan in 1967, the Kruger property was zoned R-1, and that the planning commission had established a policy that it would not consider any changes in zoning until after the Casino Road *107 Project had been completed so that the commission could adequately determine the effect of the project.
The trial court, in view of the above testimony and evidence, instructed the jury, inter alia, that:
You are to value the property in view of the uses permitted under the present zoning. However, if you find there is a reasonable probability that the zoning will be changed in the near future, you may consider the effect of such probability on the fair market value of the property.
The state did not except to the instruction, but did except to the failure of the trial court to include the following language in the instruction: "You may not, however, consider any effect on said zoning created by the project for which the property is being acquired."
The jury verdict in favor of the Krugers for $60,300 was in the exact amount of their expert's appraisal. His appraisal, however, was predicated on the probability of a rezoning to R-3 to permit a multiple dwelling or dwellings.
The state moved for a new trial on the grounds that there was insufficient evidence to permit the jury to determine whether there was a reasonable probability for a zoning change, and further that the jury was improperly permitted to consider the probability of a zoning change resulting from the project for which the Krugers' property was being taken. The trial court agreed with these contentions and granted a new trial.
[1] Even if we accept the view that there was sufficient evidence to permit the jury to find that there was a reasonable probability of a change in zoning (and thus support the verdict, as in State v. Motor Freight Terminals, Inc., 57 Wash. 2d 442, 357 P.2d 861 (1960)), we must, nevertheless, affirm the granting of the motion for a new trial. The reason for reversal being the failure to instruct as requested by the state that in considering the probability of rezoning the jury could not take into consideration the project for which the property was being acquired by the state.
*108 In the Motor Freight Terminals case, we recognized an exception to the rule that in condemnation proceedings the values of the property are limited to the uses for which it is available under the existing zoning regulations. That exception was, at 443:
[W]hen a particular use of the property, to which it is adapted, is prohibited or restricted by law, but there is a reasonable probability that the prohibition or restriction will be modified or removed in the near future, the effect of such probability upon the value of the property may be taken into consideration.
There has developed, however, a generally recognized limitation to that exception which it was not necessary to discuss in the Motor Freight Terminals case, and which in fact has received general recognition since our opinion in that case, i.e.,
The probability of rezoning or even an actual change in zoning which results from the fact that the project which is the basis for the taking was impending cannot be taken into account in valuing property in the condemnation proceeding.
This limitation on the exception will be found as stated in 4 Nichols, The Law of Eminent Domain § 12.322(1) at 243 (3d ed. 1962, Supp. 1969). Supporting authorities cited by Nichols are People ex rel. Dep't of Pub. Works v. Arthofer, 245 Cal. App. 2d 454, 54 Cal. Rptr. 878 (1966); Williams v. City & County of Denver, 147 Colo. 195, 363 P.2d 171 (1961). See also City & County of Denver v. Smith, 152 Colo. 227, 381 P.2d 269 (1963).
The state requested the trial court to include this limitation in its instruction and that request should have been granted. Without this limitation the jury could, and we suspect did, take into account the Casino Road Project in determining whether there was a probability of rezoning.
The trial court erred in refusing the limitation proposed by the state, and corrected the error by granting a new trial. The granting of a new trial is affirmed.
HUNTER, C.J., ROSELLINI and HALE, JJ., and DONWORTH, J. Pro Tem., concur.
NOTES
[*] Reported in 459 P.2d 648.
[1] A very attractive one story, three-bedroom house.
[2] Divided $27,300 on the house and the land on which it was located, and $33,000 for the other 44,000 square feet. Mr. Kruger placed a value of $67,500 on the entire property. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2611988/ | 1 Wash. App. 46 (1969)
459 P.2d 61
BUD HOLTER et al., Respondents,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Appellant.
No. 2-39803-2.
The Court of Appeals of Washington, Division Two.
October 2, 1969.
Comfort, Dolack, Hansler & Billett and Patrick C. Comfort, for appellant.
Gordon, Honeywell, Malanca, Peterson & Johnson and James A. Furber, for respondents.
ARMSTRONG, C.J.
This is an appeal by defendant insurance company from a judgment for plaintiffs who were insured by defendant under a comprehensive general liability policy. Plaintiffs had become obligated to pay a third party $1,100 as a result of damage to property of the third party caused by the negligence of an employee of plaintiffs' business. Defendant had denied coverage under the terms of the contract and refused to defend the lawsuit brought against plaintiff by the third party.
Plaintiffs owned and operated a merchant patrol service. They entered into a contract with Redondo Marina to secure the premises as to fire, theft and vandalism. They were also to ensure that the marina's building was kept locked.
On November 29, 1964, plaintiffs' employee went to the marina in response to a telephone call from the King County Sheriff's office. Plaintiffs' employee assisted a patron who was attempting to get his boat out of the water and in doing *48 so the employee operated the boat elevator. During the operation of the elevator it fell from its track into the water.
The Redondo Marina sued plaintiffs for damages to the elevator. Plaintiffs made an out-of-court settlement with the marina in the sum of $1,100.
Plaintiffs then sued defendant insurance company for the settlement amount plus the attorney's fees incurred in the defense and settlement of the marina's claim. The trial court found for the plaintiffs and against defendant in the sum of $1,100 and awarded $700 to plaintiffs for reasonable attorney's fees and costs. Defendant now appeals from the entire judgment. The reasonableness of the attorney's fees is not here in question.
The dispute involves the applicability of an exclusionary clause relating to damage to property in the care, custody or control of the insured. The insuring agreement of the comprehensive liability policy issued by defendant to plaintiffs reads as follows:
Coverage D Property Damage Liability Except Automobile: To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident.
The policy definition of "insured" reads:
The unqualified word "insured" includes the named insured and also includes (1) under coverages B and D, any executive officer, director or stockholder thereof while acting within the scope of his duties as such, and any organization or proprietor with respect to real estate management for the named insured, and if the named insured is a partnership, the unqualified word "insured" also includes any partner therein but only with respect to his liability as such ...
(Italics ours.)
The policy exclusion, which is in dispute here, is as follows:
THIS POLICY DOES NOT APPLY:
...
*49 (j) under coverage D, to injury to or destruction of ... property in the care, custody or control of the insured or property as to which the insured for any purpose is exercising physical control.
The trial court found that the operation of the elevator by plaintiffs' employee did not render the insurance contract inoperable by reason of the care, custody and control exclusion. The court concluded that the exclusionary clause was not applicable and the defendant was obligated to pay the settlement amount and attorney's fees on behalf of the plaintiff. Judgment was entered accordingly.
Defendant's eight assignments of error raise the single question of whether or not the loss was excluded from coverage under the care, custody or control exclusion.
Defendant's main contention is that plaintiffs' employee was operating and controlling the elevator. Defendant argues that although the insurance policy fails to specifically include employees within its definition of "insured", under the doctrine of respondeat superior the acts of the employee are deemed to be the acts of the master, so that the exclusionary provision would be operative.
[1] We reject that argument. The rule that a master must respond in damages for injuries inflicted by his servant in the course of employment does not dispose of the issue facing us in this appeal. It establishes the liability of defendant "[t]o pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property" as agreed in the general insuring agreement. It does not broaden the scope of the word "insured" in the care, custody and control exclusion. This result could very easily be accomplished by stating "this policy does not apply ... to injury or destruction of property in the care, custody or control of the insured or any of his employees, or property as to which the insured or any of his employees for any purpose is exercising physical control." That such an inclusion of employees in the "care, custody and control" exclusion has been utilized is demonstrated by the insurance policy *50 referred to in A.T. Morris & Co. v. Lumber Mut. Cas. Ins. Co., 163 Misc. 715, 298 N.Y.S. 227 (Mun. Ct. 1937).
[2] An insurance policy should be interpreted in accordance with the way it would be understood by the average man purchasing insurance. Zinn v. Equitable Life Ins. Co., 6 Wash. 2d 379, 107 P.2d 921 (1940). Can we say that the average man would consider the word "insured" to mean the named insured, executive officer or stockholder in one part of the policy and to mean an employee of the insured in another part of the policy? We think not.
In the absence of anything in the context of a contract clearly indicating a contrary intent, when the same word is used in different parts of the contract, it will be presumed to be used in the same sense throughout the contract. Where its meaning in one instance is clear, that meaning will be attached to it in other parts of the contract. This rule of contract law has been applied to insurance policies. Schweigert v. Beneficial Standard Life Ins. Co., 204 Ore. 294, 282 P.2d 621 (1955); 1 R. Anderson, Couch on Insurance 2d § 15:19 (1959).
Another method of ascertaining the expressed intent of the parties is to examine the contract as a whole. In this approach each clause of the contract helps to interpret the other. All of the words, parts and provisions are to be construed together as one entire contract. Johnston v. Maryland Cas. Co., 22 Wash. 2d 305, 155 P.2d 806 (1945); Jurd v. Pacific Indem. Co., 57 Cal. 2d 699, 371 P.2d 569, 21 Cal. Rptr. 793 (1962); 1 R. Anderson, Couch on Insurance 2d § 15:29 (1959).
With the foregoing considerations in mind we will consider the policy in question. The term "insured" was defined with particularity in the insuring contract. The plaintiffs' employee was not included in that description. Since all parts of the policy must be read and construed together we must conclude that plaintiffs' employee was not included in the "care, custody and control" exclusionary clause.
[3] We have a further compelling reason for reaching *51 this result in the well-recognized rule that exclusionary clauses in insurance policies are construed most strongly against the insurer. If there is room for two constructions one favorable to the insured and the other in favor of the insurer, we must adopt the construction favorable to the insured. Brown v. Underwriters at Lloyd's, 53 Wash. 2d 142, 332 P.2d 228 (1958).
The judgment will be affirmed.
PEARSON and PETRIE, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2611989/ | 1 Wash. App. 174 (1969)
459 P.2d 654
KIYO MOTODA, Respondent,
v.
MARIE MOREAU DONOHOE, Appellant.
No. 46-40320-1.
The Court of Appeals of Washington, Division One, Panel 2.
October 15, 1969.
Marie Moreau Donohoe, pro se.
Sakahara & McArthur and Toru Sakahara, for respondent.
UTTER, J.
Marie Donohoe rented an apartment from Kiyo Motoda, an apartment house owner, on a month-to-month tenancy. She was served with a 20-day notice to quit the premises. Upon her refusal to leave, the owner brought an action for unlawful detainer under RCW 59.12.030.
The trial court granted a motion to strike appellant's answer and also granted judgment on the pleadings. Donohoe appeals and assigns as error these actions by the trial court.
*175 The sole question we decide on appeal is whether certain "equitable defenses" raised presented an issue of fact which made a judgment on the pleadings inappropriate. The parties will be referred to hereafter as landlord and tenant.
[1] Unlawful detainer is a summary proceeding designed to facilitate recovery of possession of leased property and, in such a proceeding, the primary issue is right to possession. MacRae v. Way, 64 Wash. 2d 544, 392 P.2d 827 (1964). If, in an unlawful detainer action, it is established proper notice was given by the lessor, our court has been unwilling to expand the scope of the action and has not allowed many defenses normally available in a legal action. Defendants have not been permitted to assert offsets and counterclaims. Young v. Riley, 59 Wash. 2d 50, 365 P.2d 769 (1961). Tenants, however, have been permitted to raise affirmative equitable defenses in unlawful detainer actions. Himple v. Lindgren, 159 Wash. 20, 291 P. 1085 (1930). Watkins v. Balch, 41 Wash. 310, 83 P. 321 (1906), (part performance of an oral contract); Northcraft v. Blumauer, 53 Wash. 243, 101 P. 871 (1909), (part performance of an oral lease).
The tenant does not assert the landlord has failed to follow the correct procedures. She asserts only that she has a right to a jury trial, as provided by RCW 59.12.130, to consider issues of fact raised by several affirmative "equitable defenses" set out in her answer.
[2] An equitable defense, as defined by our court, arises when:
[T]here is a substantive legal right, that is, a right which comes within the scope of juridical action, as distinguished from a mere moral right, and the procedure prescribed by statute for the enforcement of such right is inadequate or the ordinary and usual legal remedies are unavailing, it is the province of equity to afford proper relief, unless the statutory remedy is exclusive.
Rummens v. Guaranty Trust Co., 199 Wash. 337, 347, 92 P.2d 228 (1939).
Summarizing the tenant's allegations in her complaint *176 denominated as "equitable defenses", she alleges: the landlord acted out of malice and spite; that partial constructive eviction occurred; that moving to a new apartment will be costly and inconvenient and that the purpose of the action is to punish her for informing tenants of their legal rights against the landlord.
[3] The statute imposes no restrictions upon the landlord concerning the propriety of his motives. It merely requires he give the appropriate 20-day notice of intended termination, whatever be his motive.
Tenant argues the unlawful detainer statute is contrary to the provisions of the Fair Housing Act, 42 U.S.C. § 3601-19 (1968). No facts are alleged in the answer indicating her actions were within the scope of rights protected by that act.
She also argues Thorpe v. Housing Authority of Durham, 393 U.S. 268, 21 L. Ed. 2d 474, 89 S. Ct. 518 (1969), requires a ruling in her favor. This case involved steps to be followed in eviction proceedings concerning federally assisted housing projects. The answer of tenant does not allege her housing is such a project and the case is not applicable.
The defenses raised by tenant fail to meet the criteria for equitable defenses stated in Rummens. The trial court properly granted judgment on the pleadings, as no genuine issue of fact remained for trial. CR 12 (c).
The judgment of the trial court is affirmed.
HOROWITZ, A.C.J., and STAFFORD, J., concur.
Petition for rehearing denied December 9, 1969. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3106261/ | COURT OF APPEALS FOR THE
FIRST DISTRICT OF TEXAS AT HOUSTON
ORDER ON MOTION
Cause number: 01-13-00853-CV
Style: Dernick Resources, Inc.
v. David Wilstein and Leonard Wilstein, Individually and as Trustee of the Leonard and
Joyce Wilstein Revocable Trust
*
Date motion filed : April 7, 2014
Type of motion: Motion for leave to file agreed supplemental clerk’s record
Party filing motion: Appellees/cross-appellants
Document to be filed: Agreed record
Is appeal accelerated? No
If motion to extend time:
Original due date:
Number of previous extensions granted: Current Due date:
Date Requested:
Ordered that motion is:
Granted
If document is to be filed, document due:
Absent extraordinary circumstances, the Court will not grant appellant additional motions to extend
time
Denied
Dismissed (e.g., want of jurisdiction, moot)
Other: _____________________________________
Appellees/cross-appellants’ motion for leave to file agreed supplemental clerk’s record is denied. Texas
Rule of Appellate Procedure 34 does not allow the parties to file their own agreed record directly with this
Court. See TEX. R. APP. P. 34.2 (“By written stipulation filed with the trial court clerk, the parties may
agree on the contents of the appellate record. . . . To request matter to be included in the agreed record,
the parties must comply with the procedures of Rules 34.5 and 34.6.”). To the extent the parties
believe that relevant items were not included in the clerk’s record previously filed with the Court, the
the parties “may by letter direct the trial court clerk to prepare, certify, and file in the appellant court a
appellate court a supplement containing the omitted item[s].” TEX. R. APP. P. 34.5(c)(1).
Judge's signature: /s/ Evelyn V. Keyes
Panel consists of ____________________________________________
Date: April 15, 2014
November 7, 2008 Revision | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2306659/ | 48 Cal. App. 4th 1794 (1996)
MATTHEW DUNK et al., Plaintiffs and Respondents; WILLIAM GEER et al., Plaintiffs and Appellants,
v.
FORD MOTOR COMPANY et al., Defendants and Respondents.
Docket No. G017975.
Court of Appeals of California, Fourth District, Division Three.
August 30, 1996.
*1799 COUNSEL
Lucinda A. Sikes and Brian Wolfman for Plaintiffs and Appellants.
Herbert Hafif, Wayne Austero, Robert S. Kilborne IV and John M. Van Dyke for Plaintiffs and Respondents.
Baker & Hostetler, G. Richard Doty, Emil W. Herich and Peter W. James for Defendants and Respondents.
OPINION
WALLIN, J.
William Geer, John Loving, Bonnie Peterson, Robert Peterson, and David Whitworth appeal the judgment approving the settlement of a class action against Ford Motor Company relating to alleged defects in certain Ford Mustang convertibles, contending: (1) the trial court erred by finding the settlement was fair and reasonable; (2) notice to class members was not adequate; (3) the trial court erroneously certified a nationwide class for settlement;[1] and (4) the trial court erroneously calculated attorney fees and failed to make factual findings.[2] We affirm in part and reverse in part.[3]
Deidre Dale and Matthew Dunk filed a class action suit against Ford Motor Company in mid-1991, alleging causes of action for negligence, breach of express and implied warranty, strict liability, concealment, false representation, conversion, and breach of the implied covenant of good faith and fair dealing.[4] All of the causes of action related to an alleged defect in the door construction on 1983 through 1986 Mustang convertibles.
*1800 Early in the proceedings, Ford removed the case to federal court, but Dunk successfully had the matter remanded to state court with an order for Ford to pay attorney fees. Ford's demurrer was sustained as to causes of action for conversion and breach of the implied covenant of good faith and fair dealing. After Dunk successfully opposed a motion for a protective order, discovery, including form and special interrogatories, document production, inspection of vehicles, and depositions were conducted from early 1992 until the spring of 1993.[5]
In May 1993, Ford's motion for summary adjudication was granted as to the causes of action for breach of express and implied warranty, and false representation, leaving intact causes of action based on negligence, strict liability, and concealment. Writ and review petitions were denied by this court and the Supreme Court, respectively.
In August 1993, the trial court granted class certification limited to California residents who owned 1983 through 1986 Mustang convertibles.[6] The parties agreed to mediation by retired Presiding Justice John K. Trotter in October 1993. After approximately six months, they agreed to a settlement. A stipulation was filed in October 1994, providing each class member would receive a coupon redeemable for $400 off the price of any new Ford car or light truck purchased within one year. Ford also agreed to pay attorney fees and costs not to exceed $1.5 million. The proposed settlement included a national class. The court tentatively approved the settlement and notice was sent to class members, including publication in USA Today.
Dunk and Ford submitted memoranda supporting the settlement, Ford submitted a memorandum opposing the attorney fees sought by Dunk, and Geer submitted objections to which Dunk and Ford submitted replies. After a hearing on the objections, the court entered judgment approving the settlement and awarding attorney fees of $985,000 and costs of $10,691.
I
(1a) Geer contends the trial court erred in finding the settlement fair and reasonable, because Dunk did not meet his burden to show it was. Geer misapprehends Dunk's burden. Dunk made a sufficient showing which Geer failed to adequately rebut.
(2) "`"[T]o prevent fraud, collusion or unfairness to the class, the settlement or dismissal of a class action requires court approval."'" (Malibu *1801 Outrigger Bd. of Governors v. Superior Court (1980) 103 Cal. App. 3d 573, 578-579 [165 Cal. Rptr. 1]; see also Marcarelli v. Cabell (1976) 58 Cal. App. 3d 51, 55 [129 Cal. Rptr. 509].) The court must determine the settlement is fair, adequate, and reasonable. (See Officers for Justice v. Civil Service Com'n, etc. (9th Cir.1982) 688 F.2d 615, 625; Fed. Rules Civ. Proc., rule 23(e), 28 U.S.C.)[7] The purpose of the requirement is "the protection of those class members, including the named plaintiffs, whose rights may not have been given due regard by the negotiating parties." (Officers for Justice v. Civil Service Com'n, etc., supra, 688 F.2d at p. 624.)
(3) The trial court has broad discretion to determine whether the settlement is fair. (Rebney v. Wells Fargo Bank (1990) 220 Cal. App. 3d 1117, 1138 [269 Cal. Rptr. 844].) It should consider relevant factors, such as the strength of plaintiffs' case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement. (Officers for Justice v. Civil Service Com'n, etc., supra, 688 F.2d at p. 624.) The list of factors is not exhaustive and should be tailored to each case. Due regard should be given to what is otherwise a private consensual agreement between the parties. The inquiry "must be limited to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned." (Id. at p. 625.) "Ultimately, the [trial] court's determination is nothing more than `an amalgam of delicate balancing, gross approximations and rough justice.' [Citation.]" (Ibid.)
(1b) Geer urges the burden was on Dunk to show the settlement was fair, adequate, and reasonable, but cites no case or statute for that proposition. (But see Newberg & Conte, Newberg on Class Actions (3d ed. 1992) § 11.42, p. 11-94; 3B Moore's Federal Practice (2d ed. 1987) § 23.80[4], pp. 23-488; id. (1992-1993 supp.).) However, since some federal cases seem to assume the burden is on the proponents, we will presume, for the sake of argument, the premise is correct. (See, e.g., In re General Motors Corp. Pick-Up Truck Fuel Tank (3d Cir.1995) 55 F.3d 768, 785 ["`[T]he court cannot accept a settlement ... the proponents have not shown to be fair, reasonable and adequate.' [Citation.]" (Italics added.)]; but see U.S. v. State of Or. (9th Cir.1990) 913 F.2d 576, 581 [court did not err by placing burden on objectors].)
*1802 Assuming the burden is on the proponents, a presumption of fairness exists where: (1) the settlement is reached through arm's-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small. (Newberg & Conte, Newberg on Class Actions supra, § 11.41, pp. 11-91.)
(4) Our task is limited to a review of the trial court's approval for a clear abuse of discretion. (Officers for Justice v. Civil Service Com'n etc., supra, 688 F.2d at p. 626; see also Rebney v. Wells Fargo Bank, supra, 220 Cal. App.3d at p. 1138.) We will not "substitute our notions of fairness for those of the [trial court] and the parties to the agreement. [Citations.]" (Officers for Justice v. Civil Service Com'n, etc., supra, 688 F.2d at p. 626.) "`So long as the record ... is adequate to reach "an intelligent and objective opinion of the probabilities of success should the claim be litigated" and "form an educated estimate of the complexity, expense and likely duration of such litigation, ... and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise," it is sufficient.' [Citations.] Of course, such an assessment is nearly assured when all discovery has been completed and the case is ready for trial. [Citation.]" (Ibid.)
(1c) Applying these factors, we conclude the trial court did not abuse its discretion. The case was over three years old when it settled. Extensive discovery and pretrial litigation, including a demurrer and motion for summary judgment, had been conducted. Plaintiffs' experienced attorneys had learned the alleged defect did not affect the vehicles' crashworthiness. No instance of personal injury was found. At most, the defect caused a poor door fit, resulting in some water leakage, wind noise, and minor cosmetic damage, such as paint chipping. The maximum damages to each member of the plaintiff class was $600 (the highest repair estimate), and the settlement coupons represented two-thirds of that amount, or $400. Although several people objected, their numbers were small in comparison to the entire class of over 65,000.
Plaintiffs' and Ford's counsel believed there were statute of limitation and other potential problems that would negatively impact the chances of recovery.[8] Given the risks, they believed the settlement was reasonable. The independent mediator, a retired superior court judge and appellate justice *1803 with substantial experience and respect in the legal community, recommended the settlement.
Voluminous pleadings were filed in support of and in opposition to the settlement, and the trial court reviewed the extensive court file and heard oral argument. Under the review standard we have explicated, the record was ideal for the trial court to make a rational and educated determination the settlement was fair, adequate and reasonable.[9]
This conclusion is consistent with the one reached in Rebney v. Wells Fargo Bank, supra, 220 Cal. App. 3d 1117, albeit in dictum. Finding no abuse of discretion, the Court of Appeal stressed the substantial inquiry made by the trial court, participation by neutral facilitators, the full opportunity for objectors to be heard, and the "`difficult, heated, and complex'" negotiations. The court approved the settlement even though "the monetary relief provided by the settlements was relatively paltry." (Id. at p. 1139.)
Geer relies on In re General Motors Corp. Pick-Up Truck Fuel Tank, supra, 55 F.3d 768 to argue the trial court erred as a matter of law. General Motors involved a vehicle defect class action case similar to this one, although General Motors dealt with improper fuel tank placement. The Third Circuit Court of Appeals found the district court abused its discretion as a matter of law when it approved the settlement, primarily because it believed the case settled before it was adequately developed by the plaintiffs and the coupon settlement did not provide adequate value. (Id. at pp. 818-819.)
We could simply distinguish General Motors on the ground Dunk's case involved comprehensive discovery, pretrial motions, and protracted mediation before it settled. But we are concerned about the approach taken in General Motors. The court used a formalistic nine-factor analysis it had developed in Girsh v. Jepson (3d Cir.1975) 521 F.2d 153. Although the use of standard factors can be productive of uniformity in any legal analysis and many of the Girsh factors track those we have adopted from Officers for Justice v. Civil Service Com'n, etc., supra, 688 F.2d 615, we question the General Motors court's use of the factors in an appellate review for abuse of discretion.
The court looked at each factor separately and determined whether the trial court reached the appropriate decision. It reweighed the factors and determined the court erred as a matter of law. (In re General Motors Corp. *1804 Pick-Up Truck Fuel Tank, supra, 55 F.3d at pp. 804-819.) It is particularly troubling that the appellate court rejected expert evidence on the value of the settlement by relying on inconsistencies in, and isolated portions of, the expert's testimony and apparently substituted its own "concern" about how many coupons would actually be redeemed. (Id. at pp. 807-810.) Such an approach is inimical to the abuse of discretion concept of review, when the inquiry is, as here, extremely fact intensive. (See McGhan Medical Corp. v. Superior Court (1992) 11 Cal. App. 4th 804, 808-810 [14 Cal. Rptr. 2d 264] [fact intensive issues should be reviewed by a clearly erroneous standard]; see also U.S. v. State of Or., supra, 913 F.2d at pp. 580-581.)
Geer claims Dunk failed to put forth any evidence on the value of the settlement. Not so. Dunk's settlement memorandum established coupons worth $400 each would be made available to the class of over 65,000, for a total potential value of over $26 million. Although expert testimony is not required to conclude less than 100 percent of the class will redeem the coupons, Dunk's counsel showed the settlement was of value to the class. Given the other factors we have discussed, the showing was adequate.
Geer urges the objectors established the settlement was effectively valueless by proving only a small percentage of the class would redeem the coupons.[10] He errs in the premise. The objectors' "proof" was composed of a combination of their common sense, reference to the expert testimony in In re General Motors Corp. Pick-Up Truck Fuel Tank, supra, 55 F.3d 768, and experiences in other cases.[11] Geer urges us to take judicial notice of that testimony, but the objectors submitted no proof the estimates in the General Motors case apply to this case. This is not the type of rebuttal that would merit an appellate court overturning the trial court's finding.[12] Nothing is added by Geer's distinguishing similar cases where settlements were upheld. (See, e.g., In re Domestic Air Transp. Antitrust Litigation (N.D.Ga. 1993) 148 F.R.D. 297, 305 [coupons for future air travel].)
Geer argues the settlement is unfair because there is no rational basis for distinguishing between those who will profit and those who will not. He *1805 reasons only those who have the ability to purchase a new Ford car or light truck within 12 months will benefit. But he does not present any evidence showing a sizable number of class members, all of whom had the resources to purchase a Mustang convertible, would be unable to afford a new car. Nor does he present any authority for the proposition that all members of the class must be able to use the coupon before the settlement can be deemed fair.[13]
Although we conclude the trial court did not abuse its discretion in approving this settlement, we stress we do not imply coupon settlements in class action cases are always ideal. Questions arise as to the value of a settlement where, as here, the coupon relates to a "big ticket item," is not transferable, represents only a tiny percentage of the purchase price, and is valuable to the defendant as an inducement to promptly purchase the defendant's product.[14] We merely hold that the trial court's scrutiny here, particularly in light of the substantial questions raised and information presented, was adequate to support its conclusion.
II
(5) Geer asserts the notice to class members provided by R.L. Polk & Company was inadequate. He does so by relying on another case where an expert witness testified Polk's approach resulted in notifying less than half the class. As we noted regarding Geer's value calculations, reliance on data in other cases does not constitute evidence sufficient to overturn the trial court in this case. And, this argument ignores indications in the record that notice was given in USA Today, showing the mass-media approach Geer argues is necessary to ensure proper notice was given.[15]
III
(6a) Geer claims the trial court erroneously certified a nationwide class for settlement. As noted, the court originally declined to certify a national class, limiting it instead to California residents. Geer points out the court made no later findings that a nationwide class would be proper. No findings *1806 were required, and we cannot say the court abused its discretion in certifying a nationwide class for settlement.
(7) Code of Civil Procedure section 382 provides: "[W]hen the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all." "Although the statute appears to speak in the alternative, ... two requirements must be met in order to sustain any class action: (1) there must be an ascertainable class [citations]; and (2) there must be a well defined community of interest in the questions of law and fact involved affecting the parties to be represented [citations]." (Daar v. Yellow Cab Co. (1967) 67 Cal. 2d 695, 704 [63 Cal. Rptr. 724, 433 P.2d 732]; see also Baltimore Football Club, Inc. v. Superior Court (1985) 171 Cal. App. 3d 352, 358 [215 Cal. Rptr. 323].) "[C]ommunity of interest ... embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class." (Richmond v. Dart Industries, Inc. (1981) 29 Cal. 3d 462, 470 [174 Cal. Rptr. 515, 629 P.2d 23].)
(6b) Geer claims the second factor was not met because different laws in various states defeat the commonality of law requirement. (See Baltimore Football Club, Inc. v. Superior Court, supra, 171 Cal. App.3d at pp. 363-364.)[16] But because the case was settling, protracted determinations of other states' laws were unnecessary. Geer disagrees, arguing, "[B]ecause the perceived strength of the plaintiffs' claims was necessarily a factor in the settlement that was reached, and the settlement appears to have been based on an evaluation of California law, non-California class members may have received a far different deal if their claims had been assessed under the laws of their own jurisdictions."
That reasoning suffers from at least two defects: (1) The record does not show settlement was based only on consideration of California law;[17] and (2) the argument relates only to whether the settlement was fair in general, not *1807 to whether there was any inherent flaw in class certification.[18] "Our task on appeal is not to determine in the first instance whether the requested class is appropriate but rather whether the trial court has abused its discretion in [granting] certification. `[T]rial courts have been given great discretion with regard to class certification.... [I]n the absence of other error, [an appellate] court will not disturb a trial court ruling on class certification which is supported by substantial evidence unless (1) improper criteria were used ... or (2) erroneous legal assumptions were made....' [Citations.]" (Osborne v. Subaru of America, Inc., supra, 198 Cal. App. 3d 646, 654.) We see no suggestion of such error. The court acted within its discretion by determining a national class was appropriate for settlement purposes.[19]
IV
(8a) Geer urges the trial court erroneously calculated attorney fees and failed to make formal factual findings. The latter argument lacks merit. The trial court is not obliged to make formal findings in the absence of a request. (Citizens Against Rent Control v. City of Berkeley (1986) 181 Cal. App. 3d 213, 233 [226 Cal. Rptr. 265]; and see Rebney v. Wells Fargo Bank (1991) 232 Cal. App. 3d 1344, 1349 [284 Cal. Rptr. 113](Rebney II) [statement of decision is not necessary in the absence of a request].) The former argument, however, is meritorious.
*1808 (9a) Dunk and Ford preliminarily challenge Geer's standing on the attorney fees issue, arguing the fees were a separately negotiated maximum amount and Geer would not be entitled to the balance of any portion of the amount not awarded. (10) "We start with the rule that appeals may be taken only by aggrieved parties. [Citation.] Appellants must be parties of record, and their rights or interests must be injuriously affected by the judgment. [Citation.] They may not assert error that injuriously affected only nonappealing coparties. [Citations.]" (Rebney v. Wells Fargo Bank, supra, 220 Cal. App.3d at p. 1128 (Rebney I), italics omitted.)
(9b) In Rebney I, the Court of Appeal found the objectors lacked standing to challenge the expansion of the class and the fairness of the settlement because they were not aggrieved by the defendant bank's improper fee practices. (Rebney I, supra, 220 Cal. App.3d at pp. 1128-1132.) That finding did not apply to the attorney fees issue, which involved the percentage split of the attorney fees pool among the participating attorneys. Indeed, the Court of Appeal held, "[The objectors] have standing to assert this point because, if the agreement provided an incentive for one or more of the class attorneys not to litigate and thereby put his own interests ahead of the clients, then all class members were harmed." (Id. at p. 1142.)
That rationale is similar to the one Geer propounds. His position was also adopted by the Court of Appeals in In re General Motors Corp. Pick-Up Truck Fuel Tank, supra, 55 F.3d 768, where the respondents made the same argument. The court's reasoning is well taken and we adopt it: "[T]horough judicial review of fee applications is required in all class action settlements.... `[A] defendant is interested only in disposing of the total claim asserted against it.... the allocation between the class payment and the attorneys' fees is of little or no interest to the defense.' [Citations.] In light of these realities, [the] argument that objectors have no standing to contest the fee arrangement is patently meritless: the fee agreement clearly does impact their interests.... [¶] [T]he divergence in financial incentives [between the class and counsel] creates the `danger ... that the lawyers might urge a class settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment for fees.' [Citations.]" (Id. at pp. 819-820.)[20]
(8b) Having determined Geer has standing, we turn to the merits. (11) "A finding that the settlement was fair is not dispositive of the *1809 attorney fees issue. `The test to be applied is whether, at the time a fee sharing agreement is reached, class counsel are placed in a position that might endanger the fair representation of their clients and whether they will be compensated on some basis other than for legal services performed.' [Citation.] To make the fairness of the settlement the test would encourage concealment of the agreement until after the settlement. [Citation.]" (Rebney I, supra, 220 Cal. App.3d at p. 1143, fn. 8.) Nevertheless, the fees approved by the trial court are presumed to be reasonable, and the objectors must show error in the award. (Id. at p. 1142.) We review the determination using an abuse of discretion standard. (Westside Community for Independent Living, Inc. v. Obledo (1983) 33 Cal. 3d 348, 355 [188 Cal. Rptr. 873, 657 P.2d 365].)
Dunk asserts the nearly $1 million attorney fees were properly determined to be a reasonable percentage of the common fund, as they were only a tiny percentage of the potential settlement value of over $26 million. This argument suffers from two flaws: (1) The award of attorney fees based on a percentage of a "common fund" recovery is of questionable validity in California; and (2) even if it is valid, the true value of the fund must be easily calculated.
In Serrano v. Priest (1977) 20 Cal. 3d 25 [141 Cal. Rptr. 315, 569 P.2d 1303], the Supreme Court acknowledged the use of a percentage method in common fund cases, but concluded there was no evidence the parties intended the attorney fees would be paid out of any common fund that had been created, so the doctrine was inapplicable. (Id. at pp. 37-38.) Similarly, here the evidence demonstrates the attorneys were not to be paid from the "coupon fund," but from a distinct amount not exceeding $1.5 million. Later cases have cast doubt on the use of the percentage method to determine attorney fees in California class actions. (People ex rel. Dept. of Transportation v. Yuki (1995) 31 Cal. App. 4th 1754, 1769 [37 Cal. Rptr. 2d 616]; Salton Bay Marina, Inc. v. Imperial Irrigation Dist. (1985) 172 Cal. App. 3d 914, 954 [218 Cal. Rptr. 839]; Jutkowitz v. Bourns, Inc. (1981) 118 Cal. App. 3d 102, 110 [173 Cal. Rptr. 248]; cf. In re Washington Public Power Supply Sys. Lit. (9th Cir.1994) 19 F.3d 1291, 1296 [depending on the circumstances, either the percentages or lodestar method may be appropriate].)
Even if the method is permissible, it should only be used where the amount was a "certain or easily calculable sum of money." (Serrano v. Priest, supra, 20 Cal.3d at p. 35.) Although the ultimate settlement value to the plaintiffs could be as high as $26 million, the true value cannot be ascertained until the one-year coupon redemption period expires. This is not the type of settlement that lends itself to the common fund approach.
*1810 The alternate approach is the "lodestar" or "touchstone" method, "[by] which the court calculates base amounts from a compilation of time spent and reasonable hourly compensation of each attorney and then may adjust the base amounts in light of various factors. [Citations.]" (Rebney II, supra, 232 Cal. App.3d at p. 1347.)[21] To withstand scrutiny on appeal when this method is used, the record need only show the court awarded fees using that approach. (Id. at p. 1349.) That was not done here.
Dunk consistently lobbied the trial court to use the common fund approach. The only exception was a footnote at the end of his reply pleading on attorney fees expressing a willingness to have the trial court "determine the reasonable value of their services based upon the Court's intimate knowledge of class counsel's skill and expertise, as well as other factors, as determined from various appearances during the course of this litigation, coupled with a review of the work performed as detailed in the Litigation History on file." That invitation falls short of the minimal required showing that fees were actually awarded using the lodestar method, particularly here where there is nothing in the record showing even an approximation of the hours actually spent. (Cf. Sommers v. Erb (1992) 2 Cal. App. 4th 1644, 1651-1652 [4 Cal. Rptr. 2d 52] [no time records were available, but counsel at least submitted a representation as to the hours actually spent].)
Because use of the common fund approach is improper in this case, the record does not reflect the presentation of information sufficient to properly apply the lodestar approach, and we are unable to determine how the trial court calculated the fees, the matter must be remanded. We realize the failure to keep time records may make it difficult for Dunk's counsel to submit precise figures,[22] but they should be able to produce estimates based on the functions performed that will allow the court to properly calculate the lodestar amount. When the information is supplied, the court can determine a reasonable fee.[23]
The judgment is affirmed insofar as it approves the terms of the settlement other than attorney fees. As to the attorney fees, it is reversed and the matter *1811 is remanded for a determination of those fees in a manner consistent with this opinion. Each party is to bear its own costs on appeal.
Crosby, Acting P.J., and Sonenshine, J., concurred.
Appellants' petition for review by the Supreme Court was denied December 11, 1996.
NOTES
[1] The appellants' argument is titled "The Superior Court Erred ... In Failing to Certify a Nationwide Class," but it is presented as we have stated it.
[2] Geer sets forth the second and third arguments as subsets of the first, but we will treat them as distinct. Because we conclude neither has merit, they will not alter our conclusion as to the first argument.
[3] Because the appeal has partial merit, we deny Dunk's motion for sanctions based on a frivolous appeal claim.
[4] Dale was later dismissed as a plaintiff. The plaintiff class will be referred to as "Dunk" for convenience, except for the objectors, who will be referred to as Geer.
[5] Fifty-eight of the depositions had already been taken in a similar action in Riverside County, which Dunk's counsel had to review.
[6] The court later reaffirmed that order after Ford sought reconsideration.
[7] In the absence of California law on the subject, California courts look to federal authority. (Vasquez v. Superior Court (1971) 4 Cal. 3d 800, 821 [94 Cal. Rptr. 796, 484 P.2d 964].)
[8] In his reply brief, Geer acknowledges we should refrain from deciding the merits of the case in reviewing the settlement (see Cotton v. Hinton (5th Cir.1977) 559 F.2d 1326, 1330), yet proceeds to rebut the plaintiffs' grounds for concluding the case had problems. Even if Geer's points have merit, they do not mandate a conclusion the trial court abused its discretion as a matter of law.
[9] We reach this conclusion recognizing class action settlements should be scrutinized more carefully if there has been no adversary certification. (Mars Steel v. Continental Ill. Nat. Bank & Trust (7th Cir.1987) 834 F.2d 677, 681.)
[10] In his brief, Geer suggests the actual figure is only 1 percent, making the settlement value around $260,000. The expert testimony in In re General Motors Corp. Pick-Up Truck Fuel Tank, supra, 55 F.3d at page 807 indicated a predicted use rate of 17 percent, yielding a total value in this case of almost $4.5 million.
[11] In his reply brief, Geer cites the calculations by objector Peter M. McClintock predicting a 0.3 percent redemption rate. Nothing in the record shows he has any expertise in statistics, however, and his methodology and assumptions are questionable.
[12] We do not suggest valuations in other cases are irrelevant to settlement approval. (See generally, Abraham & Robinson, Aggregative Valuation of Mass Tort Claims (1990) 53 Law & Contemp. Probs. 137.) But given the conclusion by plaintiffs' counsel that this case was looking like a $600 small claims action, at best, for each individual plaintiff, we cannot say as a matter of law the trial court approved an ephemeral settlement.
[13] Indeed, in any coupon settlement, some class members will not use the coupon for any number of reasons: lack of resources, a dislike for the retailer, or no need for the product. While it would be well for trial courts to consider this in reviewing coupon settlements, it is, at most, a factor.
[14] We do not imply, however, that settlements benefiting the defendant along with the class members should be automatically disapproved. "Win-win" settlements are not per se unreasonable.
[15] Because we conclude the argument has no merit, we need not address Ford's claim Geer has no standing on this issue.
[16] Although the Baltimore Football Club court discussed this as a factor in overturning the national class certification, the opinion relied primarily on existence of multiple defendants, with respect to many of whom the plaintiff did not have standing. (171 Cal. App.3d at pp. 359-363; but see Osborne v. Subaru of America, Inc. (1988) 198 Cal. App. 3d 646, 654 et seq. [243 Cal. Rptr. 815] [upholding trial court determination that questions of law were too numerous to certify nationwide class].)
[17] At least Geer does not direct us to where such a showing exists, as is his duty. (Troensegaard v. Silvercrest Industries, Inc. (1985) 175 Cal. App. 3d 218, 228 [220 Cal. Rptr. 712] [point treated as waived, where unsupported by argument, citation of authority, or record reference, or claim of reversible error].)
[18] We have already determined the trial court did not abuse its discretion by approving the settlement. We would be disinclined to engraft a requirement that the court expressly consider the law of every state involved before it could make such a finding. Nor would we be inclined to suspect unfairness due to differing laws in the absence of any showing such laws rendered the settlement unfair as to a significant number of class members.
[19] Geer argues the court must use the same standard under Federal Rules of Civil Procedure, rule 23 (28 U.S.C.) to determine the propriety of both settlement and litigation class certifications, relying on Georgine v. Amchem Products, Inc. (3d Cir.1996) 83 F.3d 610. (See also In re General Motors Corp. Pick-Up Truck Fuel Tank, supra, 55 F.3d at p. 798; and see In re American Medical Systems, Inc. (6th Cir.1996) 75 F.3d 1069, 1080-1082 [applying rule 23 in evaluating propriety of the class].) That rule is contrary to the Ninth Circuit rule, stated in Officers for Justice v. Civil Service Com'n etc., supra, 688 F.2d at page 633, and the position of the leading commentators (Newberg & Conte, Newberg on Class Actions, supra, § 11.28 at p. 11-58), which allow a lesser standard of scrutiny for settlement cases. (See also In re Asbestos Litigation (5th Cir.1996) 90 F.3d 963, 975 [court should take settlement into account in evaluating class certification]; In re Dennis Greenman Securities Litigation (11th Cir.1987) 829 F.2d 1539, 1543.) We agree with the latter. The two basic purposes for the rule 23 certification requirements, as they relate to questions of a nationwide class, are: (1) to keep the lawsuit manageable for trial; and (2) to protect the interests of the nonrepresentative class members. The first purpose is inapposite in the settlement context, and the second, as it relates to commonality of issues, only makes a difference if the nonrepresentative class members would do much better by litigating on their own or in their own jurisdiction. The second category concerns are protected by the trial court's fairness review of the settlement. Geer has not cited any specific instance where a non-California class member stood to recover significantly more than in California if the case were tried in his or her jurisdiction. Because we find no error, we need not address Ford's claim that Geer has raised the certification argument for the first time on appeal.
[20] This concern mandates thorough scrutiny in all cases, but Geer correctly recognizes, as we do, there was absolutely no evidence of such conduct by plaintiffs' counsel. In fact, their outstanding reputation in general, and zealous advocacy in this case in particular, demonstrate the opposite.
[21] Some of those factors, relevant to this case, are: "(1) the novelty and difficulty of the questions involved, and the skill displayed in presenting them; (2) the extent to which the nature of the litigation precluded other employment by the attorneys; [and] (3) the contingent nature of the fee award, both from the point of view of eventual victory on the merits and the point of view of establishing eligibility for an award...." (Serrano v. Priest, supra, 20 Cal.3d at p. 49.)
[22] A moral from this case may be that it would behoove plaintiffs' counsel, especially in class action cases, to keep time records even when the client is not being charged on an hourly basis.
[23] Our determination the trial court abused its discretion in setting the attorney fees rests on the court's failure to make a record for appellate review showing how the fees were calculated. We do not suggest in any way that the amount of fees awarded was unreasonable. On remand the trial court may decide to award the same, a greater, or a lesser amount. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2519976/ | 8 Cal. Rptr. 3d 551 (2004)
82 P.3d 755
32 Cal. 4th 193
The PEOPLE, Plaintiff and Respondent,
v.
Christopher Francisco POSEY, Defendant and Appellant.
No. S100360.
Supreme Court of California.
January 22, 2004.
Certiorari Denied June 14, 2004.
*554 Randi Covin, under appointment by the Supreme Court, Rohnert Park, for Defendant and Appellant.
Bill Lockyer, Attorney General, Robert R. Anderson, Chief Assistant Attorney General, Ronald A. Bass, Assistant Attorney General, Rene A. Chacon and Jeremy Friedlander, Deputy Attorneys General, for Plaintiff and Respondent.
Certiorari Denied June 14, 2004. See 124 S. Ct. 2848.
GEORGE, C.J.
We granted review in this case to resolve an issue concerning venue that we noted but did not resolve in People v. Simon (2001) 25 Cal. 4th 1082, 1110, footnote 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598, relating to the soundness and continuing vitality of the rule, set forth in a line of California judicial decisions, that declares the issue whether a criminal action has been brought in a place appropriate for trial to be a question of fact to be decided by the jury at the conclusion of trial rather than a question of law to be decided by the court prior to trial.
Penal Code section 777[1] states the general rule for venue in criminal actions: "[E]xcept as otherwise provided by law the jurisdiction of every public offense is in any competent court within the jurisdictional territory of which it is committed." In other words, under section 777 venue lies in the superior court of the county in which the crime was committed, and a defendant may be tried there. (See generally 4 Witkin & Epstein, Cal.Criminal Law (3d ed. 2000) Jurisdiction and Venue, § 50, pp. 139-141; see also id., §§ 13-18, pp. 101-108 [discussing the effect of trial court unification]; id. (2003 supp.) §§ 13, 14, 16, 18, pp. 18-19 [same].)
Section 781 the provision involved in this case states one of the many exceptions to the general rule for venue: "When a public offense is committed in part in one jurisdictional territory and in part in another, or the acts or effects thereof constituting or requisite to the consummation of *555 the offense occur in two or more jurisdictional territories, the jurisdiction of such offense is in any competent court within either jurisdictional territory." Thus, under section 781, when a crime is committed partly in one county and partly in another county, or when the acts or effects constituting the crime or requisite to its commission occur in more than one county, venue is in the superior court in each of the counties in question, and a defendant may be tried in any of them. (See generally 4 Witkin & Epstein, Cal.Criminal Law, supra, Jurisdiction and Venue, §§ 51-53, pp. 141-145; id. (2003 supp.) §§ 52-53, pp. 23-24.)
In Simon, we concluded that "pursuant to the general legal doctrine that a party may forfeit a right by failing to assert it in a timely fashion, a defendant ... forfeits a claim of improper venue when he or she fails specifically to raise such an objection prior to the commencement of trial." (People v. Simon, supra, 25 Cal.4th at p. 1086, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) But we also concluded that "in light of the confusion in the prior California case law, our holding with regard to the proper procedure for raising an objection to venue shall apply only prospectively," because our opinion announced a new rule as set out above. (Id. at p. 1087, 108 Cal. Rptr. 2d 385, 25 P.3d 598.)
In Simon, we also noted, but did not resolve, the issue of the soundness and continuing vitality of the rule that venue presents a question of fact to be decided by the jury. Because in that case the defendant "failed at trial to provide an appropriate jury instruction or authority supporting the giving of such an instruction, we ha[d] no occasion to determine whether, in the absence of legislative action, it would be appropriate for this court to revisit the lengthy and uniform line of decisions" supporting that rule. (People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598.)
In this case, by contrast, defendant timely raised the question of venue prior to trial and again at trial, and we conclude that it is appropriate for us to resolve the issue left open in Simon.
As we shall explain, we conclude that the rule that venue is a question of fact for the jury is unsound for a number of fundamental reasons. First, the rule impedes the purposes underlying the venue provisions, especially their "principal purpose ... from a defendant's perspective" of "protect[ing] a defendant from being required to stand trial in a distant and unduly burdensome locale" (People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598), by putting off any finding on venue until after "the defendant [has been] required to undergo the rigors and hardship of standing trial in an assertedly improper locale," and after "the state [has] incur[red] the time and expense of conducting a trial" there (id. at p. 1087, 108 Cal. Rptr. 2d 385, 25 P.3d 598). Second, the rule is "inconsistent with contemporary treatment of other, analogous ... issues," inasmuch as venue is a procedural question involving the appropriateness of a place for a defendant's trial on a criminal charge, and not a substantive question relating to the defendant's guilt or innocence of the crime charged. (Id. at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) Third, the rule threatens the untoward consequence of an "unwarranted acquittal" when the jury returns a verdict of not guilty predicated solely on lack of proper venue. (Ibid.)
In addition to concluding that the rule that venue is a question of fact for the jury is unsound, we also conclude that this rule properly may be reconsidered and modified by this court without awaiting action by the Legislature, because the rule was *556 established by judicial decision and has not been incorporated in any statute. Accordingly, we hold, for the reasons stated above, that venue is a question of law for the court, to be decided prior to trial.
Finally, we conclude that because adherence to the prior rule that venue is a question of fact for the jury has been widespread and long standing, and because the proposed holding that venue is a question of law for the court announces a new rule, we should not apply that new rule to the present case or any other case not yet final on appeal.
The Court of Appeal in this matter, although noting the issue we left open in Simon respecting venue, rejected on other grounds all of defendant's claims of error implicating venue and determined that, contrary to defendant's argument, under section 781 Marin County the county in which the case was tried was an appropriate place for trial of the crimes with which defendant had been charged. As we shall explain, we conclude that the Court of Appeal correctly rejected all of defendant's claims related to venue, and therefore affirm the judgment of the Court of Appeal.
I
The District Attorney of Marin County charged defendant Christopher Francisco Posey in the Marin Superior Court with two counts of sale of cocaine base in violation of Health and Safety Code section 11352, subdivision (a), and alleged, for purposes of establishing venue under section 781, that defendant committed the crimes, or engaged in the requisite acts or caused the requisite effects, in two counties, implicitly Marin and San Francisco. Defendant pleaded not guilty to the sale-of-cocaine-base charges and denied the venue allegation.
Both prior to and during trial, defendant repeatedly but unsuccessfully objected to venue, claiming that Marin County was not an appropriate place for trial. At the trial itself, which was conducted before a jury, defendant presented his objection to venue as essentially his sole defense. Viewed in the light most favorable to the ensuing judgment, the evidence introduced at trial disclosed the following facts.
Detective Rudy Yamanoha of the Marin County Sheriff's Department received information that a woman known as "Nini," who apparently was a resident of San Francisco County, was selling cocaine in the area of Marin or was selling that substance to Marin residents. (Nini later was identified as Johnneka Hall, who originally had been defendant's codefendant, but had fled prior to trial.) Yamanoha, while in Marin, placed a telephone call to Nini, who was in San Francisco, and left on a paging system a telephone number that apparently had a 415 area code (which encompasses both Marin and San Francisco). Nini called back Yamanoha and soon agreed to sell him an ounce of cocaine base for $575. Although he in fact was in Marin, Yamanoha told Nini that he was in Santa Rosa, in Sonoma County, and asked her to meet him halfway at Vista Point on the Marin side of the Golden Gate Bridge, but she did not agree. Later that day, Yamanoha paged Nini again to make arrangements for delivery, this time apparently leaving a second telephone number with a 415 area code. Nini called back Yamanoha and had him speak to defendant, who persuaded Yamanoha to buy two ounces of cocaine base for $1,150, and then agreed to delivery at Vista Point in Marin. A minute or so later, however, defendant called Yamanoha at the second 415 area code telephone number, and changed the point of delivery from Vista Point in Marin to a location in San Francisco not far from *557 the Golden Gate Bridge.[2] That evening, Yamanoha went to the location in question and, after some delay, bought a little less than two ounces of cocaine base from defendant for the full price of $1,150, with defendant promising to make up for the shortage on the next purchase. The transaction was surreptitiously videotaped by law enforcement officers.
Some days later, Detective Yamanoha, in Marin County, again paged Nini, who was in San Francisco County, and apparently left a telephone number with a 707 area code (which encompasses Sonoma County, including Santa Rosa) directed to a cellular telephone. Nini called back Yamanoha and had him speak to defendant. Yamanoha asked to buy two more ounces of cocaine base, and defendant agreed to sell that quantity for $1,150. Although he in fact was in Marin, Yamanoha told defendant that he was in Santa Rosa, and asked defendant to meet him halfway in Marin; defendant refused, and proposed the same location in San Francisco as previously; Yamanoha ended the conversation before resolving the matter, stating that he had an incoming call, and defendant said that he would call back. A minute or so later, defendant called Yamanoha, apparently at the 707 area code telephone number, and Yamanoha agreed to meet him at the previously identified San Francisco location. That evening, Yamanoha went to the location in question and purchased two ounces of cocaine base from defendant for $1,150. This transaction too was surreptitiously videotaped by law enforcement officers.
A few days later, Detective Yamanoha attempted to buy more cocaine base from defendant, but gave up when defendant refused to make delivery other than in San Francisco County. Within a week or two, defendant was arrested in San Francisco.
In its charge, the trial court instructed the jury on the crime of sale of cocaine base and also on venue, and directed it to determine the question of guilt or innocence prior to venue. After deliberations, the jury returned verdicts finding defendant guilty of two counts of sale of cocaine base. The jury, however, was unable to agree on venue. Thereupon, the trial court declared a mistrial on that issue alone, denying a motion by defendant for mistrial on the entire case.
After rejecting a suggestion by the People that it resolve the question of venue itself, the trial court empanelled a second jury and conducted a second trial solely on the issue of venue. Evidence similar to that presented at the first trial was introduced before the second jury. After the second jury was instructed on venue by the trial court, and after that jury presented questions to, and received answers from, the trial court in the course of deliberations, the jury made a finding that "Venue is in Marin County." The trial court rendered a judgment of conviction, sentencing defendant to a term of imprisonment.
On appeal, the Court of Appeal affirmed the judgment (after modifying it in part on a point not pertinent here). Noting that we had left open the issue of the soundness and continuing vitality of the rule that venue is a question of fact for the jury, the Court of Appeal rejected each of defendant's contentions relating to venue. First, the Court of Appeal concluded that the trial court had not erred by receiving *558 from the first jury the verdicts finding defendant guilty of two counts of sale of cocaine base that were purportedly "incomplete" because that jury was unable to agree on venue, and that the trial court had not acted in excess of its jurisdiction by thereafter declaring a mistrial on venue alone, empanelling the second jury, receiving that jury's finding that venue was in Marin County, and rendering the ensuing judgment. Second, the Court of Appeal rejected a claim that the trial court's instructions to the second jury on venue were erroneous. Third, the Court of Appeal concluded that the evidence was sufficient to support the second jury's finding on venue. Fourth and finally, the Court of Appeal held that the trial court had not violated defendant's right, under the Sixth Amendment to the United States Constitution or section 16 of article I of the California Constitution, to trial by jurors of the vicinage by drawing the first jury (which returned the guilty verdicts) from Marin County.
We granted defendant's petition for review. We conclude that we should affirm the judgment rendered by the Court of Appeal.
II
The primary issue before us on review concerns the soundness and continuing vitality of the rule, set forth in a line of California judicial decisions, that declares venue to be a question of fact to be decided by the jury at the conclusion of trial rather than a question of law to be decided by the court prior to trial.
In People v. Simon, supra, 25 Cal. 4th 1082, 108 Cal. Rptr. 2d 385, 25 P.3d 598, we concluded that "pursuant to the general legal doctrine that a party may forfeit a right by failing to assert it in a timely fashion, a defendant ... forfeits a claim of improper venue when he or she fails specifically to raise such an objection prior to the commencement of trial." (Id. at p. 1086, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) We noted "the fundamental purposes underlying criminal venue provisions" which, most broadly stated, aim at ensuring that a defendant's trial on a criminal charge is conducted in an appropriate place, taking into account convenience both to the People and to the defendant, fairness to the defendant, and participation on the part of the community affected. With those purposes in mind, we concluded that "the interests of both the accused and the state support a requirement that any objection to the proposed location of a ... trial must be specifically raised prior to the commencement of trial, before the defendant is required to undergo the rigors and hardship of standing trial in an assertedly improper locale, and before the state incurs the time and expense of conducting a trial in that county." (Id. at pp. 1086-1087, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) We further concluded that "in light of the confusion in the prior California case law, our holding with regard to the proper procedure for raising an objection to venue shall apply only prospectively...." (Id. at p. 1087, 108 Cal. Rptr. 2d 385, 25 P.3d 598.)
Near the end of our opinion in Simon, we referred to the issue that is before us in this case and that we shall discuss at length below. We stated in Simon: Notwithstanding "language" in "numerous California decisions ..., the characterization of venue as presenting the type of factual question that properly is to be determined by a jury, rather than the type of procedural legal issue that is determined by the court, appears inconsistent with contemporary treatment of other, analogous procedural issues that do not relate to the guilt or innocence of the accused (such as whether the prosecution has complied with ... speedy trial requirements) *559 issues that uniformly are treated as legal questions to be decided by the court rather than a jury. [Citations.] Indeed, treating venue as presenting a question to be resolved by a jury appears particularly problematic when one considers that the principal purpose underlying the venue statutes from a defendant's perspective to protect a defendant from being required to stand trial in a distant and unduly burdensome locale can be meaningfully effectuated only if a defendant's venue challenge is considered and resolved prior to trial, well before a jury is empanelled or any issue is submitted to it. In addition, unless the jury is instructed to return a separate [finding] on the issue of venue before returning a ... verdict, a finding that the proceeding has been brought in an improper venue can result in an unwarranted acquittal, rather than in a new trial in an authorized venue." (People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598.)
In concluding the discussion of this point in Simon, we declared that "[b]ecause in this case defendant failed at trial to provide an appropriate jury instruction or authority supporting the giving of such an instruction, we have no occasion to determine whether, in the absence of legislative action, it would be appropriate for this court to revisit the lengthy and uniform line of decisions holding that the issue of venue presents a question of fact to be determined by a jury." (People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598.)[3] In this regard, we acknowledged in Simon (see People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598) that the Court of Appeal's opinion in People v. Megladdery (1940) 40 Cal. App. 2d 748, 766, 106 P.2d 84,[4] had opined that "[i]n view of the long line of decisions [treating venue as a question of fact for the jury], it is our belief that if the rule is to be changed it should be done by the legislature."
Turning now to the issue before us, we begin with the same acknowledgment that we made in Simon that in California there is a lengthy and uniform line of decisions holding or stating, expressly or impliedly, that venue is a question of fact for the jury.[5] We also acknowledge that decisions "[i]n the federal system and the vast majority of the states" also generally treat venue as a question of fact for the jury. (4 LaFave et al., Criminal Procedure (2d ed.1999) § 16.1(g), p. 499, fn. omitted.)
In analyzing the soundness and continuing vitality of the rule that venue is a *560 question of fact for the jury, we believe it is helpful to consider at the outset two points implicated in the issue.
The first point involves the labeling of venue as either a question of law for the court or a question of fact for the jury. Fundamentally, the distinction between questions of fact for the jury and questions of law for the court (see § 1126; Evid.Code, §§ 310, 312) turns on whether the issue presented relates to the substantive matter of guilt or innocence to be determined at trial or, instead, concerns a procedural matter that does not itself determine guilt or innocence but either precedes the trial (such as whether to change venue), affects the conduct of the trial (such as whether to admit certain evidence), or follows the trial (such as whether to order a new trial). (See People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) If an issue implicates guilt or innocence as a substantive matter, it generally lies within the province of the jury, but an issue involving a procedural matter generally lies within the province of the court.
There are numerous procedural matters decided prior to trial, during trial, and after trial, that accordingly lie within the court's province as questions of law, but that necessarily require the court to consider and determine underlying questions of fact frequently even questions of fact relating in some way to the charged offense.
For example, prior to trial the court, in deciding whether a defendant charged with a capital crime must be denied bail (§ 1270.5), makes findings of fact, overlapping the facts of the crime itself, as to whether "proof of his or her guilt is evident" (ibid.). In deciding whether to dismiss a criminal action for lack of probable cause to believe the defendant has committed the crime charged, the court similarly determines whether there exists "such a state of facts as would lead a [person] of ordinary caution or prudence to believe and conscientiously entertain a strong suspicion of the [defendant's] guilt" (People v. Uhlemann (1973) 9 Cal. 3d 662, 667, 108 Cal. Rptr. 657, 511 P.2d 609). In addition, the court decides whether to dismiss an action for discriminatory prosecution (Murgia v. Municipal Court (1975) 15 Cal. 3d 286, 293, fn. 4, 124 Cal. Rptr. 204, 540 P.2d 44), making a factual determination as to whether the prosecution engaged in intentional and purposeful invidious discrimination (see id. at pp. 293-301, 124 Cal. Rptr. 204, 540 P.2d 44); the court decides whether to dismiss an action because the prosecution has destroyed evidence (People v. Zapien (1993) 4 Cal. 4th 929, 966-968, 17 Cal. Rptr. 2d 122, 846 P.2d 704), determining whether the destruction of the evidence prejudiced the defendant (id. at p. 967, 17 Cal. Rptr. 2d 122, 846 P.2d 704); and the court decides in a case of welfare fraud whether the prosecution failed first to seek restitution and whether the charges must be dismissed as a result (People v. McGee (1977) 19 Cal. 3d 948, 967-968, 140 Cal. Rptr. 657, 568 P.2d 382). The court also decides whether to dismiss an action for violation of the defendant's right to a speedy trial (§ 1382), making the factual determination whether there was good cause for any delay (see, e.g., Owens v. Superior Court (1980) 28 Cal. 3d 238, 250, 168 Cal. Rptr. 466, 617 P.2d 1098). Likewise, the court decides, under the two-dismissal rule that protects the defendant's speedy-trial right (see Miller v. Superior Court (2002) 101 Cal. App. 4th 728, 738-739, 124 Cal. Rptr. 2d 591), whether to dismiss an action upon the prosecution's bringing of charges a third time following two dismissals (§ 1387), finding under certain circumstances whether the prosecution acted in bad faith (§ 1387.1, subd. (a); *561 see Miller v. Superior Court, supra, 101 Cal.App.4th at pp. 743-745, 124 Cal. Rptr. 2d 591). The court also decides whether to change venue (§ 1033), considering facts overlapping those of the offense, such as "the gravity and nature of the crime" and perhaps the "status of the victim and the accused" (People v. Navarette (2003) 30 Cal. 4th 458, 484, 133 Cal. Rptr. 2d 89, 66 P.3d 1182), and other facts that do not relate to the crime, such as "the extent and nature of the publicity and the size of the community" (ibid.).
During trial, the court decides whether to admit all types of evidence (see Evid.Code, §§ 310, subd. (a), 400-405), making findings of fact as to all preliminary matters (see id., §§ 400-405), some of which, again, overlap the facts of the crime charged, such as the existence of a conspiracy to commit the crime in question (see, e.g., People v. Herrera (2000) 83 Cal. App. 4th 46, 54-66, 98 Cal. Rptr. 2d 911), and others that involve factual determinations unrelated to the crime, such as the qualifications of an expert called to the witness stand (see, e.g., People v. Ashmus (1991) 54 Cal. 3d 932, 970-972, 2 Cal. Rptr. 2d 112, 820 P.2d 214).
After the trial has concluded, the court decides whether to order a new trial (§ 1179 et seq.), making findings of fact that overlap those of the crime of which the defendant was found guilty (as when relief is sought on the ground of insufficiency of the evidence [§ 1181, subd. 6] or newly discovered evidence [§ 1181, subd. 8]), as well as factual determinations distinct from the crime (as when relief is sought on the ground of jury misconduct [§ 1181, subd. 3]), and yet others that may involve factual determinations in part related and in part unrelated to the crime (as when relief is sought on the ground of ineffective assistance of counsel [see, e.g., People v. Fosselman (1983) 33 Cal. 3d 572, 582-583, 189 Cal. Rptr. 855, 659 P.2d 1144]).
Thus, although questions of fact relating to the substantive issue of guilt or innocence are within the province of the jury, questions of law concerning procedural issues that do not themselves determine guilt or innocence including any underlying questions of fact are within the province of the court. (See People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598.)
The second point implicated, in analyzing the soundness and continued vitality of the rule that venue is a question of fact for the jury, involves the notion of venue itself. In California in criminal actions, venue simply denotes the place or places appropriate for a defendant's trial. (E.g., Price v. Superior Court (2001) 25 Cal. 4th 1046, 1054, 108 Cal. Rptr. 2d 409, 25 P.3d 618; People v. Guzman (1988) 45 Cal. 3d 915, 934, 248 Cal. Rptr. 467, 755 P.2d 917, overruled on another point by Price v. Superior Court, supra, 25 Cal.4th at p. 1069, fn. 13, 108 Cal. Rptr. 2d 409, 25 P.3d 618.) Venue does not implicate the trial court's fundamental jurisdiction in the sense of personal jurisdiction, which is the authority of the court to proceed against a particular defendant in a criminal action (see, e.g., People v. Mower (2002) 28 Cal. 4th 457, 474, fn. 6, 122 Cal. Rptr. 2d 326, 49 P.3d 1067). (Compare 4 Witkin & Epstein, Cal.Criminal Law, supra, Jurisdiction and Venue, § 3, pp. 88-89 [personal jurisdiction] with id., § 45, p. 135 [venue].) Neither does venue implicate the trial court's fundamental jurisdiction in the sense of subject matter jurisdiction, which is the authority of the court to consider and decide the criminal action itself (see, e.g., People v. Mower, supra, 28 Cal.4th at p. 474, fn. 6, 122 Cal. Rptr. 2d 326, 49 P.3d 1067). Indeed, in Simon, while conceding the existence of some confusion in earlier *562 decisions, arising perhaps from the general presence of the terms "jurisdiction" and "jurisdictional territory" in venue provisions such as sections 777 and 781, we stated that "it is now established beyond question that the issue of venue does not involve a matter of subject matter jurisdiction." (People v. Simon, supra, 25 Cal.4th at p. 1096, 108 Cal. Rptr. 2d 385, 25 P.3d 598.)
Lastly, venue is not a part or aspect of substantive criminal law. (See People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) Accordingly, venue does not constitute an element of any crime. (People v. Sering, supra, 232 Cal. App. 3d 677, 688, 283 Cal. Rptr. 507; see People v. Remington (1990) 217 Cal. App. 3d 423, 430, 266 Cal. Rptr. 183.) Indeed, in Simon we characterized venue as merely a "procedural issue[ ] that do[es] not relate to ... guilt or innocence" at all. (People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) As recognized in a leading treatise, venue simply is a "procedural prerequisite[ ] for prosecution," much like a "valid preliminary hearing bindover" or a "grand jury charge." (4 LaFave et al., Criminal Procedure, supra, § 16.1(g), pp. 498-499.) In sum, venue is a procedural issue involving the appropriateness of a place for the conduct of a defendant's trial on a criminal charge, and not a substantive issue relating to the defendant's guilt or innocence of the crime charged.[6]
Further, in California, "venue ... is governed by statute" and not by the California Constitution. (People v. Simon, supra, 25 Cal.4th at p. 1099, fn. 10, 108 Cal. Rptr. 2d 385, 25 P.3d 598; accord, Price v. Superior Court, supra, 25 Cal.4th at p. 1056, 108 Cal. Rptr. 2d 409, 25 P.3d 618.) This signifies that "venue ... implicates legislative policy, not constitutional imperative." (Price v. Superior Court, supra, 25 Cal.4th at p. 1056, 108 Cal. Rptr. 2d 409, 25 P.3d 618.) Thus, the Legislature may define venue pursuant to statutory provisions, subject only to such constraints as may be imposed by the United States and California Constitutions, particularly with regard to vicinage and due process of law. (Price v. Superior Court, supra, 25 Cal.4th at p. 1056, 108 Cal. Rptr. 2d 409, 25 P.3d 618.)
The general venue provision, as indicated, is section 777, which declares that when a crime is committed in a particular county, venue lies in that county. Section 781 is but one of the many venue provisions *563 that establish venue in additional counties, depending upon the circumstances of the specific case. As noted, section 781 states that when a crime is committed partly in one county and partly in another county, or when the acts or effects constituting the crime or requisite to its commission occur in more than one county, venue lies in each of the counties in question.[7]
In Simon, we explained that "venue provisions applicable to criminal proceedings serve a variety of purposes. First, `[v]enue in the place where the crime was committed promotes the convenience of both parties in obtaining evidence and securing the presence of witnesses.' [Citation.] Second, from the perspective of a defendant, statutory enactments that provide for trial in a county that bears a reasonable relationship to an alleged criminal offense also operate as a restriction on the discretion of the prosecution to file charges in any locale within the state that it chooses, an option that, if available, would provide the prosecution with the considerable power to choose a setting that, for whatever reason, the prosecution views as favorable to its position or hostile or burdensome to the defendant's.... `The principal justification today for the venue requirement of trial in the vicinity of the *564 crime is to "safeguard against the unfairness and hardship involved when an accused is prosecuted in a remote place."' [Citations.] Finally, venue provisions also serve to protect the interests of the community in which a crime or related activity occurs, `vindicat[ing] the community's right to sit in judgment on crimes committed within its territory.'" (People v. Simon, supra, 25 Cal.4th at p. 1095, 108 Cal. Rptr. 2d 385, 25 P.3d 598.)
It follows from the foregoing that venue should be considered a question of law for determination by the court prior to trial rather than a question of fact for the jury at the conclusion of trial. We find persuasive the reasons noted in Simon. First, determination of venue by the court prior to trial rather than by the jury at the conclusion of trial furthers the purposes underlying venue provisions, especially their "principal purpose ... from a defendant's perspective," namely "to protect a defendant from being required to stand trial in a distant and unduly burdensome locale." (People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) Indeed, such purposes "can be meaningfully effectuated only" by entrusting venue to the court prior to trial rather than to the jury at the conclusion of the trial. (Ibid.) Second, the determination of venue by the court prior to trial rather than by the jury at the conclusion of trial is consistent with "contemporary treatment of other, analogous ... issues" of procedure, which are distinct from issues of substance. (Ibid.) As we have noted, venue is a procedural question involving the appropriateness of a place for a defendant's trial on a criminal charge, and not a substantive question relating to the defendant's guilt or innocence of the crime charged. Third, determination of venue by the court prior to trial rather than by the jury at the conclusion of trial avoids the untoward consequence of an "unwarranted acquittal" when the jury returns a verdict of not guilty predicated solely on lack of proper venue. (Ibid.)
Without stating a rationale, the decisions that gave rise to the rule that venue is a question of fact for the jury appear to have premised their treatment of venue on the assumption that, just as the People must prove the facts underlying the charged offense to the satisfaction of the jury, they similarly should have to prove the facts underlying venue facts that often overlap the facts of the crime, as suggested in the phrase "locus delicti" or place of the crime (People v. More, supra, 68 Cal. at p. 504, 9 P. 461).[8] (See, e.g., People v. McGreggor, supra, 88 Cal. at p. 144, 26 P. 97; People v. More, supra, 68 Cal. at p. 504, 9 P. 461; People v. Alviso, supra, 55 Cal. at p. 233; People v. Smith, supra, 26 Cal.App.2d at pp. 190-191, 79 P.2d 155; People v. Brock, supra, 21 Cal.App.2d at p. 607, 70 P.2d 210; People v. Morales, supra, 91 Cal.App. at p. 734, 267 P. 570; In re Application of O'Connor, supra, 80 Cal.App. at p. 653, 252 P. 730; People v. Coker, supra, 78 Cal.App. at p. 159, 248 P. 542.)
In implicitly equating proof of venue with proof of a defendant's guilt of a crime, however, these past decisions overlooked the circumstance that although the People *565 must prove both the facts underlying the crime (see § 1096) and also the facts underlying venue (e.g., People v. Simon, supra, 25 Cal.4th at p. 1105, fn. 16, 108 Cal. Rptr. 2d 385, 25 P.3d 598; see generally 4 Witkin & Epstein, Cal.Criminal Law, supra, Jurisdiction and Venue, § 47, p. 137), they must prove the facts of the crime beyond a reasonable doubt (§ 1096) but the facts of venue only by a preponderance of the evidence (e.g., People v. Simon, supra, 25 Cal.4th at p. 1105, fn. 16, 108 Cal. Rptr. 2d 385, 25 P.3d 598; see generally 4 Witkin & Epstein, Cal.Criminal Law, supra, Jurisdiction and Venue, § 48, pp. 137-138). As the Court of Appeal noted somewhat colorfully almost 70 years ago in People v. Carter (1935) 10 Cal. App. 2d 387, 389, 52 P.2d 294, the "state gives no assurance to its [criminally] insubordinate citizens that the venue of their crimes will be fixed beyond a reasonable doubt; that doctrine applies only to the issue of guilt."
Further and more fundamentally, the past decisions failed to appreciate adequately what is suggested by the difference in the respective burdens of proof for the crime and for venue namely that notwithstanding any overlapping of the facts underlying both the crime and venue, venue is a procedural issue involving the appropriateness of a place for a defendant's trial on a criminal charge, and not a substantive issue relating to the defendant's guilt or innocence of the crime itself. For example, in order to avoid dismissal of a criminal action because of prosecutorial destruction of evidence, the People must prove facts, by a preponderance of the evidence, establishing that the destruction of the evidence did not prejudice the defendant. (People v. Zapien, supra, 4 Cal.4th at p. 967, 17 Cal. Rptr. 2d 122, 846 P.2d 704.) Also, in order to avoid dismissal of an action because of violation of the defendant's right to a speedy trial, the People must prove facts, apparently by a preponderance of the evidence, establishing good cause for any delay. (E.g., Owens v. Superior Court, supra, 28 Cal.3d at p. 250, 168 Cal. Rptr. 466, 617 P.2d 1098.) Similarly, in order to avoid dismissal of an action because of the bringing of charges for a third time under the two-dismissal rule, the People under certain circumstances must prove facts, by a preponderance of the evidence, establishing that they acted without bad faith. (Miller v. Superior Court, supra, 101 Cal.App.4th at pp. 745-748, 124 Cal. Rptr. 2d 591.) In each of these circumstances, it never has been suggested that the pertinent factual determinations must or should be made by the jury. To the jury alone are entrusted the facts underlying guilt or innocence. The facts bearing on the defendant's right to a speedy trial, the two-dismissal rule, and prosecutorial destruction of evidence are distinct from guilt or innocence; they go to whether the defendant should be tried in the first place and therefore properly are determined by the court prior to the commencement of any trial. Likewise, the facts bearing on venue are themselves distinct from guilt or innocence, and similarly should be determined by the court before a trial is undertaken in a possibly inappropriate place.
In People v. Megladdery, supra, 40 Cal. App. 2d 748, 106 P.2d 84, the Court of Appeal set forth what appears to be the sole rationale that has been explicitly articulated in a California decision in support of the rule that venue is a question of fact for the jury. The appellate court stated in this regard: "While it is true that a defendant does not have a constitutional right to have his case determined by the jury of any particular county [citation] it is also true that our statutory law has determined, with certain exceptions, that an accused person is answerable only in the jurisdiction where the crime, or some part *566 or effect thereof, was committed or occurred.... It seems quite clear to us, that, from the standpoint of logic, the question of ... local ... jurisdiction [i.e., venue] ... is fundamentally and necessarily a question of fact, and that in a criminal case, the burden of proving that fact rests on the prosecution. If this is so, it must follow that the determination of this fact rests with the jury." (People v. Megladdery, supra, 40 Cal.App.2d at p. 762, 106 P.2d 84.)
When we scrutinize Megladdery's rationale for the rule that venue is a question of fact for the jury, we find it unpersuasive. Although it is true that the People must prove the facts underlying venue by a preponderance of the evidence, it does not follow, contrary to the assertion in Megladdery (People v. Megladdery, supra, 40 Cal.App.2d at p. 762, 106 P.2d 84), that the People must prove those facts to the satisfaction of the jury.
Having found no persuasive explanation in prior California decisions for the rule that venue is a question of fact for the jury, we have surveyed the other jurisdictions that apply this rule in search of an alternative persuasive rationale but have discovered none that supports retention of the rule in California. "These jurisdictions," as noted in a leading treatise, "offer a variety of explanations.... Venue is described as: `a jurisdictional fact put in issue by a plea of not guilty'; [a] `material allegation of the indictment' which must be proven along with other indictment allegations; an `element of the crime' to be treated no differently than the substantive elements of the offense; and an `issuable fact' most appropriately addressed in the course of the proof of the offense and presented to the finder of fact." (4 LaFave et al., Criminal Procedure, supra, § 16.1(g), p. 500, fns. omitted.) In jurisdictions in which it is treated either as a "jurisdictional fact" (State v. Donnelly (Iowa 1976) 242 N.W.2d 295, 297; see 4 LaFave et al., Criminal Procedure, supra, § 16.1(g), p. 500, fn. 237, citing additional authorities) or as an "issuable fact" (People v. Plautz (1970) 28 Mich.App. 621, 623, 184 N.W.2d 761; see 4 LaFave et al., Criminal Procedure, supra, § 16.1(g), p. 500, fn. 240, citing additional authorities), venue apparently is deemed to implicate subject matter jurisdiction which is not the case in California. And in jurisdictions in which it is viewed either as a "material allegation of the indictment" (State v. Wardenburg (1968) 261 Iowa 1395, 1402, 158 N.W.2d 147 [describing the view of other jurisdictions]; see 4 LaFave et al., Criminal Procedure, supra, § 16.1(g), p. 500, fn. 238, citing additional authorities) or as an "element of the crime" (People v. Digirolamo (1997) 179 Ill. 2d 24, 48, 227 Ill. Dec. 779, 688 N.E.2d 116 [describing a view changed by subsequently enacted statutory law]; see 4 LaFave et al., Criminal Procedure, supra, § 16.1(g), p. 500, fn. 239, citing additional authorities), it is regarded, implicitly in the former jurisdictions and explicitly in the latter, as an element of whatever crime may happen to be charged which also is not the case in California.
In view of the foregoing, we conclude that on its own merits, the rule adopted in prior California decisions that venue is a question of fact for the jury is not well founded. Our conclusion in this respect, however, does not by itself resolve the question whether this court can, and should, reject the rule and adopt in its place a rule that venue is a question of law for determination by the court.
As for the first question, whether this court can reject the rule that venue is a question of fact for the jury in favor of a rule that venue is a question of law for the court, we reach an affirmative conclusion. *567 The prior rule "merely is a judge-made ... rule of procedure" (People v. Barnum (2003) 29 Cal. 4th 1210, 1225, 131 Cal. Rptr. 2d 499, 64 P.3d 788 [speaking of the prior rule that a trial court is required, under certain circumstances, to advise a self-represented defendant of the privilege against compelled self-incrimination]), required by neither statutory nor constitutional law. We would hesitate to discard the rule if the Legislature had "enacted statutes in reliance" on it (People v. Cuevas (1995) 12 Cal. 4th 252, 270, 48 Cal. Rptr. 2d 135, 906 P.2d 1290) or had made it a "basic part of a ... comprehensive statutory scheme" (People v. Mendoza (2000) 23 Cal. 4th 896, 924, 98 Cal. Rptr. 2d 431, 4 P.3d 265). Here, however, the Legislature has done neither. Just as the drafters of pattern jury instructions have ignored the rule (see People v. Simon, supra, 25 Cal.4th at pp. 1090-1091, 1109, 108 Cal. Rptr. 2d 385, 25 P.3d 598), so too has the Legislature. Because the Legislature has not enacted any statutes incorporating the rule, this court has the authority, without awaiting any action by that body, to reconsider the prior judicial decisions adopting the rule.
As for the second question, whether we should reject the rule that venue is a question of fact for the jury in favor of a rule that venue is a question of law for the court, we here too reach an affirmative conclusion. To be sure, the rule that venue is a question of fact for the jury has "enjoyed widespread and long-standing following among the ... courts in California" (People v. Barnum, supra, 29 Cal.4th at p. 1225, 131 Cal. Rptr. 2d 499, 64 P.3d 788 [prior rule of advisement of a self-represented defendant of privilege against compelled self-incrimination]), as well as in most other jurisdictions. But, as we suggested in Simon, there are strong reasons that counsel against retention of the rule. First, the rule impedes the purposes underlying venue provisions, especially their "principal purpose ... from a defendant's perspective," that is "to protect a defendant from being required to stand trial in a distant and unduly burdensome locale" (People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598) by putting off any finding on venue until after"the defendant [has been] required to undergo the rigors and hardship of standing trial in an assertedly improper locale," and after "the state [has] incur[red] the time and expense of conducting a trial" in that county (id. at p. 1087, 108 Cal. Rptr. 2d 385, 25 P.3d 598). Second, the rule is "inconsistent with contemporary treatment of other, analogous ... issues," inasmuch as venue is a procedural question involving the appropriateness of a place for a defendant's trial on a criminal charge, and not a substantive question relating to the defendant's guilt or innocence of the offense charged. (Id. at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) Third, the rule poses the risk of an "unwarranted acquittal" when the jury returns a verdict of not guilty predicated solely on lack of proper venue. (Ibid.) Even if it were true, as the Court of Appeal in Megladdery suggested, that "no grave miscarriage of justice has occurred under this rule" (People v. Megladdery, supra, 40 Cal.App.2d at p. 766, 106 P.2d 84), we do not perceive any substantial reliance interest that would be upset or defeated by the revision of this court-made rule "to serve the ends of justice" in the future. (Katz v. Walkinshaw (1903) 141 Cal. 116, 123, 74 P. 766; accord, In re Marriage of Schiffman (1980) 28 Cal. 3d 640, 647, 169 Cal. Rptr. 918, 620 P.2d 579 (plur. opn. of Newman, J.).)
Therefore, we conclude that the rule that venue is a question of fact for the jury should be rejected in favor of a rule that venue is a question of law for determination *568 by the court. The California decisions cited above, and those to similar effect, are overruled or disapproved to the extent they are contrary to this conclusion.
Nevertheless, "[b]ecause adherence to the ... rule [that venue is a question of fact for the jury] has been widespread among the ... courts and long-standing, ... the question arises whether we should apply our holding to the present case and to any other case not yet final on appeal...." (People v. Barnum, supra, 29 Cal.4th at pp. 1225-1226, 131 Cal. Rptr. 2d 499, 64 P.3d 788.) We conclude that we should not do so. In Simon, we determined that the rule we "newly announced" in that decision that a "defendant ... who wishes to object to venue must make a specific objection to venue prior to the commencement of trial" should apply "prospectively only." (People v. Simon, supra, 25 Cal.4th at p. 1108, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) We make the same determination concerning the rule that we newly announce here. So long as a defendant in a case not yet final has preserved a claim of error based on violation of the now-discarded rule, he or she may pursue that claim. (See id. at pp. 1108-1109, 108 Cal. Rptr. 2d 385, 25 P.3d 598.)
III
A
We now turn to the claims of error specific to the case at bar.[9] Defendant initially contends that the trial court erred by receiving from the first jury the verdicts finding him guilty of two counts of sale of cocaine base verdicts that purportedly were "incomplete" because that jury was unable to agree on venue and that the trial court acted in excess of its jurisdiction by thereafter declaring a mistrial on the issue of venue alone, empanelling the second jury, receiving the second jury's finding that venue was in Marin County, and rendering the ensuing judgment.
To our knowledge, the claim raised by defendant is a novel one. Neither defendant nor the People have identified any prior decision that addresses or resolves the issue whether a trial court may receive a guilty verdict from a jury that is unable to agree on venue, declare a mistrial on venue alone, and empanel another jury to consider venue.
We conclude that the trial court did not err or act in excess of its jurisdiction. As stated, venue does not constitute an element of any crime, and hence is not a necessary component of any verdict of guilt for any crime. In somewhat analogous circumstances, prior decisions have held that a trial court may receive a guilty verdict from a jury that is unable to agree on a penalty provision, declare a mistrial on the penalty provision alone, and empanel another jury to consider the issue of penalty. (See People v. Bright (1996) 12 Cal. 4th 652, 661-662, 49 Cal. Rptr. 2d 732, 909 P.2d 1354 [penalty provision for willfulness, premeditation, and deliberation that increases the punishment for attempted murder beyond the maximum otherwise *569 prescribed]; People v. Guillen (1994) 25 Cal. App. 4th 756, 760-763, 31 Cal. Rptr. 2d 653 [penalty provision for weight in excess of 25 pounds that enhances the punishment for possession of cocaine for sale]; People v. Schulz (1992) 5 Cal. App. 4th 563, 568-570, 7 Cal. Rptr. 2d 269 [penalty provision for personal infliction of great bodily injury that enhances the punishment for attempted murder].) Defendant has been unable to identify anything in constitutional, statutory, or decisional law that would compel a different conclusion when the jury's inability to agree goes instead to the matter of venue.[10]
B
Defendant next contends that the trial court erred in its instructions to the second jury on the matter of venue.
The trial court gave the following instructions relating to venue: "Penal Code Section 781 provides as follows: [¶] When a public offense is committed in part in one county and in part in another, or the acts or effects thereof constituting or requisite to the consummation of the offense occur in two or more counties, the venue of such offense(s) is in either county. [¶] For purposes of venue under Penal Code Section 781 the phrase `requisite to the commission of the offense' means requisite to achieving the offender's unlawful purpose. [¶] A defendant may commit a crime in a particular county even though he/she was not personally present in the county. [¶] A telephone call for the purpose of planning a crime which is received within the forum county may be adequate basis for venue, despite the fact the call originated from outside the county. [¶] In this case the forum county is Marin County. [¶] The prosecution has the burden of establishing facts as to the issue of venue. [¶] The prosecution must prove venue by a preponderance of the evidence."
Shortly after commencing deliberations, the second jury asked the trial court by note: "The question is: are we deciding the more appropriate place for the trial *570 OR is Marin an appropriate place? [¶] The first part of the question means to me, Where did the bulk of the crime happen. Is that a valid interpretation? [¶] Also please clarify the following sentence: [¶] A telephone call for the purpose of planning a crime which is received w/i the foreign [sic: evidently for "forum"] county may be adequate basis for venue, despite the fact the call originated from outside the county." After conferring with the prosecutor and defense counsel, the trial court responded by note: "As to (1), the question is not, based on the facts and the instructions I have previously given you, whether Marin County is `the more appropriate place' for trial or `the more appropriate' venue, but whether Marin County is `an appropriate place,' or `an appropriate venue' that is, whether, under the facts and the instructions I have previously given you, Marin County has venue, even though another county may also have venue. [¶] As to (2), you have quoted ... [a particular portion of the instructions given]. You should apply that law, as well as the other instructions I have given you, to the facts as you determine them, and in this way arrive at your verdict." (Italics added in place of underscoring in original.)
Defendant's claim, in substance, is that the trial court's instructions on venue were erroneous because they incorrectly stated the law on the issue and effectively directed an adverse finding by removing the question from the jury's consideration. As we shall explain, we find no error.
The independent or de novo standard of review is applicable in assessing whether instructions correctly state the law (People v. Berryman (1993) 6 Cal. 4th 1048, 1089, 25 Cal. Rptr. 2d 867, 864 P.2d 40, overruled on another point by People v. Hill (1998) 17 Cal. 4th 800, 823, fn. 1, 72 Cal. Rptr. 2d 656, 952 P.2d 673) and also whether instructions effectively direct a finding adverse to a defendant by removing an issue from the jury's consideration (see People v. Figueroa (1986) 41 Cal. 3d 714, 723-741, 224 Cal. Rptr. 719, 715 P.2d 680; People v. Leonard (2000) 78 Cal. App. 4th 776, 794, 93 Cal. Rptr. 2d 180).
We conduct our analysis of defendant's claim of error with the recognition that, under the prior rule, venue was a question of fact for the jury.
After independent review, we conclude that the trial court's instructions on venue correctly stated the law on the issue.
To begin with, the trial court's instructions correctly informed the jury as to the burden and standard of proof pertaining to venue. As stated, the People must prove, by a preponderance of the evidence, the facts underlying venue. The trial court expressly instructed the jury that "[t]he prosecution has the burden of establishing facts as to the issue of venue" and "must prove venue by a preponderance of the evidence." Nothing that the trial court stated in its response to the jury's questions during deliberations undermined that instruction.
In addition, as will appear, the trial court's instructions correctly informed the jury as to the venue requirement that pertains to this case under section 781, and its response to the jury's questions during deliberations simply clarified that the issue of venue turned on whether Marin County was an appropriate place for trial rather than the more appropriate place.
In determining the meaning of section 781, we construe the provision liberally in order to achieve its underlying purpose, which is to expand venue beyond the single county in which a crime may be said to have been committed (see, e.g., People v. Gutierrez (2002) 28 Cal. 4th 1083, 1118, 124 Cal. Rptr. 2d 373, 52 P.3d 572; People v. Simon, supra, 25 Cal.4th at p. *571 1109, 108 Cal. Rptr. 2d 385, 25 P.3d 598; People v. Bismillah (1989) 208 Cal. App. 3d 80, 85, 256 Cal. Rptr. 25; cf. Price v. Superior Court, supra, 25 Cal.4th at p. 1055, 108 Cal. Rptr. 2d 409, 25 P.3d 618 [concluding that provisions like § 781 are "remedial and for that reason [are] construed liberally to achieve the legislative purpose of expanding criminal jurisdiction"]) consistently, of course, with "protect[ing] a defendant from being required to stand trial in a distant and unduly burdensome locale" (People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598).
What is important for present purposes is the phrase in section 781 that speaks of "acts or effects ... requisite to the consummation" of a crime which establish venue in any county in which they occur. The words "acts ... requisite to the consummation" of a crime establishing venue in a county have been liberally construed to embrace preparatory acts (People v. Crew, supra, 31 Cal.4th at p. 836, 3 Cal. Rptr. 3d 733, 74 P.3d 820; People v. Simon, supra, 25 Cal.4th at p. 1109, 108 Cal. Rptr. 2d 385, 25 P.3d 598), such as the following: the theft of firearms in a county leading to a murder (see People v. Price (1991) 1 Cal. 4th 324, 384-386, 3 Cal. Rptr. 2d 106, 821 P.2d 610); meetings with an accomplice and victims in a county to make arrangements pursuant to a scheme to produce a pornographic film, resulting in the victims' murder (see People v. Douglas (1990) 50 Cal. 3d 468, 492-494, 268 Cal. Rptr. 126, 788 P.2d 640); a kidnapping in a county leading to a murder (see People v. Powell (1967) 67 Cal. 2d 32, 62-63, 59 Cal. Rptr. 817, 429 P.2d 137); and striking and fleeing from a police officer in a county in an automobile in order to avoid taking a field sobriety test, resulting in assault with a deadly weapon (People v. Bismillah, supra, 208 Cal.App.3d at pp. 85-87, 256 Cal. Rptr. 25). By the same token, the words "effects ... requisite to the consummation" of a crime establishing venue in a county should be liberally construed to embrace preparatory effects, such as the placement of a telephone call into a county leading to a crime. In People v. Price (1989) 210 Cal. App. 3d 1183, 1189-1192, 259 Cal. Rptr. 282 on which the trial court relied in formulating its instructions the Court of Appeal so construed the words in question, holding, on facts similar to those here involving the sale or transportation of cocaine, that a "telephone call for the purpose of planning a crime received within [a] county is an adequate basis for venue, despite the fact the call was originated outside the county" (People v. Price, supra, 210 Cal.App.3d at p. 1192, 259 Cal. Rptr. 282).[11] Although we recognize that the holding of the Court of Appeal in Price represents the most liberal construction of the words "effects ... requisite to the commission" of a crime reflected in a reported decision, we cannot find its holding unsound.
Evidently in order to avoid this conclusion, defendant proposes a considerably narrower construction of section 781. First, he reads section 781 as though it spoke only of "acts ... requisite to the consummation" of a crime establishing venue in a county, and not also of "effects," a word that proves crucial here. Second, defendant goes on to attempt to apply a gloss to "acts" in order to transform the reference into "acts deliberately targeting a county or its residents." Defendant argues *572 that without such a gloss, section 781 would fail to achieve the object of venue provisions from the defendant's perspective, namely, to "provide for trial in a county that bears a reasonable relationship" to the crime in question and thereby "restrict[] ... the discretion of the prosecution to file charges in any locale within the state that it chooses, an option that, if available, would provide the prosecution with the considerable power to choose a setting that, for whatever reason, the prosecution views as favorable to its position or hostile or burdensome to the defendant's" (People v. Simon, supra, 25 Cal.4th at p. 1095, 108 Cal. Rptr. 2d 385, 25 P.3d 598). The gloss applied by defendant, however, inserts into section 781 something that is not present and that contracts venue rather than extends it. Indeed, absent from section 781 as from the general venue provision of section 777 and from other venue provisions as well (see, ante, 8 Cal.Rptr.3d at p. 563, fn. 7, 82 P.3d pp. 765-766, fn. 7) is a requirement that the defendant possess any mental state whatever with respect to a county, for purposes of venue. The requirement of "effects" in a county "requisite to the consummation" of a crime satisfies the need for a reasonable relationship between the crime and the county and, as a result, restricts the People's charging discretion within tolerable bounds. Moreover, the gloss applied by defendant would purchase freedom from manipulation of venue by the People at the cost of allowing similar manipulation by the defendant, who then could choose only a favorable county, or only the residents of a favorable county, for his or her criminal activity.
After independent review, we also conclude that the trial court's instructions on venue did not effectively direct a finding adverse to defendant by removing the issue from the jury's consideration. The trial court's instructions, as already discussed, correctly informed the jury on the matter of venue and on the pertinent burden and standard of proof, and the aspects of the instructions challenged by defendant amounted merely to pinpoint instructions properly "relating particular facts to ... [the] issue" of venue (People v. Sears (1970) 2 Cal. 3d 180, 190, 84 Cal. Rptr. 711, 465 P.2d 847).
C
Defendant also contends that the evidence is insufficient to support the second jury's finding on venue.
Applying, with appropriate modification, the standard employed in reviewing a claim of insufficient evidence to sustain a guilty verdict under California decisional law (see People v. Johnson (1980) 26 Cal. 3d 557, 575-579, 162 Cal. Rptr. 431, 606 P.2d 738), we believe that a rational trier of fact certainly could have found that the People had proved, by a preponderance of the evidence, that Marin County was an appropriate place for trial under section 781. There was evidence that defendant's placed several telephone calls not merely one to Marin from San Francisco as part of the negotiations leading up to his two sales of cocaine base in San Francisco. Defendant's telephone calls to Marin constituted "effects ... requisite to the consummation" of the crimes in question.
Defendant argues against our conclusion, but we find his position unpersuasive. To begin with, the circumstance that defendant may not have placed a telephone call to Marin deliberately, or even knowingly, would not defeat venue in that county. Under section 781, venue turns on the presence or absence, in a county, of acts or effects constituting the crime or requisite to the commission of the crime not on the defendant's state of mind or on the soundness of any beliefs that he or she might *573 hold as to the location of those acts or effects. Further, contrary to defendant's contention, it is immaterial that venue in a civil action on a sales contract is appropriate (pursuant to section 395 of the Code of Civil Procedure and Friedman Bag Co., Inc. v. Shrier (1961) 194 Cal. App. 2d 561, 564-565, 15 Cal. Rptr. 38) in the county, among other locations, in which a seller accepts a buyer's offer. We here are concerned with a criminal action for the sale of cocaine base and with section 781 not with a civil action on a sales contract under Code of Civil Procedure section 395 or Friedman Bag Co., which implicate distinctly different concerns.
We recognize that defendant had a legitimate interest, served by section 781 among other venue provisions, in possessing a "safeguard against being required to stand trial in an unrelated and potentially burdensome distant location." (People v. Simon, supra, 25 Cal.4th at p. 1103, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) But by being required to stand trial in Marin rather than San Francisco, defendant hardly found himself in that type of location. Marin, of course, is not distant from San Francisco, but rather borders it. The two counties share the same 415 area code, and thus telephone calls made to a number with that area code could be received in one or the other of those counties. Neither was Marin unrelated to defendant's crimes, particularly inasmuch as defendant placed several telephone calls to the county in the negotiations leading up to his two sales of cocaine base.
As noted, Detective Yamanoha lied to defendant, stating that he was in Santa Rosa in Sonoma County, the county immediately north of Marin, when he actually was in Marin. Yamanoha told the lie to defendant in order to further his attempt to buy cocaine base from him in Marin and apparently in order to arrest him there at an opportune time. The circumstance that Yamanoha lied to defendant seems unremarkable: evidently, Yamanoha's object was to persuade defendant to come to Marin, which was both the county in which (or to whose residents) he believed defendant had made sales of cocaine base and the county in which he himself possessed his fullest authority as a peace officer (see § 830.1, subd. (a)), and his means of persuading defendant to come to Marin was to present the county as a reasonable half-way point between San Francisco and Santa Rosa. In any event, the circumstance that Yamanoha lied to defendant does not establish that it was unfair to try defendant in Marin. On the contrary, because defendant himself placed at least one telephone call to Yamanoha at a telephone number with a 707 area code the area code encompassing Sonoma County defendant cannot reasonably claim that he could not have known that the negotiations leading up to his two sales of cocaine base involved a county other than San Francisco, nor can he reasonably claim that requiring him to stand trial in Marin, which is closer to San Francisco than Sonoma County, was in any manner oppressive or unduly burdensome. Under these circumstances, we conclude that venue in Marin County clearly was proper under section 871.[12]
*574 D
Defendant finally contends that by drawing from Marin County the first jury (which returned the verdicts finding him guilty of two counts of sale of cocaine base), the trial court violated his right, under the Sixth Amendment to the United States Constitution and section 16 of article I of the California Constitution, to trial by jurors of the vicinage.
In Price v. Superior Court, supra, 25 Cal. 4th 1046, 108 Cal. Rptr. 2d 409, 25 P.3d 618, we concluded that the vicinage right embodied in the Sixth Amendment, which is the right of an "accused ... to a ... trial ... by an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law," applies only against the United States and is not incorporated by the Fourteenth Amendment's due process clause for operation against the states. (Price v. Superior Court, supra, 25 Cal.4th at pp. 1057-1069, 108 Cal. Rptr. 2d 409, 25 P.3d 618.) We also concluded that the vicinage right implied in article I, section 16 of the California Constitution (see Price v. Superior Court, supra, 25 Cal.4th at pp. 1071-1078, 108 Cal. Rptr. 2d 409, 25 P.3d 618), constitutes simply the right of an accused to a trial by an impartial jury drawn from a place bearing some reasonable relationship to the crime in question (id. at p. 1075, 108 Cal. Rptr. 2d 409, 25 P.3d 618).
Under Price, defendant's claim clearly lacks merit. Defendant did not suffer any violation of his Sixth Amendment vicinage right, because that provision does not apply in state court proceedings. In order to preserve the point for further review, defendant expresses disagreement with our conclusion in Price that the Sixth Amendment vicinage right operates only with respect to federal court proceedings, but he fails to offer any basis for us to revisit our holding. Neither did defendant suffer any violation of his vicinage right under article I, section 16 of the California Constitution, because, as is apparent above, the conduct of his trial in Marin County bore a reasonable relationship to the charge that he engaged in two sales of cocaine base. On this point, defendant does not raise any arguments other than those that we have rejected above.
IV
For the reasons stated above, the judgment of the Court of Appeal is affirmed.
WE CONCUR: KENNARD, BAXTER, WERDEGAR, CHIN and MORENO, JJ.
Dissenting Opinion by BROWN, J.
I agree venue is a question of law for the court, to be decided prior to trial; I also agree we should not apply this new rule to the present case or to any other case not yet final on appeal.
However, I do not agree Marin County was a proper venue for this case.
My disagreement does not arise from any sympathy with defendant, who would likely have sold cocaine to the Man in the Moon, so long as he could deliver it within the friendly prosecutorial confines of San Francisco. However, I am concerned that by turning a blind eye to forum shopping by law enforcement authorities, the majority is inadvertently encouraging it.
"[V]enue provisions applicable to criminal proceedings serve a variety of purposes." *575 (People v. Simon (2001) 25 Cal. 4th 1082, 1095, 108 Cal. Rptr. 2d 385, 25 P.3d 598 (Simon).) "[F]rom the perspective of a defendant, statutory enactments that provide for trial in a county that bears a reasonable relationship to an alleged criminal offense also operate as a restriction on the discretion of the prosecution to file charges in any locale within the state that it chooses, an option that, if available, would provide the prosecution with the considerable power to choose a setting that, for whatever reason, the prosecution views as favorable to its position or hostile or burdensome to the defendant's." (Ibid., italics added.) "[V]enue provisions also serve to protect the interests of the community in which a crime or criminal activity occurs, `vindicat[ing] the community's right to sit in judgment on crimes committed within its territory.' (People v. Guzman [(1988)] 45 Cal.3d [915,] 937 [248 Cal. Rptr. 467, 755 P.2d 917].)" (Ibid., italics added.)
The balancing test proposed by the Attorney General, which I will discuss below, respects and serves the purposes of the venue provisions that we reiterated in Simon: that trial occur in a county with a reasonable relationship to the alleged criminal offense, thereby vindicating the community's right to sit in judgment on crimes committed within its territory. Regrettably, the test adopted by the majority invokes the letter of the venue provisions while betraying their spirit.
Forum shopping is what this case is about. The Marin County Sheriff's Department first sought to have this case prosecuted in San Francisco, the jurisdiction in which the Marin authorities obviously believed the crime to have occurred. It was only after the San Francisco District Attorney's Office declined to prosecute that the Marin County Sheriff's Department took the case to the Marin County District Attorney's Office.
Detective Yamanoha of the Marin County Sheriff's Department had information that defendant's confederate was selling cocaine in Marin, or at least to Marin residents. Detective Yamanoha's subsequent investigation revealed that defendant was willing to sell cocaine to someone who said he was calling from Sonoma County. Detective Yamanoha told defendant he was calling from Sonoma County because he did not want defendant to know he was actually calling from Marin County.[1] Defendant insisted upon delivering the cocaine in San Francisco.
The frustration of the Marin County Sheriff's Department at its inability to lure defendant out of San Francisco, where he apparently believed he could sell drugs with impunity to residents and nonresidents alike, is understandable. However, frustration can be a breeding ground for abuse, and by condoning the forum shopping engaged in here, the majority teeters on a slippery slope.
The following hypothetical illustrates just how slippery it is. Suppose that X sells drugs exclusively to San Francisco residents. X's self-imposed territorial sales restriction does not manifest any concern over the welfare of citizens of other counties; he simply wishes to be able to claim sanctuary in San Francisco. Whatever his motivation, though, he is intentionally restricting his criminal activity to San Francisco. Suppose further that a San Francisco narcotics officer is frustrated by unwillingness on the part of the San Francisco District Attorney Office's to prosecute X. The majority provides that officer with a road map for forum shopping.
*576 Suppose the San Francisco officer finds sympathetic deputy district attorneys in Imperial and Marin Counties, and that the officer, while physically present in each of those counties, places calls to X in which he arranges to buy drugs from X, with the transactions to be executed in San Francisco. Suppose the officer tells X he is a San Franciscan, calling from San Francisco, and that he ultimately, as arranged, picks up the drugs from X in San Francisco. Finally, suppose the officer uses a cell phone with a 415 area code that is consistent with his cover story.
In this hypothetical, because X would have no reason to believe he was departing from his self-imposed rule of selling drugs only to San Francisco residents, and because he would not in fact have sold drugs to anyone with a connection to Imperial County, Imperial County could not be said to have a "reasonable relationship" to his criminal activity. (Simon, supra, 25 Cal.4th at p. 1095, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) Accordingly, the citizens of Imperial County would not have an interest in "`vindicat[ing] the community's right to sit in judgment on crimes committed within its territory.'" (Ibid.) Nevertheless, under the rule announced by the majority today, venue would lie in El Centro, 600 miles and a world view apart from San Francisco, simply because the officer, contrary to what he told X, was in Imperial County when he placed one of the phone calls. (Maj. opn., ante, 8 Cal.Rptr.3d at pp. 571-572, 82 P.3d at pp. 772-774.)
X would presumably object to venue in Imperial County on the ground that standing trial in El Centro would be unduly burdensome on him or his witnesses. However, even if he were successful in this objection, this would be but a minor setback for our hypothetical San Francisco officer, informed forum shopper that he is. The officer has a fallback Marin County and the majority have already certified the appropriateness of venue there (maj. opn., ante, 8 Cal.Rptr.3d at pp. 573-574, 82 P.3d at pp. 774-775), even though Marin County would have no more at stake in the case than would Imperial.
Curiously, the majority is less sensitive to the abuse of forum shopping than is the Attorney General. There is no requirement, the majority states, that a defendant "possess any mental state whatever with respect to a county, for purposes of venue." (Maj. opn., ante, 8 Cal.Rptr.3d at pp. 571-572, 82 P.3d at pp. 772-774.)
The Attorney General, on the other hand, proposed a balancing test for determining venue in which the defendant's mental state would be one of the key factors. "If the crime did not occur in the forum county, one needs to weigh the following factors to decide whether venue is permissible there: (1) the extent to which the defendant either (a) used the forum county to facilitate his criminal purpose or (b) otherwise harmed the forum county; (2) the extent to which the defendant should have known he was (a) using the forum county to facilitate his criminal purpose or (b) otherwise harming the forum county; (3) the extent to which trial in the forum county will impose logistical hardship on the defendant; and (4) the extent to which the prosecution gained tactical advantage by acting improperly to create venue in the forum county." (Italics added.)
If the balancing test proposed by the Attorney General is applied to the facts of the foregoing hypothetical, venue would clearly be improper in Marin County. X had no reason whatever to believe he was harming Marin County or using it to facilitate his criminal purposes. And it would be highly artificial to say that Marin County was harmed, nevertheless, by X just *577 because the San Francisco officer placed a call from there, when the officer told X he was a San Franciscan calling from San Francisco. Because the San Francisco District Attorney's Office would not prosecute X, the San Francisco officer clearly gained a tactical advantage by employing a stratagem in order to create venue in Marin County. Nevertheless, despite the fact that all of the equities identified by the Attorney General would run against trying this hypothetical case in Marin County, the majority would uphold a finding of venue there.
Applying the Attorney General's test to the facts of this case, I conclude venue was improper in Marin County, but would have been proper in Sonoma County. Detective Yamanoha told defendant and his confederate he was from Santa Rosa, which is in Sonoma County. Therefore, defendant had reason to believe he was harming Sonoma County and using it to facilitate his criminal purpose. On the other hand, defendant had no reason to believe he was harming Marin County or using it to facilitate his criminal purpose. The mere fact that Detective Yamanoha, while claiming to be in Sonoma County when he placed his calls to defendant, was actually in Marin County did not create a "reasonable relationship" between defendant and Marin. (Simon, supra, 25 Cal.4th at p. 1095, 108 Cal. Rptr. 2d 385, 25 P.3d 598.) Finally, the Marin County Sheriff's Department clearly gained an advantage by taking this case to the Marin County District Attorney's Office after the San Francisco County District Attorney's Office declined to prosecute it.
I would reverse the judgment of the Court of Appeal, which affirmed the judgment of conviction.
NOTES
[1] Subsequent unspecified section references are to the Penal Code.
[2] The location in San Francisco County was more than 500 yards distant from the boundary with Marin County, and as such was beyond the reach of section 782, which provides that "[w]hen a public offense is committed on the boundary of two or more jurisdictional territories, or within 500 yards thereof, the jurisdiction of such offense is in any competent court within either jurisdictional territory."
[3] For similar reasons, we found no reason to resolve this issue in our recent decision in People v. Crew (2003) 31 Cal. 4th 822, 836, 3 Cal. Rptr. 3d 733, 74 P.3d 820.
[4] Megladdery was disapproved on another point in People v. Simon, supra, 25 Cal.4th at page 1108, 108 Cal. Rptr. 2d 385, 25 P.3d 598.
[5] See, e.g., People v. McGreggor (1891) 88 Cal. 140, 144, 26 P. 97; People v. More (1886) 68 Cal. 500, 504, 9 P. 461, overruled on another point, People v. Simon, supra, 25 Cal.4th at page 1106, 108 Cal. Rptr. 2d 385, 25 P.3d 598; People v. Alviso (1880) 55 Cal. 230, 233; People v. Sering (1991) 232 Cal. App. 3d 677, 689, 283 Cal. Rptr. 507; People v. Jackson (1983) 198 Cal. Rptr. 135, 150 Cal. App. Supp. 3d 1, 16; People v. Witt (1975) 53 Cal. App. 3d 154, 167, 125 Cal. Rptr. 653; People v. Jones (1964) 228 Cal. App. 2d 74, 86-87, 39 Cal. Rptr. 302; People v. Garcia (1953) 266 P.2d 233, 122 Cal. App. Supp. 2d 962, 965-966; People v. Megladdery, supra, 40 Cal.App.2d at page 764, 106 P.2d 84; People v. Smith (1938) 26 Cal. App. 2d 189, 190-191, 79 P.2d 155; People v. Brock (1937) 21 Cal. App. 2d 601, 607, 70 P.2d 210; People v. Morales (1928) 91 Cal. App. 731, 734, 267 P. 570; In re Application of O'Connor (1927) 80 Cal. App. 647, 653, 252 P. 730; People v. Coker (1926) 78 Cal. App. 151, 159, 248 P. 542.
[6] We note in passing that in Sullivan v. Louisiana (1993) 508 U.S. 275, 113 S. Ct. 2078, 124 L. Ed. 2d 182, followed by United States v. Gaudin (1995) 515 U.S. 506, 115 S. Ct. 2310, 132 L. Ed. 2d 444, the United States Supreme Court held that the due process clause of the Fourteenth Amendment to the United States Constitution demands that the state prove every element of a crime beyond a reasonable doubt to the satisfaction of the jury. In Apprendi v. New Jersey (2000) 530 U.S. 466, 120 S. Ct. 2348, 147 L. Ed. 2d 435, the court similarly held that the due process clause of the Fourteenth Amendment demands that the state prove beyond a reasonable doubt to the jury every fact, other than a prior conviction, that increases the punishment for a crime beyond the maximum otherwise prescribed. Plainly, venue is not an element of any crime, nor do the facts underlying venue increase the punishment for any crime; venue and its underlying facts merely establish the appropriateness of a place for trial of the crime charged.
In this regard, we add that we have been presented with no argument, and have discovered no basis, upon which to conclude that the rule that venue is a question of fact for the jury is compelled by any California statute or by any provision of the United States or California Constitutions, including the guaranties of trial by jury (U.S. Const., Amend. VI; Cal. Const., art. I, § 16) or due process of law (U.S. Const., Amend. XIV; Cal. Const., art. I, §§ 7, 15).
[7] Venue provisions in addition to sections 777 and 781 include those listed in People v. Simon, supra, 25 Cal.4th at page 1094, footnote 6, 108 Cal. Rptr. 2d 385, 25 P.3d 598, namely, section 777a (venue for parental failure to provide care for a minor child lies in the county in which the child is cared for or in the county in which the parent is apprehended); section 777b (venue for perjury committed outside of California lies in the county in California "in which occurs the act, transaction, matter, action, or proceeding, in relation to which the [perjured statement] was given or made"); section 778 (venue for a crime commenced outside of California but consummated within California by a defendant outside of California lies in the county of consummation); section 782 (venue for a crime committed on, or within 500 yards of, the boundary of two or more counties lies in each of the counties in question); section 783.5 (venue for a crime committed in a park situated in more than one county lies in any county in which any part of the park is situated); section 784 (venue for kidnapping, false imprisonment, or seizure for slavery lies in the county in which the crime is committed, the county out of which the victim is taken, or any county in which the defendant does any "act ... in instigating, procuring, promoting, or aiding ... or ... abetting" with respect to the crime); section 784.5 (venue for child abduction lies in the county in which the child resides or where the agency deprived of custody is located, the county in which the child was taken, detained, or concealed, or the county in which the child is found); section 784.7 (venue for multiple specified sexual, domestic, harm-to-child, and stalking crimes generally lies in any county in which any of the crimes is committed); section 785 (venue for incest lies in the county in which the crime is committed or in the county in which the defendant is apprehended; venue for bigamy lies in the county in which the marriage took place, any county in which cohabitation occurs, or the county in which the defendant is apprehended); section 788 (venue for treason, when the overt act is committed outside California, lies in any county); section 789 (venue for theft or receipt of stolen property, when the property in question has been stolen or received in another state and then brought into California, lies in any county into or through which the property is brought); section 790 (venue for murder or manslaughter lies in the county in which the fatal injury was inflicted, the county in which the victim dies, or the county in which the victim's body is found); section 795 (venue for crimes relating to prize fighting lies in any county in which any act is done toward commission of the crime, any county that the defendant passes into, out of, or through, in order to commit the crime, or the county in which the defendant is arrested); and Business and Professions Code section 16754 (venue for unlawful restraint of trade lies in any county in which the crime is committed in whole or in part, any county in which any of the defendants resides, or any county in which any corporate defendant does business).
[8] In Simon, we added this note of caution: "Early cases frequently use the phrase `locus delicti' ... to refer to the issue of venue.... [A]lthough under section 777 venue generally is set in the county in which the crime occurred, there are numerous statutes that authorize trial in a county other than the county in which the crime occurred. [Citation.] In such circumstances, a determination of the location of the crime does not necessarily resolve the venue question, and thus it is potentially misleading to equate the phrase `locus delicti' with the issue of venue." (People v. Simon, supra, 25 Cal.4th at p. 1100, fn. 11, 108 Cal. Rptr. 2d 385, 25 P.3d 598.)
[9] Defendant has requested that we take judicial notice that (1) Santa Rosa is located within Sonoma County; (2) Sonoma County, including Santa Rosa, comes within the 707 telephone area code; and (3) both San Francisco County and Marin County come within the 415 telephone area code. The People have not opposed the request. As a reviewing court, we may grant such a request (see Evid.Code, § 459, subd. (a)), and hereby do so, inasmuch as its object comprises "[f]acts ... that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy" (id., § 452, subd. (h)).
[10] Defendant relies on People v. Avalos (1984) 37 Cal. 3d 216, 207 Cal. Rptr. 549, 689 P.2d 121, and People v. Superior Court (Marks) (1991) 1 Cal. 4th 56, 2 Cal. Rptr. 2d 389, 820 P.2d 613, but each of those decisions clearly is distinguishable.
In Avalos, we characterized as incomplete a jury's verdict finding the defendant guilty of murder, because the jury failed to determine the degree of the murder, as it was required to do, as a result of its inability to agree on that issue. (People v. Avalos, supra, 37 Cal.3d at pp. 224-229, 207 Cal. Rptr. 549, 689 P.2d 121.) Here, by contrast, the jury was able to, and did, agree completely on the issue of guilt. That the jury was unable to agree on the matter of venue had no effect on those guilt verdicts, and did not render them incomplete like the verdict in Avalos. The circumstance that, under the prior rule, venue was a question of fact for the jury does not affect this conclusion. Venue and the crime of sale of cocaine base are separate and independent determinations. Venue is not an element of the sale of cocaine base, but instead is merely a "procedural issue[ ] that do[es] not relate to ... guilt or innocence" at all (People v. Simon, supra, 25 Cal.4th at p. 1110, fn. 18, 108 Cal. Rptr. 2d 385, 25 P.3d 598). Accordingly, contrary to defendant's argument, a finding on venue by the jury was not necessary to the jury's verdicts finding him guilty of two counts of sale of cocaine base.
In Marks, we concluded that a trial court's erroneous failure, under section 1368, to hold a hearing on the defendant's mental competence prior to trial, after declaring a doubt concerning such mental competence, rendered the ensuing judgment of conviction and sentence of death a nullity, because by its terms section 1368 suspended the criminal proceedings pending resolution of the issue of mental competence. (People v. Superior Court (Marks), supra, 1 Cal.4th at pp. 63-71, 2 Cal. Rptr. 2d 389, 820 P.2d 613.) Here, however, the criminal proceedings were not suspended by any provision analogous to section 1368 after the first jury returned its verdicts finding defendant guilty of two counts of sale of cocaine base, but was unable to agree on venue.
[11] People v. Price, supra, 210 Cal. App. 3d 1183, 259 Cal. Rptr. 282, which had been decided by Division Three of the Court of Appeal for the Fourth Appellate District, subsequently was overruled by the same division on another point, in People v. Meza (1995) 38 Cal. App. 4th 1741, 1748, 45 Cal. Rptr. 2d 844.
[12] Contrary to the assertion in the dissent, "[f]orum shopping" is not"what this case is about." (Dis. opn. of Brown, J., post, 8 Cal.Rptr.3d at p. 575, 82 P.3d at pp. 775-776.) Forum shopping, of course, is "[t]he practice of choosing the most favorable jurisdiction ... in which a claim might be heard." (Black's Law Dict. (7th ed.1999) p. 666.) It is plain that Detective Yamanoha did not engage in any such practice. As defendant himself admits, Yamanoha presented the case in the first instance to the San Francisco District Attorney for prosecution in San Francisco which the dissent characterizes as the least favorable jurisdiction. It was only after the San Francisco District Attorney declined to prosecute, apparently for reasons of policy, that Yamanoha was compelled to approach the Marin District Attorney.
[1] Since Detective Yamanoha believed defendant and his confederate had a customer base in Marin County, it is baffling that he was so intent on their not knowing he was calling from Marin County. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2524706/ | 105 Cal. Rptr. 2d 387 (2001)
25 Cal. 4th 136
19 P.3d 1129
The PEOPLE, Plaintiff and Respondent,
v.
Floyd E. MURPHY, Jr., Defendant and Appellant.
No. S075263.
Supreme Court of California.
March 29, 2001.
Rehearing Denied June 20, 2001.
*389 Donald I. Segerstrom, Jr., under appointment by the Supreme Court, Sonora, for Defendant and Appellant.
Daniel E. Lungren and Bill Lockyer, Attorneys General, George Williamson and David P. Druliner, Chief Assistant Attorneys General, Robert R. Anderson, Assistant Attorney General, W. Scott Thorpe, Wayne K. Strumpfer and Rachelle A. Newcomb, Deputy Attorneys General, for Plaintiff and Respondent.
*388 CHIN, J.
The "Three Strikes" law prescribes increased punishment for a person who is convicted of a felony after having been previously convicted of specified offenses. (Pen.Code, §§ 667, subds. (b)-(i), 1170.12.)[1] The extent of the increase depends on the number of qualifying prior convictions, or strikes. The habitual sexual offender statute prescribes a prison term of 25 years to life for a person who is convicted of one or more of certain specified offenses after having been previously convicted of one of those specified offenses. (§ 667.71.)
We granted review in this case to consider the following sentencing issues under these statutes: (1) whether a conviction for oral copulation with a child who is less than 14 years old and more than 10 years younger than the perpetrator (§ 288a, subd. (c)(1)) is a strike under the Three Strikes law; (2) whether a defendant with a qualifying prior conviction under the habitual sexual offender statute who sustains two new qualifying convictions in one proceeding may receive a separate prison term under section 667.71 for each of the new convictions; and (3) whether a court should apply both the Three Strikes law and the habitual sexual offender statute in determining the sentence of a defendant who meets the criteria of both statutes. We conclude that defendant's prior conviction under section 288a constitutes a strike, that section 667.71 authorizes imposition of a term for each of his new qualifying convictions, and that his sentence for each new conviction should be determined by applying the provisions of both the Three Strikes law and the habitual sexual offender statute.
FACTS
As relevant here, an information filed July 2, 1996, charged defendant Floyd E. Murphy, Jr., with two counts of violating section 288, subdivision (a)committing a "lewd or lascivious act" on a child who is less than 14 years old, with the intent of arousing, appealing to, or gratifying the lust, passions, or sexual desires of himself or the child. As to each count, the information alleged that in May 1980 defendant sustained two qualifying prior convictions under the Three Strikes law, one for "oral copulation with child under 14 years, in violation of Section 288a[, subdivision] (c)," *390 and the other for a "Lewd Act with child under 14 years, in violation of Section 288[, subdivision] (a)." The information also alleged that these prior convictions rendered defendant a habitual sexual offender under section 667.71. Finally, the information alleged that the prior conviction under section 288, subdivision (a), constituted a "serious felony" conviction for enhancement purposes under section 667, subdivision (a).
After hearing the evidence, the jury returned a guilty verdict on both counts. Defendant waived trial on the alleged prior convictions and admitted that he had previously been convicted under section 288a, subdivision (c), of "oral copulation on a child under the age of 14 years" and under section 288, subdivision (a), of "lewd conduct with a child under the age of 14 years." The trial court sentenced defendant to a total unstayed prison term of 50 years to life, consisting of a consecutive term of 25 years to life for each conviction. The court explained: "Now, that sentence is pursuant to the provisions of [section] 667 subdivision] (b) through subdivision] (i) [the Three Strikes law]. It's also subject to the provisions of [section] 667.71...."
On appeal, defendant argued in part that the trial court committed the following sentencing errors: (1) treating his prior conviction under section 288a, subdivision (c), as a strike under the Three Strikes law; (2) relying on section 667.71 to impose a consecutive term for each of his new convictions; and (3) sentencing him under both section 667.71 and the Three Strikes law. The Court of Appeal rejected all of these arguments, finding that defendant's prior conviction under section 288a, subdivision (c), constituted a strike under the Three Strikes law, that section 667.71 authorized a consecutive term of 25 years to life for each of defendant's new convictions, and that each of those terms had to be tripled under the Three Strikes law (§ 667, subd. (e)(2)(A)(i)) because defendant had two prior strikes. For several reasons, however, it vacated defendant's sentence and remanded for resentencing, directing the trial court to consider various sentencing issues.
We then granted defendant's petition for review.
Discussion
I. Defendant's Section 288a Conviction Is a Strike
A strike under the Three Strikes law is a prior conviction for any offense that, as of June 30, 1993 (§ 667, subd. (h)), was "defined in subdivision (c) of Section 667.5 as a violent felony or ... defined in subdivision (c) of Section 1192.7 as a serious felony in this state." (§ 667, subd. (d)(1).) In arguing that defendant's prior conviction under section 288a, subdivision (c), for oral copulation with a child under 14 years of age is a strike, the Attorney General relies principally on subdivision (c)(6) of section 1192.7 (section 1192.7(c)(6)). Under section 1192.7(c)(6), a "lewd or lascivious act on a child under the age of 14 years" is a "serious" felony. Citing People v. Henderson (1987) 195 Cal. App. 3d 1235, 241 Cal. Rptr. 461, the Attorney General argues that an act of oral copulation with a child under 14 years of age is lewd per se, i.e., it necessarily constitutes a lewd act on a child within the meaning of section 1192.7(c)(6).
Defendant disagrees, arguing that the language of section 1192.7(c)(6)"lewd or lascivious act on a child under the age of 14 years"is an "obvious preference ... to a violation of section 288, subdivision (a)." The latter section provides in relevant part: "Any person who willfully and lewdly commits any lewd or lascivious act ... upon or with the body, or any part or member thereof, of a child who is under the age of 14 years, with the intent of arousing, appealing to, or gratifying the lust, passions, or sexual desires of that person or the child, is guilty of a felony...." (§ 288, subd. (a).) Defendant reasons *391 that because this language "closely matches" the language of section 1192.7(c)(6), "the `serious felony'" that section 1192.7(c)(6) defines "is a violation of section 288, subdivision (a)." Defendant then asserts that because section 288, subdivision (a), "necessarily includes the specific intent to arouse, appeal to, or gratify the lust, passions or sexual desires of one of the participants" and oral copulation of a child under section 288a, subdivision (c), is "a general intent crime," "it is possible to commit a violation of section 288a, subdivision (c) without committing a lewd or lascivious act upon a child under 14." Thus, defendant asserts, his conviction under section 288a, subdivision (c), is not a "serious felony" conviction under section 1192.7(c)(6).
As in any case involving statutory interpretation, our fundamental task here is to determine the Legislature's intent so as to effectuate the law's purpose. (White v. Ultramar, Inc. (1999) 21 Cal. 4th 563, 572, 88 Cal. Rptr. 2d 19, 981 P.2d 944.) We begin by examining the statute's words, giving them a plain and commonsense meaning. (Garcia v. McCutchen (1997) 16 Cal. 4th 469, 476, 66 Cal. Rptr. 2d 319, 940 P.2d 906.) We do not, however, consider the statutory language "in isolation." (Lungren v. Deukmejian (1988) 45 Cal. 3d 727, 735, 248 Cal. Rptr. 115, 755 P.2d 299.) Rather, we look to "the entire substance of the statute ... in order to determine the scope and purpose of the provision.... [Citation.]" (West Pico Furniture Co. v. Pacific Finance Loans (1970) 2 Cal. 3d 594, 608, 86 Cal. Rptr. 793, 469 P.2d 665.) That is, we construe the words in question "`in context, keeping in mind the nature and obvious purpose of the statute....' [Citation.]" (Ibid.) We must harmonize "the various parts of a statutory enactment ... by considering the particular clause or section in the context of the statutory framework as a whole." (Moyer v. Workmen's Comp. Appeals Bd. (1973) 10 Cal. 3d 222, 230, 110 Cal. Rptr. 144, 514 P.2d 1224; see also Woods v. Young (1991) 53 Cal. 3d 315, 323, 279 Cal. Rptr. 613, 807 P.2d 455; Title Ins. & Trust Co. v. County of Riverside (1989) 48 Cal. 3d 84, 91, 255 Cal. Rptr. 670, 767 P.2d 1148; Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal. 3d 1379, 1387, 241 Cal. Rptr. 67, 743 P.2d 1323.)
Applying these principles, we disagree with defendant. We first observe that defendant's argument is inconsistent with the plain language of section 1192.7(c)(6). An act of oral copulation on a child under 14 years of age by a person more than 10 years older than the child is a lewd or lascivious act under the common and ordinary meaning of those words.[2] Moreover, *392 as defendant acknowledges, section 1192.7(c)(6) contains "no direct reference to section 288." By contrast, both the electorate and the Legislature have enacted other criminal statutes that define the triggering conduct or circumstance by express reference to a lewd and/or lascivious act on a child "in violation of [s]ection 288." (§§ 190.2, subd. (a)(17)(E) ["lewd or lascivious act upon the person of a child under the age of 14 years in violation of Section 288"], 999?, subd. (a) ["lewd acts on a child under 14, in violation of Section 288"],* 1202.1, subd. (e)(6) ["[l]ewd or lascivious acts with a child in violation of Section 288"], 2962, subd. (e)(2)(I) ["[l]ewd acts on a child under the age of 14 years in violation of Section 288"], 11160, subd. (d)(20) ["[l]ewd and lascivious acts with a child, in violation of Section 288"].) Thus, the electorate and the Legislature have both shown that they know how to use language expressly requiring a violation of section 288 when that is their intent. The omission of such language from section 1192.7(c)(6)which the voters enacted by initiative and the Legislature subsequently amendedundermines defendant's assertion that it "obvious[ly] refer[s] ... to a violation of section 288, subdivision (a)." Indeed, defendant concedes that this omission "argu[ably]" shows an "inten[t] to broaden the number and type of acts that f[a]ll within the purview of section 1192.7(c)(6) beyond those acts within section 288's scope.
In resisting the statute's plain language, defendant relies in part on the Legislature's 1986 revision of section 1192.7(c)(6). As originally enacted in 1982 through Proposition 8, section 1192.7(e)(6) defined the term "serious felony" to include "lewd acts on a child under the age of 14 years." (Former § 1192.7(c)(6), added by Prop. 8, § 7, enacted by voters, Primary Elec.(June 8, 1982).) In 1986, the Legislature revised this provision into its current form: "lewd or lascivious act on a child under the age of 14 years." (§ 1192.7(c)(6), as amended by Stats.1986, ch. 489, § 1, p. 1809, italics added.) According to defendant, the amended statute's "use [of] the precise statutory language from the definition of a violation of section 288, subdivision (a)" shows that the Legislature "intended [section 1192.7(c)(6) ] to identify ... the felony defined in section 288, subdivision (a)."
We find defendant's analysis unpersuasive. Defendant is correct that the amended version of section 1192.7(c)(6) precisely matched some of the language of section 288, subdivision (a): the single phrase, "lewd or lascivious act." However, it did not match all of section 288, subdivision (a)'s language; as relevant here, it omitted the requirement that the perpetrator acted "with the intent of arousing, appealing to, or gratifying the lust, passions, or sexual desires of that person or the child (§ 288, subd. (a).) By contrast, the same 1986 legislation also reworded subdivision (c)(18) of section 1192.7 to completely "duplicate[ ] the definition of first degree burglary in effect at the time...." (People v. Cruz (1996) 13 Cal. 4th 764, 768, 55 Cal. Rptr. 2d 117, 919 P.2d 731.) This difference suggests that the Legislature did not, as defendant asserts, intend the 1986 revision of section 1192.7(c)(6) "to identify ... the felony defined in section 288, subdivision (a)." Had that been the Legislature's intent, it most likely would have either expressly referenced a violation of section 288 or, as it did in simultaneously revising the subdivision relating to first degree burglary, incorporated all of section 288, subdivision (a)'s language.[3]
*393 In support of his interpretation, defendant also suggests that limiting section 1192.7(c)(6) to violations of section 288, subdivision (a), is consistent with the structure of section 1192.7, subdivision (c). According to defendant, "[a]U of the other `serious felonies' set forth in subdivision (c) of section 1192.7 describe specific offenses, or offenses that are committed in a specific manner.... There is no other `serious felony' listed in subdivision (c) of section 1192.7 where a broad category of conduct is proscribed."
Defendant's argument fails to recognize that in prior decisions construing section 1192.7 we "`rejected the view that section[] ... 1192.7 consists] only of specific statutory offenses and enhancements. In so doing, [we] noted that although Proposition 8's serious felony enhancement provisions appear to be largely based upon section 12021.1, subdivision (b)'s list of violent offenses, they also include items describing nonviolent criminal conduct which do not precisely correspond to the elements of any preexisting criminal offense. [Citation.] [We] reasoned [that] the inclusion of these items evidenced the voter's intention to deter certain criminal conduct regardless of whether it refers to specific criminal offenses because it is perceived as dangerous and deserving of additional punishment when committed by recidivists. [We] therefore concluded [that] the enhancement provisions enacted by Proposition 8 refer to the criminal conduct described therein, not to specific criminal offenses and thus these provisions apply whenever the prosecution pleads and proves the specified conduct. [Citation.]' (Italics in original.) [Citation.]" {People v. Equarte (1986) 42 Cal. 3d 456, 463-64, 229 Cal. Rptr. 116, 722 P.2d 890.)
Defendant also relies on our decision in Martinez, supra, 11 Cal. 4th 434, 45 Cal. Rptr. 2d 905, 903 P.2d 1037. Citing Martinez, he asserts that "[a]n act with an underage child becomes `lewd or lascivious' depending entirely upon the sexual motivation and intent with which it is committed." "Accordingly," defendant asserts, "to constitute a `lewd or lascivious act on a child under 14 years' [within the meaning of section 1192.7(c)(6)], there is a specific intent that must accompany the act. That specific intent element is entirely missing from a violation of section 288a."
Defendant misconstrues Martinez. There, the defendant argued that section 288's express terms"any lewd or lascivious act" committed "with the intent of arousing, appealing to, or gratifying the lust, passions, or sexual desires of [the perpetrator] or the child"require proof of both an "inherently" lewd or lascivious act and the specified "sexual `intent.'" (Martinez, supra, 11 Cal.4th at p. 442, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) We rejected this argument and reaffirmed the long-held view that "`any touching' of an underage child committed with the intent to sexually arouse either the defendant or the child" establishes a section 288 violation. (Martinez, supra, 11 Cal.4th at p. 442, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) As defendant observes, in reaching this conclusion, we stated: "[W]e can only conclude that the touching of an underage child is `lewd or lascivious' and `lewdly' performed depending entirely upon the *394 sexual motivation and intent with which it is committed." (Id. at p. 449, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.)
Defendant's argument takes this statement out of context. As our opinion explained, we granted review in Martinez "for the limited purpose of determining the acts necessary to sustain a conviction under ... section 288." (Martinez, supra, 11 Cal.4th at p. 438, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) In making this determination, we stressed the "basic purpose" of that statute: "to provide children with `special protection' from sexual exploitation" because they "are `uniquely susceptible' to such abuse" and "suffer profound harm whenever they are perceived and used as objects of sexual desire. [Citation.] ... [S]uch concerns cannot be satisfied unless the kinds of sexual misconduct that result in criminal liability are greatly expanded where children are concerned." (Id at pp. 443-444, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) We found this purpose reflected in section 288's "broad and amorphous language," which "differs markedly from other statutes in the same `family' of crimes. [Citation.] In particular, other felony sex offenses prohibit the commission of certain clearly specified acts ... [and] describe[ ] the criminal act in precise and clinical terms." (Martinez, supra, 11 Cal.4th at pp. 442-43, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) We concluded that the absence of such precise language in section 288 "was deliberate" and disclosed the Legislature's intent "to include sexually motivated conduct not made criminal elsewhere in the scheme. [Citation.]" (Martinez, supra, 11 Cal.4th at p. 443, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) We then explained that although "children are routinely cuddled, disrobed, stroked, examined, and groomed as part of a normal and healthy upbringing," these "intimate acts may also be undertaken for the purpose of sexual arousal. Thus, depending upon the actor's motivation, innocent or sexual, such behavior may fall within or without the protective purposes of section 288." (Martinez, supra, 11 Cal.4th at p. 450, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) Given all of these considerations, we reaffirmed that "the `gist'" of the crime section 288 defines is "the defendant's intent to sexually exploit a child, not the nature of the offending act. [Citation.]" (Martinez, supra, 11 Cal.4th at p. 444, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) We thus concluded that "the lewd character of an activity cannot logically be determined separate and apart from the perpetrator's intent.... [A]ny other construction could exempt a potentially broad range of sexually motivated and harmful contact from the statute's reach. In light of the statutory purpose, we cannot conceive that the Legislature intended such a result. [Fn. omitted.]" (Id, at p. 450, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.)
Understood in this context, the statement defendant cites from Martinez, supra, 11 Cal.4th at page 450, 45 Cal. Rptr. 2d 905, 903 P.2d 1037, does not establish that whether an act is "lewd or lascivious" within the meaning of section 1192.7(c)(6) "depend[s] entirely upon the [perpetrator's] sexual motivation and intent." Martinez defined "lewd or lascivious act" only for purposes of applying section 288 and in light of that statute's basic purpose: to expand the kinds of criminal sexual misconduct where children are concerned by reaching sexually motivated conduct not otherwise made criminal. Section 288 thus is part of a statutory scheme that recognizes that some touchings of children are always harmful and improper, whereas others may or may not be, depending upon the actor's intent. To address the former, the Legislature passed statuteslike section 288a, subdivision (c)(1)that precisely describe the inherently harmful acts and prohibit them in all circumstances. To address the latter, the Legislature passed section 288. And, to implement this statutory scheme, Martinez reaffirmed a broad definition of a lewd or lascivious act that includes any touching committed with the intent section 288 describes, so as to extend protection *395 beyond the inherently lewd acts precisely described and prohibited by the other statutes in the family of felony sex offenses. Defendant thus errs in now attempting to use Martinez's expanded definition to narrow section 1192.7(c)(6) and to exclude from its scope oral copulation on a child, which is an act that is always harmful, always improper, and always lewd, regardless of the perpetrator's intent. Although section 1192.7(c)(6) certainly includes acts that, because of the perpetrator's intent, are lewd or lascivious under Martinez and section 288, it is not limited to those acts.[4]
Indeed, our decision in People v. Pearson (1986) 42 Cal. 3d 351, 228 Cal. Rptr. 509, 721 P.2d 595, which defendant cites, is inconsistent with his argument that precisely described criminal acts like oral copulation on a child are not lewd or lascivious where the perpetrator lacks the intent section 288 specifies. In Pearson, we held that the offense section 288 describes "is not a lesser included offense of statutory sodomy" with a child under the age of 14 years (§ 286). (Pearson, supra, 42 Cal.3d at p. 355, 228 Cal. Rptr. 509, 721 P.2d 595.) Arguing to the contrary, the defendant in Pearson asserted "that `it is inconceivable that a person can engage in sodomy on a child without at the same time committing a lewd and lascivious act on that child.'" (Id. at p. 356, 228 Cal. Rptr. 509, 721 P.2d 595.) We agreed that defendant's assertion was "accurate in a moral sense...." (Ibid.) However, we also "found ... that as sodomy is a general intent crime, while a lewd act on a child [under section 288] requires proof of the specific intent" that the statute describes, "the latter is not necessarily included in the former." (People v. Griffin (1988) 46 Cal. 3d 1011, 1030, 251 Cal. Rptr. 643, 761 P.2d 103.) We find no evidence that when the voters enacted section 1192.7(c)(6) or when the Legislature amended it, they understood and used the term "lewd" other than in its moral sense, which unquestionably includes defendant's act of orally copulating a child under 14 years of age. Indeed, in other statutes, the Legislature has characterized oral copulation on a child as "sexual assault" (Pen. Code,§ 11165.1, subd. (a); Evid.Code, § 1036.2; Code Civ. Proc, §§ 128, subd. (d), 1219, subd. (d)(1)), "sexual abuse" (Pen. Code,§ 11165.1, subd. (a)), a "sexually violent offense" (Welf. & Inst.Code, § 6600.1), and "substantial sexual conduct" (Pen. Code, § 1203.066, subd. (b)).
In contrast, defendant's construction of section 1192.7(c)(6) would produce a result inconsistent with what he maintains was the voters' intent in enacting section 1192.7: "to distinguish between those felony charges that were deemed `serious,' and those that were not, and to prohibit plea bargaining for the former." Defendant fails to explain how this purpose would be served by excluding from the statute's reach an act of oral copulation on a child under 14 years of age by a person more than 10 years older than the child. Such an act, with its destructive impact on the child, is no less serious under the theoretical circumstance defendant suggests, i.e., the perpetrator's intent is "sadistic" rather than "sexual." The same is true of an act of sodomy on a child under 14 years of age by a person more than 10 years older than the child (§ 286, subd. (c)(1)); "[a] child victim suffers no less from ... sodomy undertaken for the purpose of punishment than he or she does from ... sodomy performed for the purpose of sexual gratification." (People v. Whitham (1995) 38 Cal. App. 4th 1282, 1293, 45 Cal. Rptr. 2d 571.) Yet, under defendant's interpretation, sodomy on a child also would not be a "serious felony" within the meaning of section *396 1192.7 absent proof of the perpetrator's "sexual" intent. Thus, defendant's construction of section 1192.7(c)(6) would not serve the very statutory purpose he identifies, i.e., to specify those serious felonies for which plea bargaining is prohibited. Moreover, because we cannot conceive that the voters or the Legislature intended to make the perpetrator's intent determinative of whether oral copulation and sodomy on a child are lewd or lascivious acts under section 1192.7(c)(6), we do not agree with defendant that his construction is one that the statute's "`language and the circumstances of its application may reasonably permit.'"
Finally, we reject defendant's suggestion that our construction of section 1192.7(c)(6) "renders the statute ambiguous in the extreme" and "unconstitutionally vague." Defendant argues that a criminal "whose victim is under 14 is left to guess at whether a conviction he suffers will be treated as a `strike' in the future." We need only respond that defendant acted under no such uncertainty here; he cannot reasonably or justifiably maintain that he was "left to guess" as to whether orally copulating a child under 14 was a lewd or lascivious act. Indeed, he does not even argue otherwise. Rather, in raising the vagueness issue, he states: "For example, the uncertainty in a felony conviction of section 647.6, could not be resolved at the time of the conviction," but would "depend upon what information was put in the record, and how a court in the future viewed the defendant's intent." However, a defendant who falls "squarely within" the reach of a statute lacks standing to challenge its vagueness as it "might be hypothetically applied to the conduct of others...." (Parker v. Levy (1974) 417 U.S. 733, 756, 94 S. Ct. 2547, 41 L. Ed. 2d 439.) We "are not obliged" to "`consider every conceivable situation that might arise'" under a statute's language if we can give it a "`reasonable and practical construction'" that accords with the drafters' probable intent and encompasses the defendant's conduct. (Bowland v. Municipal Court (1976) 18 Cal. 3d 479, 492, 134 Cal. Rptr. 630, 556 P.2d 1081.) Here, because section 1192.7(c)(6) "clearly applies to [defendant's] conduct," and he does not argue that it improperly prohibits a substantial amount of constitutionally protected conduct, he may not challenge it on vagueness grounds. (Tobe v. City of Santa Ana (1995) 9 Cal. 4th 1069, 1095, 40 Cal. Rptr. 2d 402, 892 P.2d 1145.)
Thus, we conclude that the trial court correctly found defendant's prior conviction under section 288a, subdivision (c), to be a strike under the Three Strikes law.[5]
II. Section 667.71 Permits a Separate Term for Each New Conviction
Section 667.71, subdivision (a), defines a "habitual sexual offender" as "a person who has been previously convicted of one or more of certain specified offenses "and who is convicted in the present proceeding of one of those offenses." A person who meets this statutory definition "is punishable by imprisonment in the state prison for 25 years to life." (§ 667.71, subd. (Jo).)
Defendant maintains, contrary to the Court of Appeal, that section 667.71 does not authorize imposition of a separate prison term for each of his new convictions, but authorizes only a single term of 25 *397 years to life. He argues that "a defendant sentenced under section 667.71 is not being sentenced for each of his current offenses, but rather for his status as a habitual sexual offender. Once that status is established [by proof of the requisite prior and current convictions], the punishment under subdivision (b) of section 667.71 is set at 25 years to life. There is nothing in subdivision (b) of section 667.71 that indicates a defendant is to receive a separate term of 25 years to life for each new qualifying sexual offense. Rather, the new offenses are used to establish the defendant's status as a `habitual sexual offender', and once that status is established, the defendant's punishment is set." Thus, defendant contends that at most, he may be punished for his current convictions based on his "status" under section 667.71 as a habitual sexual offender "by a single indeterminate term of 25 years to life."
In People v. Jenkins (1995) 10 Cal. 4th 234, 40 Cal. Rptr. 2d 903, 893 P.2d 1224 (Jenkins ), we rejected a similar argument in applying section 667.7. Section 667.7, subdivision (a), defines "a habitual offender" as "[a]ny person convicted of a felony in which the person inflicted great bodily injury as provided in Section 12022.53 or 12022.7, or personally used force which was likely to produce great bodily injury, who has served two or more prior separate prison terms as defined in Section 667.5 for" certain listed offenses. Under the statute as relevant here, a habitual offender who has served two qualifying prior separate prison terms "shall be punished by imprisonment in the state prison for life...." (§ 667.7, subd. (a)(1).) The defendant in Jenkins was a habitual offender under section 667.7 because after serving two prior qualifying separate prison terms, he was convicted in a new proceeding of three qualifying offenses. (Jenkins, supra, 10 Cal.4th at p. 239, 40 Cal. Rptr. 2d 903, 893 P.2d 1224.)
Among the issues we addressed in Jenkins was "whether a defendant, who is convicted of a number of serious felonies, each of which separately qualifies the defendant for a life sentence under section 667.7, may be sentenced to only a single life sentence under section 667.7, or may be sentenced to consecutive life sentences." (Jenkins, supra, 10 Cal.4th at p. 254, 40 Cal. Rptr. 2d 903, 893 P.2d 1224.) We held that the statute permits a consecutive life sentence for each new conviction, explaining: "Section 667.7, like other recidivist punishment statutes that provide for more severe sentences for repeat offenders, specifies the applicable sentence for a present conviction of a qualifying felony committed by a defendant with a recidivist criminal history. Although the defendant's status invokes the increased sentence, it is the new criminal conductand in particular one or more specific felony convictionsfor which the defendant presently is being punished. Nothing in the language of section 667.7 precludes imposition of additional terms consecutive to the habitual offender life term when those additional terms arise from separate, independent counts of current substantive crimes, and section 669 explicitly provides, in relevant part, that `[l]ife sentences, whether with or without the possibility of parole, may be imposed to run consecutively with one another....'" (Jenkins, supra, 10 Cal.4th at pp. 254-255, 40 Cal. Rptr. 2d 903, 893 P.2d 1224, italics added.) In Jenkins, we further noted that although section 667.7 permitted consecutive sentencing for the defendant's current convictions, "nothing" in its language "compel[led]" consecutive sentencing; thus, "[i]n imposing such life terms, the trial court retain[ed] discretion under section 669 to order that these terms be served either concurrently or consecutively." (Jenkins, supra, 10 Cal.4th at p. 256, 40 Cal. Rptr. 2d 903, 893 P.2d 1224.)
Our reasoning in Jenkins applies equally to section 667.71, which is a recidivist punishment statute like section 667.7. Contrary to defendant's assertion that "the statutory scheme in section 667.7 is *398 very different from that set forth in section 667.71," we agree with the Court of Appeal that the two statutes operate similarly. Both prescribe an indeterminate sentence for a defendant who is convicted of a listed offense after having been previously convicted of those listed offenses (and, under §667.7, having served at least two prior separate prison terms for the prior convictions). Thus, although, as defendant argues, his status as a habitual sexual offender invokes the increased sentence under section 667.71, it is his new criminal conductand in particular one or more specific felony convictionsfor which he presently is being punished. Defendant can point to nothing in section 667.71's language that precludes imposition of additional terms consecutive to the habitual sexual offender indeterminate term when those additional terms arise from separate, independent counts of current substantive crimes. And, section 669 explicitly provides, in relevant part, that "[l]ife sentences, whether with or without the possibility of parole, may be imposed to run consecutively with one another...." Following Jenkins, we therefore conclude that section 667.71 authorizes separate consecutive sentences of 25 years to life for each of defendant's new convictions.
We reject defendant's claim that this conclusion "does not comport with [section 667.71's] legislative history." In making this argument, defendant cites the Legislative Counsel's description of the 1994 legislation that enacted the applicable version of the statute. The Legislative Counsel's Digest for that legislation states in relevant part: "Under existing law, a habitual sexual offender, as defined, is punishable by 25 years in the state prison or, under certain circumstances, 25 years to life.... [¶] This bill would, instead, specify that a habitual sexual offender is punishable by imprisonment in state prison for 25 years to life...." (Legis. Counsel's Dig, Sen. Bill No. 26 (1993-1994 1st Ex.Sess.) 5 Stats.1994, Summary Dig, p. 575.) Defendant asserts that "[n]owhere" in this summary "did the Legislative Counsel indicate that a habitual sexual offender could be punished by 25 years to life for each new conviction." However, defendant cites nothing in the summary that indicates to the contrary, i.e., that a habitual sexual offender may not receive a life sentence for each new conviction. The legislative history simply does not speak to this question. Thus, nothing supports defendant's claim that the conclusion Jenkins compels fails to comport with section 667.71's legislative history.
Defendant also contends that in construing section 667.71, we should not "analogiz[e] to section 667.7," but instead "should look at section 667.72." He asserts that the latter statute, which was "enacted at the same time as section 667.71 [citation], provides for a single determinate term of 25 years" for a "`habitual child molester,'" i.e., someone who "has previously served a prior prison term for a forcible child molestation conviction and `is convicted in the present proceeding of the same offense against at least two separate victims.' [Citation.]" Defendant then argues that if section 667.71 authorizes a consecutive life term for each new conviction, a defendant with a qualifying prior conviction "gets less time for two new violations against separate victims (under § 667.72) than he does for two new violations against the same victim. (§ 667.71.)"
For a number of reasons, we reject defendant's argument. First, section 667.72 is no longer effective; the Legislature repealed it in October 1999, noting that the conduct it punished is "subject to greater punishment under Section 667.71...." (Stats.1999, ch. 706, §§ 9, 17.) Thus, the Legislature clearly recognized and intended that section 667.71's application would result in greater punishment than would application of former section 667.72.
Second, defendant errs in suggesting that even before the repeal, a defendant who committed two new qualifying offenses against separate victims would necessarily be sentenced under former section *399 667.72 instead of 667.71. Subdivision (c) of former section 667.72 provided: "At the request of the prosecutor and in lieu of the punishment specified in subdivision (b), the court shall instead order the defendant be punished according to Sections 1170.1 and 677.6, or according to Section 677.7 or 667.71, if applicable." (Stats.1993, ch. 558, § 1, p. 2797, italics added.) The relevant legislative history explains that in enacting former section 667.72, the Legislature recognized that "persons could be sentenced to a longer term of imprisonment under" other statutes and included subdivision (c) to enable prosecutors to "incapacitat[e] certain contemptible criminals for as long as possible...." (Sen. Com. on Judiciary, Analysis of Assem. Bill No. 526 (1993-1994 Reg. Sess.) June 22, 1993, p. 4.) Thus, the Legislature intended that section 667.71 would apply where it required greater punishment than former section 667.72.
Third, defendant cites nothing to support his assertion that under former section 667.72, a defendant committing two new qualifying offenses against separate victims would receive only a "single" determinate term of 25 years, rather than a term for each offense. Nothing in that section expressly provided for only a single term, and we have found no reported case addressing that (or any other) question under former section 667.72.[6] Moreover, courts have held that similar language in section 667.61, subdivision (e)(5)which triggers a life term for a defendant "convicted in the present case or cases of committing a[ ] [specified] offense ... against more than one victim"authorizes a separate life term for each victim. (People v. DeSimone (1998) 62 Cal. App. 4th 693, 698-700, 73 Cal. Rptr. 2d 73 (DeSimone); People v. Murphy (1998) 65 Cal. App. 4th 35, 40-1, 76 Cal. Rptr. 2d 130; People v. Jones (1997) 58 Cal. App. 4th 693, 719, 68 Cal. Rptr. 2d 506.) These decisions undercut the fundamental premise of defendant's argument under former section 667.72 (although we express no opinion about their correctness).[7]
In any event, the evolution of section 667.71's language shows that the Legislature did not intend the applicable version of section 667.71 to operate like former section 667.72. In language similar to former section 667.72, section 667.71 originally defined a habitual sexual offender as a person who had served at least one prior prison term for a listed offense and who was "[c]onvicted in the present proceeding" of either "two separate [listed] offenses ... against two separate victims" or "at least three separate [listed] offenses ... against at least three separate victims." (Stats.1993, ch. 590, § 2, p. 3096.) In 1994, the Legislature amended the definition of a habitual sexual offender to its current form, i.e., "a person who has been previously convicted of one or more of the [listed] offenses ... and who is convicted in the present proceeding of one of those offenses." (§ 667.71, subd. (a), as amended by Stats.1994, ch. 447, § 2, p. 2414 and Stats.1994, 1st Ex.Sess., ch. 14, § 2, p. 8572.) Because the Legislature substantially revised section 667.71 by deleting *400 language similar to that in former section 667.72, we reject defendant's argument that the two statutes should be interpreted similarly.
Thus, we conclude section 667.71 authorizes a separate term of 25 years to life for each of defendant's new convictions.
III. Sentencing Under Both the Three Strikes Law and Section 667.71 Is Proper
Defendant also contends that the Court of Appeal erred in concluding that the trial court could determine his sentence by applying both the Three Strikes law and section 667.71. Primarily, he argues that section 654 "is applicable in this circumstance to limit the trial court to one sentencing scheme." Section 654, subdivision (a), provides in relevant part: "An act or omission that is punishable in different ways by different provisions of law shall be punished under the provision that provides for the longest potential term of imprisonment, but in no case shall the act or omission be punished under more than one provision." Defendant asserts that applying both section 667.71 and the Three Strikes law violates this provision.
Defendant's claim fails under People v. Coronado (1995) 12 Cal. 4th 145, 48 Cal. Rptr. 2d 77, 906 P.2d 1232 (Coronado). There, we held in part that Penal Code section 654 did not prohibit use of a prior conviction and resulting prior prison term both to elevate a driving under the influence charge to a felony under Vehicle Code former section 23175 and to trigger a one-year sentence enhancement under section 667.5, subdivision (b), for service of a prior prison term. (Coronado, supra, 12 Cal.4th at p. 149, 48 Cal. Rptr. 2d 77, 906 P.2d 1232.) In reaching this result, we first explained that "[b]y its own terms, section 654 applies only to an `act or omission' made punishable in different ways by different statutes." (Coronado, supra, 12 Cal.4th at p. 156, 48 Cal. Rptr. 2d 77, 906 P.2d 1232.) We then discussed People v. Rodriguez (1988) 206 Cal. App. 3d 517, 253 Cal. Rptr. 633 (Rodriguez), which "[i]n a closely analogous context ... reasoned that prior prison term enhancements are not imposed for `acts or omissions' within the meaning of [section 654]: ... `Both sections 666 and 667.5 apply to facts, not acts; they relate to the status of the recidivist offender engaging in criminal conduct, not to the conduct itself.' [Citations.]" (Coronado, supra, 12 Cal.4th at p. 157, 48 Cal. Rptr. 2d 77, 906 P.2d 1232.) Finding this reasoning "persuasive," we explained: "[P]rior prison term enhancements are attributable to the defendant's status as a repeat offender [citations]; they are not attributable to the underlying criminal conduct which gave rise to the defendant's prior and current convictions. Because the repeat offender (recidivist) enhancement imposed here does not implicate multiple punishment of an act or omission, section 654 is inapplicable." (Coronado, supra, 12 Cal.4th at p. 158, 48 Cal. Rptr. 2d 77, 906 P.2d 1232; see also DeSimone, supra, 62 Cal.App.4th at p. 700, 73 Cal. Rptr. 2d 73 ["penalty provision which relates solely to a defendant's status as a repeat offender does not punish an `act or omission' and is not subject to section 654"].) Similarly, as defendant points out, "the purpose of section 667.71 is not to punish especially aggravated instances of a particular crime," but to "serve[ ] the same purpose as the `Three Strikes' law, which is to punish recidivism." Thus, both the Three Strikes law and section 667.71 apply to the fact of defendant's recidivism, not to an act or omission within the meaning of section 654. (See People v. Benson (1998) 18 Cal. 4th 24, 34, 74 Cal. Rptr. 2d 294, 954 P.2d 557 [unlike § 654, "which is concerned with the appropriate punishment for `[a]n act or omission that is punishable in different ways,' the Three Strikes law has, as its central focus, the status of the defendant as a repeat felon"].) Accordingly, under Coronado, application of both does not implicate section 654.
We reject defendant's assertion that a different analysis applies here because *401 "the issue" in this case "is not an `enhancement' of [his] sentence," but "the applicability of two separate and distinct methods by which [his] minimum indeterminate term could be calculated." As we have explained, in Coronado we quoted and endorsed Rodriguez, which found section 654 inapplicable to section 666 because the latter section applies to the fact of a defendant's recidivist status, not to an act or omission within the meaning of section 654. (Coronado, supra, 12 Cal.4th at p. 157, 48 Cal. Rptr. 2d 77, 906 P.2d 1232; Rodriguez, supra, 206 Cal.App.3d at p. 519, 253 Cal. Rptr. 633.) In Coronado, we also cited People v. Price (1992) 4 Cal. App. 4th 1272, 1277, 6 Cal. Rptr. 2d 263, which similarly held that section 654 does not apply to section 666. (Coronado, supra, 12 Cal.4th at p. 157, 48 Cal. Rptr. 2d 77, 906 P.2d 1232.) Section 666 operates like the Three Strikes law and section 667.71; it does not establish an enhancement, but establishes an alternate and elevated penalty for a petty theft conviction when a recidivist defendant has served a prior term in a penal institution for a listed offense. (People v. White Eagle (1996) 48 Cal. App. 4th 1511, 1517-1518, 56 Cal. Rptr. 2d 749 (White Eagle ); see also People v. Dotson (1997) 16 Cal. 4th 547, 556, 66 Cal. Rptr. 2d 423, 941 P.2d 56 [§ 1170.12, subd. (c)(2)(A), does not establish an enhancement, but "prescribes a method by which defendant's minimum indeterminate life term is calculated"]; People v. Martin (1995) 32 Cal. App. 4th 656, 667, 38 Cal. Rptr. 2d 776 [§ 667, subd. (e)(1) does not establish an enhancement, but "defines the term for the crime itself], disapproved on another ground in People v. Deloza (1998) 18 Cal. 4th 585, 600, fn. 10, 76 Cal. Rptr. 2d 255, 957 P.2d 945; cf. People v. Jefferson (1999) 21 Cal. 4th 86, 101, 86 Cal. Rptr. 2d 893, 980 P.2d 441 [explaining the difference between an enhancement and a statute establishing an "alternate penalty for the underlying felony" when "the defendant has satisfied" specified conditions].) The salient point is that imposition of the increased penalties these statutes prescribe depends on a factthe defendant's status as a repeat offendernot on an act or omission within the meaning of section 654. (See In re Foss (1974) 10 Cal. 3d 910, 922, 112 Cal. Rptr. 649, 519 P.2d 1073 [increased penalties under habitual offender statutes "are attributable to the defendant's status as a repeat offender"], overruled on another ground in People v. White (1976) 16 Cal. 3d 791, 796-797, fn. 3, 129 Cal. Rptr. 769, 549 P.2d 537.) Section 654 therefore does not apply. (See White Eagle, supra, 48 Cal.App.4th at p. 1519, 56 Cal. Rptr. 2d 749 [finding § 654 inapplicable to sentencing under both Three Strikes law and § 666]; People v. Sipe (1995) 36 Cal. App. 4th 468, 488, 42 Cal. Rptr. 2d 266 [because application of Three Strikes law depends on defendant's "status as a recidivist offender," § 654 does not apply].)
The cases defendant cites do not hold to the contrary. In People v. Jones (1993) 5 Cal. 4th 1142, 1144-1152, 22 Cal. Rptr. 2d 753, 857 P.2d 1163 (Jones ), we held that in enacting what is now subdivision (a) of section 667, the voters did not intend that a defendant's sentence would be enhanced for both a prior conviction (under the new statute) and the resulting prison term (under §667.5). Because we based this conclusion on the relevant statutory language, we expressly declined to discuss section 654's impact. (Jones, supra, 5 Cal.4th at p. 1152, 22 Cal. Rptr. 2d 753, 857 P.2d 1163.) In People v. Flournoy (1994) 26 Cal. App. 4th 1695, 1697-1701, 32 Cal. Rptr. 2d 188 (Flournoy ), the court applied Jones's analysis to hold that multiple enhancements for a single prior rape conviction are not permissible under both section 667.6, subdivision (a), and section 667, subdivision (a). As we did in Jones, the Flournoy court reached its conclusion by interpreting the statutes in light of the voters' intent and therefore expressly declined to discuss section 654's effect. (Flournoy, supra, 26 Cal.App.4th at p. 1699, 32 Cal. Rptr. 2d 188.) Thus, neither of these decisions supports defendant's section 654 argument.
*402 We also reject defendant's related claim, based on section 1170, subdivision (b), and California Rules of Court, former rule 420(c) (renumbered rule 4.420, eff. Jan. 1, 2001), that sentencing under both the Three Strikes law and section 667.71 violates "the various proscriptions against dual use of facts for sentencing purposes." Defendant forfeited this argument by failing to raise it in the Court of Appeal. (Associated Builders and Contractors, Inc. v. San Francisco Airports Com. (1999) 21 Cal. 4th 352, 379, 87 Cal. Rptr. 2d 654, 981 P.2d 499.) Moreover, it fails on its merits. Where the governing statute specifies an upper, middle, and lower term for a crime, section 1170, subdivision (b), prohibits a court from imposing the upper term "by using the fact of any enhancement upon which sentence is imposed...." California Rules of Court, former rule 420(c) (present rule 4.420) also relates to the use of "a fact charged and found as an enhancement" as a basis for "imposing the upper term...." Neither provision applies in this case, which involves calculation of defendant's term under the Three Strikes law and section 667.71, not the imposition of an upper term instead of a lower or middle term. (See Jenkins, supra, 10 Cal.4th at p. 252, fn. 10, 40 Cal. Rptr. 2d 903, 893 P.2d 1224.)
Defendant also contends that application of both the Three Strikes law and section 667.71 is contrary to the Legislature's intent. In his view, the Three Strikes law and section 667.71 establish entirely separate and alternative sentencing schemes that "serve[ ] the same purpose ..., which is to punish recidivism." Defendant argues that if someone "is subject to sentencing as a `habitual sexual offender' [under section 667.71], it is almost certain he will also be subject to sentencing under the Three Strikes law. Had the Legislature intended that a habitual sexual offender's sentence be doubled or tripled in every case under the Three Strikes law, it would have so provided." Thus, defendant asserts, "it is clear" that section 667.71 and the Three Strikes law "were intended to operate independently of one another." Because "the Legislature, in enacting the Three Strikes law, intended for [it] to operate in lieu of section 667.71," a defendant "may be sentenced under either of the two sentencing schemes, but not both."
Unlike defendant, we find that the statutes disclose a legislative intent that the Three Strikes law apply in addition to section 667.71. Subdivision (f)(1) of section 667 provides that "[notwithstanding any other law," the Three Strikes law "shall be applied in every case in which a defendant has a prior felony conviction as defined in subdivision (d)." (Italics added.) Moreover, subdivision (e) of section 667 provides that "in addition to any other enhancement or punishment provisions which may apply," the sentencing provisions of the Three Strikes law "shall apply where a defendant has a prior felony conviction." (Italics added.) Through this section, the Three Strikes law "declares itself to `apply' not exclusively, but rather 'in addition to any other ... punishment provisions which may apply' [citations]" (People v. Alvarez (1996) 14 Cal. 4th 155, 247, 58 Cal. Rptr. 2d 385, 926 P.2d 365.) Thus, the Legislature has expressly indicated that where a defendant has a qualifying prior felony conviction, the sentencing provisions of the Three Strikes law not only must be applied, they must be applied in addition to any other punishment provisions. "`It is difficult to interpret the language of the statute in any other manner.' [Citations.]" (People v. Dotson, supra, 16 Cal.4th at p. 554, 66 Cal. Rptr. 2d 423, 941 P.2d 56; see also White Eagle, supra, 48 Cal.App.4th at pp. 1517-1518, 56 Cal. Rptr. 2d 749 [single prior conviction requires both alternate sentencing under § 666 for petty theft with a prior and doubling under Three Strikes law].)
Defendant cites nothing in either the Three Strikes law or section 667.71 that indicates the Legislature intended to exclude the latter statute from the mandatory *403 terms of the former. In this regard, until its amendment in 1998, section 667.71 expressly specified the sentencing provisions that were exclusive alternatives to section 667.71. As originally enacted in 1993, before the Legislature passed the Three Strikes law, section 667.71 provided: "At the request of the prosecutor and in lieu of the punishment specified in [this section], the court shall order that the defendant be punished pursuant to Section 1170.1, 667.6, or 667.7, if applicable." (Stats. 1993, ch. 590, § 2, p. 3097 [former § 667.71, subd. (d)].) The Legislature amended this provision in September 1994, after the Three Strikes law took effect, by adding a reference only to the newly enacted section 667.61; it did not also add a reference to the new Three Strikes law. (Stats.1994, ch. 447, § 2, p. 2414 and Stats. 1994, 1st Ex.Sess., ch. 14, § 2, p. 8572; see fn. 5, ante.) This provision was completely deleted in 1998. (Stats. 1998, ch. 925, § 3.) Nevertheless, the Three Strikes law's omission from the repealed provision that expressly specified the punishment alternatives to section 667.71 fully supports our conclusion that the Legislature intended the Three Strikes law to operate in addition to, not to the exclusion of, section 667.71.[8]
Under the guise of legislative intent, in his reply brief defendant argues for the first time that the Court of Appeal did not perform the correct sentence calculation under the provisions of the Three Strikes law. The Court of Appeal held that section 667, subdivision (e)(2)(A)(i), requires tripling of the sentence section 667.71 prescribes, so that defendant should receive a sentence of 75 years to life for each of his current offenses. Section 667, subdivision (e)(2)(A)(i), sets the minimum term of a third strike defendant's indeterminate life sentence under the Three Strikes law at "[t]hree times the term otherwise provided as punishment for each current felony conviction subsequent to the two or more prior felony convictions." Defendant now contests the Court of Appeal's calculation, arguing that it "fail[s] to consider that the term to be tripled is the term otherwise provided for the current felony conviction subsequent to the prior convictions." "In other words," defendant asserts, "the term to be tripled ... is the term to which [he] otherwise would have been sentenced without consideration of his prior convictions," i.e., "the principal term referred to in section 1170.1, without reference to the prior convictions." Thus, defendant argues that for his current convictions under section 288, subdivision (a), only the eight-year aggravated term under that section should be tripled. "By including the prior convictions in the calculation of [his] sentence under section 667.71 and then tripling that term under section 667, subdivision (e)(2)(A)(i), ... the Court of Appeal misread the legislative intent."[9]
Although we need not address this untimely argument (Cal. Rules of Court, rule 29(b)(1)), we reject it for its lack of merit. First, the plain language of the statute does not support defendant's statutory construction. As commonly understood, the statutory language in question"subsequent to the two or more prior felony convictions"simply identifies the relevant *404 convictions whose terms are to be tripled and distinguishes them from the "two or more prior felony convictions" that trigger application of the third strike sentencing provision. (§ 667, subd. (e)(2)(A)(i).) It does not, as defendant suggests, direct that the punishment for the identified convictions be determined "without consideration of or "reference to" the prior convictions. Indeed, in other sentencing statutes, the Legislature has shown that when it wants a sentence calculated without consideration of some circumstance, it knows how to use language clearly expressing that intent. (See § 1170.2 [length of imprisonment for certain inmates shall be determined "without consideration of good-time credit"].) The Three Strikes law's far different language suggests a different legislative intent. Second, defendant's argument is inconsistent with our decision in People v. Nguyen (1999) 21 Cal. 4th 197, 87 Cal. Rptr. 2d 198, 980 P.2d 905. There, we stated that "[t]he common and ordinary meaning" of the statutory phrase, "`the term otherwise provided as punishment,'" is "the term that would be imposed in the absence of the Three Strikes law." (Id. at p. 205, 87 Cal. Rptr. 2d 198, 980 P.2d 905.) Here, of course, the term that would be imposed absent the Three Strikes law is the term section 667.71 prescribes. Thus, the Court of Appeal's calculation was correct.
We therefore conclude that the Court of Appeal did not err in holding that the trial court could apply both the Three Strikes law and section 667.71 in sentencing defendant.
At oral argument, the Attorney General asserted that the Three Strikes law mandates consecutive sentencing for defendant's new crimes because he sustained in this proceeding "a current conviction for more than one felony count not committed on the same occasion, and not arising from the same set of operative facts ...." (§ 667, subd. (c)(6).) We leave it to the trial court to consider this question on remand in conjunction with other sentencing matters the Court of Appeal identified, including defendant's request that one or both of his prior convictions be struck under section 1385 in furtherance of justice. (See People v. Superior Court (Romero) (1996) 13 Cal. 4th 497, 53 Cal. Rptr. 2d 789, 917 P.2d 628.)
DISPOSITION
The judgment of the Court of Appeal is affirmed, and the case is remanded to that court for further proceedings consistent with the views expressed in this opinion.
GEORGE, C.J., KENNARD, J., BAXTER, J., WERDEGAR, J., and BROWN, J, concur.
Dissenting Opinion by MOSK, J.
I dissent.
Notwithstanding any other law or provision of law, the "Three Strikes" law (Stats. 1994, ch. 12, § 1, p.71, adding Pen.Code, § 667, subds. (b)-(i)); Prop. 184, § 1, as approved by voters, Gen. Elec. (Nov. 8, 1994), adding (Pen.Code, § 1170.12) governs when a defendant is convicted of a felony or "strike" of any kind, and was previously convicted of one or more felonies or strikes defined as serious or violent (Pen.Code, §§ 667, subd. (c), 1170.12, subd. (a); see id., §§ 667, subds. (d), (e), (f), 1170.12, subds. (b), (c), (d)).
Appellant had previously been convicted of, among other felonies, oral copulation with a person under 14 years of age in violation of Penal Code section 288a.
For purposes of the Three Strikes law, one of the felonies defined as serious (Pen. Code, §§ 667, subd. (d)(1), 1170.12, subd. (b)(1)) is a "lewd or lascivious act on a child under the age of 14 years" as enumerated in Penal Code section 1192.7, subdivision (c)(6) (Penal Code section 1192.7(c)(6)).
The question here is this: Is oral copulation with a person under 14 years of age in violation of Penal Code section 288a a "lewd or lascivious act on a child under the *405 age of 14 years" within the meaning of Penal Code section 1192.7(c)(6)?
The majority answer "Yes" and proceed to affirm the judgment of the Court of Appeal, which gave the same answer below. They are wrong to do so.
What Penal Code section 288a requires for oral copulation with a person under 14 years of age is clear: The perpetrator must engage in an objectively sexual act, but need not possess any subjectively sexual intent. (See, e.g., People v. Thornton (1974) 11 Cal. 3d 738, 765, 114 Cal. Rptr. 467, 523 P.2d 267, disapproved on another point in People v. Flannel (1979) 25 Cal. 3d 668, 684, fn. 12, 160 Cal. Rptr. 84, 603 P.2d 1 (plur.opn.) & 686-687, 160 Cal. Rptr. 84, 603 P.2d 1 (cone. opn. of Richardson, J.); People v. Whithorn (1995) 38 Cal. App. 4th 1282, 1293, 45 Cal. Rptr. 2d 571; People v. Brocklehurst (1971) 14 Cal. App. 3d 473, 476, 92 Cal. Rptr. 340.)
What Penal Code section 1192.7(c)(6) means by a "lewd or lascivious act on a child under the age of 14 years" is also clear.
Penal Code section 1192.7(c)(6)'s "lewd or lascivious act on a child under the age of 14 years" undoubtedly covers a "lewd or lascivious act" on "a child who is under the age of 14 years" in violation of Penal Code section 288. In People v. Martinez (1995) 11 Cal. 4th 434, 45 Cal. Rptr. 2d 905, 903 P.2d 1037, we concluded, under what we took to be the common and ordinary meaning of the words in question, that Penal Code section 288 required this: The perpetrator must possess a subjectively sexual intent, but need not engage in any objectively sexual act.
But, to my mind, Penal Code section 1192.7(c)(6)'s "lewd or lascivious act on a child under the age of 14 years" does not extend beyond a "lewd or lascivious act" on "a child who is under the age of 14 years" in violation of Penal Code section 288. If it did in fact extend further, it would not carry any determinate sense in such part. And if it did indeed carry any such sense, it would not denote an objectively sexual act without regard to any subjectively sexual intent.
That Penal Code section 1192.7(c)(6)'s "lewd or lascivious act on a child under the age of 14 years" does not extend beyond a "lewd or lascivious act" on "a child who is under the age of 14 years" in violation of Penal Code section 288 is supported by its language. The phrase in the former provision is virtually identical to the phrase in the latter.
That Penal Code section 1192.7(c)(6)'s "lewd or lascivious act on a child under the age of 14 years" does not extend beyond a "lewd or lascivious act" on "a child who is under the age of 14 years" in violation of Penal Code section 288 is confirmed by its history.
As originally enacted by the voters through their approval of Proposition 8 at the Primary Election of June 8, 1982, Penal Code section 1192.7(c)(6) referred to "lewd acts on a child under the age of 14 years." (Prop. 8, § 7, as approved by voters, Primary Elec. (June 8,1982).)
As amended by the Legislature in 1986, Penal Code section 1192.7(c)(6) was made to refer to "lewd or lascivious acts on a child under the age of 14 years" (Stats. 1986, ch. 489, § 1, p. 1809, italics added), since changed from the plural to the singular.
Although without express citation, Penal Code section 1192.7(c)(6)'s "lewd or lascivious act on a child under the age of 14 years" was intentionally, and not coincidentally, rendered virtually identical to Penal Code section 288's "lewd or lascivious act" on "a child who is under the age of 14 years."
For example, one legislative report accompanying Assembly Bill No. 3733 (1985-1986 Reg. Sess.), the measure that would effect the amendment in question, stated as follows: "The ... sponsor of this bill ... claims that the differences in wording between Proposition 8 and related provisions of the Penal Code have led to confusion *406 and may, in some cases, require special findings in order to apply Proposition 8 enhancements. Thus the proposed amendments are intended to conform Pen. Code, § 1192.7(c) ... to the appropriate Penal Code section provisions. According to the sponsor, this would end any confusion caused by the differences in language, while keeping true to the intent of the electorate." (Sen. Com. on Judiciary, Analysis of Assem. Bill No. 3733 (1985-1986 Reg. Sess.) as amended June 4, 1986, p. 2; accord, Sen. Rules Com., Off. of Sen. Floor Analyses Rep. on Assem., Bill No. 3733 (1985-1986 Reg. Sess.) as amended June 4, 1986, p. 2 [stating that the bill's purpose is "to conform" Pen. Code § 1192.7(c) "to the appropriate Penal Code provisions"]; Assem. Com. on Public Safety, Republican Analysis of Assem. Bill No. 3733 (1985-1986 Reg. Sess.) Apr. 25, 1986, p. 1 [stating that the bill is "intended to conform the Prop. 8 serious felonies to the definitions of the crimes listed elsewhere in the Penal Code"].)
The same legislative report went on to state of Assembly Bill No. 3733 and its effect: As it then stood, Penal Code section 1192.7(c)(6) applied to "[specified lewd acts"; as amended, it would apply as well to "`lascivious' acts per P.C. Sec. 288." (Sen. Com. on Judiciary, Analysis of Assem. Bill No. 3733 (1985-1986 Reg. Sess.) as amended June 4, 1986, p. 3.)
Another legislative report was similar: Assembly Bill No. 3733 would amend Penal Code section 1192.7(c)(6) from "[l]ewd acts" to "[l]ewd or lascivious acts per Penal Code Section 288." (Assem. 3d reading analysis of Assem. Bill No. 3733 (1985-1986 Reg. Sess.) June 5, 1986, p. 2, underscoring in original.)
Yet another legislative report was to the same effect: Assembly Bill No. 3733 would amend Penal Code section 1192.7(c)(6) from "lewd acts" to "lewd or lascivious acts per Penal Code § 288." (Assem. Com. on Public Safety, Analysis of Assem. Bill No. 3733 (1985-1986 Reg. Sess.) May 5, 1986, p. 1, underscoring in original.)
In a word, as we recognized in Martinez, Penal Code section 1192.7(c)(6) "incorporated" Penal Code section 288 "by reference." (People v. Martinez, supra, 11 Cal.4th at p. 446 & fn. 9, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) Such was its purpose, and such was its effect.
Next, if Penal Code section 1192.7(c)(6)'s "lewd or lascivious act on a child under the age of 14 years" did in fact extend beyond a "lewd or lascivious act" on "a child who is under the age of 14 years" in violation of Penal Code section 288, it would not carry any determinate sense in such part. The language of Penal Code section 1192.7(c)(6) points to Penal Code section 288 and only to Penal Code section 288. The same is true of its history.
Finally, if Penal Code section 1192.7(c)(6)'s "lewd or lascivious act on a child under the age of 14 years" did indeed carry any determinate sense beyond a "lewd or lascivious act" on "a child who is under the age of 14 years" in violation of Penal Code section 288, it would not denote an objectively sexual act without regard to any subjectively sexual intent. If we were right to conclude in Martinez that Penal Code section 288's "lewd or lascivious act" on "a child who is under the age of 14 years" indicates a subjectively sexual intent without regard to any objectively sexual act, it is hard for us to conclude here that Penal Code section 1192.7(c)(6)'s "lewd or lascivious act on a child under the age of 14 years" indicates precisely the oppositean objectively sexual act without regard to any subjectively sexual intent.
It follows, then, that the answer to the question posed above is this: Oral copulation with a person under 14 years of age in violation of Penal Code section 288a which requires an objectively sexual act but not any subjectively sexual intentis not a "lewd or lascivious act on a child under the age of 14 years" within the meaning of Penal Code section 1192.7(c)(6)which requires a subjectively *407 sexual intent but not any objectively sexual act.
In giving a contrary answer, the majority rely on the "plain language" (maj. opn., ante, 105 Cal.Rptr.2d at pp. 391, 392, 19 P.3d at pp. 1133, 1134) of Penal Code section 1192.7(c)(6)'s "lewd or lascivious act on a child under the age of 14 years," invoking the phrase's "common and ordinary meaning" (maj. opn., ante, at pp. 391-392, 19 P.3d at pp. 1133-1134 ). We proceeded in like fashion in Martinez with respect to Penal Code section 288's "lewd or lascivious act" on "a child who is under the age of 14 years," focusing on that phrase "[a]s commonly understood" (People v. Martinez, supra, 11 Cal.4th at 449, 45 Cal. Rptr. 2d 905, 903 P.2d 1037). The majority purport to distinguish the latter phrase from the former, but without identifying any difference. They do not even attempt to explain how virtually the same phrase can indicate, in Martinez, a subjectively sexual intent without regard to any objectively sexual act, with "intent" being "determinative," and, in this case, an objectively sexual act without regard to any subjectively sexual intent, with "intent" being altogether immaterial. (Maj. opn., ante, at p. 395, 19 P.3d at p. 1136.) Somewhat embarrassed by our statement in Martinez that Penal Code section 1192.7(c)(6) "incorporated" Penal Code section 288 "by reference" (People v. Martinez, supra, 11 Cal.4th at p. 446 & fn. 9, 45 Cal. Rptr. 2d 905, 903 P.2d 1037), they assert that Penal Code section 1192.7(c)(6) includes Penal Code section 288, but is not limited thereto, pointing to the fact that it is not absolutely identical and does not cite it expressly. Such an assertion is little more than an engine to allow the expansion of the provision at will. For they do not even suggest what Penal Code section 1192.7(c)(6) may include in addition to Penal Code section 288. Without a doubt, the kind of perpetrator whom they target is scarcely worthy of sympathy. But, nevertheless, he is entitled to better than he receives at their hands.
In conclusion, I would reverse the judgment of the Court of Appeal as to sentence and remand the cause to that court for proceedings not inconsistent with the views expressed herein.
NOTES
[1] Unless otherwise stated, all further statutory references are to the Penal Code. In their briefs, the parties cite and discuss the legislative version of the Three Strikes law (§ 667, subds.(b)-(i)). For convenience, we will do the same in the rest of our opinion. However, because the legislative and initiative versions of the Three Strikes law contain no substantive differences as to the issues before us, our discussion applies equally to both.
[2] The dissent errs in asserting that in People v. Martinez (1995) 11 Cal. 4th 434, 45 Cal. Rptr. 2d 905, 903 P.2d 1037 (Martinez ), we based our conclusion that section 288 is violated by any touching of an underage child with the requisite sexual intent on "the common and ordinary meaning of" the phrase "`lewd or lascivious act.'" (Dis. opn. of Mosk, J., post, 105 Cal.Rptr.2d at p. 405, 19 P.3d at p. 1146.) On the contrary, in Martinez, we refused to adopt a "hyperliteral" reading of this phrase that would contravene legislative intent or produce anomalous results, and instead interpreted it with reference to other language in section 288 that, "[a]s commonly understood, . . . referfs] to . . . `sexual motivation.' [Citation.]" (Martinez, supra, 11 Cal.4th at p. 449, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) Regarding the "ordinary meaning" of the phrase "lewd or lascivious act," we simply said that "[n]othing" in it "refers to particular forms of physical contact or sexual activity." (Ibid., fn. omitted.) To support this conclusion, we noted that "`[t]he relevant dictionary meaning of "lewd" is "sexually unchaste or licentious," "dissolute, lascivious," "suggestive of or tending to moral looseness," "inciting to sensual desire or imagination," "indecent, obscene, salacious." (Webster's New Internat. Diet. (3d ed.1961) p. 1301.)' Similarly, the word `lascivious' means `tending to arouse sexual desire'; it is synonymous with `lewd, lustful,' `libidinous, salacious.' (Id. at p. 1274.)" (Martinez, supra, 11 Cal.4th at p. 449, fn. 15, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) Contrary to the dissent's view, this discussion and the dictionary definition Martinez cited support our conclusion that oral copulation on a child under 14 years of age by a person more than 10 years older than the child is a lewd or lascivious act as those words are commonly understood.
[3] The dissent makes the same error as defendant in reasoning that the 1986 amendment "rendered" section 1192.7(c)(6)'s language "virtually identical to" that of section 288. (Dis. opn. of Mosk, J., post, 105 Cal.Rptr.2d at p. 405, 19 P.3d at p. 1146.) Moreover, unlike the dissent, we find the legislative history of the 1986 amendment inconclusive at best. The dissent cites several legislative reports that state the amendment's purpose was to "conform" section 1192.7, subdivision (c), to "`the appropriate Penal Code section provisions.' " (Dis. opn. of Mosk, J., post, at p. 406, 19 P.3d at p. 1147.) However, as the dissent also notes, one of those reports also explained that after the amendment, the statute, which originally applied only to "`[s]pecified lewd acts' . . . would apply as well to `"lascivious" acts per P.C. Sec. 288.'" (Dis. opn. of Mosk, J., post, at p. 406, 19 P.3d at p. 1147.) These statements can reasonably be read as indicating a legislative intent simply to expand section 1192.7(c)(6) to include all section 288 violations, not to restrict it only to such violations. Given the absence of a reference to section 288 in section 1192.7(c)(6), the significant difference we have identified in the language of the two statutes, and the anomalous consequences of the dissent's interpretation (see post, pp. 395-396, 19 P.3d pp. 1137-1138), we therefore do not believe the legislative history of the 1986 amendment justifies reading section 288's express and detailed sexual intent requirement into the more broadly worded section 1192.7(c)(6).
[4] Responding to one of the defendant's arguments in Martinez, we cited section 1192.7, subdivision (c), as one of the many statutes into which section 288 "has been incorporated by reference...." (Martinez, supra, 11 Cal.4th at p. 446 & fn. 9, 45 Cal. Rptr. 2d 905, 903 P.2d 1037.) In making this statement, we meant only that section 1192.7(c)(6) includes lewd or lascivious acts under section 288. We did not suggest that section 1192.7(c)(6) is limited to such acts. That question was not before us in Martinez.
[5] Given our conclusion, we need not address the Attorney General's alternative contention that defendant's section 288a conviction is a strike under section 1192.7, subdivision (c)(5), which defines "serious felony" to include "oral copulation by ... duress...." Defendant also contends in his briefs that his prior convictions cannot be considered because, before he admitted them, the trial court failed to advise him of the admission's penal consequences. We decline to address this issue because defendant did not mention it in his petition for review, it is not fairly included in the issues the petition stated, and the Attorney General did not file an answer to the petition. (See Cal. Rules of Court, rules 28(e)(2), 29.2(b), 29.3(c); People v. Venegas (1998) 18 Cal. 4th 47, 95, fn. 42, 74 Cal. Rptr. 2d 262, 954 P.2d 525.)
[6] This lack of case authority apparently stems from the statute's nonuse. A committee analysis of the legislation repealing section 667.72 stated: "According to the author's background material obtained from the Department of Corrections (the sponsor of this bill), the habitual child molester statute has never been used." (Assem. Com. on Public Safety, Analysis of Assem. Bill No. 1236 (1999-2000 Reg. Sess.) as amended Apr. 5, 1999, p. 3.) We grant defendant's request that we take judicial notice of this analysis and another committee report discussing the legislation that repealed former section 667.72.
[7] As defendant notes, subdivision (g) of section 667.61 provides that the specified life term "shall be imposed on the defendant once for any offense or offenses committed against a single victim during a single occasion. If there are multiple victims during a single occasion, the term specified ... shall be imposed on the defendant once for each separate victim." The cases that we have cited construing section 667.61 considered a factual context this subdivision does not address multiple victims on separate occasionsand hold that a separate term for each victim is proper under these circumstances.
[8] The repealed provision was operative when defendant committed the offenses and was sentenced in this case. However, the prosecution did not request that the trial court impose sentence under one of the alternative statutes the repealed provision specified; in both the information and a postconviction sentencing memorandum, the prosecution requested sentencing under the Three Strikes law and section 667.71. Nor did the trial court mention the specified alternative sentencing statutes. Thus, we disagree with the Court of Appeal's conclusion that sentencing under section 667.71 was discretionary in this case.
[9] Defendant does not contend more generally that section 667, subdivision (e)(2)(A)(i), does not apply to indeterminate terms. We express no opinion on that issue, which is related to an issue currently pending before us in People v. Cornelius (2000) 79 Cal. App. 4th 771 {94 Cal. Rptr. 2d 326], review granted July 26, 2000, S068743. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2611688/ | 150 Cal. App. 2d 725 (1957)
JOHN J. LUTHER, as Administrator, etc., Appellant,
v.
MARY B. FOSTER, Respondent.
Civ. No. 9022.
California Court of Appeals. Third Dist.
May 8, 1957.
Robert F. Appel for Appellant.
J. Ralph Arnold for Respondent. *727
WARNE, J. pro tem. [fn. *]
This is an appeal from a judgment in favor of defendant and cross- complainant on her cross-complaint to recover for services alleged to have been performed for the deceased, a claim therefor having been rejected by the administrator of his estate.
On March 4, 1952, appellant as administrator instituted an action against respondent, Mary B. Foster, to quiet title to certain real property and for the reasonable rental value of this property from the date of decedent's death and damages for depriving the estate of the use of certain personal property. Respondent was served with process the following day. On March 12, 1952, a demurrer was filed, and on April 10, 1952, appellant filed an amended complaint, and a copy thereof was served upon respondent's counsel. On May 1, 1952, a default was entered against the respondent. On October 17, 1952, the court granted respondent's motion to set aside the default and to permit her to file an answer and cross-complaint. Respondent's notice of motion was served on appellant's counsel on August 29, 1952, and was filed on September 5, 1952. Filed in support of said motion were respondent's proposed verified answer and cross-complaint and an affidavit by her counsel based upon surprise.
Appellant contends first that the court abused its discretion in granting respondent's motion to set aside her default. Appellant urges that no ground exists for relief, for the reason that respondent failed to show surprise to excuse the default and failed to show due diligence after discovery of the fact. [1] The order vacating respondent's default recites that evidence was introduced. What evidence was received is not shown in the record on appeal, and so it must be presumed that the evidence supported the order made. (Derrer v. Keeler Gold Mines, Inc., 63 Cal. App. 2d 606 [147 P.2d 102]; Douglass v. Guardian Holding Corp., 132 Cal. App. 585 [23 P.2d 80].)
The proposed answer denied all the material allegations of the amended complaint. Respondent's attorney filed an affidavit in support of the motion. However, appellant filed no counteraffidavit. The record does not disclose that he made any showing that he would suffer any prejudice or that an injustice would result, although respondent's motion for relief was filed about four months after entry of the default. [2] A default inadvertently permitted by a party having a substantial defense presents a case in which great latitude *728 should be extended to the discretion of the court by which the default was set aside. (Harbaugh v. Honey Lake Valley Land & Water Co., 109 Cal. 70 [41 P. 792].) [3] "And where a party in default makes seasonable application to be relieved therefrom and files an affidavit of merits alleging a good defense, and plaintiff files no counteraffidavit and makes no showing that he has suffered any prejudice or that any injustice will result from a trial on the merits, slight evidence is required to justify setting aside the default." (29 Cal.Jur.2d p. 99, 152; Berri v. Rogero, 168 Cal. 736 [145 P. 95].)
"The power vested in the trial courts by section 473 of the Code of Civil Procedure should be freely and liberally exercised to the end that they may order their proceedings so as to dispose of cases on their substantial merits, .... [4] In view of the policy of the law to have every litigated case tried on its merits, courts look with disfavor on a party who, regardless of the merits of his case, attempts to take advantage of the mistake, surprise, inadvertence, or neglect of his adversary." (29 Cal.Jur.2d 97, 152, and cases cited therein.) Appellant has not shown that the trial court, by vacating and setting aside respondent's default and granting her leave to file her answer and cross-complaint, abused its discretion.
The cross-complaint alleged that on April 26, 1946, respondent and decedent entered into an oral agreement whereby respondent agreed to act as a housekeeper for the decedent, assist him in the operation of his ranch and look after his comfort and general welfare as long as he lived, and he agreed upon his death to leave a will giving her all of his real and personal property. The second cause of action alleged that at the time of his death, decedent was indebted to respondent for services performed for decedent at his request reasonably worth $12,500, less the reasonable value of board and room in the sum of $6,000, and that a claim therefor had been presented by her on March 14, 1952, and rejected by the appellant administrator on March 27, 1952. Appellant demurred to the second count on the ground that it failed to state facts sufficient to constitute a defense or counter-claim since said cross-complaint showed on its face that respondent failed to bring action on her rejected claim against the decedent's estate within three months after notice of its rejection, as provided by section 714 of the Probate Code, the answer and cross-complaint having been filed more than six months after the rejection of said claim. Appellant *729 contends that his demurrer was improperly overruled. He relies upon Western Pipe & Steel Co. of California v. Tuolumne Gold Dredging Corp., 63 Cal. App. 2d 21 [146 P.2d 61], in support of his claim that the time to sue in quantum meruit for the reasonable value of services was not stayed by the filing of the original complaint, since respondent's claim was unrelated to his cause of action.
[5] The contention cannot be sustained for the reason that the filing of the complaint in this action suspended the running of the statute of limitations as to matters arising out of the transaction pleaded. (McDougald v. Hulet, 132 Cal. 154, 160-161 [64 P. 278]; Jones v. Mortimer, 28 Cal. 2d 627, 633 [170 P.2d 893].) In her cross-complaint, respondent alleged an agreement with deceased, under which, for the services she performed, he was to will her the property which is the subject matter of appellant's quiet title action. [6] Although respondent was forced to rely on quantum meruit (because the alleged oral contract to compensate respondent by leaving her the entire estate upon his death is unenforceable--Civ. Code, 1624, Code Civ. Proc., 1973), the matter, nevertheless, was sufficiently related to the transaction or matter upon which the action was brought, to justify the filing of the cross-complaint. (Code Civ. Proc., 442; Mikesell v. Gomez, 67 Cal. App. 2d 507 [154 P.2d 927].)
Appellant next contends that the judgment is not supported by the evidence, in that respondent failed to prove the elements necessary to make out her claim of quantum meruit. There is no merit in this contention.
[7] In April of 1946, decedent went to Medford, Oregon, where respondent had been employed, and took her to his home in Crescent City, California. She kept house for decedent until his death on August 21, 1951. She performed household tasks, including cooking, cleaning, laundry, mending, working in the garden and assisted deceased in the construction of a new house. Respondent testified that she expected to be paid for her services and had received no compensation therefor. She said she and decedent were to be married, and that she expected to receive decedent's property upon his death. One Evelyn Patterson, a witness for respondent, testified that decedent told her that he and respondent were going to be married, and in her presence said that he was going to fix it so that respondent would have everything that he had. Appellant points to no evidence in the record that respondent performed the services for decedent in consideration *730 of marriage, or that they were actually intended to be gratuitous. This is ample evidence to warrant the inference that it was the intention and expectation of the parties that respondent should be compensated for the services she rendered, notwithstanding the fact that there was other evidence which in some respects was contradictory. (Mikesell v. Gomez, supra.)
[8] Appellant next contends that the court erred in allowing interest prior to judgment in this quantum meruit action. While the general rule in a quantum meruit action is that interest is not allowable until the date of judgment, it is not the rule when the action is one to establish a claim against an estate. The claim, when established, will bear interest from the date of its presentation since the judgment relates back and takes effect as of that date. "[I]f the claim did not bear interest until the date of the judgment, it would place the claimant who was compelled to sue at a disadvantage with one whose claim is allowed by the executor, for in the latter case there is no doubt that interest is allowable from the time the claim is approved." (White v. Deering, 38 Cal. App. 516, 519 [179 P. 401].)
Lastly, appellant contends that the court erred in sustaining an objection to a question as to jobs held by respondent after decedent's death. There is no merit whatsoever in this contention.
The judgment is affirmed.
Peek, J., and Schottky, J., concurred.
NOTES
[fn. *] *. Assigned by Chairman of Judicial Council. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/8326572/ | Leibensperger, Edward P., J.
Plaintiff, Alana Nelson, claims that she was wrongfully discharged from employment by defendants, Anika Therapeutics, Inc. and Anika’s Chief Executive Officer and President, Charles H. Sherwood. In Count One of her complaint she asserts that she was fired because she communicated to superiors at Anika certain “Bad Practices” and that she is entitled to common-law whistle-blower protection. Thus, she contends, her firing was wrongful because it was a violation of the public policy exception to the employment at-will doctrine. Defendants move for summary judgment dismissing Nelson’s sole remaining count of the complaint.2 For the reasons stated below, defendants’ motion is ALLOWED.
FACTS
The following facts are taken from the parties’ Consolidated Statement of Undisputed Facts (“SOF”) and the materials submitted therewith, including affidavits and deposition transcripts. The SOF were reviewed by the Court keeping in mind that at the summary judgment stage the undisputed facts should be viewed in the light most favorable to the nonmoving party, Nelson. The Court notes, however, that affidavits and depositions “shall be made on personal knowledge [and] shall set forth facts as would be admissible *614in evidence ...” Mass.R.Civ.P. 56(e). To the extent that Nelson’s affidavit and testimony contain hearsay, speculation, rumor and opinion, such ruminations are not “facts” and are not considered. Moreover, the Court notes that the 174 paragraphs of the SOF include numerous instances of plaintiff inserting argument and unsupported conclusions in response to a statement of fact, in violation of both the letter and the spirit of Superior Court Rule 9A(b) (5).3 Where such counters constitute the only response by plaintiff to a statement of fact, then the statement of fact is deemed admitted. Superior Court Rule 9A(b)(5)(ii).
1. Nelson’s Employment History
Anika is a medical device company that invents, develops, manufactures and commercializes therapeutic products for tissue protection, healing and repair. As such, it is regulated by the federal Food and Drug Administration (“FDA”). Sherwood has been the Chief Executive Officer and President of Anika since 2002.
Anika hired Nelson in 1997 as a part-time analytical chemist in the Quality Control (“QC”) department. In December 1998, Nelson was hired on anon-temporary basis in the same position. As a QC Analytical Chemist, her duties included routine testing, validation development, troubleshooting, and testing associated with manufacturing investigations.
In October 2006, Nelson was promoted to the position of QC Lead Analyst. Her duties in this role included leading investigations into out-of-specification (“OOS”) results and managing the laboratoiy. An OOS result is a result in the laboratoiy that does not meet specifications set by Anika’s standard operating procedures (“SOP”). Managing the laboratoiy included testing of raw material, in-process production material, finished product, and production development samples. She was also responsible for environmental monitoring, sampling and testing critical utilities, and for ensuring the laboratoiy was operating within established good manufacturing processes and within Anika’s SOP. Later that same month, the QC Manager (Nelson’s supervisor) resigned from her employment with Anika and Nelson began functioning as the Interim QC Manager until a replacement was found. As Interim QC Manager, Nelson began reporting to Timothy Mayhew, Anika’s Director of Quality. In August 2007, Nelson was promoted to the QC Manager role. In her role as QC Manager, Nelson was responsible for the QC department, consisting of analytical and microbiology laboratories. As QC Manager, Nelson was expected to ensure compliance by the QC department with Anika’s SOP, FDA regulations, and good manufacturing and documentation practices. Duties of the QC Manager also included developing staff budgets, monitoring equipment and supply expenditures, and managing personnel in the QC department.
While not specifically stated in the parties’ SOF, it appears uncontested that Nelson was, at all relevant times, an at-will employee.
2. FDA Review and Criticism
In March 2008, the FDA conducted a routine inspection of Anika. There is no evidence that Nelson, as a whistle-blower or otherwise, initiated the FDA inspection. Likewise, Nelson does not allege, nor is there evidence in the record, that she communicated with the FDA in aid of its inspection or that she reported any alleged wrongdoing or poor practices to the FDA. There is no evidence to suggest that Anika did anything other than encourage its employees to cooperate with the FDA inspection.
On March 21, 2008, the FDA issued a Form 483 to Anika after the inspection of Anika’s facilities. A Form 483 is issued when the FDA finds that a company may not be in full compliance with FDA regulations. The Form 483 indicated that it contains “observations made by FDA representatives during the inspection . . . and [such observations] do not represent a final agency determination regarding your compliance.” The Form 483 contained seven categories of “observations” with subsidiaiy findings regarding each category. Among other things, the Form 483 raised several specific concerns about the QC Department. For example, the FDA observed that “[m]anagement with executive responsibility has not ensured that an adequate and effective quality assurance system has been fully implemented and maintained at all levels of the organization. The responsibilities and procedures applicable to the quality control unit are not fully followed.” At the time the Form 483 was issued, it was Nelson’s responsibility to ensure that the QC department was complying with FDA regulations and the company’s SOP.
On July 2, 2008, the FDA sent a “Warning Letter” to Anika. The Warning Letter, also based upon the March inspection, repeated the concerns raised in the Form 483 and sought corrective action. The FDA stated that Anika’s products were deemed to be “adulterated within the meaning of section 510(h) of the Act, 21 U.S.C. §351(h), in that the methods used in, or the facilities or controls used for, their manufacturing, packing, storage or installation are not in conformiiy with the current Good Manufacturing Practice (cGMP) requirements of the Quality System (QS) regulations ...” The FDA detailed more than eight “violations” and stated that Anika is “responsible for investigating and determining the causes of the violations . . . and for preventing their recurrence or the occurrence of other violations.” The FDA demanded prompt action by the company, warning that failure to act might result in civil action by the FDA to seize or enjoin the products or to seek a civil money penalty. The FDA did not, however, take any action to stop Anika from continuing to market and sell any of its products on the ground that there existed a specific and imminent threat to public safety.
Anika was concerned about the receipt of the Warning Letter. The company had not, during the entire *615tenure of Sherwood as CEO, previously received such a letter. Because most of the deficiencies in the Warning Letter were in the QC department, Sherwood believed that the Executive Director of Quality, Mayhew, was responsible for poor management of the department. Mayhew was terminated from employment on August 11, 2008.
On December 1, 2008, Anika hired George Kuniholm as Executive Director of Quality Systems. He became Nelson’s supervisor. Kuniholm’s principal goal was to address the issues in the FDA Warning Letter. Shortly after being hired, Kuniholm conducted an internal facilities audit and observed deficiencies in the microbiology laboratory. Nelson, who was in charge of this laboratory, signed off on the audit report acknowledging receipt and review. Kuniholm was concerned that the deficiencies showed lack of progress with respect to the observations by the FDA of the QC laboratory. Kuniholm was also concerned by these deficiencies as they suggested that the QC laboratory was disorganized and not well supervised by Nelson.
On February 11, 2009, Nelson received her 2008 performance review from Kuniholm. Nelson wrote much of this review herself, with the exception of Kuniholm’s overall comments. She criticized herself with respect to not managing her time efficiently and for not completing investigations in a timely manner. She also acknowledged that OOS and environmental control investigations needed to be timely brought to closure, and that this was “nothing [she] hadn’t been told before.” Kuniholm documented his specific concerns about Nelson’s performance as the QC Manager. The overall comments were based in part on the 2008 FDA Warning Letter. Pursuant to this review, Kuniholm demoted Nelson to Supervisor of the Analytical Laboratory. After the demotion, Nelson continued to be responsible for developing the annual budget for the QC department and for ensuring the QC laboratory’s compliance with Anika’s policies. She was no longer responsible for the microbiology laboratory.
Around the same time that Nelson was given her review and demotion, the FDA began an unannounced re-inspection of the facility. The FDA identified an issue with water testing records. An internal meeting was held to discuss these records. During this meeting, Nelson acknowledged that she had not completed the required documentation where the OOS for water testing were thought to be sampling or handling errors. Nelson described this documentation error in an email dated February 23, 2009, where she acknowledged that an “investigation was initiated but paperwork was not carried through for many cases ... [ajnalytical error did not get an investigation OOS . . . [a]n investigation should have been initiated by QC but was not because of confusion in closing related investigation.”
On March 20, 2009, the FDA issued another Form 483 to Anika based on its findings during the February audit. The new Form 483 was primarily focused on the QC department. Specifically, it was noted that there had been a failure to address laboratory result anomalies in a manner consistent with Anika’s SOP. In her deposition, Nelson admitted that it was her responsibility to ensure that investigations were properly documented. In response to these documentation failures cited by the FDA in the March 2009 Form 483, Kuniholm decided to terminate Nelson’s employment. He worked with Anika’s Human Resources Department to begin the process. Kuniholm documented his reasons for Nelson’s termination in a memorandum drafted on March 20, 2009. In the memorandum, Kuniholm set forth five specific reasons for termination (e.g., “you have not been addressing laboratory result anomalies ... in a timely and effective manner”) and several general reasons (e.g., inability to prioritize; ineffective management of resources). The termination was finalized on March 23, 2009. In the days following Nelson’s termination, Kuniholm found as many as thirty-five uncompleted OOS reports that were left in Nelson’s office.
Nelson admitted in her deposition that she has no evidence in the form of personal knowledge, documents or statements by any individuals, to show that Sherwood played a role in her termination. Sherwood testified that he had no input on the decision to terminate the employment of Nelson. Kuniholm, by affidavit, stated that he did not consult with Sherwood regarding the termination.
3. Nelson’s Alleged Whistle-blowing
In opposition to summary judgment Nelson submitted a thirteen-page, sixty-paragraph affidavit dated May 2, 2011. While the affidavit includes numerous opinions, conclusions and hearsay statements, it serves the purpose of summarizing Nelson’s claims for wrongful termination. It is notable as much for what it does not say as for what is included.
Nelson states that she observed a lot of tension in the company after the FDA inspection and reports in 2008. The QC department did, however, take steps to perform corrective actions. Nelson alleges that the workload of the QC laboratory increased dramatically, extending to seven days a week for salaried employees.
Nelson’s duties as QC Manager at Anika included staff budgets. In connection with the staff budgeting process for 2009, Nelson requested additional staff. Her justification for this request was that her staff was overworked, and that more staff was needed in order to complete work in a timely manner. She requested the hiring of a microbiologist and two analysts. After these staffing requests were approved, Nelson requested additional staffing from Kuniholm. Kuniholm endeavored to fill the positions she sought. Nevertheless, as a result of what Nelson believed was un-derstaffing, Nelson states that she “complained about safety issues including lack of resources and staff—all of which negatively impact the safety of Anika’s prod*616ucts and drugs.” Nelson asserts that the inadequate testing procedures and other deficiencies detailed by the FDA were a risk to the health and safety of the consumers of the products.
Nelson’s affidavit does not, however, describe any communications from her to the FDA. There is no allegation of a concern or report by her of criminal wrongdoing at Anika. There is no evidence of anyone at Anika making false statements to the FDA or of management asking anyone to do so. Nelson does not identify a specific act by anyone at Anika that she reported to management or anyone else as an imminent threat to public safety. Instead, her concerns, as set forth in her affidavit, are the same concerns that were already observed and reported by the FDA. She then complains that she was not given sufficient staffing to correct those issues.
In her deposition, Nelson was asked about an Anika product called Elevess, a dermal filler. Nelson testified that she had raised “concerns” regarding Elevess as to whether it was an unsafe product being released to the market. Her concerns were that “process validations” were being done incorrectly and that there may be impurities in the product because the company was not, in her opinion, conducting proper impurity testing. Nelson admitted, however, that she did not know whether the product was actually harmful. The FDA approved Elevess as safe and effective.
Nelson recalled one instance in late 2008 where she felt that she was reprimanded for raising a concern about Elevess. When advising the vice-president of operations that there was difficulty with the syringe popping off in product testing, he responded, “Why are you telling me this?” In response, the director of operations stated, in support of Nelson, “because she’s qualify control and it’s her job.” Nelson concedes that there were no other instances where she felt reprimanded for raising concerns about Elevess. There is no mention in Nelson’s 2008 performance review of anything concerning significant problems with Ele-vess. In fact, Nelson was given a 3.2 rating (exceeds requirements) for supporting the manufacture and product launch of Elevess. In November 2008, Anika stopped producing Elevess because its distributor went out of business.
DISCUSSION
1. Summary Judgment Standard
Summary judgment is appropriate where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Mass.R.Civ.P. 56(c); see Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716 (1991); Cassesso v. Commissioner of Correction, 390 Mass. 419, 422 (1983). The moving party bears the burden of affirmatively showing that there is no triable issue of fact. See Pederson v. Time, Inc., 404 Mass. 14, 17 (1989). A party moving for summary judgment who does not have the burden of proof at trial may demonstrate the absence of a triable issue either by submitting affirmative evidence negating an essential element of the nonmoving party’s case or by showing that the non-moving party has no reasonable expectation of proving an essential element of its case at trial. See Kourouvacilis, 410 Mass. at 716. Once the moving party “establishes the absence of a triable issue, the party opposing the motion must respond and allege specific facts which would establish the existence of a genuine issue of material fact in order to defeat [the] motion.” See Pederson, 404 Mass. at 17. The nonmov-ing party cannot defeat the motion for summary judgment by “rest(ing) on his or her pleadings and mere assertions of disputed facts.” LaLonde v. Eissner, 405 Mass. 207, 209 (1989). Applied to the present case, the summary judgment paradigm requires plaintiff to come forward with some evidence to suggest that her employment termination was as a result of retaliation against her for conduct that is protected by well-established public policy.
2. Public Policy Exception to Employment At-Will Doctrine
An at-will employee may be fired “for almost any reason or for no reason at all.” Wright v. Shriners Hosp. for Crippled Children, 412 Mass. 469, 472 (1992), citing Jackson v. Action for Boston Community Dev., Inc., 403 Mass. 8, 9 (1988). A “narrow exception” to that rule is where the discharge is for reasons that violate clearly established public policy. Smith v. Mitre Corp., 949 F.Sup. 943, 948 (D.Mass. 1997), citing Flesner v. Technical Communications Corp., 410 Mass. 805, 810 (1991). It is a question of law for the court to decide whether an alleged retaliatory firing would violate public policy. Wright, 412 Mass. at 472.
Examples of employee conduct that is protected by a well-defined public policy include asserting a legally guaranteed right (e.g., filing a workers’ compensation claim), doing what the law requires (e.g., serving on a jury), or refusing to do that which the law forbids (e.g., committing perjury). Also, an employee may not be terminated for assisting in an ongoing governmental investigation into illegal conduct of his employer, Flesner, 410 Mass, at 810-11, or making a good faith complaint within the company about perceived violations by the company or its employees of the criminal law. Shea v. Emmanuel College, 425 Mass. 761, 762-63 (1997). As stated by the Supreme Judicial Court in Shea, “(t]he distinction of importance is between a discharge for an employee’s internal complaint about company policies or the violation of company rules, for which liability may not be imposed, and an internal complaint made about alleged violation of the criminal law for which we now decide that liability may be imposed.” Id..
The public policy exception does not protect all employee acts that may be “appropriate [or] socially desirable.” Smith-Pfeffer v. Superintendent of the Walter E. Fernald State Sch., 404 Mass. 145, 150 (1989). *617The protection does not extend so far as to cover reporting by an employee of alleged conduct that might pose a threat to the well-being of users of the corporate services. Wright, 412 Mass. at 472-73 (no violation of public policy where a nurse fired for criticizing, as required by the nursing ethical code, the quality of care rendered to patients at hospital). See also Kyle v. Massachusetts Gen. Hosp., 61 Mass.App.Ct. 1118, 2004 WL 1609113 at*3 (2004) (Rule 1:28 decision) (general allegations of possible criminal consequences flowing from improper patient care are not protected). Moreover, a potential threat to public health or safety must not be too remote or speculative. Generalized concerns that activities of the employer could, possibly, result in alleged harm to health or safety are insufficient. Smith-Pfeffer, 404 Mass. at 151 (concerns regarding the safety and well-being of residents at the institution are insufficient to be protected by the public policy exception). See also King v. Driscoll, 418 Mass. 576, 584 (1994) (alleged wrongful activity of corporation had only a “remote effect” on the public interest and, thus, employee’s participation in lawsuit against company not protected by the public policy exception).
Applying the precedent described above to the facts of this case results in summary judgment for defendants. Nelson’s alleged internal complaints, reports or concerns do not rise to the level of public policy protection recognized by the Supreme Judicial Court. Nelson did not report criminal activity at Anika. See Shea, 425 Mass. at 762-63. She was not asked to make false statements to the FDA or to otherwise not cooperate with the FDA inspections. See Flesner, 410 Mass. at 810. She does not allege that any product sold by Anika was actually unsafe. Instead, her complaints to management (read broadly and in the best light to Nelson) concerned whether there was adequate staff at Anika to comply with company SOP and FDA regulations. Those complaints, while possibly serving a salutary purpose, raise exactly the type of internal policy issues that the Supreme Judicial Court found not to fall within the public policy exception. See Wright, 412 Mass. at 472-73.
Plaintiff argues, however, that the public policy exception has expanded to include protection for an employee’s internal reporting of violations of safety rules or regulations. She relies, principally, upon the following three cases.
In Hobson v. McLean Hospital Corp., 402 Mass. 413 (1988), plaintiff alleged that she was required by state and municipal law and ordinance to have nursing staff supervise patients who desired to cook meals. When she attempted to enforce that requirement, her action caused anger and resentment from the medical staff who, in turn, allegedly caused her discharge from employment. Emphasizing that it was applying a Rule 12(b)(6) standard rather than Rule 56, the Court concluded that reading the complaint with “liberality, we think that the plaintiff has stated a claim in broad terms. It remains to be seen whether when the facts are shown in further proceedings, the plaintiff can make out a case of liability on public policy grounds.” Id. at 416-17 (citation omitted).
Subsequently, in Falcon v. Leger, 62 Mass.App.Ct. 352 (2004), the Appeals Court affirmed a juiy verdict against a supervisor for wrongfully interfering with plaintiffs employment. In discussing whether the supervisor’s conduct was within the scope of his responsibilities, the Court addressed the public policy exception to the employment at-will doctrine: “Our cases have suggested that an employee could be shielded from the risk of discharge if he or she reasonably, but perhaps erroneously, reports that an employer is violating State and municipal laws and ordinances concerning public safety.” Id. at 364. The Court then held that the supervisor’s conduct was unlawful. The conduct in question was the supervisor’s request to plaintiff to conceal unsafe product from an inspector and to lie to the inspector. Id. at 358-59. The Court noted that the conduct of the supervisor was “tantamount to committing fraud” upon a governmental regulator. Id. at 365.
Finally, the Appeals Court recently issued a Rule 1:28 decision, Chernov v. Home Depot, Inc., 78 Mass.App.Ct. 1105, 2010 WL 4178937 (2010). Summary judgment for the employer was reversed by the Court on plaintiffs wrongful discharge claim. The Court stated that “(a]n at-will employee may not be fired for reporting circumstances that the employee reasonably and in good faith believes violate our public safety laws and present a threat to public safety.” Id. at *2. The plaintiff had constantly reported what he believed to be violations of the fire code (a violation punishable by imprisonment) as well as departures from internal company safety rules. The reports were of specific violations that posed an immediate threat to the safety of customers and employees.
Nelson’s contention that these three cases demonstrate a significantly more expansive statement of the public policy exception that prevents summary judgment in her case is rejected. To the extent the cases reflect protection for internal reporting of possible criminal violations or lying to governmental authorities, they are well within the principles set out in Shea and Flesner. To the extent they may be read to include protection for reporting specific safety violations that pose an identifiable threat to the public, such a reading is of no help to Nelson, here. Nelson’s alleged protected activity is the reporting of departures from company policy (that had already been observed and reported by the FDA) allegedly arising from inadequate staff that might possibly allow product to be sold that could be unsafe. There is no allegation or evidence that a product sold by Anika was, in fact, harmful or unsafe.
*618Nelson’s alleged reporting of a potential threat to public safely is too remote. See Smith-Pfeffer, 404 Mass. at 151. This is especially true in the context of a quality control manager working for a company producing drugs and devices for human use. Essentially any departure from company SOP would have the potential for increasing the risk of harm. That is why detailed SOP are required by FDA regulations. It is the quality control manager’s job to ensure compliance with company SOP. Merely doing that job and reporting deficiencies in compliance, without more, is not the same thing as reporting circumstances that violate public safety laws and present a threat to public safety. The FDA, having observed the violations of company SOP and FDA regulations, did not conclude that there was an imminent risk to public safety such that Anika’s products could not be sold.
Adoption of Nelson’s theory in this case would make the public policy exception swallow the at-will employment doctrine. It would “convert the general rule that ‘an employment at-will contract [can] be terminated at any time for any reason or for no reason at all,’ . . . into a rule that requires just cause to terminate an at-will employee. Nelson’s theory would insulate every quality control or compliance manager from the at-will doctrine where the employee was simply doing his or her job (reporting deficiencies). The public policy exception to the at-will employment rule is not that broad.” Smith-Pfeffer, 404 Mass. at 150.
3. Reasons for Nelson’s Termination from Employment
Defendants seek summary judgment on the additional ground that there is no genuine issue of material fact as to the reason why Nelson was terminated from employment. Defendants argue that even if Nelson was engaged in activity protected by a well-defined public policy, there is simply no evidence of a causal connection between the protected activity and Nelson’s discharge. Instead, they assert, the evidence demonstrates that Nelson was fired for the substantive performance deficiencies described in Kuniholm’s termination memorandum. The Court agrees that there is a fatal lack of evidence on causation even if there were protected activity.
Nelson offers no direct evidence on causation. There is no testimony by her or anyone else of an admission by Anika that she was fired because she reported unsafe conditions or lack of staff in the QC department that resulted in unsafe conditions. Consequently, Nelson must rely upon inferences from all the facts and circumstances to establish causation.
“Where adverse employment actions follow close on the heels of protected activity, a causal relationship may be inferred.” Mole v. University of Mass., 442 Mass. 582, 595 (2004). As in Mole, however, Nelson here cannot establish that temporal connection. Moreover, the facts of Nelson’s discharge by Kuniholm belie any inference of retaliatory motive.
Nelson’s claim is that she was fired because she continuously complained that the company’s SOP could not be executed with the level of staffing in the QC department. She emphasizes that the staffing problem became even more acute after the FDA issued the Form 483 in March 2008. Nelson offers no evidence that she was threatened with termination or reprimanded by her superiors at any time in 2008. The most she can muster is that she felt “scapegoated” by management for the adverse reports from the FDA in 2008. Even if the evidence supported the claim of being unfairly blamed, it does not prove retaliation for conduct protected by public policy. An inference that Nelson’s firing in 2009 was because of her complaints in 2008 is not reasonable or justifiable.
On the other hand, Nelson’s admitted failure to properly document testing procedures and results, cited by the FDA in another Form 483 in March 2009, is the proximate event to the termination of her employment on March 23, 2009. When asked what rationale Kuniholm had for firing her (in addition to the stated reasons in Kuniholm’s termination memorandum), thereby giving Nelson the opportunity to articulate the basis for her retaliation claim, she testified that she did not know Kuniholm’s rationale. She claimed he was doing the bidding of Sherwood and that he, Kuniholm, did not “fight for his people.” The uncontradicted evidence, however, is that Kuniholm made the decision to fire Nelson without any input from Sherwood. Accordingly, the only reasonable inference regarding the cause of Nelson’s employment termination, based upon the evidence and not speculation, is that she was fired for the reasons stated in Kuniholm’s termination memorandum.
4. Claim Against Sherwood
As described above, Nelson cites no admissible evidence to suggest that Sherwood had anything to do with her firing. The evidence offered by defendants that Sherwood was not involved is unrebutted. Thus, the claim against Sherwood must be dismissed.
ORDER
Summary judgment in favor of Anika and Sherwood, dismissing all of plaintiffs claims, is compelled by the record and the law regarding at-will employment. Defendants’ motion is ALLOWED.
On January 22, 2010, this Court (Fremont-Smith, J.) dismissed all counts of Nelson’s complaint other than Count One [26 Mass. L. Rptr. 393].
Plaintiff also submits an “expert” affidavit from Bob West, Ph.D. The affidavit is devoid of any facts and consists entirely of the affiant’s conclusory opinion that plaintiff “was fired as a scapegoat.” The Court disregards this affidavit. | 01-03-2023 | 10-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/2611689/ | 150 Cal. App. 2d 345 (1957)
SATENIG GUNNER, Appellant,
v.
VAN NESS GARAGE (Individual's Fictitious Name) et al., Respondents.
Civ. No. 17116.
California Court of Appeals. First Dist., Div. Two.
Apr. 22, 1957.
Noal R. Gray and Hutchinson & Quattrin for Appellant.
Daniel J. O'Brien, Jr., Daniel J. O'Brien III, Alexander, Bacon & Mundhenk and Herbert Chamberlin for Respondents.
DOOLING, J.
Plaintiff, Satenig Gunner, appeals from a judgment of dismissal entered on the defendants' motions based upon her failure to prosecute her action with reasonable diligence. The original complaint was filed on December 20, 1950. No service was made on any of the defendants until September 17, 1953, and the last defendant served was the defendant Mohawk Petroleum Corporation on December 16, 1953.
Certain of the defendants filed a demurrer on August 4, 1954. An amended complaint was filed on September 10, 1954, to which the same defendants filed a demurrer on September 28, 1954. This demurrer was overruled on November 17, 1954. On November 29, 1954, these defendants secured an extension of time to file a pleading and on December 8, 1954, an answer was filed to the amended complaint. Counsel *347 for plaintiff filed a memorandum to set the case for trial on December 16, 1954, and a notice of motion to advance the case on the trial calendar on December 22, 1954. As a result the case was placed on the jury calendar with the trial date set for February 28, 1955.
The other defendants had a stipulation in writing that they need not file a pleading until they received 10 days' notice from plaintiff's counsel. The record does not show whether or not they received such notice but on January 19, 1955, these defendants by order of the court were given until January 30, 1955, to file a pleading. On January 31, 1955, these defendants filed their answer. These defendants filed their notice of motion to dismiss on February 16, 1955, and a similar motion was filed by the other set of defendants on February 28, 1955.
The motions were heard on extensive affidavits and counter-affidavits and the court granted the motions to dismiss by minute order entered March 17, 1955.
The motions were based on the discretionary power of the trial court to dismiss where the case is not brought to trial within two years after the filing of the action. (Code Civ. Proc., 583.)
[1] Certain principles in this field of the law are well settled: 1. That the burden is at all times on the plaintiff to use diligence at every step of the proceeding to expedite his case to final determination, and no affirmative duty to do more than meet the plaintiff step by step is cast on the defendant. (Oberkotter v. Spreckels, 64 Cal. App. 470, 473 [221 P. 698]; Steinbauer v. Bondesen, 125 Cal. App. 419, 426-427 [14 P.2d 106]; Continental Pac. Lines v. Superior Court, 142 Cal. App. 2d 744, 753 [299 P.2d 417].) [2] 2. In acting on such a motion the trial court has a wide discretion which will only be disturbed by an appellate court in case of manifest abuse. (Hayashi v. Lorenz, 42 Cal. 2d 848, 851 [271 P.2d 18]; Hillsdale Builders Supply Co. v. Eichler, 109 Cal. App. 2d 117, 118 [240 P.2d 343]; Steinbauer v. Bondesen, supra, 125 Cal. App. 419, 427.)
[3] Plaintiff waited almost three years to serve the summons upon the defendants. If the summons had not been served within the three-year period the dismissal of the action would have been mandatory under Code of Civil Procedure, section 581a. There was very little excuse offered by plaintiff for this long delay. The fact that plaintiff changed her counsel twice during this period was no concern of the defendants *348 who were only required to meet her step by step. Some effort was made to show that the delay was due to negotiations for settlement but according to the defendants' affidavits, which we must assume the trial court believed, any such negotiations were sporadic and not continuous nor of such a character as to excuse or explain the long delay in the service of summons.
When the defendants had been finally served with summons plaintiff's then counsel informed the attorneys for defendants that he planned to file an amended complaint and assured them that they need not plead until he did so. This was followed by the written stipulation in the case of one set of defendants giving them until 10 days after notice to file a pleading. In spite of the expressed intention to file an amended complaint such amended complaint was not filed until September 10, 1954, almost a year after service of summons on the defendants. We may concede that plaintiff's counsel proceeded with diligence from the time of the filing of the amended complaint, but a belated manifestation of diligence could not operate to excuse the earlier lack of diligence which extended over a period of nearly four years, from December 1950 to September 1954. The only excuse suggested for the delay from the serving of summons to the filing of the amended complaint was one exchange of letters suggesting the possibility of a settlement which was closed by a flat refusal to consider the proposal of plaintiff on April 2, 1954. This whole negotiation covered a period of only a few weeks.
On the whole evidence we can find no abuse of discretion in the determination of the trial court that plaintiff did not prosecute her action with reasonable diligence. The court could reasonably find that from the filing of the complaint on December 20, 1950, to the filing of the amended complaint on September 10, 1954, plaintiff was guilty of inexcusable delay in expediting her action against defendants.
Plaintiff seeks to excuse herself by the facts that the case was actually set for trial, and that certain defendants obtained time to plead to the amended complaint by order of court. As we view the situation disclosed by the record these facts are immaterial since the inexcusable delay to support the trial court's order may be found in the period before the filing of the amended complaint. [4] Counsel have cited no case holding that tardiness in making the motion to dismiss will excuse the plaintiff's previous inexcusable delay. The cases are to the contrary. (Netzley v. Hillstrom, 122 Cal. App. 2d 417, 421 [265 P.2d 57]; Barry v. Learner, 113 Cal. App. 651, 655 [299 P. 82].) *349
In fairness to appellant's counsel on this appeal it should be noted that they did not represent plaintiff at any stage in the trial court.
Judgment of dismissal affirmed.
Kaufman, P. J., and Draper, J., concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2611690/ | 50 Wash. 2d 167 (1957)
310 P.2d 254
JOHN H. METCALF, Appellant,
v.
MYRTLE V. METCALF, Respondent.[1]
No. 33789.
The Supreme Court of Washington, Department Two.
April 25, 1957.
Chavelle & Millard, for appellant.
Bassett, Geisness & Vance and Stephen V. Carey, for respondent.
DONWORTH, J.
This is an action for divorce instituted by the husband. The complaint alleged cruel treatment rendering plaintiff's life burdensome to the extent that he removed himself from the marital home. The wife answered, denying cruelty and affirmatively alleging that the husband had left home because he was enamored of another woman, but did not cross-complain for either divorce or separate maintenance. When plaintiff rested his case in chief, the trial court granted defendant's oral motion that the answer be amended to pray for separate maintenance. At the conclusion of the evidence, the court denied plaintiff a divorce and entered a decree of separate maintenance, awarding defendant support money of three hundred dollars per month. Plaintiff appeals.
The evidence showed that the parties were married in Seattle in 1933, and that no children were born to them. At the time of the trial, appellant had been for twenty-five years, and still was, employed by the Boeing Airplane Company. At that time, he had advanced to a supervisory position and was receiving a salary of about eleven thousand dollars per year. Respondent held gainful employment *169 from the time of the marriage until 1939, but has remained at home since then.
On December 24, 1949, appellant sued respondent for divorce, alleging cruelty consisting of nagging and excessive public and private criticism of him. A few weeks later, the couple became reconciled, and the action was dismissed on January 21, 1950.
After the dismissal of the first divorce action, the parties purchased a new home in the Magnolia district in Seattle and moved into it. At the time of the trial of the present action, their chief possessions were this house, certain securities, and a twenty-six-foot power cruiser, which was used mostly for appellant's pleasure.
In March, 1955, after a period of discord, appellant began looking for another place to live. An April 30th, he asked respondent if she would agree to a divorce and a property settlement; she refused. On May 15th, appellant moved out of the family home and did not live there again.
Appellant testified to a long history of arguments, misunderstandings, and criticisms of him by his wife during the twenty-three years of their marriage. On appeal, he sets out in his brief twenty-three instances of alleged cruel conduct to which he testified (all of them of a nonphysical nature), many of which he claims were not denied by respondent in her testimony.
To describe these instances in detail in this opinion, would serve no useful purpose. It will suffice to say that they include testimony by appellant that respondent criticized his manner of doing work about the house; heckled him while he drove the car; made him enter the house through the back door; criticized him for using and keeping the boat; belittled his knowledge of boats; became suspicious and angry when he came home late from work or from lodge meetings; falsely accused him of going out with other women; and made light of his problems connected with his work at Boeing's. The other alleged instances of cruelty are of a similar nature. He stated that because of this constant nagging he became nervous and had frequent headaches. He finally consulted a physician. Since separating *170 from his wife, appellant claimed that his health had improved. In addition to his own testimony, appellant introduced that of two men friends who had visited the parties in their home several times over periods of twelve and eight years respectively. These two witnesses testified that the couple had sometimes quarrelled and bickered, and that the atmosphere in their home was strained.
Respondent, in her testimony, explained some of these alleged incidents and habits, denied others, and let others go unmentioned. She said that she desired a reconciliation.
[1] Appellant's principal assignment of error is directed to the trial court's conclusion that respondent was not guilty of cruel treatment which entitled him to a divorce. It is well settled in this state that nagging and insulting language may constitute cruelty justifying a divorce. Detjen v. Detjen, 40 Wn. (2d) 479, 244 P. (2d) 238 (1952), and cases cited. Similarly, cruelty can consist of a quarrelsome and indifferent attitude, or of unjustified fits of rage and jealousy. Anderson v. Anderson, 199 Wash. 696, 93 P. (2d) 290 (1939); Fruehauf v. Fruehauf, 25 Wn. (2d) 232, 170 P. (2d) 309 (1946).
[2] The test of whether or not the language used and the attitude of one spouse toward the other constitutes cruelty, however, is subjective rather than objective. It is easy to establish that a physical beating of one spouse by the other is cruel treatment per se; it is much harder to determine whether any particular language or attitude amounts to cruel treatment per se. The determinative test as to whether or not a divorce should be granted, therefore, is not the words used or attitude adopted, but rather their effect upon the aggrieved party. Thompson v. Thompson, 16 Wn. (2d) 78, 132 P. (2d) 734 (1943); Detjen v. Detjen, supra.
[3] The trial court found, in effect, that, as between this husband and wife, the language and conduct of respondent did not constitute cruelty, and that appellant was impelled by other reasons to leave the home. The trial judge had the parties before him, heard their testimony, and gauged their credibility on the basis of many subtle factors which *171 are unavailable to us. We cannot say that the alleged acts of respondent, even assuming arguendo that they were all committed, constituted cruelty as a matter of law; nor can we say, on the basis of the cold record before us, that the evidence preponderates against the trial court's conclusion that they did not constitute cruelty.
The trial court, in its oral opinion at the close of the case, summed up the evidence, in part, in these words:
"In the present case I do not believe that the points relied on by Mr. Metcalf can be considered as amounting to cruel treatment.
"It is a little bit hard to summarize this case in a few words, and it is particularly hard to evaluate the testimony without having regard to the personalities involved....
"I think that that is the way I would characterize Mr. Metcalf on his testimony and on his appearance, a man who wants his own way and is pretty determined about it; and he wants to be looked up to and he wants to be admired. That may be sort of a carry-over from the time when he was starting out as an hourly wage employee without any particular education, without any particular standing.
"Now, let us look at Mrs. Metcalf.
"She is a person that has considerable spirit, I would say, and she has a good deal of capacity. She was employed for a while and I think she has been very much interested in her home.
"She is, I would say, a positive character. I would not expect her to accept any situation, regardless of whether it met her views as to what was desirable, without some comment....
"I think his trouble is largely of his own making. I think that he has just failed to realize that it is possible for a husband and wife to have different viewpoints without the wife always being in the wrong.
"I do think that his contention that he was subjected continually to bickering, criticism, harrassing, etc., is not made out. I think these incidents that he tells about were largely of a trivial or unsubstantial nature.
"I think that the real cause of his desiring to leave is that he found pleasure in the society of one or more other women."
[4] The testimony of appellant and of the two family friends whom he called as witnesses established that this *172 marriage, at least during the past few years, has been somewhat inharmonious. However, appellant did not sustain the burden of proving any one of the nine statutory grounds for divorce. As we have said in prior cases:
"This is a situation where it is easy to say that there is nothing to be gained by keeping this man and this woman yoked together; but neither incompatibility, uncongeniality, dissatisfaction, nor unhappiness constitutes grounds for divorce." Neff v. Neff, 30 Wn. (2d) 593. 192 P. (2d) 344 (1948).
"The most that can be derived from ... [the husband's] testimony is that he is unhappy in his marriage and the parties are incompatible. As we have said, these matters do not constitute grounds for divorce." Best v. Best, 48 Wn. (2d) 252, 292 P. (2d) 1061 (1956).
Appellant assigns error to the trial court's finding of fact No. 5, which reads, in part, as follows:
"The plaintiff did not leave the home of the parties because of any cruelty or personal indignities on the part of the defendant, but because the plaintiff had become enamored of another woman."
[5] The evidence tending to show that appellant left the home because he was enamored of another woman consisted of respondent's testimony that a change came over him in the winter of 1955, and that she saw him with two different women on several occasions after he had left the home. Appellant's reasons for leaving are immaterial, as long as the trial court found that respondent was not guilty of cruel treatment which drove him from the home. In view of such a finding, his departure constituted an abandonment.
Appellant next contends that the trial court erred in allowing respondent, at the time appellant rested his case, orally to amend her answer to pray for separate maintenance in the event a divorce should be denied. He urges that the amendment was untimely; that it deprived him of notice of what he was to defend against; and that it was a "nullity" because it failed to allege the grounds relied upon or to ask any specific relief.
[6] However, where the plaintiff husband in a divorce suit has left the home, and where he fails to show adequate *173 grounds for his departure or for granting him a divorce, the court should be able to make some realistic disposition of the case. With this in mind, the legislature in 1949 enacted RCW 26.08.120, which reads, in part, as follows:
"If the court determines after trial that no divorce or annulment shall be granted, it may enter a decree of separate maintenance in favor of the party entitled thereto, and make all necessary orders required for support, attorneys' fees, costs, and for the care, custody, support, and education of minor children; ..."
We need not decide whether or not this statute authorizes the entry of a separate maintenance decree in the absence of any prayer for one. In the present case, appellant objected to the amendment on the ground that it was not timely, but did not ask for a continuance or claim prejudice. The trial court fully protected appellant against surprise. No new factual issues were thereafter injected into the case, all of respondent's evidence being relevant to her defense to the divorce action. At the end of a colloquy between the court and appellant's counsel relative to this matter, the latter practically conceded the propriety of the court's ruling. The evidence showing grounds for awarding respondent separate maintenance was supplied by appellant himself when he testified to the circumstances under which he had left the marital home. Since the court later found that circumstances did not justify him in leaving, the amendment was properly allowed under Rule of Pleading, Practice and Procedure 6(9), 34A Wn. (2d) 72. In a similar case, cited by neither counsel, we allowed the defendant spouse in a divorce suit to enter a cross-complaint for divorce at the conclusion of the plaintiff's evidence. Paulson v. Paulson, 37 Wn. (2d) 555, 225 P. (2d) 206 (1950).
[7] Finally, we cannot see that appellant was prejudiced by respondent's failure to ask for a specific amount of support money or to present evidence of her living expense requirements. All facts material to that issue were already in the record. Appellant assigns error to the trial court's award of three hundred dollars per month, out of which respondent must make a monthly mortgage payment of fifty-five dollars. *174 In view of appellant's yearly income of eleven thousand dollars, and the manner in which the parties had been living, the trial court did not abuse its discretion in so fixing the amount.
[8] Other aspects of the property arrangements made by the court in its decree are assigned as error, but since they are not argued by appellant in his brief we do not consider them. Winslow v. Mell, 48 Wn. (2d) 581, 295 P. (2d) 319 (1956).
The decree of the trial court is affirmed.
HILL, C.J., SCHWELLENBACH, ROSELLINI, and FOSTER, JJ., concur.
NOTES
[1] Reported in 310 P. (2d) 254. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2611693/ | 150 Cal. App. 2d 790 (1957)
In re GLENN GORDON DAVIS, on Habeas Corpus.
Crim. No. 5841.
California Court of Appeals. Second Dist., Div. One.
May 13, 1957.
Morris Lavine for Petitioner. *791
William B. McKesson, District Attorney (Los Angeles), Jere J. Sullivan and Lewis Watnick, Deputy District Attorneys, for Respondent.
DORAN, J.
The petitioner was convicted of grand theft, and on February 28, 1951, the superior court suspended pronouncement of judgment and admitted petitioner to probation for a period of five years. Conditions imposed on probation include a provision that petitioner spend "the first two years of the probationary period" in the county jail, and make restitution as proposed by the probation officer, the total amount of which was in excess of $16,000. Petitioner's motion for a new trial was denied, an appeal was taken, resulting in an affirmance. (People v. Davis, 112 Cal. App. 2d 286 [246 P.2d 160], July 18, 1952.)
A certified copy of the minutes of the court for February 28, 1951, after stating the terms of probation, states: "... Notice of Appeal ... filed. Stay of execution of jail term is granted. Bond ... file." However, as stated in respondent's Points and Authorities in opposition to the granting of a Writ of Habeas Corpus, a written order, bearing the heading of petitioner's attorney, and signed by Judge John J. Ford, reads in part as follows: "... it is ordered that the judgment and proceedings in the above entitled case be stayed to and including the conclusion of the appeal." (Italics added.)
Following the affirmance on appeal, the Minutes of August 21, 1952, state, "Defendant surrendered on remittitur. The Order of February 28, 1951 granting probation is ordered into full force and effect. ..." Thereafter the petitioner served the two-year jail sentence which was a condition of the probation.
On May 21, 1956, on a hearing of the defendant's motion to terminate probation, Judge Stanley Mosk granted the motion on the theory that "the order of March 5 stayed in only as to the jail portion of the order for probation." Actually, there was no such order although, as hereinbefore indicated, the clerk's minute order did contain the words, "Stay of execution of jail sentence is granted." Judge Ford's signed order, previously quoted, specifically stayed "proceedings in the above entitled case" pending conclusion of the appeal.
Thereafter, on July 27, 1956, on the stipulation of the defendant and defendant's attorney, Judge Mosk vacated *792 the previous order terminating probation, and modified the probation to allow the defendant to leave the state for business purposes. On December 31, 1956, the court found the defendant in violation of probation, revoked the same and restored the defendant "to probation on the original terms and condition plus the following condition: Probation is extended an additional two years; serve the next thirty days in the County Jail; make monthly report of income (including source) and expenditures ... and pay not less than 10 per cent of gross income monthly on restitution." Thereafter the defendant filed the present petition of habeas corpus, the writ was issued, the sheriff of Los Angeles County made return showing that the petitioner was being held on the above order.
[1] The petitioner contends that the probationary period expired on February 28, 1956, five years after the original order, regardless of the appeal, and that therefore the order of December 31, 1956, committing petitioner to jail and extending the probation another two years, was without jurisdiction and void. Such theory is untenable. In contradiction of petitioner's argument that only the jail sentence and not the probation, was suspended during the appeal is the signed order by Judge Ford definitely suspending the "proceedings in the above entitled case." The term "proceedings" would obviously include the probation order. As respondents state, the words, "stay of execution of jail term is granted," appearing in the minutes, are merely "the words of the Clerk," and do not constitute the order which included all "proceedings."
Nor is there any merit in any of the petitioner's contentions. Section 1203.3 gives the court full power to revoke, modify or terminate probation. [2] Probation is not a matter of right, and where it appears that a defendant has not complied with the terms of probation in reference to the making of reports and proper efforts at restitution it is entirely proper to revoke or modify the order. Actually, in the instant case, the petitioner has little to complain about, for the record indicates that the court has been properly lenient and that the probation has been extended in an effort to make the burden as light as possible. Moreover, as respondent points out, the order suspending proceedings pending appeal was prepared by the petitioner's attorney. Likewise, both petitioner and attorney stipulated to the vacating of the order terminating probation and the modification of the original probation. *793
The writ is discharged and the petitioner remanded to the custody of the sheriff.
White, P. J., and Fourt, J., concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2611694/ | 150 Cal. App. 2d 638 (1957)
DALE D. PEARSON et al., Respondents,
v.
JEAN CURRY ALLEN, Appellant.
Civ. No. 21786.
California Court of Appeals. Second Dist., Div. Three.
May 2, 1957.
P. E. Durkee for Appellant.
Glenn R. Watson and Robert G. Beverly for Respondents.
SHINN, P. J.
Defendant is the owner of two adjoining buildings located at 1349 and 1353 South Westlake Avenue in the City of Los Angeles. On February 19, 1951, she leased the premises to plaintiffs for a five-year term at a rental of $250 per month "for the purpose of renting rooms and for no other purpose whatsoever." Plaintiffs also agreed to purchase the furniture and furnishings located therein for $5,000. The present action is by the Pearsons to recover damages for fraudulent misrepresentations by defendant who induced them to enter into the transaction. Trial was to the court. The court made findings and entered judgment for plaintiffs in the sum of $4,500. Defendant appeals.
This is a typical case of an appeal in which we are asked to reweigh conflicting evidence and to decide questions of fact to the contrary of the findings of the trial court. Most of the authorities cited by defendant respecting the sufficiency of the evidence would have been pertinent had the trial court found the facts in favor of defendant. If we were a court of last resort we could properly affirm the judgment with the statement that we had read the record and found the evidence to be sufficient to justify the findings that established defendant's liability. But since our decision is subject to review, it is necessary that the material facts, including a sufficient statement of the evidence, be contained in our opinion (rule 29, Rules on Appeal).
The complaint alleged, and the court found, that defendant represented to plaintiffs (1) the average monthly rentals from the premises were $640 per month; (2) the premises were being used and operated lawfully for the rental of housing accommodations; (3) defendant had all licenses and permits required by law for the operation and rental of the premises in the manner in which they were being operated by her. The representations were false; defendant knew they were false; she made them fraudulently; and that plaintiffs relied on them. The court also found: (1) At the time of the execution of the lease, the buildings were being operated as apartment-house hotel combinations without permits from the Board of *640 Health of the City of Los Angeles; (2) they were being so operated without certificates of occupancy from the city building and safety department; (3) they were being so operated under permits for use as hotels only; (4) prior to the execution of the lease, defendant had converted the buildings from use as hotels to use as apartment-house hotel combinations without obtaining necessary permits; (5) the preceding acts and omissions were in violation of the State Housing Act and the Los Angeles Municipal Code.
Plaintiffs took possession and operated the premises in the manner in which they were operated on February 19, 1951; in November, 1951, the city board of health directed plaintiffs to discontinue operation of the premises as apartment-house hotels until they secured health permits and certificates of occupancy; plaintiffs attempted to secure such permits and certificates but they were denied because of the unlawful use as apartment-house hotels; plaintiffs were prosecuted in 1952 for violations of the Los Angeles Municipal Code in that they were operating the premises without the required permits and certificates; by judgment of the court in November, 1952, plaintiffs were compelled to convert the buildings into lawful dwelling houses containing two apartments and five guest rooms and remove all tenants from those portions of the premises that could not be legally occupied for rental purposes. Plaintiffs removed the tenants. The trial court found that the loss of rentals occasioned by compliance with the 1952 judgment was the sum of $112.50 per month from November, 1952, to February, 1956, or $4,500.
There was evidence of the following facts. Defendant acquired the premises in 1947 from her brother, W. J. Stout, and for some time thereafter they operated them as a partnership. In February, 1951, she employed the Seaton Realty Company to find a lessee for the property and a purchaser for the furniture. At that time, 1349 South Westlake contained five apartments and two guest rooms; 1353 South Westlake contained five apartments and three guest rooms.
An inspector for the city health department and two inspectors for the city building and safety department testified to the particulars in which the buildings were operated in violation of permits and certificates held by the defendant; the violations resulted from the conversion of the buildings from a hotel classification to an apartment house classification without obtaining the necessary building permit and certificate of occupancy. One of the inspectors testified to having notified *641 Mr. Stout (in whose name the hotel permits were issued) to correct the violations, that Mrs. Allen knew of the same and was notified by the city attorney as early as August, 1948, to correct the conditions.
Plaintiff Dale D. Pearson testified that he and his wife saw Mr. Robert Donnelly at the offices of the Seaton Realty Company on February 12, 1951. Donnelly accompanied them to the premises, where they met defendant and examined some of the rooms. Plaintiffs returned the same evening and looked at the rest of the rooms. Defendant was present part of the time; Mr. Pearson asked defendant whether she had licenses to operate the premises and she said: "Yes, that everything was in order, that she had run the property for a few years ... I have all the licenses that are necessary. I have been operating this business for many years." He testified that he did not then know what kind of licenses were required to run a hotel and an apartment house. He never saw Mrs. Allen's licenses and although he had rented out rooms before, he had never had a license. He had a conversation with Donnelly who told him that the rent would be $250 per month on a five- year lease, the price of the furniture was $5,000, the total income from the premises was $640 per month, of which about $300 per month should be net income. Donnelly handed Mr. Pearson a prorate rental sheet (prepared from information given by defendant) which Pearson and defendant signed; it disclosed a rental income of $611 per month, one unit on the third floor of 1353 being vacant. Mr. Pearson testified that he believed the representations made by defendant and her agent, relied upon them, and that in the absence of the representations he would not have entered into the transaction.
The premises were inspected in November 1951 by health department inspectors and on November 30th notices were mailed to plaintiffs, instructing them to discontinue the operation of the premises until they obtained health permits and certificates of occupancy. The premises were in the same condition as they were when plaintiffs entered into possession. Pearson was unable to obtain a license from the health department because he did not have a certificate of occupancy, which was refused by the building and safety department because the department demanded that he reconvert the premises into hotels.
Health department officials inspected the property again in June 1952 and found 1349 and 1353 to be still in violation *642 of the municipal code. In September 1952 plaintiffs were convicted of operating the premises illegally. As a condition of probation they were required to conform to code requirements in their future operations. They vacated the third floors in November 1952 and operated the property as dwellings. Mr. Pearson testified that he lost rentals of $150 per month due to compliance with the court's order.
Defendant contends that the evidence was insufficient to support the findings that she falsely represented that she had the necessary permits and that the rentals were $640 per month as an inducement to plaintiffs to enter into the lease. She denied having made the representations. Mr. Pearson's testimony clearly supports the findings that defendant made the representations, that they were made with the intention that the Pearsons be induced thereby to execute the lease, and that plaintiffs relied on them. [1] It is argued that since the Pearsons inspected the premises before signing the lease they cannot be said to have relied on Mrs. Allen's statements about the licenses and rentals. The argument cannot be maintained. A cursory inspection of the rooms would not have disclosed that the premises were being operated without the requisite licenses; Mr. Pearson testified that he did not know what kind of licenses were necessary and that he never saw defendant's license. The mere examination of the premises by the Pearsons did not charge them with knowledge that Mrs. Allen was violating the law or preclude them from relying on her representations. (Curran v. Heslop, 115 Cal. App. 2d 476, 481-482 [252 P.2d 378].)
[2] Defendant contends there was no evidence that she knew her representations to be false or that they were made with an intent to mislead. The argument is without merit. There was evidence that the buildings were converted in 1948 to apartment-house hotels without building permits and that Mrs. Allen was aware of the illegal operation of the premises; she had been ordered to convert the buildings into lawful hotels and admitted to Mr. Pearson in 1952 that her brother had had trouble with the authorities.
Defendant's statements that she had all the necessary licenses were unqualified. [3] The statement that the rentals amounted to $640 per month was based upon current rentals of each rental unit. The falsity of these representations was well established. Instead of revealing these facts to the Pearsons, defendant chose to conceal them. Concealment by a seller of conditions of the property known to be in violation *643 of law, and which materially affect the desirability of the property, has been held to constitute actionable fraud. (Civ. Code, 1710, subd. 3, 1572; Barder v. McClung, 93 Cal. App. 2d 692 [209 P.2d 808]; Milmoe v. Dixon, 101 Cal. App. 2d 257 [225 P.2d 273]; Curran v. Heslop, supra, 115 Cal. App. 2d 476.)
[4] Defendant's final contention is that her representations as to the licenses were merely representations as to matters of law and cannot be made the basis of liability. We do not agree. We are persuaded that defendant's statements were such as to justify reliance by the Pearsons. Her assertions that she had all the permits necessary for the conduct of the business in the manner in which it was being conducted at the time were statements of fact; they also implied that the manner of her operation of the premises had not been questioned by the municipal authorities although she knew that the facts belied her assertions. She deliberately concealed facts which would have proved her representations to be untrue. The court was justified in finding that defendant made material representations she knew to be false and positive statements of fact not warranted by the information she possessed. This was fraud. (Civ. Code, 1572.)
The judgment is affirmed.
Wood (Parker), J., and Vallee, J., concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2608427/ | 432 P.2d 775 (1967)
Lloyd V. RILEY and Ellen Riley, husband and wife, Plaintiffs-Respondents,
v.
Joseph Val LARSON and Lionel Jensen dba Wheatley and Jensen Texaco, Defendants-Appellants, and
Newell J. Neibaur, Defendant.
No. 9927.
Supreme Court of Idaho.
October 20, 1967.
*776 Merrill & Merrill, Pocatello, for appellants.
Clark & Lyon, Pocatello, for respondents.
SPEAR, Justice.
By this action, plaintiffs-respondents seek to recover for personal injuries to respondent Ellen Riley and for damages to the Rileys' automobile resulting from a collision with another auto.
While driving her automobile in an easterly direction on Cedar Street in the City of Pocatello, Mrs. Riley collided with another automobile which was traveling in a northwesterly direction. At the time of the accident, which occurred about 11:30 a. m. to 12:00 o'clock noon on the 3rd of June, 1964, no one was in the car that struck Mrs. Riley. The collision took place approximately fifteen minutes after appellant Larson had parked the car on the north side of the Wheatley and Jensen Texaco station, facing in a westerly direction. Before leaving the car unattended, Larson had set the gear in "reverse," instead of "park," and he failed to set the hand brake and turn the front wheels away from traffic as prescribed by I.C. § 49-759.
Trial was had before the court sitting without a jury and judgment was entered in favor of the plaintiffs. The trial court found and concluded that (1) damage to plaintiffs' car was in the sum of $350.00; (2) the collision was proximately caused by the negligence of defendant Larson in not setting the hand brake as required under the provisions of I.C. § 49-759 for parking a vehicle and failing to put the gears in "park" position; (3) no contributory negligence of Ellen Riley was established by the evidence; (4) plaintiff Ellen Riley suffered permanent damages [personal injuries] by reason of said accident; and (5) that plaintiffs were entitled to a judgment against defendants, jointly and severally, in the sum of $17,500 general damages and $1,455.26 special damages.
This is an appeal from that judgment, appellants assigning error to each of the major findings and conclusions hereinbefore set out. To properly pass upon each assignment of error it is first necessary to consider the evidence in some detail.
(A) NEGLIGENCE OF DEFENDANTS LARSON AND JENSEN
On the day of the accident, June 3, 1964, defendant Larson, who was working for Jensen, doing business under the trade name and style of the Wheatley and Jensen Texaco Station, picked up a 1960 Buick automobile owned by Newell J. Neibaur and brought it back to the station which is located at the corner of Cedar and Yellowstone Streets in Pocatello. After the car was serviced, defendant Larson then parked it on a slight incline next to the north side of the building, facing toward the west.
The Buick had an automatic transmission with a "park" setting. Larson testified that he had turned the key off and shifted the gear into "reverse," not "park," but that he had neither set the hand brake nor turned the wheels away from the traffic. He did not actually see the Buick roll out into the street, but estimated that a time of fifteen minutes had elapsed before the car was involved in the accident.
It is well settled in Idaho that violation of a statutory inhibition is negligence per se. State ex rel. McKinney v. Richardson, 76 Idaho 9, 277 P.2d 272 (1954). I.C. § 49-759, dealing with the operation of motor vehicles rules of the road provides:
"Unattended motor vehicle No person driving or in charge of a motor vehicle shall permit it to stand unattended without first stopping the engine, locking the ignition, removing the key, and effectively setting the brake thereon and, when standing upon any grade, turning the front wheels to the curb or side of the highways."
*777 It is evident that the purpose of this statute is to provide against a motor vehicle becoming a derelict on the road and the dangers attendant thereon. Failure on the part of one to comply with the statutory requirement of setting the brake and turning the wheels away from traffic renders that person prima facie liable for the consequences which the statute was intended to prevent. The undisputed evidence here shows that the Neibaur automobile did become a derelict and a menace to traffic. See Rozner v. Harrell Drilling Company, Tex.Civ.App., 261 S.W.2d 190 (1953).
Moreover, under a similar statute, the court in McCoy v. Courtney, 25 Wash.2d 956, 172 P.2d 596, 170 A.L.R. 603 (1946), noted that such a statute does not require the operator to put the car in gear, nor does such a precaution meet the requirements of the statute.
Appellants stress the fact that since the Buick was held in place for some fifteen minutes, there must have been some outside force or other agency that acted upon the vehicle to jar it from its stationary position. They rely on the case of Hughes v. Jolliffe, 50 Wash.2d 554, 313 P.2d 678 (1957), in which a car was parked on a slight incline for over an hour with the automatic gearshift locked in park before it began to roll backwards. After the accident, the gearshift lever was found to be in neutral. The court there rejected the doctrine of res ipsa loquitur as the basis for negligence on the grounds that the car had remained in position for a "substantial length of time" and that no evidence was adduced as to who or what shifted the gears into neutral.
While the length of time in which the car remained parked before starting is an element not to be ignored (see cases cited in 16 A.L.R. 2d 979, at 993), we are not impressed that under the circumstances of this case it is conclusive in appellants' favor.
In the first place, the time lapse of fifteen minutes was only an approximation and not definite; but in any event we take the view that fifteen minutes is not so substantial a length of time that, as a matter of law, this court is compelled to hold defendants' initial negligence no longer could serve as the proximate cause for the Buick's rolling onto the thoroughfare and causing the accident.
Secondly, defendant Larson admitted that he did not put the automatic gearshift into the "park" position, nor was there any proof offered to show that the gearshift had not at all times remained in the reverse setting.
Thirdly, the Neibaur car being parked upon a grade from the service station, the defendant Larson should have turned the front wheels of the car away from the oncoming traffic as prescribed by the statute. It was the duty of defendant Larson to set the hand brake and turn the wheels away from traffic so that this sort of accident would not happen. Under these circumstances, we cannot say that the trial court's finding of proximate cause from the occurrence of the accident was unwarranted where no other evidence was offered to explain the cause of the collision. See Pelland v. D'Allesandro, 321 Mass. 387, 73 N.E.2d 590 (1947); Hasselman v. Zimmerman, 2 Wis. 2d 345, 86 N.W.2d 418 (1957).
(B) CONTRIBUTORY NEGLIGENCE OF MRS. RILEY
In this respect factual details of the accident are not disputed as the only eyewitnesses were the occupants of the Riley automobile, namely, Mrs. Riley and her young daughter.
The facts are that Mrs. Riley was proceeding east along Cedar Street at a speed not in excess of twenty miles per hour as she was approaching the traffic signal at the intersection of Yellowstone and Cedar. She was in the process of slowing down, of actually applying her brakes, in anticipation of the red traffic light approximately one hundred and forty feet in front of her. Mrs. Riley testified that at that moment she saw a car approaching on her right, as it entered the traffic traveling at a *778 "normal rate of speed" and "in a normal manner." She first observed this car when it was perhaps some sixteen to twenty feet away but stated that she couldn't see whether anyone was in the car as the sun was reflecting on the windshield and obscuring her view. As to what happened immediately thereafter, Mrs. Riley testified as follows:
"Q. So then what did you do?
"A. I proceeded in a normal manner; I looked in my rear view mirror to see the traffic behind me, and then I realized the car didn't appear to be slowing down, and I honked politely and then I honked rather intensively, and then I just put my hand on the horn and honked continually when I realized the car wasn't going to stop.
"Q. Did you get out of the way then?
"A. I couldn't go anywhere; there was no place to go.
"Q. Why was this?
"A. Well, the car was coming at me from the right, and there was traffic on the left and traffic in front of me, and traffic behind me. I applied the brakes. I didn't realize until the car was perhaps five or six feet away from me that it was going to, that it wasn't going to stop."
Under cross-examination, Mrs. Riley testified that only when she first realized the Buick wasn't going to stop did she apply her brakes to stop. At that time she realized she was going to be hit before the actual impact and braced herself. She did not realize there was no driver in the Buick until she actually got out of her car and walked up beside the Buick.
Appellants contend that this testimony establishes contributory negligence by Mrs. Riley as a matter of law and precludes any recovery by the respondents.
The burden of proof of the affirmative defense of contributory negligence is upon the party pleading such defense, unless it appears from the evidence introduced by plaintiff. I.R.C.P. 8(c); Larsen v. Jerome Cooperative Creamery, 76 Idaho 439, 283 P.2d 1096 (1955); Bell v. Carlson, 75 Idaho 193, 270 P.2d 420 (1954).
This court has consistently held that the charge of contributory negligence must be sustained by substantial evidence in the record. Bell v. Carlson, supra; Madron v. McCoy, 63 Idaho 703, 126 P.2d 566 (1942); Knauf v. Dover Lumber Co., 20 Idaho 773, 120 P. 157 (1911).
Contributory negligence, though generally a question of fact for the jury, becomes a question of law for the court only when established facts and circumstances permit but one possible conclusion to be drawn by a reasonably prudent man. Larsen v. Jerome Cooperative Creamery, supra; Dale v. Jaeger, 44 Idaho 576, 258 P. 1081 (1927).
Appellants rely upon no other evidence to substantiate their claim of contributory negligence except that adduced from the testimony of Mrs. Riley. Their contention rests on the fact that Mrs. Riley did not attempt to avoid the collision until the Buick was only some five to six feet away although she had first seen the car enter the traffic and angle toward her when it was perhaps sixteen to twenty feet away.
We are of the opinion that under these facts the question was one for the trial court; and that we cannot hold, as a matter of law, that plaintiff's acts constituted contributory negligence.
At the time Mrs. Riley first observed the Buick, it appeared to be approaching her in what she characterized as a "normal rate of speed" and "in a normal manner." She had complete control of her automobile and was already in the process of slowing down, proceeding at a speed not in excess of twenty miles per hour.
Although Mrs. Riley anticipated no imminent peril because she could not see that the Buick was unattended, she still honked her horn to put what she reasonably expected to be another driver on notice.
*779 When she realized the Buick was not going to stop, Mrs. Riley applied her brakes all the way, but couldn't swerve from the path of the oncoming car as there was traffic on all sides of her.
There is nothing in the evidence to suggest that Mrs. Riley failed to keep a proper lookout or to be cognizant of that which was plainly visible or obviously apparent. Drury v. Palmer, 84 Idaho 558, 375 P.2d 125 (1962).
The conclusion of the trial court that appellants failed to satisfy their burden of proof of contributory negligence by Mrs. Riley was correct.
(C) MEDICAL PROOF OF CAUSATION
Appellants next contend that the medical evidence adduced at the trial fails to show any direct or positive proof of causation and that it leaves to mere speculation whether or not the ensuing operation was necessitated by the accident.
Immediately after the collision, Mrs. Riley experienced some pain in her neck and shoulders and saw a doctor that same afternoon. Five days later, on the 8th of June, 1964, she consulted an orthopedic specialist, who took several X-rays and suggested conservative treatments of heat and rest. Mrs. Riley also underwent physical therapy at his suggestion. By the middle of October, the orthopedist recommended that she see a neuro-surgeon. This she did and in January, 1965, an orthopedic surgeon performed an operation consisting of a disc fusion to the fifth, sixth and seventh cervical vertebras on Mrs. Riley. This is the surgery for which a large part of the special damages were allowed by the trial court.
The evidence disclosed that in July, 1962, Mrs. Riley had experienced some of the same symptoms upon which Mrs. Riley's specialists based the necessity of the surgery in 1965, and it is appellants' contention that the evidence was not clear concerning how much of the injury was received in the June, 1964, accident and how much was pre-existing.
Nothing would be served by delineating in detail the testimony of the expert witnesses who testified at the trial and by depositions regularly introduced in the record. Suffice it to say there is ample, competent, expert evidence sustaining the finding of the trial court that the injuries received in the June, 1964 accident made necessary the surgery performed in January, 1965. This court has consistently followed the principle that when the findings of the trial court are supported by substantial, competent, though conflicting, evidence, such findings will not be disturbed on appeal. Formont v. Kircher, 91 Idaho 290, 420 P.2d 661 (1966); Meridian Bowling Lanes, Inc. v. Brown, 90 Idaho 403, 412 P.2d 586 (1966); King v. MacDonald, 90 Idaho 272, 410 P.2d 969 (1965).
(D) DAMAGES TO THE RILEYS' AUTOMOBILE
The final question presented on this appeal is whether there is any evidence in the record to support the trial court's award of $350.00 special damages for damages to the Rileys' Ford. We think there is.
Plaintiffs' complaint alleged that as a result of the collision, their automobile was damaged on the front right fender, grill, windshield, and other parts in the approximate amount of $350.00.
At the trial, Mr. Riley testified that the Riley Ford sedan sustained damages to the right front fender, the hood, grill, the lights and door on the right hand side, and the windshield. Although the Ford had not been repaired, Mr. Riley estimated that the cost of such repairs in dollars and cents would amount to approximately $350.00.
On cross-examination, this evidence was stricken because Mr. Riley's estimate was not based on any personal knowledge or actual repair bills, nor were written estimates on which he based his claim verified before the court.
However, on redirect, Mr. Riley testified that the value of the auto to him, as owner, was approximately $1250 prior to the accident, *780 while immediately thereafter he estimated its market value was practically nil "because it was next to impossible to sell a car in an injured condition, except as junk."
Over objection, the trial court also accepted his testimony that on two or three prior occasions he had tried to sell the car, first for $600, and then again for $500, but he couldn't sell it for either amount in its unrepaired condition.
It is a settled rule in Idaho that the owner of property is a competent witness to its value. In Rankin v. Caldwell, 15 Idaho 625, 632, 99 P. 108 (1908), this court said:
"The general rule, that to qualify a witness to testify as to market value, a proper foundation must be laid showing the witness to have knowledge upon the subject, does not apply to a party who is testifying to the value of property which he owns. The owner of property is presumed, in a way, to be familiar with its value, by reason of inquiries, comparisons, purchases and sales. The weight of such testimony is another question, and may be affected by disclosures made upon cross-examination as to the basis for such knowledge, but this will not disqualify the owner as a witness."
In Garrett v. Neitzel, 48 Idaho 727, 285 P. 472 (1930), the only direct evidence as to the actual value of an automobile which was purchased under the assumption that it was new, but which in fact turned out to be second-hand, was furnished by plaintiff herself. This evidence was held to be competent in view of the above rule and where, from the record, it appeared that plaintiff had previously owned some six or seven used cars.
Furthermore, the record in this cause discloses that Mr. Riley was employed as a mechanic and had done mechanical work on automobiles most of his adult life. It is clear, then, that Mr. Riley's testimony as to the market value of the car, both before and after the accident, is competent.
We hold that this evidence is sufficient to support the trial court's award of special damages to the Riley car in the amount of $350.00.
Judgment affirmed. Costs to respondents.
TAYLOR, C.J., and SMITH, McQUADE and McFADDEN, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2608428/ | 72 Wash. 2d 201 (1967)
432 P.2d 541
GRAYSON CLARK, JR., et al., Respondents,
v.
ICICLE IRRIGATION DISTRICT, Appellant.[*]
No. 38899.
The Supreme Court of Washington, Department One.
October 13, 1967.
*202 Hughes & Jeffers and W. Gordon Kelley, for appellant.
Charles W. Cone, for respondents.
HILL, J.
On February 27, 1965, the bank of an irrigation ditch, owned and maintained by the defendant, had broken or washed out, sending a large volume of water and mud approximately a hundred yards down a steep hill and against and through the house in which Grayson Clark, Jr., his wife, and their 20-month-old son were sleeping. Clark and his wife escaped with their lives. The child was killed; the room he occupied being filled almost to the ceiling with mud, dirt and debris. Even trees in the path of the mud and water had been carried down the hill and into the house.
The Clarks brought this action against the Icicle Irrigation District to recover damages in the sum of $30,000 for the death of the child (divided $15,000 for the loss of companionship, and $15,000 for the loss of his services until he attained 21 years of age). Such an action by the parents for the death of a minor child is authorized by RCW 4.24.010.[1] They also asked $4,839.87 for the loss of personal property (furniture, fixtures, appliances, and clothes); $500 for injuries sustained by Mr. Clark, and $195 for the child's funeral expenses. They secured a judgment for $33,025, which was segregated by a special finding of the jury into $30,000 for the death of the child (which under the pleadings and the instructions must be divided $15,000 for the loss of companionship; $15,000 for the loss of services), together with $195 for the funeral expenses and $2,830 for property damage.
*203 The issues raised on this appeal are: liability, and if there is liability, whether the $30,000 verdict for the death of the child is excessive.
The house occupied by the Clarks belonged to the irrigation district, which had employed Clark until the preceding November. At the time of the slide the season for irrigating was over and, supposedly, there was no water in the ditch except such as came from rain and snow melting under the rain and a warm Chinook wind.
No one could say with certainty what caused the section of the bank of the ditch on the downhill side to go out and come cascading down the hill against and through the house occupied by the Clarks. The jury may well have reached its decision concerning liability on the basis of the res ipsa loquitur instruction which read:
You are instructed that when a thing which causes an injury to another is shown to be under the management and control of the person charged with negligence in operation or maintenance of such thing, or in the failure to keep it in a reasonably safe condition, and if it [is] shown that an accident happened which, in the ordinary course of things, does not happen if those in charge of the management and maintenance of the thing exercise reasonable care, then the happening of the accident alone affords reasonable evidence in the absence of explanation by the person charged with negligence that the accident arose from the want of reasonable care on the part of such person. (Instruction No. 7)[2]
Although the defendant excepted to the giving of any res ipsa loquitur instruction, no error is assigned on this appeal either to the giving of the instruction or to its wording.
*204 [1] Cases involving breaks in irrigation ditches seem particularly appropriate for a proper res ipsa loquitur instruction. This case involves such an occurrence as would not, in the course of ordinary experience, occur without negligence. Control and management of the ditch was in the defendant, and it had superior means of information concerning the circumstances surrounding the break. All the requisites for the application of res ipsa loquitur are present. We approved its use in the similar case of Dalton v. Selah Water Users' Ass'n, 67 Wash. 589, 122 P. 4 (1912).
The plaintiffs presented evidence of the defendant's failure to remove obstructions from the ditch and a spillway. That evidence failed, however, to establish that such failure was the cause of the damages sustained.
[2] However, the fact that the plaintiffs may have attempted, but failed, to prove that certain specific claimed acts of negligence were the proximate cause of the break in the bank of the ditch, does not prevent the application of the doctrine of res ipsa loquitur. As we said in Vogreg v. Shepard Ambulance Serv., Inc., 47 Wash. 2d 659, 663, 289 P.2d 350 (1955),
If the doctrine applies, ... the plaintiffs are not to be penalized by an honest, but perhaps unsuccessful, effort to put in evidence whatever inadequate information they have concerning the happening.
And in Kemalyan v. Henderson, 45 Wash. 2d 693, 706, 277 P.2d 372 (1954), it was pointed out that this court has held:
[T]hat a plaintiff can allege and attempt to prove specific acts of negligence on the part of defendant and still rely on res ipsa loquitur. ...
Still more recent support for such a holding is found in Bolander v. Northern Pac. Ry., 63 Wash. 2d 659, 662, 388 P.2d 729 (1964).
The defendant attempted to meet the inference of negligence permitted by res ipsa loquitur by evidence that the cause of the damages sustained by the plaintiffs was an "Act of God." The jury was instructed that if the cause of *205 the slide was an "Act of God," it was a complete defense "regardless of any duty that might have been placed on the defendant in the operation of its ditch." By its verdict, the jury clearly rejected that defense, and its determination of liability can be upheld on the basis of res ipsa loquitur.
Having concluded that the jury's verdict and the judgment based thereon could be sustained on the issue of liability, we come to the consideration of the defendant's contention that the verdict of $33,025 and the judgment based thereon is excessive.
There was an express finding by the jury that the verdict was allocated $30,000 for the death of the child; $2,830 for the damage to personal property; and $195 for the funeral expenses of the child. The claim that the damages are excessive is limited to the $30,000 item.
The plaintiffs, in their complaint, asked for $15,000 for the loss of companionship of their child and $15,000 for the loss of his services and earnings; and the jury was so instructed.[3]
Not until April of 1967, in the case of Lockhart v. Besel, 71 Wash. 2d 112, 426 P.2d 605, did we recognize that the measure of damages allowable in an action by parents for the wrongful death of a minor could include in addition to the value of the child's services during his minority the loss of companionship during the child's minority.
In that case we granted a new trial in order that the loss of companionship during the child's minority might be included in the measure of damages submitted to the jury. We there said at 117:
*206 We hold that the measure of damages under RCW 4.24.010, ... should be extended to include the loss of companionship of a minor child during his minority without giving any consideration for grief, mental anguish or suffering of the parents by reason of such child's wrongful death. This rule is consistent with the better reasoned cases and the modern trend in other jurisdictions of this country. (Citing cases.)
The reason for this extension of the measure of damages in actions for damages for the wrongful death of a child is stated at some length in Lockhart v. Besel, supra, and need not be repeated here. In summary, it was that the measure of damages to which we had been limited, i.e., the value of the services of the child from the date of death until he would have attained the age of majority, less the cost to his parents of his support and maintenance during this interval, was unjust and archaic. In most instances it was impossible to apply that rule honestly and find any net pecuniary value to the parents from the services of his minor child. Actually, very few people raise children with any expectation of economic gain.
[3] We have adopted loss of companionship as a proper element of damages in an action for the wrongful death of a child, but with no intent to eliminate the loss of services since there are some instances where the services of a child do have a net pecuniary value to a parent under the instruction given by the trial court,[4] which has been frequently approved. This element of damages should be retained, but applied with a measure of intellectual honesty.
*207 We must in this case, as heretofore indicated, divide the $30,000 verdict for the death of the child, $15,000 for loss of companionship, and $15,000 for loss of services. This was the plaintiffs' purpose and intention, and these were the exact amounts which the plaintiffs requested for each item of damage in their complaint.
We will consider first the damages claimed and awarded for the loss of companionship. One of the relatively few attempts to define companionship is found in Wycko v. Gnodtke, 361 Mich. 331, 339, 105 N.W.2d 118 (1960):[5]
[J]ust as an item of machinery forming part of a functioning industrial plant has a value over and above that of a similar item in a showroom, awaiting purchase, so an individual member of a family has a value to others as part of a functioning social and economic unit. This value is the value of mutual society and protection, in a word, companionship.
California has upheld an award of $15,000 general damages for the death of a 10-month-old infant. Couch v. Pacific Gas & Elec. Co., 80 Cal. App. 2d 857, 183 P.2d 91 (1947). There had been a reduction by the trial judge of a verdict for $27,500. In Tyson v. Romey, 88 Cal. App. 2d 752, 756, 199 P.2d 721 (1948), an award of $18,500 for the death of a 5-year-old child was approved. This had been reduced by the trial judge from $25,000 as fixed by the jury. The District Court of Appeal, answering the contention that actual pecuniary loss is the basis for damages for the death of a child, stated: "The rule is that comfort and society may be considered."
Concededly, the value of companionship is impossible of exact estimation, and as there is no fixed standard of value to be applied, the amount of damages must necessarily be left to the trier of the facts. In the two California cases just cited, the amount of damages had been reduced by the trial judge. In the Tyson case, supra, it was said:
*208 As is true in other cases involving the question of excessive judgment, it should be noted here that the remedy for excessive verdicts is primarily in the hands of the judge who presides at the trial. It is his duty to carefully weigh the evidence and not allow a verdict to stand if more damages are assessed than may be reasonably concluded the plaintiff will actually suffer. The appellate court's power "over excessive damages exists only when the facts are such that the excess appears as a matter of law, or is such as to suggest at first blush, passion, prejudice, or corruption on the part of the jury. (p. 756)
[4] We have refused to grant a new trial or reduce the verdict in cases where there is no fixed standard of value, and the amount of damages is peculiarly within the discretion of the jury, "unless this court's sense of justice is shocked by the amount of the award." Sherman v. Seattle, 57 Wash. 2d 233, 248, 356 P.2d 316 (1960). See for later statements of the same holding: Harvey v. Wight, 68 Wash. 2d 205, 210, 412 P.2d 335 (1966); Gustin v. Susnar, 68 Wash. 2d 504, 506, 413 P.2d 822 (1966).
[5] We affirm so much of the $30,000 verdict as was asked for the loss of companionship of the child, i.e., $15,000.
[6] A verdict of and judgment for such an amount for the services of a minor child does shock the conscience of this court. It has no support in our precedents or in reason. It is more than double (almost treble) any prior award we have ever approved for the loss of the services of a child.[6]
*209 With one exception,[7] we have in this case the youngest child for whose death an award for damages has been made in this state.
Our reasoning has been that, as a general rule, the value of the services of a child does not exceed the cost of his care and maintenance during the so-called "tender years," and in Skidmore v. Seattle, 138 Wash. 340, 244 P. 545 (1926), we said, speaking of a boy 15 years of age:
We have here a case where the son had just entered his earning period. Manifestly, the earning period between fifteen and twenty-one years of age is, under all ordinary circumstances, much more productive than any other equal period of minority. A minor has then reached the age when he is likely, if at all, to become as asset rather than a liability to the parent, in a pecuniary sense. (p. 344)
In that case, we raised the amount of the recovery from $1,200 to $2,500 ($2,640 included medical and funeral expenses). If we trebled that to allow for the change in purchasing power of the dollar, it would still be only half of the verdict for services in this case, with 12 of the completely nonproductive years, financially speaking, still ahead.
In considering the additional $15,000 claimed for the loss of services of the child, our viewpoint is considerably different than it would have been had we not decided to permit recovery for the loss of companionship.
Before our determination to allow recovery for the loss of companionship, we would have labored mightily to find some basis for upholding a verdict of three or four thousand dollars under the circumstances of this case as the only means of securing a substantial recovery for the bereft parents.
Having now opened the door for substantial recoveries *210 for loss of companionship,[8] we see no further need to substitute fantasies for facts in striving to uphold unrealistic awards based on the loss of services. We have indicated that we will continue to recognize loss of services where there has been such a loss, but that in doing so we intend to retain some touch with reality.
This seems to be the view of the Michigan court for, in Wycko v. Gnodtke, supra, it is said:
Finally if, in some unusual situation, there is in truth, or reasonably forthcoming, a wage-profit capability in the infant (an expectation of an excess of wages over keep, the measure heretofore employed) the loss of such expectation should not be disregarded as one of the pecuniary losses suffered. In such case, however, the assessment is made as a matter of fact and not of fiction. (Footnote omitted.) (p. 340)
There was no attempt in this case to show as a fact that the "value of the services of said child from the date of the death until he would have attained the age of majority" would exceed "the cost to his parents of his support and maintenance during this interval." There is no evidence to sustain the plaintiffs' claim for loss of services.
The cause is remanded to the superior court with instructions to reduce the judgment by $15,000, i.e., from $33,025 to $18,025, and as so reduced the judgment is affirmed.
Having found with the respondents on the issue of liability and of damages for loss of companionship, and the appellant, on the other hand, having secured substantial relief, it is our view that the respondents and appellant should each pay their own costs on this appeal.
FINLEY, C.J., WEAVER and ROSELLINI, JJ., and OTT, J. Pro Tem., concur.
NOTES
[*] Reported in 432 P.2d 541.
[1] "A father, or in case of his death or desertion of his family, the mother may maintain an action as plaintiff for the injury or death of a minor child, or a child on whom either is dependent for support, and the mother for the injury or death of an illegitimate minor child, or an illegitimate child on whom she is dependent for support." RCW 4.24.010
An additional sentence was added to this section by Laws of 1967, Ex. Ses., ch. 81. See footnote 8.
[2] We desire to make it indubitably clear that, by quoting it, we are not approving the form of this instruction. We particularly disagree with the statement that "the happening of the accident alone affords reasonable evidence ... that the accident arose from the want of reasonable care." We have been at some pains to make it clear that the happening does not afford "reasonable evidence"; that it does no more than permit the jury to infer, though it is not required to so infer, that the defendant or its agents were at some point negligent.
See recent discussion in Pederson v. Dumouchel, ante p. 73, 431 P.2d 973 (1967).
[3] The purpose of the plaintiffs in thus dividing their prayer for damages is obvious. There was at that time (March of 1966), reason to hope that we might recognize the loss of companionship as an element of damages, but no real reason to believe that we would. If the damages were in a lump sum, and we held that it was error to have included that element of damages (as the precedents indicated we would), the entire judgment would have been tainted by the inclusion of that element of damages, and a new trial would have been necessary. By segregating their damages, as they did, the verdict for the loss of services might be sustained, even if the damages awarded for loss of companionship were disallowed.
[4] "You should determine the value of the services of said child from the date of the death until he would have attained the age of majority, less the cost to his parents of his support and maintenance during this interval.
"In determining the value of the deceased child's services, you must take into consideration the child's health, his mental and physical capacity, both present and prospective, as well as the situation of his parents.
"In determining the value of the deceased child's services, you should not consider any distress, sorrow or mental suffering of the parents caused by the death of said child." (Instruction No. 14)
[5] A five-to-three decision in which Michigan repudiated the value of services as the sole test for damages in an action for the wrongful death of a child, and approved a jury award of $15,000 for the death of a 14-year-old boy.
[6] We have not overlooked the $8,031.66 judgment in Mieske v. PUD No. 1 of Cowlitz Cy., 42 Wash. 2d 871, 259 P.2d 647 (1953), of which $7,500 was for loss of services of a 5 1/2-year-old daughter. However, in that case, the appeal was by the plaintiffs from a $2,500 reduction made by the trial court. We affirmed the reduction, but indicated that had the defendant cross-appealed we would have held that there was not sufficient evidence to sustain the verdict.
The highest approved award was $5,350 (an additional $350 for funeral services) for the death of a 5-year-old daughter in Becker v. Tacoma Transit Co., 50 Wash. 2d 688, 314 P.2d 638 (1957). (On the appeal, the only issues were liability and misconduct of a juror; the amount of the verdict was never challenged.)
[7] The youngest was a child not quite 1 year old in Abby v. Wood, 43 Wash. 379, 86 P. 558 (1906).
[8] By coincidence this court and the legislature were engaged in opening the same door at the same time. Six days after the opinion in the Lockhart case was filed, the Governor signed the bill which added the following sentence to RCW 4.24.010 (see footnote 1):
"In such an action, in addition to damages for medical, hospital, medication expenses, and loss of services and support, damages may be recovered for the loss of love and companionship of the child and for injury to or destruction of the parent-child relationship in such amount as, under all the circumstances of the case, may be just." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2608429/ | 248 Or. 436 (1967)
432 P.2d 1006
KULM, Appellant, v. COAST-TO-COAST STORES CENTRAL ORGANIZATION, INC., ET AL, Respondents.
Supreme Court of Oregon.
Argued June 7, 1967.
Affirmed November 8, 1967.
Petition for rehearing denied December 19, 1967.
*437 Arden E. Shenker, Portland, argued the cause for appellant. With him on the briefs were Tooze, Powers, Kerr, Tooze & Peterson, Portland.
Paul W. Jones, Portland, argued the cause for respondents. With him on the brief were Morrison & Bailey and Jack H. Dunn, Portland.
Before PERRY, Chief Justice, and McALLISTER, O'CONNELL, GOODWIN and DENECKE, Justices.
AFFIRMED.
O'CONNELL, J.
This is an action brought by lessor for the breach of an alleged agreement by defendants to renew a lease. Plaintiff appeals from a judgment for defendants.
Defendants Richard and John Kirby operated a Coast-to-Coast Store under a franchise from defendant Coast-to-Coast Central Organization, Inc. The Central Organization entered into negotiations with plaintiff *438 Levine for the renewal of a lease which Levine had executed to the Kirbys. The initial inquiry is whether the negotiations culminated in an agreement to renew the existing lease and whether the agreement was binding upon Central Organization. Our review of the evidence convinces us that both of these questions must be answered in the affirmative.
The more difficult question is whether plaintiff has presented sufficient evidence to meet his burden of proof in this case. Plaintiff's complaint alleges that:
"* * * [T]he plaintiff has performed all of its obligations under said agreement, and the plaintiff has been damaged as a result of defendants and each of them refusing to perform their obligations under said agreement in an amount equal to the agreed and unpaid rental for the premises described in said lease. The defendants, and each of them, have not paid the said rental for the month of January, 1964, to the present date, amounting to $4,750, or any part thereof, although the payment of said rent has been demanded by the plaintiff."
At the trial plaintiff introduced evidence establishing the rent reserved in the agreement to renew the lease and then rested. No evidence was adduced to establish the market value of the leasehold. The trial court held that the measure of damages for the breach of an agreement to lease is the difference between the rent stipulated in the agreement and the reasonable rental value of the premises, and since plaintiff had failed to introduce evidence of the reasonable rental value there was no proof of damages. It is plaintiff's theory that he met his burden of proof by establishing the rent reserved in the agreement to lease and that defendants had the burden of proving that plaintiff could have mitigated the damages by leasing *439 the premises to others. In other words, plaintiff contends that the measure of damages is the difference between the rent reserved and the amount lessor actually receives as rental during the period of default, it being defendant lessee's burden to prove the amount so received. Plaintiff relies upon H.S. & D. Inv. Co. v. McCool, 139 Or 266, 9 P2d 809 (1932) as authority for this view, pointing specifically to the following language in that case:
"* * * [In] an action to recover damages for breach of an agreement to enter into a lease * * * the true measure of general damages is the difference between the stipulated rental and the rental which plaintiff, through the exercise of reasonable diligence, was able to obtain * * *."
We do not interpret this language and the holding in H.S. & D. Inv. Co. v. McCool, as a pronouncement that plaintiff has only the burden of proving the rent reserved in order to recover on an agreement to lease. In another part of the opinion the court states the rule of damages as the difference between the stipulated rent "`and the sum for which the premises would rent to other parties during the stipulated term,'" (139 Or at 272) indicating that the court regarded the rental value rather than the actual rent reserved as the subtrahend in computing damages.[1]
1. Plaintiff takes the position that no matter how the rule of damages is stated, defendant has the burden of proving that plaintiff could have mitigated his damages by leasing the premises to others. For this *440 proposition plaintiff relies upon the language in Enco, Inc. v. F.C. Russell Co., 210 Or 324, 311 P2d 737 (1957), where the court held that the plaintiff had the duty to mitigate damages but that "the defendant has the burden of proving that such mitigation is possible." (210 Or at 339). The Enco case merely states the universally accepted rule that defendant has the duty of proving that mitigation of damages by the plaintiff was possible and did not address itself to the question presented to this court. The question now before us is whether plaintiff, in order to make out his case, is required to establish as the measure of his damages the difference between the stipulated rental and the reasonable rental value of the premises.
As pointed out in an annotation in 17 ALR2d 968, 969-970 (1951), the burden of proof may be allocated either to the plaintiff or to the defendant, depending upon which of the following views is taken:
"There are two basic views that may be taken toward the proposition: (1) The plaintiff makes out a case by proving the contract, the breach, and the value of the performance due him that the defendant did not render. If the case stops here the plaintiff is entitled to that value as proved damages; and any deduction that the defendant thinks should be made because of relief to the plaintiff is defensive in nature, like payment or offset, and it is part of the defendant's case to prove it. (2) But, on the other hand, it is entirely consonant with justice to say that the maximum of the plaintiff's recovery should be the minimum that will make him whole, place him in as favorable but no more favorable a position as he would occupy were full performance rendered by each party. If this is true, the plaintiff in proving the value of the defendant's performance does not prove damages at all in the case at hand. He proves them in a nonexistent, *441 hypothetical case. And not having proved damages in the case before the court, his recovery must be nominal." 17 ALR2d at 970.
Which of these views is accepted will depend in large measure upon the likelihood that plaintiff's loss can be avoided or reduced. Thus in an action on a personal service contract, it may be appropriate to allow the plaintiff to recover the contract price, unless defendant can show the availability of other jobs suitable to plaintiff's talent. The demand for certain skills varies according to the nature of the work and, therefore, it cannot be assumed that a person who loses his employment will readily find another job. This would explain Quick v. Swing, 53 Or 149, 99 P. 418 (1909), which holds that "the burden of proving that, after the plaintiff was discharged, he could have secured other employment, and thus have reduced the damages which he claimed, to the extent of the wages received from other sources, was imposed upon the defendant." (53 Or at 153-154, 99 P. at 420).[2] Other cases holding that plaintiff is prima facie entitled to recover the full contract price can be explained upon other grounds equally sound.[3]
But the rule is otherwise in those cases in which the plaintiff's loss is normally something less than the contract price. The most common of these cases are those in which the seller sues for a breach of contract to accept goods. The seller must prove more than simply *442 the contract price. The explanation is stated in 3 Williston on Sales § 582, p. 243 (rev. ed 1948):
"As the burden is upon the plaintiff to show what damage, if any, he has suffered, it is incumbent upon him, in order to make out a case for recovery of more than nominal damages, to show that the market value of the goods is less than the contract price."[4]
2. In several Oregon cases involving contracts other than for the sale of goods we have held that plaintiff must prove more than the contract price.[5] The principle applied in the cases involving contracts for the sale of goods and other contracts where the plaintiff's loss is normally less than the contract price, is equally applicable to contracts for the extension or renewal of a lease. In ordinary circumstances property which is the subject matter of a contract to execute or renew a lease can be leased to others upon the promissor's failure to accept the lease. Under such circumstances it is reasonable to assume, in the absence of proof to the contrary, that the lessor's loss is not the full amount of the stipulated rent but an amount which represents the difference between the stipulated rent and the rent which plaintiff would receive upon leasing the premises to others. If the plaintiff can show that there is no market for the leasehold, he can, of course, recover the entire amount of the rent reserved, but it is his burden to show this and if he does not, he has not made out his case. It was so held in Branning Mfg. Co. *443 v. Norfolk-Southern R. Co., 138 Va 43, 121 S.E. 74 (1924).
3-5. It follows from what we have said that plaintiff was not entitled to recover the damages prayed for in his complaint. Plaintiff argues that he is at least entitled to nominal damages. We are unable to see how any good purpose would be served by the allowance of nominal damages in the present case. We endorse the view expressed in McCormick on Damages, p. 96 (1935):
"* * * [W]here neither (1) danger of prescription nor (2) substantial loss or injury nor (3) willful wrongdoing by defendant are established, * * * judgment should go for defendant straight out."[6]
6, 7. Plaintiff moved to re-open the case after judgment had been entered for defendants. The motion was denied. Plaintiff contends that the trial court erred in denying the motion. We have repeatedly held that the re-opening of a case for the introduction of additional evidence rests in the sound discretion of the trial court.[7] We find no abuse of discretion in the present case.
The judgment of the trial court is affirmed.
NOTES
[1] The court also said, "We see no material difference in principle between * * * [defendant's view] and the authorities above cited. After all, what the plaintiff, through the exercise of reasonable diligence, could have obtained as rental, would, in fact, be the reasonable rental value." H.S. & D. Inv. Co. v. McCool, 139 Or at 272.
[2] The same principle has been applied in many other employment contract cases. See 17 ALR2d 968, 978 (1951).
[3] For example, cases involving advertising contracts, contracts for a course of instruction, motion picture rental contracts apply the rule stated in the text. Cases are collected and commented upon in 17 ALR2d 968 (1951).
[4] In addition to the cases cited in Williston in support of the text, see the cases collected in 17 ALR2d 968, 986 (1951).
[5] Upon a breach of contract where loss of profit is the measure of damages relied upon, such probable profits must be established by proof of data from which the extent of the profit, if any, may be computed. Hagestrom v. Sweeney, 60 Or 433, 119 P. 725 (1912). See also, Johnson v. Homestead-Iron Dyke Mines Co., 98 Or 318, 193 P. 1036 (1920).
[6] The author goes on to say: "While this is obviously contrary to the classical and prevailing view that, wherever a `right' is violated, the person aggrieved is entitled to at least nominal damages, it has been already sanctioned in a few forward looking opinions, and it is believed that it will increasingly win acceptance." McCormick on Damages, p. 96 (1935). See Ketchum v. Albertson Bulb Gardens, 142 Wash 134, 252 P. 523 (1927); Strait v. Wilkins, 23 Cal App 774, 139 P. 911 (1914).
[7] Berry v. Seto, 222 Or 395, 352 P2d 733 (1960); Arbogast v. Pilot Rock Lbr. Co., 215 Or 579, 336 P2d 329, 72 ALR2d 712 (1959). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1437652/ | 448 Pa. Superior Ct. 456 (1996)
671 A.2d 1166
Shirley GRAY
v.
Alice M. GRAY, Appellant.
Superior Court of Pennsylvania.
Argued December 7, 1995.
Filed February 23, 1996.
Reargument Denied April 29, 1996.
*460 Deborah L. Barr, Towanda, for appellant.
Ray DePaola, Towanda, for appellee.
Before DEL SOLE, SAYLOR and HESTER, JJ.
HESTER, Judge:
Appellee, Shirley Gray, instituted this action for specific performance of an agreement for the sale of land against her mother-in-law, Alice Gray, on June 25, 1993. Alice Gray, appellant, contends that the equity court's decision awarding specific performance of the contract was erroneous in a number of respects. We affirm.
The important facts in this case are not in dispute. They largely are resolved by the contract entered by the parties and admissions contained in appellant's deposition. Appellee was married to appellant's son, Larrison, who died in January, 1993.
On December 17, 1976, appellant agreed to sell a farm to Larrison and appellee. The contract was recorded in the Recorder of Deeds Office of Bradford County on March 7, 1977. The contract obviously was entered in large part due to the relationship among the parties since its terms are liberal in favor of Larrison and appellee. The contract provides that appellant agreed to sell to Larrison and appellee the farm for the total sum of $40,000, $100 of which appellant acknowledged that she received on December 17, 1976.
The contract provides that payment of "the balance of the purchase price of Thirty-nine Thousand Nine Hundred ($39,900.00) Dollars shall bear no interest on the unpaid balance and will be amortized over a period of 33-1/3 years or less." *461 Article of agreement, 12/17/76, at 1 (emphasis added). The principal amount was to be paid in 399 monthly installments of $100 each, "the entire amount to be applied against principal." Id. The first payment was due on January 1, 1977, and successive monthly payments were due on the first day of each month thereafter. Under the agreement, any major improvements to the farm were to be deducted from principal.
Appellee and her husband made twenty of the monthly payments, and Larrison made $800 in additional payments. Appellee and Larrison also continued to live on the farm without incident, paying taxes and also paying insurance until the property became uninsurable. After Larrison died, however, appellant and appellee had a dispute because appellant failed to honor the contract. Appellee wanted to tender the unpaid balance under the contract and have the land transferred into her name. Appellant wanted Larrison's son on the deed, which appellee did not want.
The parties' depositions were taken, and we examine appellee's deposition first. Appellee and her husband lived on the land from December 17, 1976, until Larrison died on January 17, 1993, when appellee went to live with her daughter for approximately ten months. Appellee's daughter lives across a hill from the property. Initially, appellee intended to move back to the farm, but she broke her ankle severely and could not negotiate the steps. Appellee then moved into the same house in which appellant resided. Appellant then went to live in a personal care home.
Appellee knew that the payments under the contract had stopped, but she was not aware of how much was owed under the contract because appellant kept the records and Larrison made the payments directly to appellant. She testified that she and Larrison paid the real estate taxes and the insurance until the property became uninsurable just prior to her husband's death.
After Larrison's death, appellee spoke with appellant about the property approximately five times. The first time they spoke about paying off the balance due under the contract, *462 appellee told appellant if she "would get a figure up, that we would pay her. I had the money, and I wanted to get it paid." Deposition of Shirley Gray, 7/13/94, at 14. Another time, appellee offered "[appellant] a check to settle pay it up, yes." Id. at 15. Appellee indicated, "I just told her that I would make the check out, and I've got the money and I wanted to pay it." Id. at 16. Appellant refused to accept any money and never offered an explanation. Appellee was not able to determine how much she owed since she and her husband had failed to keep their ledger of the transaction current. Appellee stated that appellant kept the complete ledger of the payments.
Appellant's deposition confirms appellee's deposition in all material respects. Appellant signed the agreement, and from November, 1976, until Larrison died, her son and daughter-in-law resided on the farm. She recalled the terms of the land contract clearly, stating, "Well, they're supposed to pay me a hundred dollars a month. That was the agreement. They had the privilege of if they wanted to pay it up at any time, I would accept it or if I wanted to demand payment at any time, why, they would accept that." Deposition of Alice Gray, 7/13/94, at 9.
Appellant stated that twenty monthly payments were made and admitted that she kept the complete record of the payments, as follows. "They had signed receipts, but I kept the receipt book. Larry also gave me, at two different times, two hundred dollars besides that, and that's recorded on the next page there." Id. at 10. At another time, Larrison sold logs and stones from the land and from those two sales, he paid appellant $400. Id.
Appellant never attempted to declare the agreement void due to non-payment because Larrison "wanted the place. It was home, and he was a great homebody from the time he was a little kid. He wanted the home, and I wanted him to have it." Id. at 12. She said that she had made the arrangements to have the contract drafted so that Larrison "could have the place." Id. at 13. After this statement, the following exchange occurred:
*463 Q So is it fair to say that you wanted him to have the farm whether he
A Very definitely.
Q paid you or not? Whether he paid you or not.
A Right.
If I hadn't had three other children, I probably would have given it to him long before that. Because, you know As I say, he was the one that wanted it. He wanted to keep it as a farm, and that was the way I wanted it, and that was the way my husband wanted it.
Id. at 13. Appellant testified that the only reason she would not deed the property to appellee was that she wanted her grandson to be on the deed:
Q Alice, you would not have given her a deed no matter what price she paid to you if Wade [, the son of Larrison and appellee,] was not included; isn't that true?
A That's right.
Q So, if we're honest with each other, this lawsuit really isn't you're not claiming that she wouldn't pay when the money was due, because you let that slide all of these years.
A Right.
Q Your gripe is that Wade is not being included.
A He is not coming into what I considered rightfully his.
Q That's why you're refusing to give a deed to Shirley no matter what she pays to you.
A Right.
Id. at 18.
Appellant admitted that appellee and Larrison paid the real estate taxes on the property from 1976 to the present and that appellee had offered to pay off the entire balance during the conversations that followed Larrison's death. Appellant also acknowledged that appellee refused to tender the full contract price only after appellant indicated that she wanted her grandson's name on the deed. Id. at 16-17. Finally, appellant said that she refused to give appellee the final figure as to what was required for full tender.
*464 Based on the contract and these depositions, the equity court awarded appellee specific performance under the contract upon tender by appellee of the outstanding balance due under the contract, $37,200. This appeal followed.
Appellant first contends that the trial court improperly refused to allow her to raise the defense of laches. Initially, we note that this contract is not due to expire until 2009; thus, there is no question that it is timely under the statute of limitations applicable to contracts. However, the law is that even when an action is timely under the applicable statute of limitations, the equitable doctrine of laches can be applied as a bar to the action.
The doctrine of laches, however, will not be applied unless two conditions are satisfied. The complaining party must be guilty of a want of due diligence in failing to assert his rights and the failure must have worked to the prejudice of the party seeking its application. See Sprague v. Casey, 520 Pa. 38, 550 A.2d 184 (1988); Doppler v. Doppler, 393 Pa.Super. 600, 574 A.2d 1101 (1990). The doctrine should be applied only in cases where evidence supporting such a claim is clear. See Fuisz v. Fuisz, 386 Pa.Super. 591, 563 A.2d 540 (1989), reversed on other grounds, 527 Pa. 348, 591 A.2d 1047 (1991).
Herein, appellant makes one argument in favor of application of laches. "[A] review of the record as a whole indicates that the claim for laches is a viable one as Alice may be able to prove that Shirley left the property without making a tender, had not maintained the insurance." Appellant's brief as 10. Thus, it is clear that appellant bases her application of laches on the fact that appellee may have breached the contract. She certainly makes no attempt to establish prejudice.
Under the above case law, laches will be applied only where the defending party has changed his position in reliance upon the inaction of the complaining party. Appellant, who bears the burden of establishing her entitlement to appellate relief, has not only failed to indicate how she changed her position in reliance upon appellee's breach of the contract, she *465 has failed to cite to a single case applying the doctrine of laches and to set forth the elements of the doctrine itself.
We remind appellant that
"The argument shall be followed by such discussion and citation of authorities as are deemed pertinent." Pa.R.A.P. 2119(a), 42 Pa.C.S.A. Arguments that are not appropriately developed are waived. Nimick v. Shuty, 440 Pa.Super. 87, 100, 655 A.2d 132, 138 (1995); Smith v. Penbridge Assoc., Inc., 440 Pa.Super. 410, 427, 655 A.2d 1015, 1024 n. 12 (1995). Appellant has failed to cite any authority in support of his contention. . . . Thus, we deem that claim waived.
Gallagher v. Sheridan, 445 Pa.Super. 266, 270-71, 665 A.2d 485, 487 (1995) (footnote omitted). It is the appellant who has the burden of establishing his entitlement to relief. Commonwealth ex rel. Robinson v. Robinson, 505 Pa. 226, 478 A.2d 800 (1984) (the appellant has the burden to demonstrate the trial court's decree is erroneous due to the evidence or the law). In light of the cursory treatment of this contention and the failure to offer any elaboration or citation to relevant case law or the record, we decline to consider the merits of this claim. Hercules v. Jones, 415 Pa.Super. 449, 609 A.2d 837 (1992) (where appellant presented a position without elaboration or citation to case law, we declined to address phantom argument); see also Taurino v. Ellen, 397 Pa.Super. 50, 58, 579 A.2d 925, 930 (1990).
Appellant also contends that the chancellor erred in finding that appellant "waived any damages under this land contract" by not commencing a separate action. Appellant's brief at 10. Appellant has attempted to obfuscate this issue due to the obvious lack of merit of her claim. In fact, the equity court did not state that appellant waived any damages. It awarded appellant the full measure of her damages, viz. the amount of principal due under the contract. The only measure of damages which she was not permitted to recover was interest on the unpaid principal. In fact, it is apparent that the failure to award her interest on the $37,200 is the only complaint that she has with respect to damages. See Appellant's brief at 11-12.
*466 Meanwhile, appellant is not entitled to interest under this contract, and it is not an element of damages that can be awarded under her counterclaim, which was for breach of contract. The contract provides that payment of "the balance of the purchase price of Thirty-nine Thousand Nine Hundred ($39,900.00) Dollars shall bear no interest." Article of agreement, 12/17/76, at 1 (emphasis added). The principal amount was to be paid in 399 monthly installments in the amount of $100 each, "the entire amount to be applied against principal." Id. Appellant admitted in her deposition that she was not entitled to interest under the contract, saying "[Larrison and appellee] had the privilege of if they wanted to pay it up at any time, I would accept it or if I wanted to demand payment at any time, why, they would accept that." Deposition of Alice Gray, 7/13/94, at 9. As the contract clearly prohibits interest, the equity court was correct in failing to award that as a measure of damages.
Appellant was awarded the full amount that she was due under the contract, in accordance with her own deposition. In that deposition, she stated that her son made twenty $100 payments, one $400 payment, and two $200 payments. The court awarded her the balance due under the contract of $37,200.
Appellant next claims that the equity court erred in concluding that tender had been made, stating:
[A] review of the record indicates that [appellee] had the ledger which indicates that only $2,400 had been paid on the land contract. (Complaint at Exhibit B). Despite having this document in her possession, [appellee] requested that the Chancellor direct that [appellant] convey the property for $35,000.00 (Complaint, Para. 6 & 7). For this reason, there was never a full tender of the balance of the contract price by Shirley Gray contrary to the findings of the Chancellor.
Appellant's brief at 14. This argument contains two misstatements of fact. First, appellant admitted in her deposition that appellee did not have a complete record of the payments, *467 stating, "They had signed receipts, but I kept the receipt book. Larry also gave me, at two different times, two hundred dollars besides that." Appellant said that Larrison also gave her an additional $400 after he sold some items from the land. Id. at 10. Thus, appellant admitted that her son privately gave her payments totalling $800. While appellee admitted she had a ledger, she also knew that Larrison had made payments, not put them in the ledger, and she did not know the amount of the payments. Indeed, the amount listed as due in the complaint was an approximation. Appellant also admitted that she refused all offers of money and that it would not have mattered what appellee offered, she would not have complied with the terms of the contract. Thus, the record belies appellant's assertion that appellee should have known of the outstanding balance on the loan and could have tendered the proper amount.[1]
Appellant's final claim is that the contract is not enforceable due to appellee's breach of the agreement by failing to make the required payments thereunder. However, the law is that a purchaser's default in making payments under a land contract may be waived either by express agreement or by the words or conduct of the seller. Wilson v. King of Prussia Enterprises, Inc., 422 Pa. 128, 221 A.2d 123 (1966); Davis v. Laurenzi, 263 Pa.Super. 71, 397 A.2d 1 (1978). If the seller waives the purchaser's default, he may not thereafter take advantage of it by seeking rescission of the contract on the ground of late payment. Cohn v. Weiss, 356 Pa. 78, 51 A.2d 740 (1947); Davis v. Laurenzi, supra. Herein, appellant admitted in her deposition that she elected not to treat her son's failure to make payments under the contract as grounds for its rescission. She said that if he would have *468 come forward to enforce the contract at any time during his lifetime, she would have transferred the property to him. Thus, the equity court correctly determined that the failure to make timely payments did not entitle appellant to rescind the contract.
In 2401 Pennsylvania Avenue Corp. v. Federation of Jewish Agencies, 319 Pa.Super. 228, 242-43, 466 A.2d 132, 139 (1983), we stated, "Whether a breach is so substantial as to justify an injured party's regarding the whole transaction as at an end `is a question of degree; and it must be answered by weighing the consequences in the actual custom of men in the performance of contracts similar to the one that is involved in the specific case.' 4 Corbin, Contracts, § 946 (1951)." The Restatement (2d) of Contracts provides that the following circumstances are relevant in determining whether a failure is material:
§ 241. Circumstances Significant in Determining Whether a Failure Is Material
In determining whether a failure to render or to offer performance is material, the following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
Herein, appellant expected to receive $40,000, without interest, by 2009 under the contract. She will receive this benefit. If the contract is not enforced, appellee will suffer forfeiture of *469 the taxes she and her husband paid, the $2,800 they tendered under the contract, and the benefits of her husband's labor on the farm. Appellee attempted to cure default repeatedly, and since the contract has not expired, the default can be cured by tendering the purchase price.
As to the elements of good faith and fair dealing, a few observations are called for. First, this was not an arm's length transaction between strangers. Appellant admitted that she wanted to give the land to her son and that she was aware that appellee's name was on the contract. She said at the deposition that she considered the contract valid, however, only as to her son and that she refused to honor it after he died despite the fact that appellee had as much legal right to enforce the contract as Larrison had. Specifically, appellant said that she would have considered "the contract in effect if he [Larrison] would have come forward." Deposition of Alice Gray, 7/13/94, at 36. She admitted that the only reason that she felt that appellee was not entitled to the land was due to the fact that Larrison died and that this feeling was not altered by the fact that appellee's name was on the contract. Id. at 38, 39.
We also note that throughout her brief, appellant has attempted to give the impression that she was awarded nothing by the equity court. Meanwhile, she was awarded the full amount she agreed to accept in payment for the land under the contract at issue. In 1976, appellant agreed to accept $40,000 for this land from appellee and Larrison. She agreed that this amount would not bear interest. Appellant obtained the lawyer who drafted the land sales agreement and admitted that her intent was to give the property to her son. Appellee's name is contained on that document as well as Larrison's name. Appellee is as much entitled to enforce its terms as Larrison was. Thus, we affirm the equity court's determination that appellee's failure to make the required payments under the agreement was not a material breach of its terms under the circumstances presented. Accordingly, we affirm *470 the judgment of the equity court awarding appellee specific performance of the contract upon tender of $37,200.
Judgment affirmed.
NOTES
[1] We are aware that the equity court granted summary judgment in this action based upon testimonial evidence. However, summary judgment may be granted if the moving party supports his motion for summary judgment by the use of depositional admissions of the opposing party. Rivoli Theatre Co. v. Allison, 396 Pa. 343, 152 A.2d 449 (1959); Garcia v. Savage, 402 Pa.Super. 324, 586 A.2d 1375, 1378 n. 3 (1991). Herein, the propriety of the order is apparently based on the contract language and appellant's deposition. Therefore, summary judgment can be upheld. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1654969/ | 198 S.W.3d 747 (2006)
Roger BENNETT and Richard Allen Combs, on behalf of themselves and all others similarly situated in the State of Tennessee,
v.
VISA U.S.A. INC., and Mastercard International, Inc.
No. E2005-00659-COA-R9-CV.
Court of Appeals of Tennessee, Eastern Section, at Knoxville.
February 9, 2006 Session.
March 27, 2006.
Permission to Appeal Denied August 21, 2006.
*748 William T. Gamble, Kingsport, Tennessee, Stephen V. Bomse, San Francisco, California, and Robert C. Mason, New York, N.Y., for appellant Visa U.S.A. Inc.
S. Morris Hadden, Kingsport, Tennessee, R. Dale Grimes, Nashville, Tennessee, and Kenneth A. Gallo, Washington, D.C., *749 for appellant MasterCard International Incorporated.
Gordon Ball, Knoxville, Tennessee, for appellees Roger Bennett and Richard Allen Combs.
Permission to Appeal Denied by Supreme Court August 21, 2006.
OPINION
HERSCHEL PICKENS FRANKS, P.J., delivered the opinion of the court, in which D. MICHAEL SWINEY, J., and SHARON G. LEE, J., joined.
Plaintiffs' action charged defendants with violation of the Tennessee Trade Practices Act, the Tennessee Consumer Protection Act, and unjust enrichment for monies had and received. Responding to Motions to Dismiss, the Trial Court dismissed the statutory violations claims, but retained jurisdiction over the common law violation claims. We granted the parties' interlocutory appeals and dismiss the action.
BACKGROUND
In October of 1996, Wal-Mart and other merchants asserted claims under federal anti-trust law against Visa U.S.A. and MasterCard International (the "Defendants") in federal court. The merchants alleged that the Defendants' requirement that merchants who accepted the Defendants' credit cards to also accept the Defendants' debit cards was an illegal "tying arrangement" and an attempt to monopolize the debit card market. On February 22, 2000, the federal court certified a class of roughly four million merchants. In re Visa Check/MasterMoney Antitrust Litigation, 192 F.R.D. 68 (E.D.N.Y.2000), aff'd, 280 F.3d 124 (2d Cir.2001), cert. denied, 536 U.S. 917, 122 S.Ct. 2382, 153 L.Ed.2d 201 (2002). On April 1, 2003, the Defendants' motions for summary judgment were denied in their entirety. In re Visa Check/Mastermoney Antitrust Litigation, No. 96-CV-5238 (JG), 2003 WL 1712568 (E.D.N.Y. April 1, 2003). By April 30, 2003, both of the Defendants had agreed to settle with the merchants, and the resulting settlement agreements were approved by the federal trial court on December 19, 2003. In re Visa Check/Mastermoney Antitrust Litigation, 297 F.Supp.2d 503, 507-08 (E.D.N.Y.2003), aff'd sub nom., Wal-Mart Stores, Inc. v. Visa U.S.A., Inc. 396 F.3d 96 (2d Cir.2005), cert. denied sub nom., Leonard's Pizza by the Slice, Inc. v. Wal-Mart Stores, Inc., 544 U.S. 1044, 125 S.Ct. 2277, 161 L.Ed.2d 1080 (2005).
PLEADINGS
This action began on May 20, 2003, when plaintiffs filed a Class Action Complaint against the defendants in the Chancery Court for Washington County. Plaintiffs filed individually and on behalf of Tennessee consumers similarly situated. The Complaint averred that thousands of merchants throughout Tennessee accept Visa and MasterCard credit cards as a form of payment, and that defendants had effectively forced these merchants to accept debit cards issued by the defendants' bankcard associations as a condition of accepting defendants' credit cards. The Complaint asserted that this "tying arrangement" increased the merchants' operating costs and that these increased costs were passed on to all consumers in the form of inflated prices.
Plaintiffs averred that they are debit card holders who have used such cards to purchase goods from merchants located throughout Tennessee, and sought "to represent a Class of all Tennessee consumers who have purchased goods from [m]erchants who accept Visa and MasterCard credit cards as a form of payment, and have been forced to accept debit cards issued by members of the Visa and MasterCard bankcard associations as a condition *750 of accepting Visa and MasterCard credit cards."
The Complaint concluded that the defendants' conduct violated the Tennessee Trade Practices Act ("TTPA") and the Tennessee Consumer Protection Act ("TCPA"), and that the defendants' conduct supports claims for unjust enrichment and money had and received.
On May 11, 2004, the defendants filed a Motion to Dismiss pursuant to Rule 12.02(6) of the Tennessee Rules of Civil Procedure requesting that the Chancery Court dismiss all of the plaintiffs' claims. The Chancery Court then entered an Opinion and Order dismissing the plaintiffs' claims under the TTPA and TCPA, and denied defendants' Motion to Dismiss the common law claims. The Trial Court then granted both parties interlocutory appeals pursuant to Rule 9, Tenn. R.App. P.
This Court granted both applications.
THE APPEALS
The issues on appeal are:
1. Whether the trial court erred in dismissing the Plaintiffs' TTPA claim pursuant to Tenn. R. Civ. P. 12.02(6).
2. Whether the trial court erred in dismissing the Plaintiffs' TCPA claim pursuant to Tenn. R. Civ. P. 12.02(6).
3. Whether the trial court erred in not dismissing the Plaintiffs' claims for Unjust Enrichment and Money Had and Received pursuant to Tenn. R. Civ. P. 12.02(6).
4. Whether the trial court erred in not dismissing the Plaintiffs' claims for injunctive relief as moot.
5. Whether the trial court erred in not transferring this action to Circuit Court.
A Motion to Dismiss filed pursuant to Tennessee Rule of Civil Procedure 12.02 tests the legal sufficiency of the complaint, not the quality of plaintiff's proof. Willis v. Tenn. Dep't of Corr., 113 S.W.3d 706, 710 (Tenn.2003). We are required to "construe the complaint liberally in favor of the plaintiff by taking all factual allegations in the complaint as true and by giving the plaintiff the benefit of all the inferences that can be reasonably drawn from the pleaded facts." Utley v. Tenn. Dep't of Corr., 118 S.W.3d 705, 712 (Tenn.Ct.App. 2003). However, review of the trial court's legal conclusions is de novo without any presumption of correctness. Willis, 113 S.W.3d at 710.
The Tennessee Trade Practices Act, Tenn.Code Ann. § 47-25-101 to -115, prohibits anti-competitive conduct affecting the price of products to producers and consumers. The Act provides:
All arrangements, contracts, agreements, trusts, or combinations between persons or corporations made with a view to lessen, or which tend to lessen, full and free competition in the importation or sale of articles imported into this state, or in the manufacture or sale of articles of domestic growth or of domestic raw material, and all arrangements, contracts, agreements, trusts, or combinations between persons or corporations designed, or which tend, to advance, reduce, or control the price or the cost to the producer or the consumer of any such product or article, are declared to be against public policy, unlawful, and void.
Tenn.Code Ann. § 47-25-101 (2005). Additionally, the TTPA provides a private right of action to aggrieved consumers against those who violate its provisions.
Any person who may be injured or damaged by any such arrangement, contract, agreement, trust, or combination described in this part may sue for and recover, in any court of competent jurisdiction, *751 from any person operating such trust or combination, the full consideration or sum paid by the person for any goods, wares, merchandise, or articles, the sale of which is controlled by such combination or trust.
Tenn.Code Ann. § 47-25-106 (2005).
The Complaint charges that defendants entered into an "arrangement" or "combination" in which they required retail merchants who accepted their credit cards to also accept their debit cards. This "tying arrangement" increased the cost to merchants of the Defendants' payment card processing services which in turn tended to advance the price of "products" or "articles" sold by those merchants to consumers in Tennessee. Plaintiffs do not allege that the defendants' conduct directly affected Tennessee's market for tangible goods. Rather, the plaintiffs allege that the defendants' conduct directly affected the market for payment card processing services which incidentally affected the market for tangible goods.
The Chancery Court, in dismissing Plaintiffs' claims under the TTPA, reasoned that the defendants' alleged conduct did not involve a "product or article" within the intent of the TTPA. The Court's other reason was that the TTPA was inapplicable because the plaintiffs did not allege sufficient facts to show the defendants "controlled" the "sale" of "goods, wares, merchandise, or articles" as required by the TTPA.
The law is well settled that the TTPA applies only to tangible goods, not intangible services. This principle was established by the Tennessee Supreme Court in McAdoo Contractors, Inc. v. Harris, 222 Tenn. 623, 439 S.W.2d 594 (1969). In McAdoo, Carroll County invited bids for the construction of a warehouse to be leased to Henry I. Siegel Company, Inc. Although McAdoo Contractors, Inc., submitted the lowest bid, the contract was awarded to another contractor upon the advice of the future lessee. McAdoo Contractors, Inc., filed suit against the county's architect, the county judge, Henry I. Siegel Company, Inc., and Forcum-Lannom, Inc., alleging that they "entered into a combination in restraint of trade contrary to T.C.A. § 69-101," now codified at § 47-25-101.
In McAdoo, the trial court dismissed the claim, and on appeal to the Tennessee Supreme Court, the Court said:
We think it clear upon reading T.C.A. § 69-101 that it has no application under the facts and circumstances of this case. The statute in express terms applies to articles of foreign and domestic origin, so that it would be virtually impossible to bring under the statute a case involving only the award of a building construction contract. It would seem the statute would in such case apply only to an unlawful effort to control the price of the building material, and not to the award of the contract where control of cost of articles was not a factor.
On the basis of the well pleaded facts, the sole reason McAdoo did not get the contract, was not because of arrangements or agreements with respect to competition in articles of foreign or domestic origin, but because Carroll County had reserved to itself the right to award it to any bidder it might choose. And acting under this reservation, the contract was awarded by Carroll County to Forcum-Lannom, which its responsible advisers thought to be more experienced.
Before this statute could apply, it would be necessary to find and hold that this kind of contract provision has been outlawed by this Code section. But this is so obviously not the case that even *752 complainant does not make this contention.
Id. at 597-98.
The McAdoo Court distinguished between a contract for tangible goods, where the TTPA would apply, and a contract for intangible services, to which the TTPA would not apply. Since that case, our courts have consistently followed this distinction and held that the TTPA only prohibits "arrangements" or "combinations" which involve products, not those that involve services. Beaudreau v. Larry Hill Pontiac/Oldsmobile/GMC, Inc., 160 S.W.3d 874, 881-82 (Tenn.Ct.App.2004); Jo Ann Forman, Inc. v. Nat'l Council on Comp. Ins., Inc., 13 S.W.3d 365, 373 (Tenn.Ct. App.1999).[1] The plaintiffs cite various cases for the proposition that the TTPA does apply to services, but these cases are not controlling.[2]
Defendants' conduct involved payment card processing services, not products. Plaintiffs attempt to avoid this by asserting that defendants' conduct not only involved payment card processing services, but also indirectly affected product prices and thus, implicated the TTPA. Essentially, plaintiffs attempt to avoid McAdoo, Forman, and Beaudreau and use an incidental effect upon products as a backdoor to state a cause of action. "It is a well settled principle of law that one cannot do indirectly what cannot be done directly." Haynes v. City of Pigeon Forge, 883 S.W.2d 619, 622 (Tenn.Ct.App.1994). *753 Businesses that manufacture or distribute tangible goods must pay for various business services. The cost of these services, like all production costs, influence the price at which such businesses sell their products. The TTPA cannot be asserted every time product prices are influenced by anti-competitive conduct in the service industries without effectively expanding the TTPA's scope to include those service industries. Such an implicit expansion of the TTPA's scope would be in direct contravention of the Tennessee Supreme Court's interpretation of § 47-25-101 as expressed in McAdoo. We affirm the decision of the Chancery Court on this issue.[3]
The Tennessee Consumer Protection Act, Tenn.Code Ann. §§ 47-18-101 to -126, prohibits "[u]nfair or deceptive acts or practices affecting the conduct of any trade or commerce." Tenn.Code Ann. § 47-18-104(a) (2005). The TCPA also creates a private right of action:
Any person who suffers an ascertainable loss of money or property, real, personal, or mixed, or any other article, commodity, or thing of value wherever situated, as a result of the use or employment by another person of an unfair or deceptive act or practice declared to be unlawful by this part, may bring an action individually to recover actual damages.
Tenn.Code Ann. § 47-18-109(a)(1) (2005). We are required to liberally construe the TCPA to promote certain expressed policies, which include the protection of "consumers and legitimate business enterprises from those who engage in unfair or deceptive acts or practices in the conduct of any trade or commerce in part or wholly within this state" and "the development of fair consumer practices." Tenn.Code Ann. § 47-18-102 (2005). The General Assembly directed that the TCPA "be interpreted and construed consistently with the interpretations given by the federal trade commission and the federal courts pursuant to § 5(A)(1) of the Federal Trade Commission Act (15 U.S.C. § 45(a)(1))." Tenn.Code Ann. § 47-18-115 (2005).[4]
The Complaint asserts that the defendants' "tying arrangement" constitutes an unfair or deceptive act or practice affecting the conduct of trade or commerce in Tennessee. Further, that this arrangement inflated the price of consumer goods, causing the plaintiffs to suffer ascertainable losses. The Trial Court concluded that "unfair or deceptive acts or practices" do not include anti-competitive conduct in dismissing the plaintiffs' TCPA claim. The plaintiffs argue the Trial Court's interpretation of "unfair or deceptive acts or practices" is too narrow, and the insists the phrase includes anti-competitive conduct.
The Plaintiffs rely on Blake v. Abbott Labs., Inc., No. 03A01-9509-CV-00307, 1996 WL 134947 (Tenn.Ct.App. Mar.27, 1996), for the proposition that the TCPA does apply to anti-competitive conduct. This reliance on Blake is misplaced. In Blake, the plaintiff alleged that the defendants conspired to fix the price of baby formula. Based on this conduct, the plaintiff asserted claims under both the TTPA *754 and the TCPA. After concluding that the plaintiff's TTPA claim was valid, the Court addressed the TCPA claim and "whether price fixing is an unfair or deceptive act or practice." The Court noted the common and ordinary meaning of "unfair" as defined by two dictionaries and the statement in § 47-18-102 that the TCPA shall be liberally construed. The Blake Court did not investigate the federal courts' interpretation of "unfair or deceptive acts or practices" as required by § 47-18-115. Based upon this analysis, the Court concluded that price fixing is an "unfair" practice forming the basis of a TCPA claim and that application of the TCPA is not inconsistent with application of the TTPA. The Court also noted, however, that if the defendants' conduct was later determined to fall outside the scope of the TTPA,[5] both the TTPA and TCPA claims would fail because "[i]t is a well-settled principle of law that one cannot do indirectly what cannot be done directly." Id. at *7.
Thus, the Blake Court held that anti-competitive conduct which forms the basis for a TTPA claim necessarily forms a valid basis for a TCPA claim. Anti-competitive conduct which falls outside the scope of the TTPA cannot be used to form the basis for a TCPA claim. Rather than supporting plaintiff's argument, Blake would bar the plaintiffs' TCPA claim because plaintiffs allegations of anti-competitive conduct failed to form the basis of a valid TTPA claim.
The dismissal of plaintiffs' TCPA claim is further supported by Sherwood v. Microsoft Corp., No. M2000-01850-COA-R9-CV, 2003 WL 21780975 (Tenn.Ct.App. July 31, 2003), which rejected Blake's first proposition without considering the second. The Sherwood Court held that "claims based upon anticompetitive conduct are not cognizable under the TCPA." Id. at *33.
Based upon its reading of 15 U.S.C. § 45(a)(1), the Sherwood court stated:
The federal provision referred to, unlike the TCPA, declares two types of offenses unlawful: (1) unfair methods of competition in or affecting commerce; and (2) unfair or deceptive acts or practices in or affecting commerce. While the Tennessee General Assembly has chosen to include in the TCPA's prohibitions "unfair or deceptive acts or practices affecting the conduct of any trade or commerce," Tenn.Code Ann. § 47-18-104(a), it did not include unfair competition or anticompetitive acts. That choice is significant.
Sherwood, at *31.
The choice was significant because federal courts "interpreted the `unfair methods of competition' language as applying to violations of the Sherman Act and other antitrust statutes and to actions raising antitrust issues or concerns." Id. at *31 n. 35. "Apparently in reaction to judicial interpretation requiring a showing of injury to competition, not just to consumers, . . . the Act was amended in 1938 to add to the FTC's enforcement jurisdiction `unfair or deceptive acts or practices.'" Id. at 31. Finally, the Sherwood Court stated, "We cannot presume other than that the Tennessee General Assembly knowingly chose not to include antitrust or anticompetitive conduct as actionable under the TCPA." Id. at *32.
*755 The Sherwood decision has impacted on courts in other jurisdictions. See, In re Relafen Antitrust Litigation, 221 F.R.D. 260, 284 (D.Mass.2004) (applying Tennessee law) (following Sherwood); Johnson v. Microsoft Corp., 155 Ohio App.3d 626, 802 N.E.2d 712, 720-21 (2003) (following Sherwood's reasoning).
Finally, on this issue, plaintiffs argue the defendants' anti-competitive conduct falls within the definition of "unfair" as expressed in Tucker v. Sierra Builders, 180 S.W.3d 109, 116-17 (Tenn.Ct.App. 2005). The Tucker court stated that "an act or practice should not be deemed unfair `unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.'" Tucker, at 116-17 (quoting 15 U.S.C.A. § 45(n)). However, Tucker did not involve allegations of anti-competitive conduct.[6] Moreover, the Tucker Court stated, "While many states' little FTC acts prohibited both unfair methods of competition and unfair or deceptive acts or practices, the statutes of other states, including Tennessee's, prohibit only the second category of conduct-unfair or deceptive acts or practices." Id. at 114 n. 6 (citing Sherwood, 2003 WL 21780975, at *32). The foregoing demonstrates that the TCPA does not apply to anti-competitive conduct. We affirm the Chancery Court on this issue.
Next defendants argue that the Trial Court erred in not dismissing plaintiffs' claim for unjust enrichment and money had and received.
Both unjust enrichment and money had and received are essentially the same cause of action, being both quasi-contractual actions.[7] The Tennessee Supreme Court recently discussed the elements of an unjust enrichment claim as follows:
The elements of an unjust enrichment claim are: 1) "[a] benefit conferred upon the defendant by the plaintiff"; 2) "appreciation by the defendant of such benefit"; and 3) "acceptance of such benefit under such circumstances that it would be inequitable for him to retain the benefit without payment of the value thereof." The most significant requirement of an unjust enrichment claim is that the benefit to the defendant be unjust. The plaintiff must further demonstrate that he or she has exhausted all remedies against the person with whom the plaintiff enjoyed privity of contract.
A plaintiff need not be in privity with a defendant to recover under a claim of unjust enrichment. . . . [A] plaintiff need not establish that the defendant received *756 a direct benefit from the plaintiff. Rather, a plaintiff may recover for unjust enrichment against a defendant who receives any benefit from the plaintiff if the defendant's retention of the benefit would be unjust.
Freeman Indus. v. Eastman Chem. Co., 172 S.W.3d 512, 525 (Tenn.2005) (citations omitted) (quoting Paschall's, Inc. v. Dozier, 219 Tenn. 45, 407 S.W.2d 150, 155 (1966)). "[T]o maintain an action for unjust enrichment, a plaintiff is not required to exhaust all remedies against the party with whom the plaintiff is in privity if the pursuit of the remedies would be futile." Id. at 526.
The Chancery Court found that plaintiffs' Complaint sufficiently alleged that (1) the plaintiffs conferred a benefit upon the defendants, (2) the defendants appreciated this benefit, and (3) allowing the defendants to retain this benefit would be inequitable. Regarding the "exhaustion of remedies" element, the Chancery Court held that the plaintiffs had not yet exhausted their remedies, but that they did not have to do so at that point in the proceedings, and the Chancery Court held that while the "exhaustion of remedies" element was a prerequisite to recovery it was not a prerequisite to proceeding against a third party defendant.
Defendants counter that plaintiffs cannot allege that the defendants retained any unjust enrichment or money had and received, because the defendants are "paying to a nationwide class of merchants including the Tennessee merchants that accepted MasterCard or Visa more than $3 billion to settle claims alleging overcharges from the same `tying' asserted in this case." They further argue that the "exhaustion of remedies" element must be satisfied prior to proceeding against a third party defendant.
"The most significant requirement for a recovery on quasi contract is that the enrichment to the defendant be unjust." Paschall's, at 155. If a third-party defendant "has given any consideration to any person" for the benefits received from the plaintiff, there is no injustice in allowing the defendant to retain those benefits without paying the plaintiff. Id. This principle is commonly applied to unjust enrichment claims based upon improvements to real estate. See e.g., Venture Const. Co. v. Apple Music City, Inc., 847 S.W.2d 509, 511 (Tenn.Ct.App.1992); D.T. McCall & Sons v. Seagraves, 796 S.W.2d 457, 464 (Tenn.Ct.App.1990); John J. Heirigs Const. Co. v. Exide, 709 S.W.2d 604, 607 (Tenn.Ct.App.1986).
Plaintiffs' Complaint alleges the defendants' "tying arrangement" forced Tennessee merchants to pay an artificially inflated price for defendants' services and that these inflated costs were passed on to consumers in the form of higher product prices. Plaintiffs charge that the defendants indirectly received benefits from plaintiffs and that retention of those benefits by the defendants would be unjust. The Complaint also states, however, that a nation-wide class of merchants filed suit against the defendants in federal court alleging violation of federal anti-trust law, and that defendants have entered into two settlement agreements with these merchants and that, pursuant to these settlement agreements, the defendants will pay $3.05 billion into two settlement funds from which merchants' claims for damages will be satisfied.[8] Thus, the Complaint *757 establishes that the defendants are not unjustly enriched or retain monies had and received because the Complaint acknowledges that defendants have paid consideration to the merchants for any benefits received indirectly from the plaintiffs. Accordingly, we reverse the Chancellor on the issue of plaintiffs' claims for unjust enrichment and money had and received.
We pretermit the issue of whether plaintiff satisfied the "exhaustion of the remedies" requirement, because, based on the pleadings the plaintiffs cannot establish that defendants were unjustly enriched or retained any money had and received.
The Court has considered the remaining issues and find them to either be moot or without merit. The Judgment of the Chancery Court is affirmed in part, reversed in part, and the plaintiffs' action upon remand will be dismissed. The costs of the appeal are assessed to plaintiffs Roger Bennett and Richard Allen Combs.
NOTES
[1] In Forman, the Court also noted that, after the McAdoo decision, the General Assembly made numerous unsuccessful attempts to amend the TTPA in order to expand its scope, including one bill which would have expressly added "services" to § 47-25-101. Jo Ann Forman, Inc. 13 S.W.3d at 372-73. The Court deemed the failure of these proposals to be persuasive evidence that the General Assembly adopted the McAdoo construction of § 47-25-101. Id. at 373.
[2] Two of the Plaintiffs' cases pre-date McAdoo and do not discuss the application of the TTPA to services. Greene County Tire & Supply, Inc. v. Spurlin, 207 Tenn. 189, 338 S.W.2d 597 (1960) (upholding a non-competitive agreement incident to the sale of a business without addressing the defense that the agreement violated the TTPA); Kerrigan Iron Works, Inc. v. Cook Truck Lines, Inc., 296 S.W.2d 379, 383 (Tenn.Ct.App.1956) (affirming issuance of an injunction requiring the defendants to provide their customary services to the plaintiff without discussing the plaintiff's claim under the TTPA).
Four of the Plaintiffs' more recent cases did not address whether the TTPA applies to services because the restraint at issue involved tangible goods or the TTPA claim was dismissed on other grounds. Piccadilly Square v. Int'l Constr. Co., 782 S.W.2d 178, 184 (Tenn.Ct.App.1989) (holding that the defendant's assertion that a construction contract violated the TTPA was "without merit" because there was nothing in the contract or the record supporting such a claim); Dzik & Dzik, P.C. v. Vision Serv. Plan, No. 836, 1989 WL 3082 (Tenn.Ct.App. Jan.20, 1989) (the alleged restraint of trade involved the market for finished eyeglasses and frames); Bob McEachern Photographers, Inc. v. Hap Minhinnett Photography, Inc., 1986 WL 9312 (Tenn.Ct.App. Aug.29, 1986) (finding that a services contract was not a restraint of trade because it did not interfere with the public interest); Lynch Display Corp. v. Nat'l Souvenir Ctr., Inc., 640 S.W.2d 837 (Tenn.Ct.App.1982) (the alleged restraint of trade involved wax figures leased to museums).
The Plaintiffs also cited a federal decision, Bloom v. General Elec. Supply Co., 702 F.Supp. 1364 (M.D.Tenn.1988), for the proposition that the TTPA applies to employment services. The Bloom Court held that the TTPA's policy discouraging restraint on trade applied to competition involving both articles and employment services. Id. at 1368. This conclusion, however, was rejected by the United States Court of Appeals for the Sixth Circuit. Halvorsen v. Plato Learning, Inc., No. 05-5325, 167 Fed.Appx. 524, 2006 WL 348163, at *5 (6th Cir. Feb.15, 2006) ("No other Tennessee decision supports this reading of the statute, and no federal or state case has cited Bloom favorably for this proposition.").
[3] The Plaintiffs' alternative argument that the credit cards and debit cards issued by the Defendants are "products" allowing application of the TTPA to the Defendants' conduct is not persuasive. These cards serve no function other than to identify their holders as individuals entitled to use the Defendants' services. Cardholders do not pay the Defendants in order to obtain the cards; they pay the Defendants in order to use their payment processing services.
[4] 15 U.S.C.A. § 45(a)(1) provides: "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful."
[5] Specifically, the Blake court was concerned that there might be a later determination that the defendants' conduct predominately affected interstate commerce rather than intrastate commerce. Blake, 1996 WL 134947, at *5. The court believed this would place the defendants' conduct outside the scope of the TTPA. Id. at *4-5. Blake was decided before the Tennessee Supreme Court adopted the "substantial effects standard" in Freeman Indus. v. Eastman Chem. Co., 172 S.W.3d 512, 523 (Tenn.2005).
[6] In Tucker, the plaintiff asserted that the defendant's practice of selling its products exclusively through distributors was unfair and that the defendant deceptively misled the plaintiff regarding the quality of the distributor's services. Tucker, 180 S.W.3d at 117-19. The plaintiff never asserted a TTPA claim. Id. at 113-14.
[7] "Unjust enrichment is a quasi-contractual theory or is a contract implied-in-law in which a court may impose a contractual obligation where one does not exist." Whitehaven Community Baptist Church v. Holloway, 973 S.W.2d 592, 596 (Tenn.1998). "An action for money had and received is based upon an implied assumpsit." Steelman v. Ford Motor Credit Co., 911 S.W.2d 720, 724 (Tenn. Ct.App.1995).
Actions brought upon theories of unjust enrichment, quasi contract, contracts implied in law, and quantum meruit are essentially the same. Courts frequently employ the various terminology interchangeably to describe that class of implied obligations where, on the basis of justice and equity, the law will impose a contractual relationship between parties, regardless of their assent thereto.
Paschall's, Inc. v. Dozier, 219 Tenn. 45, 407 S.W.2d 150, 154 (1966).
[8] The Federal District Court for the Eastern District of New York approved these settlement agreements in 2003, and all appeals of this ruling have been exhausted. In re Visa Check/Mastermoney Antitrust Litigation, 297 F.Supp.2d 503 (E.D.N.Y.2003), aff'd sub nom., Wal-Mart Stores, Inc. v. Visa U.S.A., Inc. 396 F.3d 96 (2d Cir.2005), cert. denied sub nom., Leonard's Pizza by the Slice, Inc. v. Wal-Mart Stores, Inc., 544 U.S. 1044, 125 S.Ct. 2277, 161 L.Ed.2d 1080 (2005). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1804122/ | 336 So.2d 468 (1976)
James Francis CLARK, a/K/a Robert Francis Clark, Appellant,
v.
STATE of Florida, Appellee.
No. 74-889.
District Court of Appeal of Florida, Second District.
July 28, 1976.
Rehearing Denied September 10, 1976.
*469 Jack O. Johnson, Public Defender, Bartow, and Ellen Condon, Asst. Public Defender, Tampa, for appellant.
Robert L. Shevin, Atty. Gen., Tallahassee, and William I. Munsey, Jr., Asst. Atty. Gen., Tampa, for appellee.
GRIMES, Judge.
This is an appeal from a conviction for breaking and entering with intent to commit grand larceny.
During the presentation of the state's case, one of the arresting police officers testified as follows:
"Q. All right. Did you have occasion to talk with the defendant any further at the scene of the crime?
A. Only when I advised the defendant that he was under arrest for breaking and entering and read him his rights from the card supplied by the State Attorney's Office.
Q. All right. After you had advised him of his rights did he have occasion to say anything to you at all?
A. He refused to make any statements to me, sir, other than he knew nothing about the incident that had occurred at the tavern."
Defense counsel did not object to this testimony or move for a mistrial.
Even though part of the statement attributed to the appellant was self serving, the reference to appellant's refusal to otherwise make a statement after being arrested was clearly improper. Miranda v. Arizona, 1966, 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694. Since the evidence against appellant was strong, the only questions which remain are whether the comment can be considered harmless error or whether appellant waived his right to complain by reason of his counsel's failure to object.
In Bennett v. State, Fla. 1975, 316 So.2d 41, our Supreme Court considered the effect of testimony by a fire marshal that the defendant refused to sign a waiver of rights or to make a statement to the police. The court said:
"The first error of which defendant complains was of constitutional dimension and warrants reversal without consideration *470 of the doctrine of harmless error. Jones v. State, [200 So.2d 574 (Fla. App.3d, 1967)] supra. In any event the error should not be held harmless, as contended by the State, if there is a reasonable possibility that it might have contributed to the conviction. Fahy v. Connecticut, 375 U.S. 85, 84 S.Ct. 229, 11 L.Ed.2d 171 (1963); Harrington v. California, 395 U.S. 250, 89 S.Ct. 1726, 23 L.Ed.2d 284 (1969); Chapman v. California, 386 U.S. 18, 87 S.Ct. 824, 17 L.Ed.2d 705 (1967)."
Ironically, the U.S. Supreme Court case of Chapman v. California cited therein, which established the doctrine that an error of constitutional dimension could be harmless, dealt with a case involving impermissible comments by the prosecutor concerning the defendant's failure to testify. However, there is nothing to keep the Florida Supreme Court from placing a stricter construction upon the similar privilege against self incrimination found in our state constitution. Cooper v. California, 1967, 386 U.S. 58, 87 S.Ct. 788, 17 L.Ed.2d 730.
If there is any doubt that our Supreme Court meant what it said in Bennett, this was laid at rest in Shannon v. State, Fla. 1976, 335 So.2d 5 (Opinion filed June 30, 1976). In reversing a decision which had held that comments on the petitioner's right to remain silent constituted harmless error, the court observed:
"... That decision conflicts with our more recent decision in Bennett v. State, 316 So.2d 41 (Fla. 1975), where we held that any comment on an accused's exercise of his right to remain silent is reversible error, without regard to the harmless error doctrine."
The effect of counsel's failure to object requires a more detailed consideration because the authorities on this point are not in harmony. The cases which will be discussed include not only those pertaining to evidence about the defendant's exercise of his Miranda rights but also those where the prosecutor commented on the defendant having failed to testify at the trial. The analogy between these is viable, we think, because each of the principles for which they respectively stand is grounded upon the defendant's Fifth Amendment right against self incrimination.
Reference to Defendant's Right to Remain Silent is Reversible Error Regardless of Failure to Object.
In Jones v. State, Fla.App.3d, 1967, 200 So.2d 574, the district court of appeal held that a comment that the accused while in custody remained silent in the face of an accusation of guilt was reversible error without objection having been made. The court said:
"... Failure to object at trial will not prevent review of the propriety of introduction of evidence, the admission of which constitutes fundamental error (Rule 3.7(i) F.A.R. 31 [32] F.S.A.), or, in a criminal case, when the appellate court deems it to be in the interests of justice that it be reviewed. .. ."
Likewise, the court of appeal in Bostic v. State, Fla.App.4th, 1976, 332 So.2d 349, held that evidence of the defendant's assertion of his Miranda rights and refusal to make a statement to arresting officers required reversal in spite of the absence of an objection. The court said:
"There can be no doubt that the error involving the admission of such testimony is of constitutional and fundamental dimensions, and thus does not require a trial objection to preserve the issue on appeal. The Third District, in Jones v. State, 200 So.2d 574 (Fla.App.3rd, 1967), a decision recently followed and expressly approved by our Supreme Court in Bennett v. State, supra, squarely so held on facts identical to those before us here."
Erroneous Reference to Defendant's Right to Remain Silent is Waived by Failure to Object.
In State v. Jones, Fla. 1967, 204 So.2d 515 (as distinguished from Jones v. State, supra), the Supreme Court held that the failure to object to statements by the prosecutor which were construed by the district *471 court of appeal as commenting upon the defendant's failure to testify constituted a waiver of the right to complain of the comments. On this point, the court first said:
"Adverting now to the failure of defendant's counsel to object in the trial court until after rendition of the verdict of guilty, respondent calls attention to the rule stated in Gordon v. State, [Fla. 1958, 104 So.2d 524] supra, as follows:
`Ordinarily improper remarks of counsel to the jury can be remedied by appropriate instructions by the trial judge. Consequently under ordinary circumstances such inappropriate remarks will not be reviewed by an appellate court unless timely objection is made in the lower court. This rule, however, is subject to the exception that if the improper remarks are of such character that neither rebuke nor retraction may entirely destroy their sinister influence then on appeal they may be considered as error even in the absence of an objection in the trial court.' (Emphasis added.)"
The court then observed that prior to Gideon v. Wainwright, 1963, 372 U.S. 335, 83 S.Ct. 792, 9 L.Ed.2d 799, when indigent defendants were not offered the services of an attorney, the application of the foregoing exception was necessary to protect the rights of uninformed defendants who were being tried without counsel. Under those circumstances, trial judges were admonished to intervene, sua sponte, and declare mistrials whenever prejudicial comments were made which could not be corrected by appropriate admonition. However, the court continued:
"At the present time all defendants in criminal trials who are unable to engage counsel are furnished counsel without charge. Application of the exception is no longer necessary to protect those charged with crime who may be ignorant of their rights. Their rights are now well guarded by defending counsel. Under these circumstances further application of the exception will contribute nothing to the administration of justice, but rather will tend to provoke censure of the judicial process as permitting `the use of loopholes, technicalities and delays in the law which frequently benefit rogues at the expense of decent members of society.'
It has been suggested that some courts today seem to be preoccupied primarily in carefully assuring that the criminal has all his rights while at the same time giving little concern to the victim. Upon the shoulders of our courts rests the obligation to recognize and maintain a middleground which will secure to the defendant on trial the rights afforded him by law without sacrificing protection of society. As Mr. Justice Cardozo explained in Snyder v. Commonwealth of Mass., 291 U.S. 97, 122, 54 S.Ct. 330, 338, 78 L.Ed. 674, 687:
`But justice, though due to the accused, is due to the accuser also. The concept of fairness must not be strained till it is narrowed to a filament. We are to keep the balance true.'
The Court now recants the statement of the exception upon which respondent relies and henceforth will review challenged argument of prosecutors only when an objection is timely made."
In Farmer v. State, Fla.App.4th, 1976, 326 So.2d 32, upon cross-examination the prosecutor had elicited from the defendant an admission that he had remained silent at the preliminary hearing. After pointing out that this was improper, the court of appeal stated:
"... Defendant's counsel initially objected, but then withdrew the objection, apparently because he intended to show on redirect examination that appellant's silence at the preliminary hearing was the result of advice of counsel. There was no motion for a mistrial, no motion to strike this testimony, nor any motion for the court to instruct the jury to disregard such testimony. In short, there was no judicial error, and we are not inclined to hold it as fundamental *472 error in view of defense counsel's tactical decision to withdraw his objection."
Thus, we have the unanimous decision of the Supreme Court in State v. Jones, supra, that the court will review the improper argument of prosecutors only when an objection is timely made. This decision rendered nine years ago has been cited with approval for this point by the Supreme Court as recently as Thomas v. State, Fla. 1976, 326 So.2d 413, though there have been several decisions since 1967 in which certain comments of prosecutors unrelated to the defendant's silence were thought to be so outrageous as to require reversal regardless of the lack of an objection. E.g., Wilson v. State, Fla. 1974, 294 So.2d 327; Thompson v. State, Fla.App.4th, 1975, 318 So.2d 549; Knight v. State, Fla.App.1st, 1975, 316 So.2d 576. Moreover, Jones v. State was the case upon which the Supreme Court predicated its conflict jurisdiction in Bennett, and it was quoted with approval in that decision. However, a motion for mistrial was made in Bennett, so the effect of the failure to make an objection was not directly before the court. Similarly, in Shannon, supra, defense counsel moved for a mistrial. Neither opinion refers to State v. Jones.
Thus it is, that our decision will be in conflict with another Florida decision regardless of which way we go. Foreclosed as we are from determining whether the tainted evidence could be considered harmless, we must make our own determination of the effect of the failure to object, confident that in the final analysis the posture of this case will permit the Supreme Court finally to decide this important question.
As part of our analysis, it may be helpful to consider what is meant by the terms "fundamental error" and "error of constitutional dimension." Justice Adkins reminded us in Sanford v. Rubin, Fla. 1970, 237 So.2d 134, that "fundamental error ... is error which goes to the foundation of the case or goes to the merits of the cause of action." See also Ashford v. State, Fla. 1973, 274 So.2d 517. No objection need be made to preserve an attack on an error which is fundamental. Haley v. State, Fla. App.2d, 1975, 315 So.2d 525. Likewise, it has been held that fundamental error may be raised by collateral attack through a motion for post-conviction relief under RCrP 3.850. O'Neal v. State, Fla.App.2d, 1975, 308 So.2d 569, overruled on other grounds in Roberts v. State, Fla.App.2d, 1975, 320 So.2d 832. In Ashford v. State, supra, the Supreme Court cautioned that appellate courts should exercise discretion under the fundamental error doctrine very guardedly.
Generally, fundamental errors are those of constitutional dimension. But not all errors of constitutional dimension are fundamental. This is illustrated by the fact that while one is protected by the Constitution from an illegal search and seizure, yet the illegality of a search and seizure may be waived by his failure to object to it. Robertson v. State, 1927, 94 Fla. 770, 114 So. 534; New v. State, Fla.App.2d, 1968, 211 So.2d 35. Our Supreme Court has noted that constitutional issues other than those constituting fundamental error are waived unless they are timely raised. Sanford v. Rubin, supra. Thus, it seems fair to conclude that whether errors of constitutional dimension are fundamental depends upon their magnitude.
The desirability of having an objection voiced to evidence of the nature involved in this case is evident. As the Supreme Court observed in State v. Jones, supra, the rule which does not require an objection to be raised to the introduction of evidence of this type "made it possible for defense counsel to stand moot if he chose to do so, knowing that all the while a verdict against his client was thus tainted and could not stand. By such action defendants had nothing to lose and all to gain, for if the verdict be `not guilty' it remained unassailable." Likewise, to insist upon a blanket rule that no objection need be made can have the effect of placing the trial judge on the horns of a dilemma. Assuming questionable evidence has been introduced without objection, the judge may find himself in a *473 position of declaring a mistrial which the defendant doesn't even want. If the judge is wrong (and often the determination of whether the evidence is improper is not so clear), the defendant may be entitled to release without a second trial on grounds of double jeopardy. Strawn v. State ex rel. Anderberg, Fla. 1976, 332 So.2d 601. Whether or not the judge could safely ask defense counsel to take a position with respect to whether he wanted a mistrial is not totally clear. Compare State v. Grayson, Fla. 1956, 90 So.2d 710, with Farmer v. State, supra.
Admitting the influence of some of the practical ramifications, we have concluded that the interests of justice would not be served by the adoption of an absolute rule that in every instance there is no need to object to references to an accused's exercise of his right to remain silent in order to preserve the error. On the other hand, we do not hold that an objection is always necessary to preserve the point. Some references may be so prejudicial to the right of a defendant to a fair trial that the error must be deemed to fall within the ambit of that elusive term "fundamental." As in many other areas of the law, the decision should be made on a case by case basis. The polestar must always be whether the defendant has been afforded a fair trial.
Applying these principles to the instant case, we believe that the admission of the tainted evidence does not rise to the magnitude of fundamental error.
While it would have been prudent not to have asked whether the appellant had made any statement unless the prosecutor ascertained in advance that he had done so, we cannot characterize the interrogation as being designed to impair the appellant's constitutional rights. When the witness made an improper response, the prosecutor did not attempt to continue a dialogue with the witness or otherwise pursue the fact of appellant's exercise of his right to remain silent. Moreover, the defense counsel, who capably performed his responsibility of properly defending the accused, may well have felt that the latter part of the witness' statement: "... other than he knew nothing about the incident that had occurred at the tavern," was valuable testimony to the accused who was charged with breaking and entering the tavern in question with the intent to commit grand larceny. Finally, there is no contention that the prosecutor made any reference to the statement in his final argument to the jury. Under these circumstances, we cannot say that introduction of such testimony, within the context of this record, so infected the appellant's right to a fair trial as to require application of the doctrine of "fundamental error."
AFFIRMED.
HOBSON, Acting C.J., and SCHEB, J., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2214857/ | 212 Cal.App.2d 422 (1963)
28 Cal. Rptr. 37
ALBERT McDOUGALL et al., Defendants and Appellants,
v.
PALO ALTO UNIFIED SCHOOL DISTRICT, Defendant and Respondent.
Docket No. 19616.
Court of Appeals of California, First District, Division One.
January 29, 1963.
*425 John W. Montgomery and Peter Anello for Defendants and Appellants.
Rankin, Oneal, Luckhardt & Center, C.E. Luckhardt and Charles E. Luckhardt, Jr., for Defendant and Respondent.
SULLIVAN, J.
We determine here conflicting claims to one-fourth of an award made in condemnation proceedings.
The parcel of land involved is presently located in the City of Palo Alto and formerly, before consolidation of the two municipalities, in the town of Mayfield. On August 31, 1867, William Paul as party of the first part conveyed the land to Joseph N. Spencer, George W. La Peire and Alexander Young, trustees of the Mayfield School District as parties of the second part. Appellants are successors in interest of the grantor. Respondent, a political subdivision of the State of California, is the successor in interest of the above trustees.
[1a] The pertinent provisions of the deed from Paul to the trustees are as follows: "`[T]he said party of the first part for and in consideration of his desire for the advancement of educational interests in Mayfield aforesaid and for that purpose furnishing a site for a schoolhouse there. Has granted bargained and sold and by these presents does grant bargain and sell convey and confirm unto the said parties of the second part and to their successors in office as Trustees aforesaid all that certain piece parcel or lot of land situated in the town of Mayfield aforesaid and known and designated as Lot number 86 ... [map reference follows]. Together with all and singular the tenements hereditaments and appurtenances hereunto belonging to be used as a public school for said District forever. To have and to hold unto the said parties of the second part their successors in office for the sole use and benefit of the said Mayfield School District. And whenever the said parties of the second part their successors in office or those legally representing the said Mayfield School District shall abandon the premises hereby conveyed *426 for school purposes or shall fail neglect or refuse to use said premises for common school uses and purposes then and in that event the said premises shall revert to the said party of the first part his heirs and assigns to ... their sole use and benefit forever.'" (Emphasis added.)
The school district erected a school on the land and continued to operate and maintain it there until 1940 when the building was demolished.
At this point we observe that eventually there were two groups of heirs of William Paul: Those claiming an undivided three-fourths interest in the land through Katherine McDougall; and those claiming the remaining individual one-fourth through Albert K. McDougall. The latter are the eight appellants herein.
In 1948 Katherine McDougall commenced in the court below action No. 70253 against the respondent herein seeking a decree quieting title to the parcel of land in question. She was largely successful, the court rendering judgment in her favor and against this respondent determining that she was the owner of an undivided three-fourths interest. No appeal was taken and the judgment is final. Indeed respondent conceded during the course of the instant proceedings in the trial court that the persons claiming through Katherine McDougall owned a three-fourths interest in the land.
In 1959 the County of Santa Clara commenced the proceedings in eminent domain from which the instant controversy derives. The three-fourths ownership of the Katherine McDougall claimants having been conceded, the court below conducted a preliminary trial of the single issue as to whether appellants or respondent school district had title to the remaining one-fourth interest. After such determination, the remaining issues of the cause were tried and resulted in an award of $126,958 in favor of those persons determined to be the owners.
The court, in separate findings on the preliminary issue, found and concluded in substance that the deed from William Paul contained only a covenant which was fully performed; that "in the event the language of said deed is construed to create a fee upon a condition subsequent" the defendants McDougall (appellants herein) waived their right of reentry by failing to assert it at any time; that the deed did not create a determinable fee (referred to by the court as a conditional fee defeasible) in the school district and "there was no automatic defeasance of Defendant District's title by *427 reason of the removal of the Sherman School in 1940"; that the school district never abandoned the property for school purposes; that the judgment in 1950 in favor of Katherine McDougall and against the school district was not res judicata against the latter in these proceedings; that the defendants McDougall had no right or title to the land; and that the school district was the owner of an undivided one-fourth interest in fee simple absolute and entitled to one-fourth of any award made in the condemnation proceedings. In the ensuing order and judgment of condemnation, judgment was rendered accordingly. It is from such portion of the judgment that this appeal is taken.
Appellants' contentions on appeal are: (1) that the prior judgment in favor of Katherine McDougall is res judicata against the school district; (2) that, as a matter of law, the deed from William Paul created a fee simple determinable as a result of which an undivided one-fourth interest automatically reverted to appellants upon abandonment of the property by the school district; and (3) that the finding or conclusion against abandonment is without support in the evidence.
The gist of appellants' argument on the first point is that the same deed, the same land, the same proof and the same school district were involved in the Katherine McDougall litigation and that therefore the judgment of the court in said earlier action that the plaintiff therein, as successor in interest to William Paul, had title to a three-fourths interest should control in the instant proceedings as to the ownership of the remaining fourth.[1] Appellants contend that the instant case is governed by the following rule stated in Bernhard v. Bank of America (1942) 19 Cal.2d 807, 813 [122 P.2d 892]: "In determining the validity of a plea of res judicata three questions are pertinent: Was the issue decided in the prior adjudication identical with the one presented in the action in *428 question? Was there a final judgment on the merits? Was the party against whom the plea is asserted a party or in privity with a party to the prior adjudication?" The trial court, on the contrary, concluded that the appellants and Katherine McDougall were at best cotenants[2] and seems to have applied the rule that there being no privity among cotenants, generally a judgment in an action to determine title brought by or against one cotenant does not make res judicata matters decided therein in a subsequent action by or against other cotenants. (See Rest., Judgments, § 103; 29 Cal.Jur.2d, Judgments, § 276, pp. 250-251.)
[2] The doctrine of res judicata has a double aspect. As the court stated in Todhunter v. Smith (1934) 219 Cal. 690, 695 [28 P.2d 916], "[a] former judgment operates as a bar against a second action upon the same cause, but in a later action upon a different claim or cause of action, it operates as an estoppel or conclusive adjudication as to such issues in the second action as were actually litigated and determined in the first action." (See also Sutphin v. Speik (1940) 15 Cal.2d 195, 201 [99 P.2d 652, 101 P.2d 497]; 3 Witkin, Cal. Procedure, p. 1927.) In its first aspect, res judicata is effective as a merger or bar; in the second as a collateral estoppel. While under either aspect, the doctrine is in the usual instance operative to make an existing final judgment conclusive of the rights of parties to the former action or of those persons in privity with such parties (Rest., Judgments, §§ 79, 83), the doctrine has been invoked as a collateral estoppel by persons who are strangers, that is neither parties nor privies, to the former action. (See 3 Witkin, Cal. Procedure, pp. 1955-1962.) It is this second aspect of the doctrine which was expanded in the Bernhard case. It is this aspect with which we are here concerned since obviously appellants' cause of action is different from that of Katherine McDougall in the earlier litigation.
In announcing the rule relied upon by appellants and set forth by us above, the court in Bernhard abrogated the requirement of mutuality in the assertion of the plea of res judicata, in other words, the necessity that the party claiming *429 the estoppel would have been bound by the former judgment had it gone the other way. "The requirements of due process of law forbid the assertion of a plea of res judicata against a party unless he was bound by the earlier litigation in which the matter was decided. [Citations.] He is bound by that litigation only if he has been a party thereto or in privity with a party thereto ... There is no compelling reason, however, for requiring that the party asserting the plea of res judicata must have been a party, or in privity with a party, to the earlier litigation.
"No satisfactory rationalization has been advanced for the requirement of mutuality. Just why a party who was not bound by a previous action should be precluded from asserting it as res judicata against a party who was bound by it is difficult to comprehend." (Bernhard v. Bank of America, supra, 19 Cal.2d 807 at p. 812.) Accordingly, it was held in that case that the defendant bank was not precluded by lack of privity or of mutuality of estoppel from asserting against the plaintiff that the issue involved had been adjudicated by an earlier final judgment involving parties with whom the plaintiff stood in privity.
It would seem at first blush that the instant case falls within the Bernhard rule for, assuming an identity of issues in both the present and the earlier Katherine McDougall action, the school district against which the plea of res judicata is now asserted, was a party to the former action. However, contrary to appellants' claim, the rule announced in Bernhard has not had such broad and indiscriminate application. Despite the comprehensiveness of the pertinent language, it has been held that the doctrine of res judicata as declared in Bernhard does not apply to multiple negligence claims of several plaintiffs against a single defendant or group of defendants arising out of a single accident so that the determination of the negligence of such defendant or defendants in one action successfully brought by one plaintiff will perforce be res judicata in all subsequent actions brought by the remaining plaintiffs, upon the mere basis that the defendant or group of defendants were parties to the first action. (Nevarov v. Caldwell (1958) 161 Cal. App.2d 762 [327 P.2d 111]; Price v. Atchison, T. & S.F. Ry. Co. (1958) 164 Cal. App.2d 400 [330 P.2d 933].) The court in the Nevarov case not only felt that the language of the Bernhard case should be considered in the light of its particular facts and the issue there before the court, but also stated that "[a]n *430 examination of later rulings of the Supreme Court indicates that it does not entertain the view that the Bernhard doctrine is to be universally applied regardless of consequences." (Nevarov v. Caldwell, supra, at p. 770.)
In an article in 9 Stanford Law Review entitled "Mutuality of Collateral Estoppel: Limits of the Bernhard Doctrine," Professor Brainerd Currie, in examining the possible application of the doctrine to successive negligence actions by multiple plaintiffs arising out of a railroad accident, points out the distinction that in the Bernhard case the plea of res judicata was used defensively while in such successive negligence actions it would be used offensively. The author there suggests that while the Bernhard decision is sound in abrogating the requirement of mutuality, the rule announced in Bernhard should be confined to such defensive use. He also states: "An examination of all the cases which cite the Bernhard case shows that no reported decision by a California court has applied the Bernhard doctrine to a situation like that in the railroad case that is, to a situation in which the plea is asserted by a plaintiff against an adversary who was the defendant in the prior action." (9 Stan. L. Rev. at pp. 295-296; emphasis added.) Nor have appellants cited us to any case where the doctrine has been applied "offensively."[3]
Appellants call our attention to the fact that the court in the Bernhard case overruled People v. Rodgers (1897) 118 Cal. 393 [46 P. 740, 50 P. 668]. The Rodgers case held that where, in a prior electors' action to remove a public official, judgment was rendered declaring the latter ineligible for office because an alien, the plea of res judicata was not available to the Attorney General in a later quo warranto proceeding against the same official. Denial was predicated on lack of mutuality, the Attorney General not having been a party to the first action. The foregoing developments do not help these appellants. If, under the former rule that estoppels must be mutual, rejection of the plea is based on lack of mutuality, it does not necessarily follow that upon abrogation of the rule the plea becomes automatically permissible in all instances. Furthermore, if the overruling of the Rodgers case means that the plea will now be recognized in situations similar to Rodgers, such holding merely serves to place California *431 in accord with the general rule of the Restatement as to the conclusiveness of a former judgment determining status. (See Rest., Judgments, § 74.)
[1b] Finally, appellants urge that denial of res judicata herein cannot be based on its use "offensively" since their position is as fully defensive as that of the school district. We disagree. Appellants' theory of case is that the original deed created a determinable fee and that certain events have brought about the expiration of the estate with which respondent school district is now vested of record. It is appellants therefore, just as in the earlier action it was Katherine McDougall, who are in reality assuming the offensive position.
We have not been referred to, nor have we found, any case upholding the plea of res judicata in the precise instant situation. For the reasons we have given above, we are persuaded that such plea cannot be availed of "offensively" in the case before us and that the effect of the original grant should be determined anew and independently of the earlier action.
We therefore turn to the original deed of William Paul. [3] Since no extrinsic evidence was introduced in the court below, the construction of the deed presents a question of law. We are not bound by the trial court's interpretation of it, and we therefore proceed, as it is our duty, to determine the effect of its foregoing provisions according to applicable legal principles. (Estate of Platt (1942) 21 Cal.2d 343, 352 [131 P.2d 825]; Jarrett v. Allstate Ins. Co. (1962) 209 Cal. App.2d 804, 809-810 [26 Cal. Rptr. 231]; Ziganto v. Taylor (1961) 198 Cal. App.2d 603, 606 [18 Cal. Rptr. 229]; Moffatt v. Tight (1941) 44 Cal. App.2d 643, 648 [112 P.2d 910].)
Appellants contend that the deed in question created a fee simple determinable in the school district with a possibility of reverter in the original grantor, his heirs and assigns. We have concluded that such contention has merit.
[4] "An estate in fee simple determinable is created by any limitation which, in an otherwise effective conveyance of land, (a) creates an estate in fee simple; and (b) provides that the estate shall automatically expire upon the occurrence of a stated event." (Rest., Property, § 44.) [5] In such case, the reversionary interest left in the grantor is called a possibility of reverter. (Rest., Property, § 154; 1 *432 American Law of Property, p. 427.) [6] There is no longer any question that in a proper case California courts will give judicial recognition to a fee simple determinable as an estate in real property. (Dabney v. Edwards (1935) 5 Cal.2d 1 [53 P.2d 962, 103 A.L.R. 822]; Henck v. Lake Hemet Water Co. (1937) 9 Cal.2d 136 [69 P.2d 849]; 24 Cal. L. Rev. 512.) [7] It is also established that the possibility of reverter is one of the three types of future interests in the grantor recognized at common law to which recognition is also given in California. The other two are the reversion and the right of entry for condition broken. (Alamo School Dist. v. Jones (1960) 182 Cal. App.2d 180, 183-184 [6 Cal. Rptr. 272]; see article "Future Interests in California" by Professor Harold E. Verrall, 7 West's Civil Code Ann., p. 1.)
Since there is no dispute in the instant case that the deed in question creates an estate in fee simple, our particular inquiry is directed to whether it provides that such estate shall automatically expire upon the occurrence of a stated event. [8] Whether particular language in a deed provides for the creation of an estate in fee simple determinable and of a possibility of reverter concomitant therewith is a matter of construction. No particular words are required. It is only necessary that the particular language show that the grantor intended that the estate in fee simple shall automatically expire on the occurrence of a stated event. [9] While a limitation using such words as "so long as," "during" and "until" have usually manifested such intent, they constitute no exclusive ritual and any appropriate words showing the intent will suffice. (2 Powell, Real Property, § 187, pp. 34-39; 1 American Law of Property, § 2.6, pp. 94-100; § 4.13, p. 429; Simes and Smith, The Law of Future Interests (2d ed.) § 286, pp. 341-345.)
[10] Mr. Justice Duniway, now Judge Duniway, writing for this court in the Alamo School District case, supra, said: "A possibility of reverter is created when the duration of an estate is limited by a measure of its life additional to that inherent in the estate itself. [11] A fee simple is perpetual. Thus a possibility of reverter is created by the conveyance of a fee simple which is to last `until' a named event, or `during' a period limited by such an event or `as long as,' a certain state of facts continues. Any expression conveying the same idea is sufficient. A classic example is `to A in fee simple until St. Paul's falls' or `as long as St. Paul's stands.' [Citation.] The rule is technical, and is based on the idea *433 that the duration of the estate is limited, so that, when the event upon which it is limited occurs, the estate of the grantee ipso facto terminates, there being thus a `reverter' to the grantor. [12] It is called a `possibility of reverter' because the event upon which the limitation depends may never occur. In the meantime, the grantee has a fee simple estate." (Alamo School Dist. v. Jones, supra, 182 Cal. App.2d 180, 184.)
[13] In its distilled essence the operative language of the deed before us is that "whenever ... [the school district] shall abandon the premises ... or shall fail neglect or refuse to use said premises for common school uses and purposes then ... the said premises shall revert...." We think that the above language shows an intention of the grantor that the estate shall automatically cease when the property is abandoned or not used for school purposes. In our view, there is little difference between such language and, for example, a habendum clause employing one of the more standard expressions of limitation and reading: "to have and to hold unto the parties of the second part for the sole use of the said Mayfield School District so long as said premises are used for common school uses and purposes and not abandoned." In each instance, the grantor intends the automatic expiration of the estate on the happening of the same stated event.
While we have not been referred to any California cases in which a fee simple determinable has been created by language containing the word "whenever," such language has been held appropriate to create such a fee in other jurisdictions. In Consolidated School Dist. No. 102 v. Walter (1954) 243 Minn. 159 [66 N.W.2d 881, 53 A.L.R.2d 218] cited by appellants, a deed to a school district contained the following language: "`To have and to hold ... the above ... premises ... unto the said School District ... In Trust and to and for the use, intent and purpose of a site for a School House ... and ... whenever the said School District removes the School House from said tract of land or whenever said School House ceases to be used as the Public School House ... then the said Trust shall cease and determine and the said land shall revert to ... [the grantors and their heirs].'" (66 N.W.2d, p. 882; emphasis added.) It was there held that the "deed conveyed a fee simple determinable with the grantors retaining a possibility of reverter." (66 N.W.2d, p. 884.) In Carr v. Georgia Railroad (1884) 74 Ga. 73, a conveyance in fee of a city lot was made to the defendant *434 railroad reciting that "`whenever said company ... shall discontinue or cease to use the said land ... as a depot for freight and passengers, or for both, or cease to run the engine and cars to the same, ... this deed shall cease, determine and be void ... and the land ... shall revert to the donor or his heirs.'" (74 Ga., p. 76; emphasis added.) The court held that upon the railroad's abandoning the land and ceasing to operate its road and use the depot, the land reverted automatically to the donor's heirs. (74 Ga. at pp. 80-81.) We find the language in both the Consolidated School District case, supra, and the Georgia Railroad case, supra, substantially similar to that of the instant deed.
In the conveyance at hand we encounter no difficulty in concluding that a fee simple determinable rather than a fee simple subject to a condition subsequent has been created. [14] The Restatement defines the latter estate as follows: "An estate in fee simple subject to a condition subsequent is created by any limitation which, in an otherwise effective conveyance of land, (a) creates an estate in fee simple; and (b) provides that upon the occurrence of a stated event the conveyor or his successor in interest shall have the power to terminate the estate so created." (Rest., Property, § 45.) The corresponding future interest created is termed a right of reentry for condition broken. As the author of the opinion in the Alamo School District case states "[a] right of entry for breach of condition is clearly recognized in California. In classical theory, it was distinguished from the possibility of reverter by the fact that it was not a limitation upon the estate granted not a measure of its duration but a condition upon the occurrence of which the granted estate could be cut off by reentry of the grantor. An example of such a conveyance would be one of a fee simple `upon condition that, if St. Paul's falls, the estate shall terminate.' The effect is not to terminate the estate automatically, as a reversion does, but to give the grantor a right of reentry, the estate terminating only if the right is exercised." (Alamo School Dist. v. Jones, supra, 182 Cal. App.2d at p. 185.)
Both a fee simple determinable and a fee simple subject to condition subsequent involve divesting upon the occurrence of the stated event. The problem presented in such cases is to determine whether the fee simple is to terminate automatically or only upon the exercise by the grantor, his heirs or assigns of the right of reentry. (Simes and Smith, op. cit., p. 344; Powell, op. cit., p. 40.) Constructional preference *435 is for the fee simple on condition subsequent and language of condition facilitates the adoption of such preference and the rejection of a fee simple determinable. (Powell, op. cit., pp. 37, 40-41.) [15] As stated in Henck v. Lake Hemet Water Co., supra, 9 Cal.2d 136, 140 "[t]he difference is a distinct one, and in the case of a determinable fee which terminates upon the happening of the contingency the estate is at an end without any further act on the part of the defendant; while in the case of a vested estate subject to defeasance upon condition broken a condition subsequent the defendant, upon the happening of the contingency, is entitled only to the right to terminate the estate, or a right of reentry." (See Renner v. Huntington etc. Oil & Gas Co. (1952) 39 Cal.2d 93, 98 [244 P.2d 985].)
"Generally speaking, the apt and appropriate words evidencing that the grant is on condition subsequent are found in a provision for forfeiture and right of reentry." (Fitzgerald v. County of Modoc (1913) 164 Cal. 493, 495 [129 P. 794, 44 L.R.A.N.S. 1229].) In the Restatement of Property it is said that, with exceptions not here applicable, "an estate in fee simple subject to a condition subsequent is created by an otherwise effective conveyance which contains 1. some one of the following phrases, namely, `upon express condition that,' or `upon condition that,' or `provided that,' or a phrase of like import; and also 2. a provision that if the stated event occurs, the conveyor `may enter and terminate the estate hereby conveyed,' or a phrase of like import." (Rest., Property, § 45, com. j.) We find no words of condition in the deed of William Paul.
Respondent's position here is that the deed in question did not create a possibility of reverter, that it created only a covenant which was fully performed and that even if a fee simple subject to a condition subsequent was created, the right of reentry was waived. Respondent relies on City of Santa Monica v. Jones (1951) 104 Cal. App.2d 463 [232 P.2d 55]; Savanna School Dist. v. McLeod (1955) 137 Cal. App.2d 491 [290 P.2d 593]; and the Alamo School District case already referred to.
The Santa Monica case was also a condemnation action involving the conflicting claims of the heirs of the grantor and the grantee railway company. Respondent urges first, that it is strikingly similar to the instant case because the heirs made no reentry until they made a claim in the condemnation action; and, secondly, that it disposes of appellants' *436 contention that William Paul's deed created a fee simple determinable, because the original conveyance in Santa Monica, while also using "whenever," created a fee simple upon condition subsequent, the court there concluding that in some instances the so-called condition was a mere covenant. These arguments must fail. The opinion in Santa Monica shows that the court was not called upon to determine whether a fee simple determinable or a fee simple subject to condition subsequent was created. It appears that the estate was "conceded by the parties to be a fee on condition" (104 Cal. App.2d at p. 465) and in the case of one of the three deeds involved, where appellants therein claimed that such deed conveyed a fee on condition subsequent rather than determinable and respondent therein took the position it was of no importance, the court took pains to state that "we are not called upon to decide the question" and merely assumed it was as appellants claimed. (104 Cal. App.2d at pp. 467-468.) Nor can it be fairly argued that the deed provided for a limitation with the introductory word "whenever" thus establishing a factual parallel with the instant case. No part of the deed is set forth in the opinion and it is clear that the word "whenever" is merely the paraphrase of the author of the opinion. The Santa Monica case is therefore clearly distinguishable.
In the Savanna School District case the grantee brought an action for declaratory relief and to quiet title against the heirs of the grantor. The original deed executed in 1904, reciting that it was "`subject to the terms, conditions and agreements hereinafter contained,'" stated that the conveyance was for public school purposes only "`and it is expressly understood and agreed that as a consideration for this conveyance... [the school district] shall build and maintain a public school building on said land, and that the title and ownership of said land shall revert to ... [the grantor] upon a failure ... [of the school district] to erect and maintain a building thereon to be used exclusively for public school purposes.'" (137 Cal. App.2d at p. 492.) The district constructed a school immediately and maintained it continuously for 27 years. In 1931 the building was torn down and replaced by a brick school building, similarly used for another 18 years. This building was then abandoned and a new school site acquired.
The court held that the deed created a covenant rather than a condition under the rule that a clause in a deed imposing *437 obligations or restrictions on the grantee will be so construed if reasonably possible and that before a condition will be interpreted as a condition subsequent to destroy an estate, there must be language clearly showing such an intention upon the part of the grantor. The court felt that the law stated in both Hasman v. Elk Grove Union High School (1926) 76 Cal. App. 629 [245 P. 464] and Booth v. County of Los Angeles (1932) 124 Cal. App. 259 [12 P.2d 72] was controlling.[4] In Hasman the land conveyed was to be used for maintaining a high school, otherwise to revert to the grantor, his heirs and assigns. In Booth the conveyance was made for a road, to revert to the grantor, his heirs and assigns if not so used. Observing that the words of reversion in both Hasman and Booth contained the additional words "heirs and assigns," while in the Savanna case they did not, the court in Savanna concluded that "[t]he language used may be reasonably construed as meaning that the condition was intended by the grantors to be effective only during their lifetime." (137 Cal. App.2d at p. 496.)
Respondent also relies on the Alamo School District case. As we have explained, we think the legal principles set forth in Alamo are more favorable to appellants than to respondent.
All of the above cases Savanna, Hasman and Booth are distinguishable from the instant case. All of them fall properly within the following rule of constructional preference declared in the Restatement of Property, § 45, comment m: "When an otherwise effective conveyance contains a clause which provides that `if,' or `upon condition that,' or `provided that' a stated event occurs, then the estate created `shall be null and void' or `shall revert back,' a problem in construction is presented as to whether such conveyance creates an estate in fee simple subject to a condition subsequent or an estate in fee simple determinable. Such a conveyance more commonly manifests an intent to create an estate in fee simple subject to a condition subsequent." (Emphasis added.) Hasman used "provided" and Booth used "if." Savanna used "upon a failure" which, in our view, is certainly more analogous to "upon condition that" (comment *438 m, supra) than it is to "whenever" (found in the William Paul deed).
We reach these conclusions: The language of the deed in question shows an intent to create a fee simple determinable. We find therein neither express words of condition nor the substance of language establishing a basis for a fee on condition subsequent. We conclude that the language of the conveyance enumerates with sufficient clarity the grantor's design for an automatic expiration of the estate upon the occurrence of the event stated above. All of the foregoing preclude a theory of a mere covenant. [16] Since we conclude that the fee is determinable no declaration of forfeiture or other act of the appellants was necessary to terminate the estate conveyed. (Henck v. Lake Hemet Water Co., supra, 9 Cal.2d 136, 140; Renner v. Huntington etc. Oil & Gas Co., supra, 39 Cal.2d 93, 98.) By definition such estate contained its own inherent limitation and provided for its own natural termination. Unlike a fee on condition subsequent, it required no artifical termination or any reentry as a divesting event. (Powell, op. cit., § 191, p. 56; Rest., Property, §§ 56, 57.) Such being the case, the trial court's finding or conclusion that the appellants waived "their right ... to assert a claim of reversion or forfeiture" is not material to the instant case. There was no reentry to waive. Orthodox principles preclude a forfeiture. Title reverts automatically.
Finally, we examine the court's finding that the school district never abandoned the property. More particularly, the court found and concluded that the district had maintained a school on the premises until 1940, or for approximately 60 years; that in 1938, the district had plans prepared to use the property for a school for special pupils following the removal of the Sherman School but that such planned school was never constructed; that there was no automatic defeasance of the district's title by reason of the removal of the Sherman School in 1940; and that the district has never abandoned the property in that it has at all times had available plans for the construction of a special school.
As we have set forth earlier, the stated event which effected termination of the estate was the abandonment of the property or any failure, neglect or refusal to use the property for common school uses and purposes.
The parties rely on minutes of different meetings of the school board which were received in evidence. The minutes *439 of the meetings of May 26, 1938, and April 11, 1940, show in substance the receipt by the board of an opinion of the district attorney that the lot in question could not be held unless a school was maintained and that the tearing down of the Sherman School was considered to involve an abandonment of the site. Appellants rely on these and the subsequent demolition of the building as proof of formal abandonment. The minutes of a later meeting in 1944 indicate review by the board of plans for a new Sherman School for special pupils. There is testimony that plans were prepared in 1945 or 1946 which were later discussed by the board "unofficially." Other minutes in 1950, after the conclusion of the Katherine McDougall action, show a suggestion of possible use of the site for a warehouse. Respondent relies on the foregoing to negate abandonment.
[17] We need not explore the niceties of whether the school board did or did not formalize and record an intent to abandon the property. Admittedly no school structure of any kind has been on the property since 1940 and since that date the school district has failed to use the property for any school uses or purposes. Two separate provisions in the deed therefore operate to bring the estate to an end. First, the deed terminates such estate "whenever ... [the school district] shall abandon the premises." In our view, such abandonment was not obviated by an intent to one day use the property, no such actual use having been made of it for almost 20 years. Examined in the context of the entire document, we think that the grantor used "abandon" in the sense of "nonuse." But apart from such provision, a second clause provides for termination "or [whenever the school district] shall fail neglect or refuse to use said premises for common school uses and purposes...." Thus, even if we should accept the court's conclusion that the district never abandoned the land, it is beyond dispute that for almost 20 years it failed to use it for school purposes. Moreover, after the Katherine McDougall judgment against the district became final in 1950, any such use of the premises became, as a practical matter, impossible since the heirs of Katherine McDougall then owned an undivided three-fourths of the property.
We are therefore of the opinion that the trial court's conclusion against the automatic defeasance of the district's title was supported neither by the evidence nor by the narrow *440 findings summarized above. Nor do we feel any support exists for the court's conclusion that the district never abandoned the property since in our view such abandonment resulted from all of the continuous circumstances of nonuse above-mentioned.
Since the construction of the deed of William Paul presents only a question of law, and since it appears without conflict in the evidence that the event prescribed in said deed for the expiration of the estate conveyed did occur, any further trial of this matter is unnecessary.
The judgment is reversed and the cause is remanded with directions to the trial court to amend its conclusions of law and to enter judgment in favor of the appellants in accordance with the views herein expressed.
Bray, P.J., and Molinari, J., concurred.
NOTES
[1] Although the file in action No. 70253 had not been brought before us, extensive portions of it were read into the present record. The complaint contained allegations that the school district had abandoned and failed to use the property for school purposes; and that the plaintiff had, but the district had not, paid taxes on the property for more than five years preceding the action. Apparently an amended complaint merely corrected the quantum of the interest claimed, i.e., three-fourths instead of the entire fee. The court found all of the allegations of the amended complaint to be true. In his memorandum decision the trial judge stated that "the fee title of the property involved vested in the successors of William Paul when the School District ceased and failed to use the property for School purposes."
[2] The conclusions of law state in relevant part: "[I]n the most favorable view, Defendants McDougall et al were merely co-tenants in respect to the said Katherine McDougall, plaintiff in action number 70253, and that the action of a co-tenant to quiet title to an interest in real property does not determine or affect the issues as between the defendants in such action and other co-tenants, even if they are substantially similar; ..."
[3] In Fairchild v. Bank of America (1958) 165 Cal. App.2d 477, 482-483 [332 P.2d 101], cited by appellants, the Bernhard rule was applied "defensively."
[4] The court also cited, inter alia, Rosecrans v. Pacific Elec. Ry. Co. (1943) 21 Cal.2d 602 [134 P.2d 245]; Tamalpais etc. Co. v. Northwestern Pac. R.R. Co. (1946) 73 Cal. App.2d 917 [167 P.2d 825]; and Gramer v. City of Sacramento (1935) 2 Cal.2d 432 [41 P.2d 543]. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2617562/ | 890 P.2d 264 (1995)
In re the MARRIAGE OF Janice PAYAN, Appellant, and
Rudolfo Guererro Payan, Appellee.
No. 94CA0283.
Colorado Court of Appeals, Div. I.
January 12, 1995.
*265 Litvak and Litvak, P.C., Lawrence Litvak, Timothy R.J. Mehrtens, Denver, for appellant.
Polidori, Gerome, Franklin and Jacobson, Peter L. Franklin, Lakewood, for appellee.
Opinion by Judge KAPELKE.
In this dissolution of marriage action, Janice Payan (mother) appeals the trial court's order determining the amount of child support payable by Rudolfo Payan (father). We reverse and remand with directions.
During the marriage, the parties' two children attended a private school. The trial court determined in its order that the cost of the private schooling should not be included in child support because there was no evidence that "the children had a learning disability or other special need which makes private school education required." However, the trial court did grant mother, as sole custodian, exclusive control over a $138,000 educational fund, with leave to use a portion of the fund for pre-college education for the children.
The parties had also retained the services of a nanny during the marriage to care for the children. The trial court made no findings as to child care but concluded that the child support obligation would not include the cost of a nanny.
I.
Mother first contends that the trial court erred in determining that, because the children did not have a learning disability or special educational needs, the cost of private school would not be included in the calculation of child support. We agree.
For the purposes of calculating child support, any reasonable and necessary expenses for attending any special or private elementary or secondary school to meet the "particular educational needs" of the child are to be divided between the parents in proportion to their adjusted gross income. Section 14-10-115(13)(a)(I), C.R.S. (1987 Repl.Vol. 6B).
The trial court interpreted this statute as requiring the presence of a learning disability or other special need before the cost of private school can be awarded as an element of child support. Viewing the statute as a whole, we disagree with this interpretation.
Under § 14-10-115(1)(c), C.R.S. (1987 Repl.Vol. 6B), the trial court must consider, when calculating child support, the standard of living the child would have enjoyed had the marriage not been dissolved. In this context, the means of meeting the "particular educational needs" of a child are not limited to providing private schooling only when a child has a learning disability or otherwise qualifies for a program of special education.
Here, the record indicates that both children had been attending the private school for a number of years before the dissolution of the marriage. That factor may properly be considered by the trial court in determining whether continuing enrollment at the school therefore meets the children's particular educational needs. See, e.g., In re Marriage of Alexander, 231 Ill.App.3d 950, 173 Ill. Dec. 456, 596 N.E.2d 1335 (1992).
Because the trial court employed too narrow a standard in determining that the cost of private school should not be included in child support, the child support award cannot stand and the matter must be remanded with directions that the trial court reconsider the *266 propriety of including the cost of such schooling under the standard we have set forth. On remand, the trial court may consider the potential availability of the $138,000 educational fund in determining whether and to what extent the costs of the private school should be included in child support. See In re Marriage of Barrett, 797 P.2d 848 (Colo. App.1990).
II.
Mother also contends that the decision to exclude from child support the cost of a nanny for the younger child is erroneous. We agree that a remand is necessary on this issue.
Child care costs are includable in child support if they are a result of employment or job search of either parent and do not exceed the level required to provide quality care from a licensed source. Section 14-10-115(11), C.R.S. (1987 Repl.Vol. 6B). The guidelines establish a rebuttable presumption that, if these requirements are met, child care costs are to be added to the child support obligation. See § 14-10-115(3)(a), C.R.S. (1994 Cum.Supp.); In re Marriage of Miller, 790 P.2d 890 (Colo.App.1990). However, if the court deviates from the guidelines, then the deviation must be supported by specific findings. Section 14-10-115(3)(a); In re Marriage of English, 757 P.2d 1130 (Colo.App.1988).
Here, the trial court did not make findings to justify its deviation. On remand, the trial court is directed to reconsider the child care costs under the standard set forth in § 14-10-115(11) and, if necessary, to make findings to support any deviation from the presumptive guidelines.
The order awarding child support is reversed, and the cause is remanded to the trial court for further proceedings consistent with the views expressed in this opinion. Pending the entry of a new support order, the present order shall remain in full effect.
METZGER and CRISWELL, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2623180/ | 33 Kan. App. 2d 369 (2004)
102 P.3d 1169
STEVE L. LYONS, Appellee,
v.
IBP, INC., Appellant.
No. 92,189.
Court of Appeals of Kansas.
Opinion filed December 17, 2004.
Douglas M. Greenwald and Gregory D. Worth, of McAnany, Van Cleave & Phillips, P.A., of Kansas City, for appellant.
Judy A. Pope, of Dickson & Pope, P.A., of Topeka, for appellee.
Before HILL, P.J., MARQUARDT and JOHNSON, JJ.
*370 JOHNSON, J.:
IBP, Inc. appeals the Workers Compensation Board (Board) order affirming the administrative law judge's award granting workers compensation benefits to Steve L. Lyons. Specifically, IBP appeals the determination that Lyons was permanently and totally disabled and the denial of any credit or offset for preexisting functional impairment. We affirm.
Previous Injury
Lyons first experienced a work-related cervical spine injury on June 13, 1990, while employed at the Bunge Corporation. As a result of that injury, he had an anterior cervical discectomy at C5-6. Eventually, Lyons returned to full-time work, without restrictions. On October 21, 1991, Dr. James I. Horsely found a total impairment to the person of 34 percent using the American Medical Association Guides to the Evaluation of Permanent Impairment (AMA Guides).
Current Injury
In November 1998, Lyons went to work for IBP, Inc. on its special projects crew; his job duties included "design, fabrication, installation of new equipment, or the reconstruction of old equipment." On July 10, 1999, while lifting equipment, Lyons experienced pains through his arms, shoulder, down his back, across the buttocks, and the left leg. That same day, Lyons reported the injury to a supervisor and went to the emergency room.
IBP sent Lyons to see Dr. J. Rob Hutchison, who initially reported finding "low back pain with radiculopathy." The doctor ordered a CT scan, prescribed medications, and kept Lyons off of work. The CT scan revealed a bulging in the L4-L5 area and evidence of spinal stenosis, prompting Dr. Hutchison to refer Lyons *371 to an orthopedic surgeon, to impose work restrictions, and to refer Lyons to physical therapy.
Dr. William O. Reed, Jr., who is board certified in orthopedic surgery with a separate certificate in surgery of the upper extremity, assumed Lyon's treatment on August 9, 1999. At the initial visit, Lyons complained of "pain in the lower back and the left leg pain radiating in a total sonic distribution of the entire posterior half of his leg." Dr. Reed was concerned about Lyons' long tract signs, which he described as abnormal reflexes in the lower extremity caused by traumatic or disease-related abnormalities of the motor nerves. Dr. Reed then ordered a series of MRIs. Lyons also complained of pain in his left shoulder, and Dr. Reed evaluated the shoulder at the same time that he treated the cervical condition.
The tests revealed a herniated disc at C4-5, which the doctor attributed to the July 1999 injury at IBP. Dr. Reed also reported that the herniated disc was overlying preexisting degenerative disc disease at C4-5 and that "furthermore was made somewhat more likely to occur statistically based upon the previous fusion accomplished at C5-6." Because the herniated disc was causing severe stenosis of the spinal canal, Dr. Reed performed anterior discectomy and fusion at C4-5 on October 3, 1999. This is the same procedure that Lyons had for his previous injury at the C5-6 level.
Dr. Reed continued to attend Lyons for postoperative care, during which Lyons was experiencing discomfort in his neck and lower extremities. Dr. Reed ordered a cervical myelogram and CT scan done on October 20, 1999, and in December 1999, Lyons reported abnormal reflexes, weakness, and instability (clonus). Dr. Reed was unable to determine whether these symptoms were due to an increase in long tract signs or to recovery with accompanying swelling.
On February 17, 2000, Dr. Reed performed an arthroscopic evaluation and decompression and rotator cuff repair on Lyons' left shoulder. Dr. Reed was unable to determine what caused the rotator cuff tear, nor was he able to temporally relate the tear.
On March 2, 2000, Lyons complained to Dr. Reed that he was experiencing sharp pains, deterioration in his gait while walking, and arm weakness. A neurologist who saw Lyons raised the possibility *372 that syrinx of the cervical spine was causing Lyons' progressive symptoms. Dr. Reed ordered an MRI, which did not reveal any problems except for spinal stenosis at C3-4 that had already been noted. An MRI of the shoulder revealed a possible full thickness rotator cuff tear, which was repaired by Dr. Reed.
On April 17, 2000, Dr. Reed completed a form letter for IBP, stating that Lyons had reached maximum medical improvement for his neck and back. By June 2000, Dr. Reed reported that the therapy and attention was being directed to the recovery of the rotator cuff tear. Lyons returned to Dr. Reed on February 1, 2001, complaining of a gradual deterioration in control of his upper and lower extremities. Dr. Reed ordered a series of MRI and EMG studies, which revealed a new herniated disc at C5-6, but there was no new radicular disease. Abnormalities in the biceps, deltoid, triceps, brachioradialis, and flexor carpi ulnaris in both upper extremities were disclosed by the EMG test. Dr. Reed discovered that the level of the new herniation had been mislabeled and it was actually at C6-7.
Dr. Reed testified that the work-related injury could have weakened the disc and, because of the fusion at the adjacent level, the increased loads could have caused the disc to fail. In trying to determine whether the C6-7 herniation was more related to Lyons' injury in 1990 to the C5-6 level or to his injury in 1999 that involved C4-5, Dr. Reed opined that "the temporal relation is that the C6-7 disc is more likely due to the contribution from a second level fusion at C4-5 than from the single-level fusion at C5-6. But, again, that is a statistical statement." Dr. Reed noted that Lyons had been without a herniated disc at C6-7 for a considerable period of time after the first fusion performed in 1990.
The C6-7 herniation became progressive, requiring an anterior cervical discectomy and fusion on November 20, 2001. The next month, Dr. Reed ordered another MRI because Lyons complained that his condition had worsened. There were no specific abnormalities found.
Lyons continued to exhibit long tract signs, which Dr. Reed reported had worsened through the process of decompression. Because Lyons' long tract signs were similar to a spinal cord injured *373 patient, Dr. Reed referred Lyons to Dr. Simon, a physiatrist, to manage Lyons' difficulties with upper extremity and lower extremity spasticity.
On September 9, 2002, Dr. Reed determined that Lyons had reached maximum medical improvement. On March 27, 2003, Dr. Reed wrote a letter for IBP, detailing his opinion as to the nature and extent of Lyons' functional impairment. Dr. Reed testified that Lyons' rating using the AMA Guides is very complicated. He rated Lyons with 55 percent whole body impairment, if the rotator cuff injury is not included, and 59 percent whole body impairment with the rotator cuff injury included. The ratings included prior injuries.
During the deposition, Dr. Reed stated that he believed Lyons was employable, in general. His recommended permanent work restrictions were: sedentary occupation, no lifting over 10 pounds, frequent ambulation would be difficult due to spasticity, and repetitive and accurate dexterous motions and movements of the upper extremities would be difficult also due to spasticity. Dr. Reed also testified that Lyons' condition had not objectively worsened since the last surgery, in contrast to the result of the first spinal cord surgery.
Dr. Sergio Delgado, an orthopedic surgeon, was appointed to evaluate Lyons, and his initial report, dated December 2002, was based on Lyons' then current medical records and physical evaluation. The doctor later reviewed Lyons' medical records from his 1990 injury and wrote an addendum to his report. Dr. Delgado reported that most of the findings and complaints are related to the work injury and operative procedures. He did not believe that Lyons could participate in either active or sedentary work over an 8-hour period in the future. Yet, Dr. Delgado also testified that, if accommodated, Lyons could mow grass with a riding lawn mower or be a ticket taker at a theater. Dr. Delgado said Lyons had the ability to perform some type of substantial employment, with accommodation, but expressed doubts that Lyons could be significantly productive in a permanent 8-hour job. He reported that Lyons' condition is currently static.
Dr. Delgado reported that a review of the earlier medical records showed that Lyons exhibited long tract signs in 1990-91, after *374 his 1990 injury, and that once the condition stabilizes, the long tract signs will not progress without additional trauma. He did not believe that Lyons would have encountered problems at C4-5, 10 years after the 1990 injury, without the trauma of the July 1999 injury. Dr. Delgado said that he did not know whether the last C6-7 herniation was related to the 1999 work injury. He stated that it could have been present but never surgically treated, or it could be a separate herniation from trauma or from increased mobility due to the C4-5 and C5-6 fusions.
Dr. Delgado rated Lyons with 69 percent whole person impairment, including his 1990 injury based on the AMA Guides. Based on information from Lyons about the earlier injury, Dr. Delgado assigned 15 percent whole body to the earlier injury, making 54 percent of his whole body impairment due to the 1999 injury.
Dr. Delgado also testified that after reviewing the earlier treatment records, if Lyons' long tract signs had persisted, then the 34 percent impairment rating that he had been given at the time would be appropriate. The record is not clear about whether long tract symptoms persisted. Lyons worked full duty at IBP until his July 1999 injury.
Work at IBP since injury
Following the July 10, 1999, injury, Lyons worked in the IBP laundry on light duty July 22-26, 1999. He returned to the laundry on light duty July 29 to August 13, 1999. He then was moved to belt wiping or monitoring from August 13 to August 30, 1999. Lyons returned to regular duty August 30 to September 6, 1999. The complex manager testified that his records did not indicate whether Lyons was performing all of his duties, but he surmised that Lyons was probably working with restrictions. Lyons began a leave of absence in mid-September 1999; he has not worked anywhere since that time. Currently, Lyons is receiving Social Security disability.
Vocational Evaluations
Lyons participated in vocational evaluations with Dick Santner, hired by Lyons, and Steve Benjamin, hired by IBP. After interviewing *375 Lyons and reviewing his medical record, Santner developed a task list and report. Considering Lyons' work history and educational background, Santner did not believe that Lyons was employable in the open labor market.
Benjamin also reviewed Lyons' medical record and interviewed him to develop a task list and report. Benjamin determined that Lyons should complete a 2-year associate's degree in computer-aided drafting in light of the fact that he had done some work in that area in the past. If he did not get the education, Benjamin believed that Lyons could get an unskilled sedentary job, such as ticket taker or telephone operator.
Workers Compensation Benefits
In an order filed February 16, 2000, Lyons was awarded medical treatment and temporary total disability compensation, commencing September 13, 1999. Lyons was granted medical treatment with Dr. Reed, including shoulder surgery, in an order filed May 23, 2000. In an order filed August 24, 2000, the administrative law judge ruled that Lyons' benefits were not subject to child support withholding and that there had been an underpayment of temporary total benefits. In an appeal of this order, the Board reversed the decision regarding child support withholding.
Lyons' application for additional temporary total compensation was denied on January 19, 2001. The order stated Lyons was offered accommodated employment and refused it. Temporary total disability commencing June 28, 2001, and medical treatment for surgery at C6-7 was granted in an order filed October 3, 2001. This decision was appealed, and the Board affirmed the order. Lyons was ordered to an independent medical evaluation on October 18, 2002.
On August 6, 2003, the administrative law judge awarded Lyons 118 weeks of temporary total disability and permanent total disability. Additionally, Lyons was entitled to future medical care upon application and review. The administrative law judge denied a credit under K.S.A. 44-501(c), because the statute was not applicable under a finding of permanent total disability.
*376 IBP appealed the award. The Board adopted the stipulations listed in the award. The Board modified the number of weeks for the temporary total disability compensation, but otherwise adopted the administrative law judge's findings. IBP timely appeals this decision.
DEFINITION OF PERMANENT AND TOTAL DISABILITY
First, IBP contends that the Board applied an incorrect definition of permanent total disability, which resulted in a lesser standard than that required by the current version of the Workers Compensation Act. To the extent the question involves statutory interpretation, our review is unlimited, albeit we give due consideration to the Board's interpretation. Neal v. Hy-Vee, Inc., 277 Kan. 1, 11, 81 P.3d 425 (2003).
The Board stated that "[a]n injured worker is permanently and totally disabled when rendered `essentially and realistically unemployable,'" citing to Wardlow v. ANR Freight Systems, 19 Kan. App. 2d 110, 872 P.2d 299 (1993). IBP contends that Wardlow was wrongly decided because it relied on a construction preference in favor of the claimant, which had been legislatively eliminated some 6 years before the decision. The argument isolates the following language from the opinion:
"Our Supreme Court has stated that `when a workers' compensation statute is subject to more than one interpretation, it must be construed in favor of the worker if such construction is compatible with legislative intent.' Houston v. Kansas Highway Patrol, 238 Kan. 192, 195, 708 P.2d 533 (1985), overruled on other grounds Murphy v. IBP, Inc., 240 Kan. 141, 727 P.2d 468 (1986). The trial court's finding that Wardlow is permanently and totally disabled because he is essentially and realistically unemployable is compatible with legislative intent." 19 Kan. App. 2d at 113.
Subsequent to the Houston decision, in 1987, the legislature adopted K.S.A. 44-501(g), which provides, in pertinent part, that "[t]he provisions of the workers compensation act shall be applied impartially to both employers and employees in cases arising thereunder." IBP argues that Wardlow's use of the judicially created worker preference construction rule violated the legislatively mandated *377 impartial application rule and, therefore, we must disregard Wardlow's interpretation of K.S.A. 44-510c(a)(2). We disagree.
K.S.A. 44-510c(a)(2) provides:
"Permanent total disability exists when the employee, on account of the injury, has been rendered completely and permanently incapable of engaging in any type of substantial and gainful employment. Loss of both eyes, both hands, both arms, both feet, or both legs, or any combination thereof, in the absence of proof to the contrary, shall constitute a permanent total disability. Substantially total paralysis, or incurable imbecility or insanity, resulting from injury independent of all other causes, shall constitute permanent total disability. In all other cases permanent total disability shall be determined in accordance with the facts." (Emphasis added.)
After discarding all of the Wardlow opinion, IBP proffers its interpretation of the statutory language, italicized above, by stringing together its definitions of the individual terms. Most notably, IBP argues that "substantial" simply means "consistent or regular" and that "gainful" simply means "employment for wages." Therefore, IBP contends the standard to be applied "is not `essentially' unemployable, but `completely and permanently' unemployable." The suggestion is that a seriously injured and disabled employee should not be deemed permanently and totally disabled if he or she can earn any amount of money on a regular basis, e.g. apparently, IBP believes that 1 hour a week for minimum wage or even 5 minutes once a month for a quarter would suffice to negate permanent total disability. IBP does not explain why such a Draconian standard would not violate its own proffered legislatively mandated application rule by being particularly favorable to employers. Regardless, with or without Wardlow, we would reject IBP's statutory interpretation as being contrary to legislative intent.
A full reading of Wardlow suggests that its ultimate holding did not depend on the application of a favorable construction rule. The opinion held that the determination of whether a claimant is permanently and totally disabled is a factual finding. 19 Kan. App. 2d at 112. That statement is supported by a plain reading of the last sentence of K.S.A. 44-510c(a)(2), directing that "disability shall be determined in accordance with the facts." The court then discussed the factors to be considered and approved a totality of the circumstances *378 approach. Ultimately, the court held that the "evidence provides a substantial basis of fact from which the trial court could reasonably find that Wardlow is `completely and permanently incapable of engaging in any type of substantial and gainful employment' under K.S.A. 1992 Supp. 44-510c(a)(2)." 19 Kan. App. 2d at 115. In other words, the opinion used the standard set forth in the statute, rather than substituting a lesser standard.
The Board correctly noted that "Wardlow still provides precedential guidance regarding what factors should be considered in the factual determination of what constitutes permanent and total disability." Its ruling that "essentially and realistically unemployable" is compatible with legislative intent, comports with the totality of circumstances approach to factually determining permanent total disability. The Board did not apply an improper legal standard.
SUBSTANTIAL COMPETENT EVIDENCE
IBP challenges the sufficiency of the evidence to support a finding that Lyons was permanently and totally disabled. The determination of whether the Board's findings of fact are supported by substantial competent evidence is a question of law, although the appellate court does not reweigh the evidence or determine witness credibility. Webber v. Automotive Controls Corp., 272 Kan. 700, 703, 35 P.3d 788 (2001).
The Board considered the significant impairment ratings given by both Dr. Reed and Dr. Delgado, Lyons' ongoing spasticity in both upper and lower extremities, and the opinions of Dr. Delgado and Santner on Lyons' ability to be employed, and arrived at the conclusion that Lyons cannot engage in substantial and gainful employment. In doing so, the Board specifically noted the opinions of Dr. Reed and Benjamin with regard to Lyons being able to do sedentary work, at least on a part-time basis. Cf. Wardlow, 19 Kan. App. 2d at 115 (existence of evidence that Wardlow can perform part-time, sedentary-type work does not invalidate factual findings below). The Board specifically found that Dr. Delgado and Santner were more realistic in recognizing Lyons' condition and significant impairments and, thus, were more persuasive.
*379 "`Summarizing, the Board reviews questions of law and fact. The appellate court reviews questions of law. Whether a decision is supported by substantial competent evidence is a question of law. The appellate court does not reweigh the evidence or determine the credibility of the witnesses.'" Webber, 272 Kan. at 704 (quoting Griffin v. Dale Willey Pontiac-Cadillac-GMC Truck, Inc., 268 Kan. 33, 35, 991 P.2d 406 [1999]).
The Board's decision was supported by substantial competent evidence.
CREDIT OR OFFSET FOR PRIOR FUNCTIONAL IMPAIRMENT
IBP claims the Board erred in refusing to reduce Lyons' award by the amount of preexisting functional impairment. As noted above, to the extent the issue involves the Board's factual findings, our review is for substantial competent evidence; to the extent the issue requires a statutory interpretation, our review is unlimited.
IBP bases its argument on K.S.A. 44-501(c), which provides:
"The employee shall not be entitled to recover for the aggravation of a preexisting condition, except to the extent that the work-related injury causes increased disability. Any award of compensation shall be reduced by the amount of functional impairment determined to be preexisting."
At oral argument, appellant conceded that if we agreed with the Board that the current injury was not an aggravation of a preexisting condition then our inquiry is over; IBP loses. The Board's negative finding that IBP "failed to establish that claimant's current injuries aggravated this preexisting condition [at C5-6]" is supported by the evidence as a whole and will not be disturbed on appeal, "absent an arbitrary disregard of undisputed evidence or some extrinsic consideration such as bias, passion, or prejudice." Nance v. Harvey County, 263 Kan. 542, 551, 952 P.2d 411 (1997).
IBP points to Dr. Delgado's testimony that he would attribute 15% of the 69% cervical functional impairment to the earlier injury to C5-6. However, other testimony indicated that the old injury to C5-6 was separate and distinct; the evidence was not undisputed that the current injury aggravated the preexisting condition. After the initial injury in 1990, Lyons went back to work full-time, doing *380 hard manual labor without restrictions for nearly a decade before suffering the July 1999 injury.
IBP cites to cases applying K.S.A. 44-501(c) to awards of permanent partial disability. No mention is made of K.S.A. 44-510a, which provides:
"If an employee has received compensation or if compensation is collectible under the laws of this state or any other state or under any federal law which provides compensation for personal injury by accident arising out of and in the course of employment as provided in the workers compensation act, and suffers a later injury, compensation payable for any permanent total or partial disability for such later injury shall be reduced, as provided in subsection (b) of this section, by the percentage of contribution that the prior disability contributes to the overall disability following the later injury. The reduction shall be made only if the resulting permanent total or partial disability was contributed to by a prior disability and if compensation was actually paid or is collectible for such prior disability. Any reduction shall be limited to those weeks for which compensation was paid or is collectible for such prior disability and which are subsequent to the date of the later injury. The reduction shall terminate on the date the compensation for the prior disability terminates or, if such compensation was settled by lump-sum award, would have terminated if paid weekly under such award and compensation for any week due after this date shall be paid at the unreduced rate. Such reduction shall not apply to temporary total disability, nor shall it apply to compensation for medical treatment." (Emphasis added.)
Lyons settled his first injury claim on January 16, 1991, for $35,249.71. Although the record does not clearly indicate Lyons' weekly wage at the time, the prior permanent partial disability award appears to have terminated by the date of the second injury in July 1999. Thus, under K.S.A. 44-510a, no reduction in the permanent total disability would be warranted.
IBP separately briefs a claim that denying a reduction in the permanent total disability effects a windfall to Lyons. First, we question the propriety of our considering this policy argument, which is more properly within the ambit of the legislature. The Board did not address whether the two awards effected a windfall. However, "a previous disability rating should not affect the right to a subsequent award for permanent disability." Baxter v. L.T. Walls Constr. Co., 241 Kan. 588, 593, 738 P.2d 445 (1987). As Baxter points out, K.S.A. 44-510a provides the method to reduce later awards if there is an overlap in the compensation, and a permanent *381 partial disability award is intended to substitute for lost earning power so that once the award is made, the earning power is considered restored. 241 Kan. at 593.
In summary, the Board did not find that the July 1999 injury aggravated the 1990 injury; the compensation for the 1999 injury did not overlap the prior award; and the Board did not err in refusing to reduce or offset the current award.
Affirmed. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2608432/ | 432 P.2d 394 (1967)
78 N.M. 429
STATE of New Mexico, Plaintiff-Appellee,
v.
Rito CANALES, Defendant-Appellant.
No. 8230.
Supreme Court of New Mexico.
October 2, 1967.
*395 James F. Warden, Carlsbad, for appellant.
Boston E. Witt, Atty. Gen., Gary O'Dowd, Asst. Atty. Gen., Santa Fe, for appellee.
OPINION
NOBLE, Justice.
Rito Canales, sentenced to not less than three years in the penitentiary following his plea of guilty to second-degree murder, has appealed from the denial of relief under his Rule 93 motion.
The record discloses an order denying a request for the identical relief following a full and complete hearing on a motion for writ of coram nobis. The prisoner's motion, pursuant to Rule 93 (§ 21-1-1(93), N.M.S.A. 1953) attacking the judgment and sentence, was denied by the sentencing court on the ground that it constituted a second or successive motion seeking the same or similar relief.
Rule 93(d) (§ 21-1-1(93) (d), N.M.S.A. 1953) provides that: "The sentencing court shall not be required to entertain a second or successive motion for similar relief on behalf of the same prisoner." The question is thus presented whether a claim for post-conviction relief under Rule 93, upon the same grounds as a claim for such relief in a coram nobis proceeding, constitutes a second or successive motion for similar relief within the meaning of the rule. We conclude that it does.
Since Rule 93 was adopted from 28 U.S.C.A. § 2255, the interpretation placed on the federal statute by the federal courts "is persuasive of the meaning of the identical rule adopted by us." State v. Weddle, 77 N.M. 420, 423 P.2d 611.
The United States Supreme Court in Hill v. United States, 368 U.S. 424, 82 S. Ct. 468, 7 L. Ed. 2d 417, said, respecting the federal legislation:
"* * * it conclusively appears from the historic context in which § 2255 was enacted that the legislation was intended simply to provide in the sentencing court a remedy exactly commensurate with that which had previously been available by habeas corpus in the court of the district where the prisoner was confined."
In Sanders v. United States, 373 U.S. 1, 83 S. Ct. 1068, 10 L. Ed. 2d 148, the Supreme Court of the United States had before it the question whether an application for post-conviction relief under 28 U.S.C. § 2255, on the same ground as a prior application for the same relief by federal habeas corpus, invoked the discretion of the sentencing court under the provision that a second or successive motion need not be entertained. It was there said that:
"Controlling weight may be given to denial of a prior application for federal habeas corpus or § 2255 relief only if (1) *396 the same ground presented in the subsequent application was determined adversely to the applicant on the prior application, (2) the prior determination was on the merits, and (3) the ends of justice would not be served by reaching the merits of the subsequent application."
In Sanders, the court defined "ground" as:
"* * * simply a sufficient legal basis for granting the relief sought by the applicant. * * * In other words, identical grounds may often be proved by different factual allegations. So also, identical grounds may often be supported by different legal arguments, * * *."
Our Rule 93 was not intended to treat the problem of successive applications for post-conviction relief differently than under other available procedures. We can see no logical or practical basis for any distinction.
It should be noted that if doubts arise in particular cases as to whether the grounds in a subsequent application are different, they should be resolved in favor of the applicant.
A second or successive application may be refused only if the prior denial rested on an adjudication of the merits of the ground presented in the subsequent application. This means that an evidentiary hearing must have been held in the prior application if factual issues were raised and it was not denied on the basis that the files and records conclusively resolved those issues. Sanders v. United States, supra.
Furthermore, we point out that even if the prior application was rejected on the merits on the same ground, it is within the sound discretion of the court to permit a redetermination of those issues if the ends of justice would thereby be served. However, as was said in Sanders:
"* * * the burden is on the applicant to show that, although the ground of the new application was determined against him on the merits on a prior application, the ends of justice would be served by a redetermination of the ground."
The record before us in this case discloses that a full, fair and complete evidentiary hearing was granted to the prisoner at the prior proceeding seeking post-conviction relief. Our examination of the two petitions and of the record of the prior hearing convinces us that the grounds asserted in the present application are the same as those claimed and determined on the merits of the prior application. We find no abuse of the court's discretion in denying the present application upon the basis of a prior determination on the merits of the same grounds.
The order appealed from will be affirmed.
It is so ordered.
COMPTON, J., and HENSLEY, Jr., C.J., Ct. App., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2608434/ | 432 P.2d 98 (1967)
Dennis McLANE, Plaintiff and Respondent,
v.
FARMERS INSURANCE EXCHANGE, Defendant and Appellant.
No. 11248.
Supreme Court of Montana.
Submitted June 22, 1967.
Decided August 24, 1967.
Rehearing Denied October 18, 1967.
*99 Poore, Poore, McKenzie & Roth, Allen R. McKenzie (argued), Butte, for appellant.
McKeon & Brolin, John L. McKeon (argued), Anaconda, for respondent.
JAMES T. HARRISON, Chief Justice.
This is an appeal by the defendant from a judgment entered in the District Court of Deer Lodge County in favor of plaintiff in an action seeking recovery on an insurance policy.
The plaintiff had previously recovered a judgment against one Gerald Roberts as a result of an automobile collision caused by Roberts' negligence. Roberts had been issued an automobile liability insurance policy by the defendant prior to the collision. This suit was brought to recover on that insurance contract.
The policy was issued on May 22, 1964, for a period of six months. On June 7, 1964, Roberts was involved in the collision with the plaintiff. By at least the 17th of that month defendant acquired information that Roberts had not answered all the questions on the application for insurance truthfully. The defendant continued to accept premium payments from Roberts on June 18 and 23, 1964. Prior to June 30, 1964, the defendant paid other claims arising from the same accident. A suit against Roberts was brought by the plaintiff on June 24, 1964. On July 10, 1964, the defendant sent notice to Roberts declaring the insurance policy rescinded and void from the beginning because of the misrepresentations.
On July 22, 1964, plaintiff was granted judgment against Roberts and the next day brought this action against defendant to recover the amount of the judgment reduced to the amount of the insurance policy. The defendant counterclaimed against Roberts and on February 4, 1966, received a default judgment against him. The District Court gave judgment to the plaintiff stating the defendant could have cancelled under the terms of the policy or brought an action to rescind and since it did neither plaintiff could recover.
On this appeal defendant contends that the insurance policy was voidable because of the misrepresentations and that this would negate any coverage to Roberts from its inception. (Citing 89 A.L.R. 2d 1027.) Resolving that issue in favor of defendant, however, is not determinative in this case, since if the policy was voidable as defendant contends then another issue arises, that being: Was the conduct of the defendant after notice, and prior to the attempted rescission, such that it would amount to an implied waiver of its right to rescind? If so, the policy was in effect at the time of the accident and plaintiff could recover.
The defendant would have to meet the requirements of R.C.M. 1947, §§ 40-3713 and 13-905 to rescind. The defendant had a right to a reasonable time in which to investigate (Cannon v. Travelers Indemnity Co., 314 F.2d 657 (C.C.A. 8, 1963); Hesselberg v. Aetna Life Ins. Co., 75 F.2d 490 (C.C.A. 8, 1935) and upon discovering the facts entitling him to rescind he was required to act promptly to rescind. (R.C.M. 1947, § 13-905, subd. 1; Fontaine v. Lyng, 61 Mont. 590, 202 P. 1112; Restatement, Contracts, § 483; Williston on Contracts, § 1525). Defendant learned at least by June 17, 1964, that it might have a right to rescind because of the misrepresentations. After acquiring this knowledge it continued to act in a manner inconsistent with an election to rescind. It accepted premium payments and paid other claims arising out of the same accident. It was not until after the foregoing and the filing of plaintiff's suit against Roberts that the record shows any action on the part of the defendant to further investigate the misrepresentations or rescind. There was more than a mere passage of time. The defendant's affirmative acts were sufficient to show an implied waiver and thus the length of time between discovery and attempted recission is not material in this case. The defendant did *100 not meet the requirement that he promptly rescind and thus has waived his right to void the policy ab initio.
Defendant has pointed out the case of Travelers Indemnity Company v. Harris, 216 F. Supp. 420 (U.S.D.C.Mo.1961), in which a delay of 40 to 42 days after notice of the misrepresentation before rescission was found not to be a waiver. That case is distinguished from the present case in that the only affirmative act showing waiver was the commencement of the investigation of the accident, and the court found that was terminated within a reasonable time after notice.
Also cited by defendant is the case of Keys v. Pace, 358 Mich. 74, 99 N.W.2d 547, 553 (1959). That case is distinguished from the case at bar because in that case the insurance company did not have actual notice of the misrepresentations until after it had commenced defending the suit. The court in that case said "In fact, when actual knowledge was gained, the insurer was not slow to act, cancelling the policy ab initio and withdrawing its legal representation of the insured."
The defendant contends that the plaintiff can have no more rights in the policy than Roberts. (Fireman's Fund Indemnity Co. v. Kennedy, 97 F.2d 882 (C.C.A. 9, 1938)). Consequently, the defendant contends, its default judgment against Roberts determines the rights of the plaintiff to recover on the policy. However, the judgment against Roberts cannot affect the rights of the plaintiff for his rights vested prior to the attempted rescission. (45 C.J.S., Insurance, § 453) They vested either at the time of the accident or at the time of the implied waiver of the right to rescind. Exactly which of the two possible times this court need not decide. In either case Roberts and the defendant cannot do anything either in concert or through the failure of Roberts to defend to affect the rights of plaintiff after they vested. 45 C.J.S., Insurance, § 455a (2). Once there has been a waiver it could not be revoked as to the plaintiff without his consent. 45 C.J.S., Insurance, § 678. There can be a valid waiver as to the plaintiff even though Roberts has not defended his own possible rights. 45 C.J.S., Insurance, § 677.
The determination that the policy was effective until notice of rescission determines plaintiff's rights to recover. "Cancellation of an insurance policy for any cause whatsoever is always a serious matter, both for the insured and for the insurer * * *. Unless convinced that the trial court reached an impermissible conclusion thereon, this court will not reverse." Cannon v. Travelers Indemnity Co., 314 F.2d 657.
In Empire Fire and Marine Ins. Co. v. Goodman, 147 Mont. 396, 412 P.2d 569, the insurer brought a declaratory judgment action against its insured, and while our decision did not turn upon that point we did make reference to the fact that the district court, under its view of the law, had found that the plaintiff had alleged facts which in themselves denied the plaintiff the relief that it sought. In the instant cause the facts appearing in this record deny appellant the relief it seeks.
The judgment is affirmed.
MR. JUSTICES ADAIR, CASTLES and JOHN C. HARRISON concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2608438/ | 432 P.2d 489 (1967)
BORNEL, INC., a corporation, Appellant (Plaintiff below),
v.
CITY PRODUCTS CORPORATION, Appellee (Defendant below).
No. 3594
Supreme Court of Wyoming.
October 11, 1967.
*490 Arthur Kline, of Kline & Tilker, Cheyenne, for appellant.
James O. Wilson and Richard F. Pickett of Loomis, Lazear, Wilson & Pickett, Cheyenne, for appellee.
Before HARNSBERGER, C.J., and GRAY, McINTYRE, and PARKER, JJ.
Mr. Justice GRAY delivered the opinion of the court.
Plaintiff, as lessor, commenced an action against defendant, as lessee, seeking to recover rental due and to become due, together with other claimed charges, under a term lease. Defendant answered, denied liability, and moved for summary judgment. The motion was granted and plaintiff appeals from the judgment entered.
The record discloses that in May 1963 plaintiff, as developer of a shopping center at Cheyenne, Wyoming, identified as the "Wyo Plaza Shopping Center," entered into a lease with defendant covering certain premises located therein for a primary term of ten years and four months, said term commencing on October 1, 1963, in order to give plaintiff time to complete construction of the improvements upon the leased premises in keeping with the specifications called for by the lease. It was contemplated that the premises would be used for a "variety store" business under the name of "Ben Franklin," to be carried on by defendant or by the holder of a franchise contract entered into by defendant with some other person or entity. On or before July 16, 1963, defendant granted a franchise to four individuals by the name of Wells to operate a "Ben Franklin" store on the premises involved and on the date mentioned assigned the lease to its franchise holders. Unfortunately a copy of that assignment is not in the record but plaintiff admitted that such an assignment had been made, and in the absence of any claim to the contrary we must assume it was made on the form attached to the lease, which will later be described. In the meantime, however, the Wellses formed a corporation under the name of "Wells Enterprises, Inc.," of which they were the sole officers and directors, for the apparent purpose of taking over the franchise and operating the store. In its first annual report dated June 28, 1963, the corporation listed cash in the sum of $500 as its only asset. To accomplish their purpose of operating the store as a corporate entity rather than as individuals the Wellses, acting in concert with defendant, terminated their franchise and on November 11, 1963, reassigned the lease to defendant. Although a copy of such reassignment is not in the record it is shown that such a copy was served on plaintiff February 17, 1964. It is further shown that the defendant, on the same day the lease was reassigned, again assigned the lease to the corporation in keeping with a franchise granted by it to the corporation. Some two years later default occurred in the payment of rent and other charges, and the within action was commenced on February 15, 1966.
The crux of the dispute between the parties centers around the effect, if any, of *491 the assignments above described upon the liability of defendant as the original lessee. Consequently we turn to the express provisions of the lease that are of primary concern in determining the effect of the assignments.
The lease refers to the plaintiff as "Landlord" and to the defendant (Butler Brothers Division) as "Tenant." Article II(1) provides:
"That City Products Corporation may not intend permanently to own or operate the store to be located on the demised premises. Accordingly the Landlord specifically agrees that City Products Corporation shall have and is hereby given the unqualified right and privilege at its option of assigning this lease at any time with all the rights and obligations thereunder to an individual or person to whom City Products Corporation shall have issued its Franchise Contract, and that from and after the date of such assignment City Products Corporation shall forthwith be relieved of and from all liability or responsibility under this lease or any of its provisions. It is understood, however, that in the event of the termination, for any cause, of such Franchise Contract issued to such assignee, or upon termination of the Assignee's rights under this lease whether by default, failure to exercise option to renew or for whatever cause, City Products Corporation shall have the option of reassuming this lease together with all rights including the rights under this paragraph (1) and all obligations arising thereunder effective from and after the effective date of any such reassumption.
"It is further understood and agreed that any such assignment shall be made, with notice to the Landlord, upon the terms and conditions stated in the form of assignment attached hereto marked Exhibit C and by this reference made a part hereof, and that the respective rights of the Landlord, City Products Corporation, and the Assignee under such assignment shall be as specifically provided in such form of assignment, it being also expressly agreed that City Products Corporation's right to reassume shall and may not be prejudiced by failure of Landlord or Assignee to notify City Products Corporation of the happening of any event which shall give City Products Corporation an option to reassume hereunder."
The form of the assignment referred to above as Exhibit C, after reciting that defendant transfers all of its right, title and interest in the lease, provides in part:
"Notwithstanding any provision in said Lease to the contrary with respect to the term thereof, this assignment is made subject to, and the Assignee agrees to the condition that the term of said Lease and all rights to Assignee thereunder shall terminate in the event of and upon termination, for whatever cause, of the Franchise issued to assignee pursuant to Franchise Contract dated ______, 19__, or any renewal or extension thereof, between said Assignee, and BUTLER BROTHERS, provided, however, that if, upon termination of said Franchise, said BUTLER BROTHERS shall not exercise its option to reassume the obligations of the lease for the unexpired term thereof, as hereinafter provided, then and in that event said Assignee shall be and remain liable to perform the covenants of tenant under said Lease and shall be entitled to all rights and privileges thereunder, excepting only the right to conduct a business under the name "______ STORES" or any name similar thereto.
* * * * * *
"In the event of the termination of the term of the Lease by the termination of the Franchise Contract as hereinabove and in said Lease provided, or for any other cause including failure of assignee to exercise renewal options, if any, in said Lease contained, BUTLER BROTHERS shall have the option, by giving notice to the Landlord and Assignee within ninety (90) days after the date of termination of said Franchise Contract or of notice to it of the termination of Assignee's *492 rights under the Lease for any other cause, including failure to renew under the option provisions, if any, to reassume said Lease together with all rights and obligations thereunder for the balance of the term in said Lease provided, it being expressly understood that BUTLER BROTHERS shall be under no obligation to exercise such option or to reassume any of the obligations under said Lease."
Article III(c) provides:
"This lease and demise and the covenants and agreements herein contained shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns, except that the rights granted under paragraphs (l), (m), and (n) of Article II hereof, may be exercised only by City Products Corporation. No assignee or subtenant hereunder may further assign this lease or sublet the premises, with the single exception that any assignee may reassign this lease to City Products Corporation."
In support of its claim that the trial court erred in entering a summary judgment plaintiff contends, in substance, (a) that the provisions of Article III(c) prohibited defendant from reassigning the lease to the corporation and thus defendant, as assignee of the Wellses, was bound by the obligations of the lease, (b) that the defendant failed to exercise its option to reassume the lease after the first assignment and as a consequence the provisions of Article II(1) expressly granting the right to defendant to assign and relieve itself of liability were inoperative, and (c) that in any event the language of the lease clearly shows the intention of the parties to bind the defendant for the full term but that should this court disagree then plaintiff, because of ambiguity in the lease, was entitled to present extrinsic evidence disclosing such an intention.
Defendant counters with the contention that the provisions of the lease are clear and unambiguous and disclose the intention of the parties to grant to defendant the unqualified right at any time to relieve itself of liability under the lease by assignment to its franchise holder irrespective of whether or not defendant exercised its option to reassume the lease prior to a second assignment.
In giving our attention to the contentions of the parties let us first say with respect to plaintiff's contention (c) that in addition to the provisions of the lease set forth above we have examined with care the remaining complex and numerous provisions of the lease and the language therein used. We fail to discern, however, the ambiguity claimed by plaintiff that would warrant resort to extrinsic evidence in ascertaining the intention of the parties.
Consequently, in construing the lease and in determining the intention of the parties as gleaned from the language used, we turn primarily to the context of the lease as a whole, Ayres Jewelry Co. v. O. & S. Building, Wyo., 419 P.2d 628; Fuschs v. Goe, 62 Wyo. 134, 163 P.2d 783, 791, 166 A.L.R. 1329, keeping in mind "The situation of the parties when the contract was made, its subject-matter, and the purpose of its execution," Pacific-Wyoming Oil Co. v. Carter Oil Co., 31 Wyo. 314, 226 P. 193, 197, rehearing denied 31 Wyo. 452, 228 P. 284.
In so doing we are persuaded there is no merit in plaintiff's argument under (a) or (c) that under any eventuality the parties intended to bind defendant for the full term of the lease. A cursory reading of the clear and express provisions of the lease set forth above readily discloses an intention to the contrary and no grave inconsistency between those provisions and other provisions of the lease are apparent. Furthermore, even though some slight inconsistency might be implied, this court will not assume that the parties intended any such result. Covey v. Covey's Little America, Wyo., 378 P.2d 506, 511. As we view it the only reasonable interpretation which can be made of the lease as a whole is that the parties intended, in the ordinary course *493 of affairs, to substitute as tenant the assignee-franchise holder of the defendant with the exception that the assignee could not further assign other than to the defendant as provided in Article III(c).
Thus, had defendant within the 90-day period from November 11, 1963, served notice upon the plaintiff that it had exercised its option to reassume the lease from its first assignee, and had again assigned to the corporation, we doubt the case would be here. There was no claim below that the lease was otherwise in default at the time or that there was fraud, bad faith, or overreaching in either of the assignments.
What then is the result of defendant's failure to exercise its option to reassume the lease when the franchise to the Wellses was terminated and the lease reassigned to the defendant? Did such failure as a matter of law or under the contract reimpose liability upon the defendant for the payment of rent and other charges for the full term of the lease as plaintiff contends? We think not. The argument, though plausible, rests upon unfirm ground. For purposes of its argument plaintiff admits that there was privity of contract between plaintiff and the Wellses as a result of the first assignment with the exception of the rights afforded by Article II(1), which it says were personal covenants not running with the land and could be exercised only by the defendant. It is then advanced that the Wellses, not having received the benefit of assigning without further liability under the lease, could not by the assignment made to defendant confer such benefit upon the defendant and as a consequence the defendant could not relieve itself of liability for the full term without reassuming the lease and then exercising its rights under Article II(1).
For purposes here it will be assumed, as plaintiff agrees, that there was privity of contract, with the exception mentioned, between the Wellses and the plaintiff as a result of the first assignment. It will also be assumed plaintiff is correct in its assertion that the Wellses could assign only those rights that they possessed. The flaw in plaintiff's argument, however, that the defendant in taking such assignment became obligated for payment of rent for the full term, is simply this: There is nothing in the record to show that the defendant, as assignee, assumed the obligations of the lease. Under those circumstances there was no privity of contract between the plaintiff and defendant flowing from that assignment. The only relationship existing between them was privity of estate or in other words performance of the covenants of the lease running with the land of which the payment of rent was one. When the defendant assigned the lease to the corporation it discharged any further liability for the payment of rent and the other charges for which plaintiff sued.
The law in that respect is well settled. The rule is clearly stated in Leitch v. New York Cent. R. Co., 388 Ill. 236, 58 N.E.2d 16, 18-19, 155 A.L.R. 835:
"For example, it has long been the law of Illinois that if the assignee of a lease does not assume the obligations thereof, then, as between the original lessor and such assignee there is privity of estate but not privity of contract; and the assignee is liable for rent only while such privity of estate continues, and may terminate further liability by assigning the lease and going out of possession. On the other hand, if there is an assumption of the lease obligations, then privity of contract also results and the assignee cannot shake off his contractual liability by making an assignment or going out of possession. * * *"
See also Mohonk Realty Corporation v. Wise Shoe Stores, Inc., 2 Cir., 111 F.2d 287, 288, certiorari denied 311 U.S. 654, 61 S. Ct. 47, 85 L. Ed. 418; Edwards v. Altmayer, 31 Ala.App. 459, 18 So. 2d 471, 473; Bonfils v. McDonald, 84 Colo. 325, 270 P. 650, 654; Jenkins v. John Taylor Dry Goods Co., 352 Mo. 660, 179 S.W.2d 54, 58, 60; and Packard-Bamberger & Co. v. Maloof, 89 N.J. Super. 128, 214 A.2d 45, 46.
*494 Of course, it must be conceded that liability for payment of rent by the defendant did theoretically attach on November 11, 1963, when it took the assignment. Nevertheless, that liability ceased when defendant again, either simultaneously or on that same day, assigned the lease to the corporation. Consequently, and keeping in mind that the law absent a statutory or contractual provision knows no fractions of a day, the extent of defendant's liability to the plaintiff at best was in effect for one day only and any obligation thus accruing was assumed and apparently paid by the corporation.
For the reasons stated the judgment is affirmed.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2608442/ | 432 P.2d 525 (1967)
Jess G. BACHNER, d/b/a Fairbanks Aircraft Service, Petitioner,
v.
Al PEARSON, Tom Martin, Stanislaw Poborski and Leon Riley, Respondents.
No. 868.
Supreme Court of Alaska.
October 13, 1967.
*526 Charles E. Cole, Fairbanks, Roger G. Connor, Juneau, for petitioner.
Robert A. Parrish and Patrick E. Murphy, Fairbanks, for respondents.
Before NESBETT, C.J., and DIMOND and RABINOWITZ, JJ.
OPINION
DIMOND, Justice.
This is a personal injury action brought by respondents against petitioner in July 1963, involving the crash of petitioner's Piper Comanche airplane. The principal basis for respondents' claim is that petitioner was negligent in failing to properly inspect and maintain the airplane's muffler and exhaust system, and that as a result, carbon monoxide escaped into the cabin of the airplane asphyxiating the pilot, respondent Pearson, resulting in the crash.
Respondents made efforts to have the muffler and exhaust system of the airplane produced by petitioner for their inspection. On April 25, 1967 the court below found that petitioner's conduct in regard to the location and production of the muffler was contumacious of orders of the court and not in good faith, and entered the following order:
That all facts relating to the muffler and exhaust system of Piper Comanche aircraft PA 24-250, Ser. No. 24-1809, shall be and the same are taken to be established for the purposes of this action in accordance with the claims of the plaintiffs.
Petitioner asks us to review that order and vacate it. We have decided to grant review because we believe the order in question is of sufficient importance as to justify deviation from the normal appellate procedure by way of appeal.[1]
The court's order was made pursuant to Civil Rule 37(b) (2). That rule provides that if a party refuses to obey an order made under Civil Rule 34[2] to produce any document or other thing for inspection:
the court may make such orders in regard to the refusal as are just, and among others the following:
(a) An order that the matters regarding which the questions were asked, or the character or description of the thing or land, or the contents of the paper, or the physical or mental condition of the party, or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order * * *.
The question here is whether petitioner refused to obey an order made under Civil Rule 34 to produce the airplane muffler for respondents' inspection, so as to justify the court's order made under Civil Rule 37(b) (2) (a).
On March 15, 1966 respondents filed a motion to produce the muffler for inspection and examination. On March 22, 1966 petitioner filed a statement in response to the motion to produce which said:
Jess Bachner, an individual doing business under the name and style of Fairbanks Aircraft Service, has no objection to the entry of an Order directing him to produce the muff, muffler, exhaust and heat exchanger system but he has previously testified under oath in a deposition taken in this action, he does not now have in his possession the property sought *527 to be inspected and therefore cannot produce it.
Jess Bachner will produce any property in his possession, but does not want his failure to object to the motion to be taken as an acknowledgment of ability to produce the property mentioned in the motion.
On April 6, 1966, at a hearing on respondents' motion to produce, petitioner's counsel agreed that petitioner would produce an affidavit the following Friday in support of the showing made in support of his statement quoted above. Such an affidavit was never filed.
Our dissenting colleague points out that no "formal" order to produce was ever entered. That may be true. No such order appears in the record on review prepared by the clerk of the superior court at petitioner's request. But it is clear that it was petitioner's understanding that he had been ordered by the court to produce the muffler for inspection, whether such order could be characterized as "formal" or not. In April 1967 petitioner filed an affidavit in opposition to the motion previously filed by respondents which gave rise to the order being reviewed here. In such affidavit petitioner stated that "he knew he was under an order of the court to produce the muffler."
The question here is whether petitioner refused to obey such an order and whether the sanction imposed by the court below was justified. As mentioned above, petitioner made a statement on March 22, 1966 in response to respondents' motion to produce the muffler that he did not have it in his possession and therefore could not produce it. If these were the only facts involved, it would be questionable that the court could hold that petitioner had refused to obey the order to produce the muffler, so as to justify imposition of the sanction permitted by Civil Rule 37(b). But there were other facts to be considered by the court.
At a deposition taken on January 13, 1965 petitioner stated that he knew where the muffler was at that time and that it was in his possession. Affidavits of two witnesses filed in April 1967 show that petitioner had the muffler in his possession, and knew that it was in his possession, in June 1965. In December 1966, in response to a request for admissions directed to petitioner by respondents, petitioner stated that the muffler had been turned over to him by the C.A.B. or the F.A.A., that respondents had requested on several occasions that petitioner produce the muffler, and that petitioner was the last known person to have possession of the muffler.
In his affidavit filed in April 1967, petitioner stated that he had been notified in March 1967 by his counsel that an order had been entered requiring him to produce the muffler, and that "The first time that he was notified that a request that he produce the muffler was made was in March 1967, more than four years after the accident." That such a statement is true appears highly unlikely, in view of the fact that a year before in March 1966 petitioner had made a statement, directed to respondents' motion for an order of production, to the effect that he had no objection to the entry of such an order, but that he could not produce the muffler because it was not in his possession.
In addition, petitioner stated in his affidavit:
In response to interrogatories number 108 and 109, he did not respond to them immediately because he was searching for the muffler and wanted to wait until those efforts were exhausted before responding to them. He could easily have denied having any knowledge where the muffler was and rested on that denial thereafter, but he knew he was under an order of the court to produce the muffler and wanted to make a good faith effort to comply with it before responding to the interrogatory.
[Emphasis added.]
Such a statement is significant. The interrogatories mentioned were directed to petitioner *528 in December 1966.[3] If petitioner knew that he was under an order of the court to produce the muffler at the time he received the interrogatories in December 1966, then he knew of such order prior to March 1967, contrary to the statement contained in his April 1967 affidavit that he did not know of such an order until March 1967.
Moreover, petitioner was dilatory in responding to the interrogatories. In December 1966 the court allowed petitioner until February 1, 1967 to answer the interrogatories. They were not answered until April 19, 1967, after there had been filed respondents' motion which led to the entry of the order being reviewed here.
Finally, it was considered significant by the court below that with respect to the March 1966 motion to produce the muffler for inspection, petitioner never filed the affidavit in support of the showing that he did not have the muffler in his possession, although he agreed that he would produce such an affidavit in a few days after April 6, 1966.
In summary, petitioner's contention seems to be that he was not aware of the necessity of producing the muffler until March 1967, and that thereafter he conducted an intensive search and found the muffler on or about April 11, 1967 and was then willing to produce it. On the other hand, the record could very well indicate to the court below that petitioner knew of the necessity of producing the muffler at the latest in March 1966, but did not get around to actually producing it until over a year later in April 1967. In these circumstances, it would appear that the court below could conclude that petitioner's failure to do anything about complying with the requirement to produce the muffler between March 1966 and April 1967 constituted a "refusal to obey" an order of production within the meaning of Civil Rule 37 (b) (2).
In determining whether a party's actions constitute a refusal to obey an order to produce and whether the sanction expressly provided by Rule 37(b) (2) (a) should be imposed, the superior court's discretionary authority is involved. We will reverse only if we are convinced that there has been an abuse of discretion. We are not so convinced in this case. In the light of the events surrounding respondents' efforts to have petitioner's muffler produced for their inspection and examination, the court below could well have concluded that petitioner was recalcitrant and was not in good faith attempting to comply with what was required of him. We cannot say that the court had no justification for imposing the sanction that it did under Civil Rule 37(b)(2)(a).
The order of the superior court is affirmed.
RABINOWITZ, Justice (dissenting).
This petition for review concerns the appropriateness of discovery sanctions imposed pursuant to Civil Rule 37(b) (2) (a).[1]*529 In my view the record does not justify the harshness of the particular sanctions which the trial court entered against petitioner Bachner.[2]
On November 15, 1962, a Piper Comanche, which was owned by petitioner Bachner, d/b/a Fairbanks Aircraft Service, crashed. At the time the accident occurred the aircraft was piloted by respondent Pearson and respondents Martin, Poborski, and Riley were passengers.[3] In July and August of 1963, separate suits were commenced by respondents against petitioner for personal injuries sustained in the crash.[4]
Respondents based their causes of action upon negligence (including gross negligence) and breach of express and implied warranty theories. They alleged that due to petitioner's negligence and breach of warranties the pilot of the aircraft (respondent Pearson) "became asphyxiated by escape of carbon monoxide from the exhaust and heat exchanger system into the cabin of the airplane * * * causing the airplane to crash * * *." In part respondents specifically alleged that petitioner was negligent in that he failed to "properly inspect and maintain the exhaust and heat exchanger system in a safe condition." It was further alleged that petitioner breached express and implied warranties contained in the lease to the effect that the "aircraft and its muffler, exhaust and heat exchanger system were safe and fit for the purpose for which they were leased, intended and used."
The establishment-preclusion order which petitioner seeks to have us review was entered pursuant to Civil Rule 37(b) (2) [a].[5] I read this order as determining the liability aspects of respondents' causes of action against petitioner. The order (captioned judgment) reads in part as follows:
That all facts relating to the muffler and exhaust system of Piper Comanche aircraft PA 24-250, Ser. No. 24-1809, shall be and the same are taken to be established for the purposes of this action in accordance with the claim of the plaintiffs.[6]
My study of the record has convinced me that petitioner's conduct did not justify depriving him of his right to litigate the merits of the liability issues in these important cases. A chronological breakdown of the history of the litigation is essential to an explanation of my decision.
After the crash occurred in November of 1962, respondents' attorney assigned a private investigator to the case. On February 6, 1963, in the course of his investigation, respondents' investigator asked petitioner if he could examine the muffler. According to the investigator, he was then told by the petitioner that "he thought the muffler was in his dump and gave me permission to look through the dump." Respondents' investigator then searched the *530 area indicated by petitioner but was unable to locate the muffler. Upon informing petitioner of his unsuccessful quest, the investigator was told that "he [petitioner] guessed it was in the bottom of the Chena River." As previously mentioned, the record reflects that in July and August of 1963 respondents instituted separate suits against petitioner.
The next occurrence of importance in this litigation involves the taking of petitioner's deposition on January 13, 1965. It is of significance that this deposition was not taken until over a year and one-half after formal commencement of the law suits. During respondents' examination of petitioner, the following transpired:
Q Do you know where that muffler and muff is at the present time?
A Yes.
Q And where is it?
A I have it.
Q Do you have it in your possession?
A Yes.[7]
I believe that respondents' actions at this point in the case are particularly crucial to the proper resolution of the question now before this court. After gaining knowledge that the muffler and muff were in petitioner's possession, respondents failed to take any steps during the next year to obtain possession for inspection purposes.
In December of 1965 respondents again took petitioner's deposition. During this second interrogation, petitioner testified that he did not know the whereabouts of the muffler.[8] Then, on March 15, 1966, in respondents' separate suit against the Piper Aircraft Corporation, they moved for an order requiring petitioner, who was not a party to that litigation, to produce for inspection "the muff, muffler, exhaust and heat exchanger system which was attached to or a part of the Piper Comanche."[9] When the motion came on for hearing on April 6, 1966, petitioner's counsel informed the court that he had agreed with respondents' counsel "that I should produce an affidavit of Mr. Bachner stating that he did not have the cylinder which I am in the process of preparing." The record shows that no formal order was thereafter entered requiring petitioner to produce the muff, muffler, exhaust, and heat exchanger *531 system.[10] The record also establishes that no affidavit, as agreed upon by petitioner's counsel at the April 1966 hearing, was ever filed.[11]
Returning to the litigation at bar, the record shows that on December 19, 1966, petitioner was served with one hundred and twelve interrogatories.[12] In four of these interrogatories, petitioner was questioned as to his knowledge of the location of the muffler.[13] On March 16, 1967, respondents moved to strike petitioner's pleadings and to enter default. The basis of this motion was that petitioner "failed and refused to make discovery in accordance with the provisions of Rules 33, 34, 36, 37 and 38, and has failed to comply with the pretrial conference of this Court dated December 22, 1966, and the pretrial order of this Court." In his March 21, 1967, answers to these four interrogatories, petitioner said that they would be answered by a supplemental answer as the information sought by the interrogatories was "being obtained."[14] The motion to strike and enter default was denied on April 6, 1967.[15]
Thereafter, on April 11, 1967, petitioner's counsel notified counsel for respondents by letter that "the muffler and shroud which was on the Piper Comanche * * * on the date of the accident * * *" had been located.[16] On April 13, 1967, respondents again moved "to strike answer, enter judgment, and establish facts." Respondents grounded this second motion on the provisions of Civil Rule 37(b) (2) and petitioner's purported failure to answer the interrogatories relating to the muffler and the order of the court pertaining to the production of the muffler. On April 19, 1967, petitioner filed a document entitled "Supplemental Answers to Interrogatories."[17]
This second motion was granted by the superior court acting pursuant to Civil Rule 37(b) (2). Under the superior court's order *532 all facts relating to the muffler and exhaust system of the Piper were taken to be established "in accordance with the claims" of respondents. In his findings of fact the trial judge found that petitioner "intentionally made false statements under oath in contravention of the orders of this Court relating to the material facts arising out of the condition of the muffler * *." The trial court also found that petitioner's "conduct in regard to the location and production of this muffler was fraudulent and contumacious of the orders of this Court * * *."[18]
From a reading of the text of Civil Rule 37(b)(2), it is apparent that the sanctions there provided for do not come into play unless a party has refused to obey an order made under Rule 37(a).[19] In regard to the failure-to-answer-interrogatories underpinning of the superior court's establishment-preclusion order, I am of the opinion that support in the record is lacking. In short, respondents never obtained an order under subdivision (a) of Civil Rule 37 requiring petitioner to answer any specific interrogatories pertaining to the muffler and exhaust system of the aircraft in question. Absent any such order, Civil Rule 37 (b) (2) [a] and [b] establishment-preclusion sanctions are inapplicable.
As to the second ground for the court's order, namely, petitioner's asserted refusal to comply with the superior court's order to produce the muffler, I cannot find in the record any order of the superior court which required this of petitioner. Admittedly, respondents, in a separate case in which Piper Aircraft was the sole defendant, moved for an order requiring petitioner to produce the muffler. As a result of the motion, petitioner's counsel and counsel for respondents agreed that petitioner would file an affidavit that the muffler was not in petitioner's possession. The record shows that no such affidavit was filed by petitioner, although petitioner's attorney states this failure was due to his own oversight.
From the foregoing, I cannot discern the basis for the court's entry of a Civil Rule 37(b) (2) [a] establishment-preclusion order. There was never any order entered which required petitioner to answer particular interrogatories, nor was there any Civil Rule 37 order entered requiring petitioner to produce the muffler. In such circumstances I would hold that the imposition of sanctions under Civil Rule 37(b) (2) [a] are not authorized.
In addition to the foregoing, I am of the view that our opinion in Oaks v. Rojcewicz[20] requires reversal of the superior court's establishment-preclusion order. In that case we held that before Civil Rule 37(a) (2)[c] sanctions (dismissal of the party's cause of action) can be imposed *533 there must be a willful noncompliance with a production order. Assuming the existence of an order to produce the muffler, in my opinion the record fails to establish a willful refusal on petitioner's part to comply with such an order.
A reasonable inference from the record is that the discovery aspects of this litigation were accorded rather casual treatment by respective counsel from the very inception of this litigation in July and August of 1963. The total circumstances appearing in the record,[21] giving consideration to petitioner's conduct, the prejudice or lack of prejudice to respondents resulting from petitioner's discovery conduct, and the impact of petitioner's conduct on the progress of the litigation, do not justify the imposition of sanctions which prevented adjudication of the merits of the liability issues.[22] The trial date setting of this cause is still sufficiently advanced to permit adequate inspection and authentication of the muffler in question. Additionally, the trial court has ample authority to impose lesser sanctions against petitioner and petitioner's counsel for any delays and disruptions which have occurred in conjunction with discovery proceedings in this litigation.
For the foregoing reasons I would grant the petition for review, reverse the establishment-preclusion order, and remand the matter for imposition of less severe sanctions and for trial on the merits of the liability and damage issues.
NOTES
[1] Supreme Ct.R. 24(1).
[2] Civil Rule 34 provides in part:
Upon motion of any party showing good cause therefor and upon notice to all other parties, and subject to the provisions of Rule 30(b), the court in which an action is pending may
(1) order any party to produce and permit the inspection and copying or photographing, by or on behalf of the moving party, of any designated documents, papers, books, accounts, letters, photographs, objects, or tangible things, not privileged, which constitute or contain evidence relating to any of the matters within the scope of the examination permitted by Rule 26(b) and which are in his possession, custody or control * * *.
[3] The interrogatories referred to inquired of petitioner whether he had the muffler in his possession or knew of its location. Petitioner's answer was that the interrogatories would be answered by supplemental answer, and that the information required to answer such interrogatories was being obtained. On December 22, 1966, at a pre-trial conference, petitioner was given an extension of time until February 1, 1967 in which to answer the interrogatories. They were not answered until April 19, 1967.
[1] This rule of discovery provides that:
If a party * * * refuses to obey an order made under subdivision (a) of this rule requiring him to answer designated questions, or an order made under Rule 34 to produce any document or other thing for inspection * * * or to permit it to be done * * * the court may make such orders in regard to the refusal as are just, and among others the following:
[a] An order that the matters regarding which the questions were asked, or the character or description of the thing * * * or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order * * *.
[2] The matter comes before this court upon a petition for review. I am of the opinion that the superior court's order which is now questioned is of such importance to the just disposition of this litigation that review should be granted, pursuant to Rules 23 and 24, Rules of the Supreme Court of Alaska.
[3] Respondent Pearson had leased the plane from petitioner.
[4] These separate suits were subsequently consolidated and on February 15, 1967, a single consolidated amended complaint was filed on behalf of the respondents.
[5] Supra note 1.
[6] Although not required by our Rules of Civil Procedure, the trial judge filed findings of fact and conclusions of law pertaining to the Rule 37(b) (2) motion. In the conclusions of law, it is stated in part that:
1. Rule 37(b) (2) permits the Court to enter the orders requested by the plaintiffs.
* * * * *
3. That the conduct of defendant Bachner entitled the plaintiffs to an order:
(a) That all facts relating to the defective condition of said muffler should be ordered established.
[7] There is an affidavit on file from an insurance adjuster who was investigating on behalf of counsel for Piper Aircraft Corp. in connection with respondents' separate suit against this corporation. In this affidavit it is asserted that on June 2, 1965, in the presence of another adjuster he visited petitioner's business premises. In this affidavit it is also stated that:
He [petitioner] brought out a muffler which he indicated was the muffler in the 1960 Piper Comanche which had been in the accident on November 15, 1962. He indicated the engine of the 1960 Piper Comanche had been put in another aircraft and the hull had been sold for salvage or destroyed.
In the presence of Mr. Bachner we examined the muffler and obtained five Polaroid photographs.
[8] Petitioner answered that he had the muffler put away but "when a guy cleaned up he must have threw it out because I can't find it."
In conjunction with this December 17, 1965, deposition, petitioner was served with a subpoena duces tecum. Petitioner produced at the deposition all the items which were requested of him with the exception of the muffler.
[9] In response to the motion, petitioner filed a document captioned in part "Statement of Jess Bachner Directed To Motion To Produce." This statement reads in full as follows:
Jess Bachner, an individual doing business under the name and style of Fairbanks Aircraft Service, has no objection to the entry of an order directing him to produce the muff, muffler, exhaust and heat exchanger system but as he has previously testified under oath in a deposition taken in this action, he does not now have in his possession the property sought to be inspected and therefore cannot produce it.
Jess Bachner will produce any property in his possession, but does not want his failure to object to the motion to be taken as an acknowledgment of ability to produce the property mentioned in the motion.
[10] At the conclusion of the April 6, 1966, hearing, the court stated:
Very well. Upon agreement of counsel then, Mr. Bachner would produce an affidavit in support of the showing made by Mr. Bachner heretofore.
[11] Petitioner's counsel, Mr. Cole, states that this omission occurred through his oversight.
[12] Simultaneously, petitioner was served with thirty-two requests for admissions.
[13] Interrogatory number 108 reads:
Does the defendant, or any of the defendant's agents, employees or representatives have in their possession, or have any knowledge of the location of the muffler which was on Piper PA24-250 serial No. 24-1809 on November 15, 1962.
Interrogatory number 109 reads:
If so, state:
The name and address of such person.
Also pertinent are interrogatories numbered 73 and 74. In the first of these questions, petitioner was asked:
Does defendant now have in its possession or under its control any of the pieces or parts of this airplane?
In the second interrogatory petitioner was asked:
If so, set forth:
(a) A list of all such parts and pieces.
(b) The present location of each part and piece, and particularly any pieces of the cabin heat system, including the muff and muffler.
[14] A pretrial conference was held on December 22, 1966, and a pretrial order entered on February 6, 1967. By the terms of this order, petitioner was given an extension until February 1, 1967, in which to answer respondents' requests for admissions. Discovery was ordered completed thirty days prior to trial, and the case was given a May 1, 1967, trial date setting.
Petitioner also answered "yes" to interrogatory number 73 and to interrogatory number 74 replied, "This interrogatory will be answered by supplemental answer. This information is being obtained."
[15] The motion was denied by Superior Court Judge Everett W. Hepp.
[16] Petitioner's counsel also informed opposing counsel that he could examine and inspect the muffler and shroud at his office upon "reasonable notice."
[17] This document reads in its pertinent parts as follows:
Answer to Interrogatory No. 108. Yes.
Answer to Interrogatory No. 109. Jess G. Bachner, Fairbanks, Alaska. The actual possession of the muffler is now in possession of Charles E. Cole, Room 218, Lavery Building, Fairbanks, Alaska.
[18] Additionally, the trial court found that petitioner's conduct amounted to "an obstruction of justice in violation of the statutes of this State, and that discovery was not made in good faith."
[19] Civil Rule 37(a) reads in part:
If a party or other deponent refuses to answer any questions propounded upon oral examination, the examination shall be completed on other matters or adjourned, as the proponent of the question may prefer. Thereafter, on reasonable notice to all persons affected thereby, he may apply to the court in the judicial district where the deposition is taken for an order compelling an answer. Upon the refusal of a deponent to answer any interrogatory submitted under Rule 31 or upon the refusal of a party to answer any interrogatory submitted under Rule 33, the proponent of the question may on like notice make like application for such an order.
As to the necessity of an order requiring the recusant to make discovery before the court may enter a preclusion order, see Wembley, Inc. v. Diplomat Tie Co., 216 F. Supp. 565, 572-573 (D.Md. 1963).
[20] 409 P.2d 839 (Alaska 1966). Discretion of the trial court is involved here and under the test we articulated in Sanuita v. Hedberg, 404 P.2d 647, 650 (Alaska 1965), I am left with "the definite and firm conviction on the whole record that the judge had made a mistake" in entering the questioned establishment-preclusion order.
[21] I believe it also of significance to point out that the trial court entered its establishment-preclusion order without the benefit of demeanor evidence. In short, I fail to see how the trial court could have determined that, in December 1965 and March 1966 when petitioner stated he did not know the location of the muffler, he was acting in bad faith and/or lying.
[22] In Oaks v. Rojcewicz, 409 P.2d 839, 844 (Alaska 1966), we approved the following language which appeared in Syracuse Broadcasting Corp. v. Newhouse, 271 F.2d 910, 915 (2d Cir.1959):
Yet if we `are convinced that the court below has exceeded a proper discretion in that the order imposed was too strict or was unnecessary under the circumstances, we would be remiss in our duties if we did not set that order aside.'
In light of my decision I find it unnecessary to decide the constitutional implications of the order which was entered below. Compare Societe Internationale v. Rogers, 357 U.S. 197, 78 S. Ct. 1087, 2 L. Ed. 2d 1255 (1958); Hammond Packing Co. v. State of Arkansas, 212 U.S. 322, 29 S. Ct. 370, 53 L. Ed. 530 (1909); Hovey v. Elliott, 167 U.S. 409, 17 S. Ct. 841, 42 L. Ed. 215 (1897); Civil Rule 37 (b) (1); Note of Advisory Committee on Rules to Rule 37, Federal Rules of Civil Procedure. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2608443/ | 102 Ariz. 434 (1967)
432 P.2d 446
T. Ed PETERSON, Jr. and Nada Peterson, his wife, and H.H. Robinson and Carolyn H. Robinson, his wife, co-partners, doing business under the name and style of Peterson & Robinson Cotton Co., Appellants,
v.
The VALLEY NATIONAL BANK OF PHOENIX, a national banking association, Appellee.
No. 8328.
Supreme Court of Arizona. In Division.
September 29, 1967.
*437 D. Kelly Turner, Saipan, Mariana Islands, Lewis B. Moore, Jr., Scottsdale, for appellants.
Rawlins, Ellis, Burrus & Kiewit, Phoenix, for appellee.
LOCKWOOD, Justice:
This is an appeal from a judgment of the Superior Court, Maricopa County, in favor of the appellee, the Valley National Bank, the plaintiff below in an action to recover deficiencies due on eleven promissory notes given by appellants to the Bank. The appellants, T. Ed Peterson, Jr. and wife, and H.H. Robinson and wife, were co-partners, doing business under the name of the Peterson and Robinson Cotton Company. The notes in question were signed by the partnership in connection with a line of credit extended to it by the Bank, the partnership using the credit extended to help it engage in the cotton business.
This Court had previously reversed a summary judgment which had been granted in favor of the plaintiff, Bank, holding in Peterson v. Valley National Bank of Phoenix, 90 Ariz. 361, 368 P.2d 317 (1962) that a trial must be held in this action since material issues of fact had been raised by the pleadings. Trial by a jury was waived by both parties, and after the cause was tried before the court, a judgment was entered October 23, 1963, in favor of the Bank, in the amount of $52,280.16 plus interest at the rate of 8% from May 1, 1959, and attorney's fees.
In 1953, the Bank granted the defendant partnership a line of credit to help finance its cotton business. The line of credit provided that any outstanding indebtedness owed the Bank by the partnership was to be evidenced by promissory notes payable on demand, drawing interest at 5 1/4%, the interest to be paid monthly. It was agreed that the line of credit was to run for one year, and would expire on each July 31, at which time appellant's account was to be paid in full, and a new credit line applied for the following year. To secure this indebtedness, a pledge agreement was executed on January 8, 1953 between the parties, pledging to the Bank as collateral all cotton purchased by appellants, with the Bank holding all of the warehouse or gin yard receipts representing the cotton, and setting the extent of collateral to be maintained by the partnership at an amount equal in value to 115% of the outstanding indebtedness. The pledge agreement also granted a power of sale to the Bank, to apply to all collateral held by it, and further provided that the Bank had the power:
"* * * to sell, without any previous demand, or demand of performance, *438 upon the undersigned, and with or without notice to the undersigned, as its option, the whole or any part of said securities, either at public or private sale, or at broker's board, at its discretion and without any advertisement or notice of sale, and to deliver the same to the purchaser thereof; * * *."
and further provided:
"After deducting all legal and other costs, expenses, and charges, including attorney's fee, incurred in the collection, sale, delivery, or in the preservation of said property, or any part thereof, said Bank, or its assigns, shall apply the residue of the proceeds of such sale to the payment of all the aforesaid indebtedness and the interest thereon; * * *."
After 1953, the partnership was granted a new line of credit each year until July 31, 1958.
Appellants followed the procedure of depositing proceeds from the sale of cotton in the partnership's checking account with the Bank. When the appellants wanted to purchase cotton, and its account did not have sufficient funds, Robinson executed and delivered a promissory note to the Bank on behalf of the partnership, in exchange for a credit to the partnership's checking account equal to the amount loaned. The line of credit was similarly used by appellants to pay various charges in connection with this account, such as interest, bank charges, and storage and insurance costs.
On August 1, 1958, the day after the partnership's yearly credit line had expired, the partners owed the Bank $255,114.56 on outstanding promissory notes, secured by 1,525 bales of cotton, valued by the Bank at $276,482.56. By the Bank's method of valuation, the margin was $17,000 short of the required amount. The Bank then requested the appellant partnership to increase its margin and liquidate their cotton account, and in response the partners started selling their cotton. However, by September 22, 1958, the appellants still owed $255,553.96 to the Bank, and were approximately $55,000 deficient as to their margin. The Bank again requested additional margin, but was informed that the partners had no way of meeting the margin call. A deposit of $8,400 was the sole amount credited to the partnership's account during this period.
On September 29, 1958, the Bank wrote appellants that the line of credit had expired and that "we expect complete liquidation of your indebtedness to us not later than sixty days from date." Peterson and Robinson continued the sale of cotton, and proceeds from such sales were collected by the Bank and applied to the partnership's debt. On November 28, 1958, the appellants still owed the Bank $118,360.34, and 447 bales of cotton remained as collateral. An extension of time was granted by the Bank until January 15, 1959 to sell the remaining cotton, but the partnership was told that any cotton remaining unsold after that date would be taken over by the Bank and sold pursuant to the pledge agreement, and that they would be expected to pay any balance remaining. The remaining cotton was not sold, and on January 27, 1959, the appellants were notified that the Bank would proceed to sell the cotton without further notice to the partnership.
The Bank then took control over the cotton, and instructed Barnwell and Hayes, a cotton brokerage firm located in Memphis, Tennessee to display the cotton, contact other people in the trade about selling it, pick a favorable time for holding a sale, and take sealed bids on the entire lot and deliver the bids to the First National Bank of Memphis. On March 17, 1959, a sale of cotton was conducted, after the Bank was notified of the two bids received, and accepted the highest bid of thirty-one cents per pound.
The Bank later notified appellants of the sale and credited the proceeds on one of appellants' notes then due. A deficiency still existed, and the Bank brought suit for this amount, as evidenced by eleven promissory *439 notes, after the appellants refused to pay any further sums claiming that the price received at the sale was inadequate.
Appellants' first contention is that the trial court erred in finding that the demand for payment of the promissory notes had been made by the Bank in its letter of September 29, 1958, requesting complete liquidation of appellants' indebtedness within sixty days. It is not disputed that the notes were demand notes, but appellants contend that the letter was not sufficient to mature the notes since first the letter mentions indebtedness and not the notes themselves, and second, that seven of the notes involved in the suit were signed after the date of the Bank's letter.
When the demand for payment was effectively made is significant, since under the terms of the pledge agreement, nonpayment of either principal or interest due on the notes secured by the collateral allowed the Bank to resort to the power of sale in the pledge agreement, and sell the cotton pledged as collateral. As a general rule, notes payable on demand are due and payable immediately after execution, and no further demand is necessary to mature them. But an exception to this rule applies when the terms of the instrument disclose an intention by the parties that the notes would not become due and payable immediately after the time of delivery. Bank of Nevada v. United States, 251 F.2d 820 (9th Cir.1957), cert. den. 356 U.S. 938, 78 S. Ct. 780, 2 L. Ed. 2d 813; Blick v. Cockins, 131 Md. 625, 102 A. 1022 (1917). In such circumstances, an actual demand is necessary to mature the promissory notes. The terms of the notes in the present case provided one interest rate from the date of execution until maturity, and a higher rate of interest after maturity. This discloses a clear intention by the parties that the notes not be due and payable immediately. To hold otherwise would be inconsistent with the express terms of the note, and render these provisions meaningless.
We believe however, that an actual demand was made by the Bank as to the notes, and that the demand notes were mature before the March 17, 1959, sale of the pledged cotton. The Bank's letter in September 1958, calling for complete liquidation of appellant's indebtedness was sufficient to constitute a demand for payment of the promissory notes, as the notes were the primary evidence of the indebtedness owed the Bank. The appellants' line of credit had previously expired, so it was clear that this letter from the Bank was notice to appellants that payment was due, and gave them sixty days in which to sell the cotton and make such payment.
The fact that seven of the notes were signed after the Bank's first letter demanding payment does not show that no demand was made as to these notes. The notes were all executed on or before January 5, 1959. On December 8, 1958, the Bank had granted appellants an extension until January 15, 1959 to sell their cotton, but had notified them that if the collateral was not sold by that time, the Bank would take over the security and hold the appellants responsible for the deficiency. The partners failed to sell the cotton and pay off their indebtedness, and so on January 27, 1959, the Bank notified them by letter that it was proceeding pursuant to the pledge agreement to sell the cotton without further notice or demand. Thus, whether the demand in September 1958, made the seven notes in question due and payable when they were issued is immaterial, since the letter of January 27, 1959 clearly did so. Furthermore, the record discloses that these notes were not evidence of a new independent line of credit extended to appellants, but rather were issued to protect the Bank's interest in the pledged goods and loans already made. The notes evidenced loans made to pay freight charges in connection with selling the cotton, interest charges, overdrafts, and to pay for the return of fourteen bales of cotton which were rejected after being sold by the partnership.
The Bank was then justified in proceeding with the sale of the pledged *440 goods, as proper demand had been made to make the demand notes due and payable, and the appellants' indebtedness was not extinguished. The fact that the Bank treated interest as being paid on the notes until May 1, 1959, a date subsequent to the sale, does not require a holding that the notes were not due and in default at an earlier date. The failure by appellants to pay their indebtedness after repeated demand fully justified a finding that the principal amounts of the notes were in default before the sale of the pledged goods, irrespective of how interest payments were credited on the Bank's books.
Appellants next contend that the Bank, by its conduct, had waived its power under the pledge agreement, to sell the pledged cotton at a private sale without notice to the pledgor. The appellants claimed that when the bank sold the cotton, after first granting extensions of time, and failed to first notify Robinson of offers received, this amounted to a forfeiture of appellants' interest in the pledged goods without proper notice to reinstate this provision of the pledge agreement.
The Bank's right to sell the pledged cotton without notice, as expressed in the pledge agreement, could be waived by the acts or conduct of the pledgee-Bank. Wade v. Markwell & Co., 118 Cal. App. 2d 410, 258 P.2d 497, 37 A.L.R. 2d 1363 (1953); Toplitz v. Bauer, 161 N.Y. 325, 55 N.E. 1059 (1900); 72 C.J.S. Pledges § 59, p. 121.
When the Bank granted the previously mentioned extension until January 15, 1959, appellants were specifically told by the Bank's attorney that any cotton remaining unsold on that date would be taken over and sold by the Bank. Then on January 27, 1959, after no sales had been made, the Bank again notified them that it would proceed to sell the cotton without further notice.
The Bank could not have sold the cotton during the time extended to appellants, and to this extent the Bank waived strict compliance with the terms of the pledge agreement. However, the appellants were on notice that the cotton would be sold after the extension period expired, and nearly two months passed before the actual sale was made, certainly a reasonable time period for appellants to sell their cotton and redeem the pledged goods.
The appellants claim that one of the Bank's officials promised Robinson he would be notified of any offers the Bank received. The records show that this was denied by the Bank officials, so we cannot overturn the trial court's finding that no such agreement existed, there being sufficient evidence to support the finding. A sale of fifty bales of cotton by the appellants on March 5, 1959 in Breman, Germany, the proceeds of which were accepted by the Bank, is also relied on as conduct showing waiver. This cotton was part of a prior consignment sent to Germany, on which an earlier sale had fallen through. The Bank no longer exercised any control over this particular cotton as collateral, and merely accepting the proceeds did not waive the power of sale over the cotton it did control. Accordingly, we find that the conduct of the Bank during this period did not require any further notification on its part before selling the collateral.
The appellants further claim that the trial court committed error in finding that the pledgee sold the collateral security at a private sale rather than a public one. They argue that the Bank had chosen to sell at a public auction rather than a sale by "private negotiation", but had failed to meet the statutory requirements of a public sale.
Where the pledge agreement permitted either a public sale or private sale of the collateral pledged, as here, the Bank could not attempt a public sale of the cotton without conforming with statutory requirements for sale of such goods. United Bank & Trust v. Jones, 30 Ariz. 557, 249 P. 747 (1926). These requirements are set out in A.R.S. § 33-791, and the Bank's sale did not meet these public sale requirements, as no notice of the sale was given appellants before the sale was made. However, the statute does not forbid a private sale of the *441 pledged property without notice, if the parties so agree. Atlantic National Bank of Boston v. Korrick, 29 Ariz. 468, 242 P. 1009, 43 A.L.R. 1184 (1926).
The sale here by the Bank was clearly not an attempt to conduct a public sale of the pledged property. The most essential element of such a sale is that notice be given to the general public, so that they will be invited to attend and bid. Huntingdon Valley Trust Co. v. Norristown-Penn Trust Co., 329 Pa. 356, 196 A. 821 (1938); In re Nevada-Utah Mines & Smelters Corporation, 202 F. 126 (2nd Cir.1913). Here, the brokerage firm in Memphis notified only persons in the cotton trade who might be interested in purchasing the cotton. No attempt was made to advertise a sale through the newspapers, or to hold the sale in a public place, but rather sealed bids were required, which were opened in private offices, with no members of the public present. There was no attempt to hold a public auction, as contemplated by the statute.
If some notice of a sale is given, however, and bids are accepted, it does not automatically prevent the resulting sale from being a private one. An actual sale must take place, and must be conducted openly in order to be valid. Cole v. Manufacturers Trust Co., 164 Misc. 741, 299 N.Y.S. 418 (1937). To adopt the reasoning of the appellants here, a private sale would, by definition, take on the attributes of a secret or collusive transaction. We hold that the appellees actions were consistent with the conducting of a valid private sale and support the findings of the lower court on this issue.
The trial court also found that the Bank did not breach its fiduciary duty or act in bad faith either in conducting the sale of the cotton held as collateral, or in accepting the price received at the sale, finding such price to be fair and reasonable under the market conditions prevailing on the date of the sale, and that the Bank believed it was receiving the largest amount obtainable for the cotton. The appellants attack these findings, urging that the Bank did not act in good faith in both carrying out the sale and accepting thirty-one cents per pound as the sale price.
The pledgee definitely had a duty to act in good faith and with reasonable skill and diligence when it exercised its power of sale under the pledge agreement. But when the pledgor questions such good faith, the burden is on the pledgor to establish their contentions. Atlantic National Bank of Boston v. Korrick, supra. This the appellants have failed to do. The record is consistent with a finding that the Bank acted fairly and reasonably in conducting the sale, and with no collusion on its part with any other party. In fact, the appellants admit there was no collusion here, but vaguely refer to "strange" circumstances touching the sale.
We have established that it was not necessary for the Bank to notify appellants of the sale. Memphis was chosen because of its reputation as being one of the best locations in the country to sell smaller amounts of cotton. The appellants knew the sale was to take place there, so no secrecy was involved. An experienced brokerage firm was retained to sell the cotton. Notice was given to people in the trade of the availability of the cotton for sale, and samples were displayed in the offices of the cotton brokers. The fact many of the samples were low grade was justified since much of the cotton was of low quality. The method of accepting sealed bids was also used by the United States government in selling its cotton, and helped the Bank preserve a record of the sale. Bad faith on the Bank's part in conducting the sale cannot be inferred from these facts.
The appellants also contend that it was reversible error for the trial court to exclude evidence offered by appellants as to the value of the cotton at the time of the sale. These offers included evidence of the original cost of the cotton to the partnership, prior sales by the partnership, and purchase offers by third parties near the *442 date of the sale. Appellants sought to show that the actual value of the pledged goods was much higher than the price obtained by the Bank, and thus the Bank did not accept a fair and reasonable price for the collateral.
The evidence offered to prove valuation was properly excluded. The purchase price originally paid by the partnership was no longer relevant as to the value on the date of the sale, since it was purchased at least two years earlier, and fluctuations of the market price had occurred in the meantime. The question of whether such evidence is too remote in point of time is within the discretion of the trial court. Salter v. Leventhal, 337 Mass. 679, 151 N.E.2d 275 (1958); San Antonio Public Service Co. v. Murray, 59 S.W.2d 851 (Tex.Civ.App. 1933). The same reasoning applies to the prior sales, as they took place over a year before the March 17 sale.
The offers to purchase from third parties are properly excluded since offers to buy or sell personal property at a certain price are not admissible to prove the value of the property. Udall, Arizona Law of Evidence, § 120, p. 255. Stone v. Payne, 168 S.W.2d 503 (Tex.Civ.App. 1943). As stated in Atlantic National Bank of Boston v. Korrick, supra, market value is determined by actual sales.
There is every indication that the pledged cotton was sold by the Bank at a fair price, and not so inadequate as to suggest a fraudulent purpose. The Bank had previously estimated that the government loan price was close to the final sale price, the market for this type of cotton had been quite low, and a large amount of the cotton was of a very low grade. It was not shown that there were any other sales of this type of cotton near the date of the Bank's sale, and the Bank only accepted a bid after consulting with its agents in Memphis. Thus, the appellants have also failed to meet their burden of contesting the fairness of the price received by the Bank.
Finally, the appellants argue that when their answer to the Bank's complaint claimed offsetting credits, the action became one for an unliquidated claim, and interest should only have been allowed the Bank from the date of the judgment, and not from May 1, 1959. The promissory notes in question here provided that unpaid principal shall draw interest at the rate of 8% per annum from maturity until paid. A.R.S. § 44-1201 provides that a judgment entered on an agreement signed by the debtor providing for a rate of interest, not to exceed 8% per annum, shall include the agreed rate of interest. The notes here provided for 8% per year from the date of maturity until paid, so the judgment could include interest from that date rather than the date of judgment. The sum sought by the Bank here was of a liquidated claim, based on the promissory notes, and readily ascertainable. The claimed offset by appellants did not change its nature. Further, the appellants did not object to the item of interest included in the judgment, before it was signed in the lower court, so they cannot object to it on appeal. Southwest Mines Development Company v. Martignene, 49 Ariz. 88, 64 P.2d 1031 (1937).
Since we have found no reversible error in the trial court's findings of fact and conclusions of law, the judgment of the Superior Court is affirmed.
BERNSTEIN, C.J., and STRUCKMEYER, J., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1179507/ | 48 Cal. 3d 1194 (1989)
774 P.2d 698
259 Cal. Rptr. 669
THE PEOPLE, Plaintiff and Respondent,
v.
ROBERT M. BLOOM, JR., Defendant and Appellant. In re ROBERT M. BLOOM, JR., on Habeas Corpus.
Docket No. S004639. Crim. Nos. 23874, 25325.
Supreme Court of California.
June 26, 1989.
*1202 COUNSEL
Dennis P. Riordan, under appointment by the Supreme Court, and James S. Donnelly for Defendant and Appellant.
John K. Van de Kamp, Attorney General, Steve White, Chief Assistant Attorney General, Robert R. Anderson, Thomas L. Wilhite, Jr., and Robert C. Schneider, Deputy Attorneys General, for Plaintiff and Respondent.
OPINION
KAUFMAN, J.
Defendant Robert M. Bloom, Jr., appeals from a judgment imposing the death penalty following his conviction of three counts of first degree murder (Pen. Code, § 187; all further statutory references are to this code unless otherwise indicated), accompanied by multiple-murder special-circumstance findings (§ 190.2, subd. (a)(3)) and firearm-use findings (§ 12022.5) as to each count. Additionally, as to one count, the jury found *1203 that defendant personally used a dangerous weapon (scissors) to murder his victim. (§ 12022, former subd. (b) [now subd. (d)].) Defendant also has filed a related habeas corpus petition supplementing one of his appeal contentions. As will appear, we conclude that the judgment should be affirmed in its entirety, and the petition for writ of habeas corpus denied.
I. INTRODUCTION
Defendant was charged with murdering his father (Bloom, Sr.), stepmother (Mrs. Bloom) and eight-year-old stepsister (Sandra). Defendant, who was 18 years old when these offenses were committed, pleaded not guilty and, as to the murder of Sandra only, not guilty by reason of insanity. After the jury returned guilty verdicts on each count, defendant withdrew his insanity plea and moved to represent himself, with his attorney remaining in the case to advise and assist him. The court granted this motion. At the conclusion of the penalty phase, the jury returned a verdict for imposition of the death penalty.
Following an incident of violence in jail, defendant was relieved of his self-representation status and a hearing was held to determine his competence to cooperate with counsel. After a jury determined he was competent, defendant was again permitted to represent himself for the purpose of participating in the sentence modification proceedings (§ 190.4, subd. (e)). The trial court denied defendant's motion to modify sentence and sentenced him to death. This appeal is automatic. (§ 1239, subd. (b).)
II. GUILT PHASE FACTS
On April 22, 1982, at approximately 4:15 a.m., police officers found Bloom, Sr., shot to death, lying in the front doorway of his residence. Mrs. Bloom, also dead of gunshot wounds, was found on the floor of one of the bedrooms. Sandra, who had been both shot and stabbed, was found on the floor of another bedroom. The child was alive but in very bad condition. She was taken to a hospital where she died the next day without regaining consciousness. In statements to police and in testimony at trial, defendant admitted killing Bloom, Sr., but claimed he did so only after Bloom, Sr., had killed Mrs. Bloom. Defendant claimed memory loss for the time during which Sandra was killed.
A. The Prosecution's Case-in-chief.
Martin Medrano testified that on or about April 15, 1982, defendant asked Medrano to obtain a gun for him, offering to pay $400 to $500. Defendant said he already had a rifle but he wanted a handgun because it *1204 would be easier to conceal. Defendant said he needed the gun to kill someone, and that Medrano would read about it in the newspaper. Medrano agreed to obtain the gun but never did.
Ricardo Avila testified that he, like defendant, had been Christine Waller's boyfriend. At lunchtime on April 20, 1982, Avila went to defendant's place of employment to tell defendant his father was looking for him. Avila listened as defendant telephoned his father but remembered only defendant's concluding words: "You are running my life now but you won't be for long." At Waller's residence that evening, Avila heard the sound of five shots being fired in succession. The noise seemed to be coming from the back yard and was followed by the sound of the back door sliding. Going to investigate, Avila encountered defendant carrying a rifle partially concealed under his coat. Avila asked defendant what he was doing but defendant just told him to go away. Defendant entered Waller's brother's bedroom. Avila attempted to follow but defendant told him to stay out.
Waller testified that she was with defendant at her residence on the evening of April 20. Defendant went outside after telling her to remain in the house. Looking out a window, she observed defendant carrying a rifle and walking toward a field behind the house. Waller also testified that Bloom, Sr., constantly bullied and berated defendant, and that defendant tried to satisfy Bloom, Sr., but never seemed able to do so.
Raul Rosas testified that he was Waller's brother. In April 1982 he was no longer living at his mother's residence, where Waller lived, but frequently visited there. He had owned a.22-caliber semiautomatic rifle, which he sometimes kept behind a dresser in a bedroom at his mother's residence. He last saw it on or about April 15 in the trunk of his car. He frequently left his car keys on the bedroom dresser or the dining table at his mother's residence. When he looked in the trunk of his car on April 22, the rifle was gone.
Norma White testified that she is the mother of Waller and Rosas. In the two-week period before April 22, defendant slept at her residence four to six times. Defendant used Rosas's bedroom, at the far end of the house. White gave defendant permission to spend the night of April 21-22 at her residence. Defendant was still awake when she retired at 11:30 p.m. on April 21.
Dave Hughes testified he was sleeping in his van in the driveway of his mother's residence, next door to the residence of Bloom, Sr., when he was awakened about 4 a.m. on April 22. He heard Bloom, Sr., shout: "Robert, Robert. Come back." Bloom, Sr., was standing at the end of the driveway of *1205 his own residence. After shouting the same words again, Bloom, Sr., began running down the street. A short time later Bloom, Sr., returned with defendant and they entered the Bloom residence together. About three minutes later Hughes again observed Bloom, Sr., standing in the driveway and shouting for "Robert" to come back to the house. Hughes heard a small popping noise, which he recognized as a gunshot from a small caliber weapon, and saw Bloom, Sr., grab the lower portion of his body. As Bloom, Sr., trotted toward the front door of his residence, defendant came running toward him carrying a .22-caliber rifle. Defendant fired two more shots and there was a noise of breaking glass. Bloom, Sr., fell on his back in the doorway. Defendant fired two more shots at Bloom, Sr., as defendant stood directly over him. Defendant then ran into the house. Hughes heard a woman's wordless scream followed by two shots and then, after a brief pause, another shot. Hughes went into his mother's residence and telephoned the police. On his return to the van, Hughes saw defendant leave in a maroon Monte Carlo automobile which had been parked in the Blooms' driveway.
Some of these events were also witnessed by Moises Gameros, who lived across and down the street from the Bloom residence. Gameros testified he was in the bathroom of his residence at about 4 a.m. when he heard someone in the street yelling "Robert, Robert." Gameros saw defendant, holding a rifle, apparently being chased by Bloom, Sr. Defendant and Bloom, Sr., appeared to be arguing but Gameros could not make out the words until Bloom, Sr., in a loud voice, said: "That's it. I'm going to call the police." Bloom, Sr., then walked back to his residence with defendant following 25 feet behind. They both entered the residence, but a short time later defendant came out, followed by Bloom, Sr. Gameros heard a shot and saw Bloom, Sr., run screaming toward his house. Defendant was following 10 feet behind pointing the rifle at Bloom, Sr.'s back. Another shot sounded and Bloom, Sr., fell on the porch. Defendant pointed the rifle down and fired again. Defendant stood in that position for about a minute, during which he made hand motions as if reloading the rifle. Defendant then entered the house. Defendant came out after about five minutes and stood on the porch. After again going inside the residence for a short time, defendant placed the rifle in a car parked in the driveway and drove off in that car.
A police officer who arrived at the scene shortly after defendant's departure found the bodies of Bloom, Sr., and Mrs. Bloom, and critically wounded Sandra. Two bullet holes were found in the living room window, and .22-caliber cartridge casings and live rounds were found at various locations inside and outside the house. When Mrs. Bloom's body was moved, a bullet was found imbedded in the floor beneath her head. Scissors were found on *1206 the bed in the bedroom where Sandra was found; the sheets and blankets on this bed were stained with blood.
Defendant was found and arrested near Waller's house at approximately 4:30 a.m. Defendant was on foot. Later that morning defendant was observed singing and dancing in his cell. The maroon Monte Carlo, which was registered to Mrs. Bloom, was found one mile from Waller's residence, near a park and an abandoned dump; keys to this vehicle and to the Bloom residence were found in a wash area approximately 70 feet from the vehicle. Despite an intensive search, the rifle used by defendant to commit the murders was never found.
Bloom, Sr., was killed by gunshot wounds to the head, neck, and abdomen. Mrs. Bloom was killed by three shots to the head, entering at the left temporal scalp, the right side of the head, and the left upper back of the head. Sandra was killed by a shot to the head, entering on the right side of the nose. This wound very likely would have made it impossible for Sandra to take purposeful action but it may well have caused convulsions or involuntary bodily movements. A second gunshot wound on the right upper arm showed minimal penetration, possibly due to a defective round. There were 23 "sharp force" wounds, clustered on the forehead, back of the neck, right arm, and left back. The abraded edges and lack of deep penetration were consistent with the wounds having been made by the scissors found at the scene. There were also scratches on Sandra's left wrist and palm which could have been defensive injuries. It could not be determined by autopsy examination whether the gunshot wounds preceded or followed the sharp-force injuries.
B. Defense Evidence.
Defendant, testifying in his own behalf, admitted attempting to obtain a handgun from Medrano, and he admitted that he killed Bloom, Sr. According to defendant, he was watching television in a bedroom at Waller's residence at about 3 a.m., after the other residents had retired for the night, when he heard some men talking outside the house. Defendant went outside to investigate, taking Rosas's .22-caliber rifle, which defendant had found in the bedroom and had loaded with 18 rounds. He saw two men, described by defendant as "cholos." When they ran away, defendant followed them for about a mile. After these men fired three shots at him, defendant gave up the pursuit. Finding himself near the house of Bloom, Sr., he went there and entered the unlocked front door carrying the rifle. Bloom, Sr., and Mrs. Bloom were arguing about her desire for divorce. Defendant placed the rifle on a chair near the arguing couple and went with Sandra, who had been watching the argument, into Sandra's bedroom. Defendant was playing *1207 with Sandra when he heard a gunshot. Mrs. Bloom walked toward her bedroom, bleeding from a wound in her face. She collapsed when Bloom, Sr., shot her a second time with the rifle. Defendant picked up the gun when Bloom, Sr., dropped it and left the house after Bloom, Sr., refused to call the police. Bloom, Sr., followed and eventually returned with defendant to the house after agreeing to notify the police.
According to defendant, Bloom, Sr., continued to refuse to call the police, and defendant again went outside. Bloom, Sr., again followed. Finally, after Bloom, Sr., made a remark about Sandra (which defendant at trial refused to repeat), defendant shot him. Bloom, Sr., ran back to the house and fell on the threshold. Defendant was standing over Bloom, Sr., about to shoot him again, when he made eye contact with Sandra, who was standing some 18 feet away. Defendant pulled the trigger and, according to his testimony, "the next thing that happened" was that he was arrested while walking near the Waller residence.[1]
Various family members and friends testified as defense witnesses regarding Bloom, Sr.'s relationships with defendant and Mrs. Bloom, and the circumstances under which he had married Mrs. Bloom. These witnesses characterized Bloom, Sr., as aggressive, vicious, greedy and abusive, and testified that he regularly insulted and humiliated defendant.
A defense psychiatrist, Dr. Kling, testified he examined defendant and initially concluded defendant was sane and had substantial capacity to understand and control his conduct, to form the specific intent to murder, to premeditate and deliberate, and to reflect meaningfully on the gravity of his acts. Following a second interview, however, Dr. Kling altered his opinion, concluding that defendant was affected by a "schizoid personality disorder" characterized by eccentric thoughts, bizarre fantasies and paranoid ideation. According to Dr. Kling, such persons can act violently under stress; extreme stress may result in a "transient psychotic episode" during which the person is unaware of what he is doing.
From his discussions with defendant, Dr. Kling learned that defendant had contemplated killing Bloom, Sr., for several weeks, although he had not actually planned to do so. Kling opined that defendant could have been experiencing a transient psychotic episode when he killed Bloom, Sr.
*1208 III. GUILT PHASE ISSUES
A. Sufficiency of Evidence of Premeditation.
(1a) Defendant first contends that the evidence was insufficient to sustain the jury's findings that the murders were premeditated.
Issues regarding the sufficiency of the evidence are determined according to well-established legal principles. (2) "When the sufficiency of the evidence is challenged on appeal, the court must review the whole record in the light most favorable to the judgment to determine whether it contains substantial evidence i.e., evidence that is credible and of solid value from which a rational trier of fact could have found the defendant guilty beyond a reasonable doubt." (People v. Green (1980) 27 Cal. 3d 1, 55 [164 Cal. Rptr. 1, 609 P.2d 468].) The reviewing court presumes in support of the judgment the existence of every fact the jury could reasonably deduce from the evidence. (People v. Bloyd (1987) 43 Cal. 3d 333, 346-347 [233 Cal. Rptr. 368, 729 P.2d 802]; People v. Johnson (1980) 26 Cal. 3d 557, 576 [162 Cal. Rptr. 431, 606 P.2d 738, 16 A.L.R. 4th 1255].) (3) Evidence of a defendant's state of mind is almost inevitably circumstantial, but circumstantial evidence is as sufficient as direct evidence to support a conviction. (See Bloyd, supra, 43 Cal.3d at p. 347; In re Tony C. (1978) 21 Cal. 3d 888, 900 [148 Cal. Rptr. 366, 582 P.2d 957]; People v. Moore (1957) 48 Cal. 2d 541, 547 [310 P.2d 969].) (4) "Whether the evidence presented at trial is direct or circumstantial, ... the relevant inquiry on appeal remains whether any reasonable trier of fact could have found the defendant guilty beyond a reasonable doubt." (People v. Towler (1982) 31 Cal. 3d 105, 118 [181 Cal. Rptr. 391, 641 P.2d 1253], italics in original.)
(1b) Viewed in light of these principles, evidence relevant to the premeditation issue established, either directly or by reasonable inference, that defendant went to Bloom, Sr.'s residence with a stolen .22-caliber rifle shortly before 4 a.m. intending to kill Bloom, Sr., after which he intended to dispose of the murder weapon and to return to his girlfriend's residence, where he was then staying, before his absence was noted. Defendant either found Bloom, Sr., awake or inadvertently awakened him, they argued loudly, Bloom, Sr., threatened to call the police, and defendant killed him, firing five shots in the process. The final two shots were fired while Bloom, Sr., was sprawled in the doorway of his residence and defendant was standing over the body and firing down into Bloom, Sr.'s head. Rather than leave the scene, defendant reloaded or readjusted the rifle and entered the residence, where he shot Mrs. Bloom three times in the head, shot Sandra once in the head and once in the arm, and stabbed Sandra twenty-three times with scissors. Defendant then left the scene and disposed of the rifle so effectively *1209 it was never found, abandoned the vehicle he had taken from the Bloom residence, and was approaching his girlfriend's residence on foot when he was stopped and arrested by police at approximately 4:30 a.m.
(5) This court has identified three categories of evidence which serve to sustain a finding of premeditated murder: (1) evidence of prior planning of the killing; (2) evidence of a prior relationship and/or conduct with the victim from which the jury could infer a motive to kill; and (3) evidence that the manner of the killing was so particular and exacting that the killing must have been according to a preconceived design. (People v. Anderson (1968) 70 Cal. 2d 15, 26-27 [73 Cal. Rptr. 550, 447 P.2d 942].) To sustain a verdict of first degree murder it is not necessary that all three types of evidence be present; extremely strong evidence of prior planning alone will be sufficient, as will evidence of motive in conjunction with evidence of either prior planning or a particular and exacting method of killing. (Id. at p. 27.)
(1c) Here, all three categories of evidence were amply represented in the case against defendant for the murder of Bloom, Sr. Defendant did not deny he had a motive to kill Bloom, Sr., and, indeed, much of the defense case was devoted to demonstrating Bloom, Sr.'s continuous abuse and humiliation of defendant. The evidence of planning was also very strong. After unsuccessfully attempting to purchase a handgun for the stated purpose of killing someone, defendant stole a rifle, practiced with it, and carried it with him in the dead of night to Bloom, Sr.'s residence, having previously warned Bloom, Sr., that he would not be running defendant's life much longer. The manner of the killing likewise indicates a preconceived design. Having brought the rifle to Bloom Sr.'s residence, defendant shot Bloom, Sr., in the abdomen and then ran him down and shot him in the head and neck.
Defendant argues that the prior planning evidence should be disregarded because defendant twice attempted to walk away from Bloom, Sr.'s residence and was prevented from doing so by Bloom, Sr., thereby indicating that defendant had abandoned any plan to kill. That argument could be and was made to the jury, but it is unavailing on appeal. It represents but one interpretation of the evidence. Another interpretation is that when defendant unexpectedly found Bloom, Sr., awake, or inadvertently awakened him, defendant was disconcerted at finding himself face-to-face with his domineering father[2] and apparently attempted to leave. The intent demonstrated by this conduct was not an abandonment of the intent to kill but merely a *1210 postponement of the killing to another time. When Bloom, Sr., stated he would call the police, however, and persisted in his attempts to have defendant remain at the Bloom residence, defendant realized that exposure of his plan was imminent and that it would be much harder to escape detection after a later killing if the police were apprised of his conduct on this occasion. It was, in short, now or never. Defendant's decision to carry out his intention without further delay was, in effect, a decision to carry out his original plan. The prior planning activity therefore supports a determination of premeditation. We conclude that the evidence, viewed as a whole, is sufficient to sustain the first degree murder verdict for the killing of Bloom, Sr.
There is also evidence of planning activity and motive sufficient to support the verdicts for the first degree murders of Mrs. Bloom and Sandra. Because Bloom, Sr., was killed only after a loud argument and the firing of five shots, two of which broke window glass, defendant must have either known or strongly suspected that Mrs. Bloom and Sandra were awake and had seen him. Indeed, defendant admitted in his testimony they had seen him at the residence. Defendant therefore had a motive to kill them to prevent them from reporting it was he who had killed Bloom, Sr., and from testifying against him. Defendant's conduct in reloading the rifle, or adjusting or inspecting it in some manner, and then entering the residence, constitutes planning activity indicating defendant had already formed the intent to kill Mrs. Bloom and Sandra. As his subsequent conduct indicates, defendant intended to return to Waller's residence without reporting the killing of Bloom, Sr., so there was no innocent reason for defendant's reentry into the Bloom residence. Defendant's conduct in manipulating the rifle in some way, and carrying it inside with him, supports an inference that he intended to put the rifle to further use inside the residence.
The manner in which defendant killed Mrs. Bloom was as particular and exacting as the manner in which Bloom, Sr., was killed. She was killed with three shots to the head, at least one of which was fired while she was lying on the floor. The 23 sharp-force wounds on Sandra's body, apparently caused by scissors, do not establish that the killing of Sandra was other than premeditated. After firing the fatal shot which struck Sandra in the face, and the second shot that struck Sandra in the arm, defendant apparently ran out of ammunition[3] or the gun may have jammed. Disturbed by Sandra's involuntary convulsions, or concerned that the gunshot wounds would *1211 not be fatal, defendant attempted to hasten and ensure her death by stabbing her with the scissors. In this regard it is significant that Sandra alone, of the three victims, was still alive when the first police officer entered the Bloom residence.
Relying on People v. Goedecke (1967) 65 Cal. 2d 850 [56 Cal. Rptr. 625, 423 P.2d 777, 22 A.L.R. 3d 1213], and People v. Wolff (1964) 61 Cal. 2d 795 [40 Cal. Rptr. 271, 394 P.2d 959], defendant argues that the undisputed evidence established he was mentally disturbed and suffering from a "schizoid condition" which prevented him from fully appreciating the wrongfulness of his actions, and that he for this reason lacked the "quantum of personal turpitude" required to sustain a first degree murder conviction. This argument is based on a faulty premise. The holdings in Wolff and Goedecke, that first degree murder requires proof of a defendant's mature and meaningful reflection on the gravity of his actions, were abrogated by amendment of section 189[4] (see Stats. 1981, ch. 404, § 7, p. 1593) shortly before the commission of the offenses in this case. To the extent it might still be required, the assessment of personal turpitude occurs in the process of determining the sufficiency of the evidence to establish premeditation and deliberation.
We conclude, accordingly, that the evidence, viewed as a whole, is sufficient to sustain the verdicts for the first degree murders of all three victims.
B. Inadequate Premeditation Instructions.
(6) Defendant next argues that the trial court's instructions on the subject of premeditation were inadequate because they failed to explain the effect of defendant's supposed "abandoned" intent, previously discussed. Defendant points to the evidence indicating that even though he may have originally premeditated the slayings, he later abandoned that intent and unsuccessfully sought to leave the scene. The jury should have been instructed sua sponte, defendant maintains, "that evidence of premeditation is not sufficient ... if it demonstrates no more than that a defendant formulated a plan to kill his victim which was later abandoned."
The court gave an instruction, in the language of CALJIC No. 8.20, stating that to constitute first degree murder the killing must be "the result of" premeditation, and not a sudden heat of passion or rash impulse. No reasonable juror would have believed that a premeditated murder finding *1212 could be made despite an abandonment of premeditated intent prior to the slaying, and the trial court had no sua sponte duty to instruct further on that subject. If defendant wanted more elaborate instructions on this point, he should have proposed them. (People v. Poddar (1974) 10 Cal. 3d 750, 760 [111 Cal. Rptr. 910, 518 P.2d 342]; People v. Anderson (1966) 64 Cal. 2d 633, 639 [51 Cal. Rptr. 238, 414 P.2d 366]; People v. Forbs (1965) 62 Cal. 2d 847, 854 [44 Cal. Rptr. 753, 402 P.2d 825].)
C. Exclusion of Psychiatric Testimony.
Defendant elicited psychiatric testimony from Dr. Kling regarding defendant's "schizotypal personality disorder," a condition which results in delusions, hallucinations or antisocial behavior. On cross-examination, the prosecutor determined from Dr. Kling that he had previously found defendant sane and capable of forming the specific intent to kill, premeditate and deliberate. On redirect, defense counsel asked Dr. Kling a hypothetical question as to whether an attempt to flee the victim's presence by one who had previously contemplated a killing was inconsistent with a present premeditated intent to kill. The court sustained the prosecutor's objection that the question called for a legal conclusion.
(7) Defendant argues that the question was appropriate to place before the jury relevant evidence on the subject of premeditation and deliberation. He observes that an expert such as Dr. Kling may offer opinions on the "ultimate issues" in the case (see Evid. Code, § 805), so long as the expert does not offer a direct opinion on the defendant's own required mental state (§ 29). Here, the challenged testimony was in the form of a response to a hypothetical question, and did not focus on defendant's mental state.
Assuming the question was proper, the court's error in sustaining the objection was harmless. At most, Dr. Kling would have responded that, depending on the circumstances, an attempt to flee the scene may indeed be inconsistent with a present premeditated intent to kill, a conclusion which any reasonable juror would form without expert assistance. Thus, Dr. Kling's opinion would have added very little to defendant's "abandoned intent" theory.
D. Death-qualified Jury.
Defendant contends that the "death qualification" process deprived him of a fair trial. The argument has been repeatedly rejected by the courts. (See Lockhart v. McCree (1986) 476 U.S. 162 [90 L. Ed. 2d 137, 106 S. Ct. 1758]; People v. Miranda (1987) 44 Cal. 3d 57, 78-79 [241 Cal. Rptr. 594, 744 P.2d *1213 1127]; People v. Fields (1983) 35 Cal. 3d 329, 342-353 (plur. opn.), 374 (Kaus, J., conc. opn.) [197 Cal. Rptr. 803, 673 P.2d 680].)
E. Prosecutorial Misconduct.
The prosecutor likened defendant to the legendary villain Fu Manchu, and described both men as being "evil incarnate." (8) Defendant now contends these comments were improper. In general, prosecutors should refrain from comparing defendants to historic or fictional villains, especially where the comparisons are wholly inappropriate or unlinked to the evidence. (See People v. Hovey (1988) 44 Cal. 3d 543, 579-580 [244 Cal. Rptr. 121, 749 P.2d 776], and cases cited.) As in Hovey, however, the prosecutor's "hyperbole" in this case may have constituted a reasonably fair comment on the evidence, given the aggravated nature of defendant's multiple killings. In any event, defendant failed to object to the comment or seek an appropriate admonition. As an admonition would have been sufficient to cure any harm, the point cannot be raised on appeal. (People v. Green, supra, 27 Cal. 3d 1, 34.)
Defendant also complains of a prosecutorial comment to the effect that it is not unusual in a murder case for the defendant to "create a defense" and "try and show the victim was an S.O.B. to excuse the act." Defendant asserts the prosecutor was improperly suggesting that, based on his experience as a prosecutor, he had determined that defendant's defense was a fraudulent one. (See People v. Bolton (1979) 23 Cal. 3d 208, 212-213 [152 Cal. Rptr. 141, 589 P.2d 396] [prosecutor's improper reliance on facts not in evidence].) Here, unlike Bolton and the other cases cited by defendant, the prosecutor's assertion did not purport to be based on factual information known only to him. Moreover, even if the comment was improper, the suggestion that at trial some defendants fabricate defenses or attempt to vilify their victims was certainly not startling information likely to affect the jury's verdict. In any event, defendant made no objection to the prosecutor's remarks and an admonition would have cured any harm. The issue is not preserved for review. (People v. Green, supra, 27 Cal. 3d 1, 34.)
F. Admonition Before Withdrawing Insanity Plea.
Defendant originally pleaded not guilty to all counts. In addition, as to the murder of Sandra only, he pleaded not guilty by reason of insanity. After the jury returned the verdicts finding defendant guilty of the offenses charged, defense counsel announced that defendant was withdrawing his insanity plea. The court inquired of defendant whether he had conferred with his counsel on the matter, and whether he wished to withdraw the *1214 plea. Defendant replied affirmatively, and the court allowed the plea to be withdrawn.
(9a) Defendant now complains that the court failed to expressly advise him regarding the various constitutional rights he would be foregoing by withdrawing his plea, including the privilege against self-incrimination and the rights to jury trial and confrontation. (See People v. Redmond (1971) 16 Cal. App. 3d 931, 939 [94 Cal. Rptr. 543]; cf. People v. Merkouris (1956) 46 Cal. 2d 540, 552-553 [297 P.2d 999] [improper withdrawal of insanity plea despite court's doubts as to defendant's competence].)
The People observe that Merkouris and Redmond are distinguishable, for each case involved improper withdrawals of insanity pleas despite the existence of some doubt as to the defendant's sanity. In the present case neither the trial court nor defendant's own experts had indicated any doubt regarding his sanity. Dr. Kling had originally concluded that defendant was sane at the time of the murders. Although he later took the position that defendant had a "schizotypal personality disorder" which might have affected his ability to premeditate, Dr. Kling neither disclaimed nor revised his earlier opinion about defendant's sanity. (10), (9b) Thus, the case is controlled by our opinion in People v. Guerra (1985) 40 Cal. 3d 377, 384 [220 Cal. Rptr. 374, 708 P.2d 1252], quoting with approval language in Redmond, supra, 16 Cal. App. 3d 931, 939, that no recitals of constitutional rights need be given "`where there is no doubt of a defendant's sanity in the mind of the trial court and the reports of the examining psychiatrists unanimously indicate that such defendant was sane at the time of the offense. Free withdrawal of the insanity plea under such circumstances should be permitted as it has been in the past.'" (9c) Dr. Kling's testimony regarding defendant's personality disorder was insufficient, as a matter of law, to raise a doubt regarding defendant's sanity under Guerra or Redmond.
We conclude that the guilt judgment and special circumstance finding should be affirmed.
IV. PENALTY PHASE FACTS
A. Motion for Self-representation.
On December 5, 1983, following the return of the guilt phase verdicts, defendant requested that he be allowed to represent himself (to "go pro. per.," as defendant phrased it) for the penalty phase, with his attorney to remain as "cocounsel." Defendant stated that he did not want to put on a defense, that it would be "counterproductive" to do so because he did not "intend spending the rest of [his] natural life in some institution," and that *1215 if granted self-representation he would help the prosecution obtain a death verdict and would address the jury and "seek the death penalty." Defense counsel stated that if allowed to remain in control of the case he would be willing to inform the jury of defendant's preference for a death verdict and defendant's reasons therefor, but defendant said he wanted to address the jury personally and noted that he could "always take the stand." The court recessed until the following day to consider the request.
When proceedings resumed, on December 6, defendant affirmed that it was still his wish to represent himself with his attorney as "cocounsel." The court found that defendant possessed sufficient intellect to understand the proceedings, to read and write, and to address the court and the jury. The court further found that defendant understood the gravity of the situation. Defendant's attorney stated that defendant had instructed him to take no affirmative action regarding witnesses for the penalty phase, although defendant himself intended to call "witnesses which would aid the prosecution in obtaining the death penalty." Defendant affirmed that this was correct. The attorney stated that if the motion was granted he would advise defendant on proper procedures and on how to address any requests to the court. The trial court told defendant he was "making an enormous mistake" but acknowledged "there are few things more personal to an individual than the decisions you are making right now." Defendant requested a continuance and law library privileges, asking rhetorically, "How can I go up against a man who has been practicing law longer than I have been alive?" The trial court observed that it appeared defendant would be "concurring with the position the People are taking," rather than opposing it. The prosecutor suggested a brief continuance, to December 12, and defendant stated that would be satisfactory. The trial court then granted defendant's request for "co-counsel status" with the understanding that his attorney would "stand ready at all reasonable hours to advise" defendant and to "assist" him in any way, to appear with defendant at court hearings, and to aid defendant in his presentation of the case at the penalty phase. Defendant's attorney stated that he would advise defendant on legal matters but would not participate in the examination or cross-examination of any witnesses, including defendant, and would not address the jury. Defendant did not indicate any objection to this arrangement. Defendant's attorney stated that while he personally disagreed with defendant's decision to seek the death penalty, he believed himself professionally obligated to defer to his client's wishes.
When proceedings resumed on December 12, defendant's attorney reported to the court that on two successive evenings he had attempted without success to persuade defendant to allow counsel to control presentation of the defense case at the penalty phase and to seek "the lesser of the *1216 penalties available to the jury." The court inquired whether, having had further time to think about the decisions he had previously made, defendant wished "to proceed as co-counsel in this phase of the trial." Defendant answered in the affirmative.
B. The Aggravating Evidence.
The prosecutor called two witnesses to testify concerning an attempted robbery committed by defendant. This occurred in November 1981 at a Bible study meeting for women attended by approximately 27 people. After sitting in the meeting for five or ten minutes, and sharing in the offered refreshments, defendant removed a BB or pellet gun from his overcoat, pointed it at a woman's head, and demanded her purse. The woman refused and defendant's attempts to grab it away from her were unsuccessful. Defendant fled from the room after another woman screamed. Defendant was arrested two days later while walking along a sidewalk when officers observed the handle of his pellet or BB gun in the pocket of his trench coat. Defendant later told the arresting officers he was upset they had pointed their guns at him and would have shot one of them but did not because the officer was behind the door of the police car. On cross-examination, defendant elicited testimony that he was carrying a large quantity of BB's and what appeared to be a "robbery kit" when arrested.
During a bench conference, defendant complained that the prosecution was doing a poor job of presenting the aggravating evidence. Defendant offered to stipulate that he committed a second attempted robbery for which he had been arrested but not charged. However, the prosecutor would not accept the stipulation. On cross-examination of a police officer, defendant elicited testimony that on the day preceding the attempted robbery at the Bible study meeting, an elderly couple had been accosted by a young man wearing a raincoat. This man produced a handgun, demanded money, and fired a shot when the couple refused to give up their money. No one was injured and no property was taken. Defendant established that he had been arrested for this attempted robbery.
C. The Closing Arguments and Verdict.
The prosecutor urged imposition of the death penalty, based on the charged offenses, the aggravating circumstances, defendant's lack of remorse, and defendant's failure to proffer any mitigating evidence.
Defendant then addressed the jury, also urging it to impose the death penalty. Defendant explained that he deserved to die because one who takes a life should die for it, and that he wanted to die. Although defendant stated *1217 there were no mitigating circumstances, he did refer to evidence at the guilt phase regarding his abuse at the hands of Bloom, Sr., stating that "Every man on the jury, if you knew the facts on [sic] my life, you'd kill him too."
The jury imposed a death sentence.
D. Subsequent Events.
Prior to the sentencing hearing, held to consider modification of the jury's death sentence (see § 190.4, subd. (e)), defendant moved that another attorney be appointed cocounsel to assist him in the hearing. Defendant claimed that his communications with trial counsel had broken down, and stated that he now questioned the trial tactics and competence of that attorney. Following a hearing, the court denied the motion, finding that defendant and the attorney had cooperated well during the trial, that the attorney had demonstrated his competence, and that there was no showing of any need for appointment of new counsel at this stage of the proceedings.
At a subsequent hearing to seek a continuance of the sentencing hearing, defense counsel announced to the court that he and defendant had resolved many of their differences and that defendant was prepared to cooperate with him. The court granted a 30-day continuance. A few weeks later, however, defendant stabbed another inmate in the library. The court revoked defendant's self-representation status and ordered psychiatric evaluations and a competency hearing before a jury.
During the psychiatric evaluations defendant admitted he had sought the death penalty not for purposes of ending his life but to expedite his appeal to this court. According to one of the examining psychiatrists, defendant said, in an apparent reference to the automatic appeal in death penalty cases, that he was "confident that the State Supreme Court will overturn [his case], and the sooner it goes up there the sooner he has a chance of being acquitted or having the ruling overturned."
The jury found that defendant remained competent to cooperate with counsel. Thereafter the court restored defendant's self-representation status and the sentencing hearing ensued. Defendant's mother and grandmother appeared and asked that defendant's life be spared. The court denied defendant's motion for new trial and modification of sentence, and defendant was sentenced to death.
*1218 V. PENALTY PHASE ISSUES
A. Failure to Offer Mitigating Evidence Denial of Effective Counsel.
Defendant contends that the failure to present mitigating evidence at the penalty phase, in conjunction with his own request to the jury for a death verdict, deprived him of his right to effective assistance of counsel and offended the state's interest in ensuring the reliability of capital penalty determinations. The issues raised by this contention are essentially the following: (1) whether the trial court erred in granting defendant's motion for self-representation; (2) whether defendant may be permitted to assert a claim of ineffective assistance of counsel for failure to present mitigating evidence at the penalty phase; and (3) whether the constitutional standards for the reliability of capital verdicts have been satisfied.
Motion for self-representation. (11a) Defendant argues that because he sought only cocounsel status rather than full self-representation, and because the motion was made only after the guilt verdicts were returned, his motion for leave to participate actively in the trial proceedings "had no constitutional basis but was merely `addressed to the sound discretion of the court.'" The granting of the motion was an abuse of discretion, he further argues, because his announced purpose in making the motion was to seek a death verdict, a purpose which violates a public policy against misusing the judicial system to commit state-aided suicide. Before addressing these arguments directly, it is necessary to clarify the nature of defendant's motion.
(12) While the Sixth Amendment guarantees both the right to self-representation and the right to representation by counsel, a defendant who elects representation by counsel does not have a constitutionally protected right to appear as cocounsel (People v. Hamilton, ante, p. 1162, 259 Cal. Rptr. 701; People v. Moore (1988) 47 Cal. 3d 63, 77 [252 Cal. Rptr. 494, 762 P.2d 1218]; People v. Miranda, supra, 44 Cal. 3d 57, 75), and a defendant who elects self-representation "does not have a constitutional right to choreograph special appearances by counsel" (McKaskle v. Wiggins (1984) 465 U.S. 168, 183 [79 L. Ed. 2d 122, 136, 104 S. Ct. 944]). Thus none of the "hybrid" forms of representation, whether labeled "cocounsel," "advisory counsel," or "standby counsel," is in any sense constitutionally guaranteed.
As the courts of other jurisdictions have expressly recognized (see Ortberg v. State (Alaska App. 1988) 751 P.2d 1368, 1375; Parren v. State (1987) 309 Md. 260 [523 A.2d 597, 599]), the powers and responsibilities which attend the representation of a criminally accused person should never *1219 be conferred jointly and equally on the accused and the attorney. Rather, in all cases of shared or divided representation, either the accused or the attorney must be in charge. Stated otherwise, at all times the record should be clear that the accused is either self-represented or represented by counsel; the accused cannot be both at once. A defendant represented by counsel who wishes to participate in the presentation of the case, but without surrendering the benefits of professional representation, may do so only with counsel's concurrence and under counsel's supervision, and only by leave of the court upon a proper showing. (People v. Hamilton, supra, ante, pp. 1162-1163.) Similarly, a self-represented defendant who wishes to obtain the assistance of an attorney in an advisory or other limited capacity, but without surrendering effective control over presentation of the defense case, may do so only with the court's permission and upon a proper showing.
(11b) Viewed in light of these principles, defendant's motion was plainly one for self-representation, with an added request that his attorney remain in a limited and chiefly advisory capacity. As noted, defendant stated he wanted to "go pro. per." Although defendant used the word "cocounsel" on several occasions, his intended purpose was to assume control of the case, rather than merely to assist his attorney in its presentation. (See People v. Windham (1977) 19 Cal. 3d 121, 125, fn. 2 [137 Cal. Rptr. 8, 560 P.2d 1187].) Defendant's stated purpose of obtaining a death verdict was contrary to the advice of his attorney, who urged defendant to permit counsel to seek the lesser penalty of imprisonment for life without possibility of parole. To achieve his preferred verdict, defendant proposed to address the jury personally and to examine witnesses in a manner designed to aid the prosecution in obtaining the death penalty. To prevent frustration of his goal, defendant told the attorney that calling penalty phase witnesses would not be part of the attorney's role or function. The trial court described the proposed duties of the attorney as advising and assisting defendant, appearing with defendant, and aiding defendant in his presentation of the case. For his part, the attorney stated he would advise defendant on proper procedures and on how to address any requests to the court but would not examine or cross-examine witnesses or address the jury. As defendant sought complete control over the content and presentation of his own case at the penalty phase, the motion is properly treated as one for self-representation.
We return to the question whether the trial court erred or abused its discretion in granting this motion for self-representation. (13a) If a request for self-representation is unequivocally asserted within a reasonable time before the commencement of the trial, and if the assertion is voluntarily made with an appreciation of the risks involved, the trial court has no discretion to deny it. (Faretta v. California (1975) 422 U.S. 806 [45 L.Ed.2d *1220 562, 95 S. Ct. 2525]; People v. Windham, supra, 19 Cal. 3d 121, 128.) A request for self-representation asserted for the first time after trial has commenced, on the other hand, is "based on nonconstitutional grounds" (Windham, supra, at p. 129, fn. 6) and is addressed to the sound discretion of the trial court (id. at p. 128). (11c) So defendant is correct in asserting that his motion for self-representation, made for the first time after the guilt phase of his capital trial, did not have a constitutional basis and was addressed to the trial court's discretion. (See People v. Hamilton (1988) 45 Cal. 3d 351, 369 [247 Cal. Rptr. 31, 753 P.2d 1109].)
(14) The rule against invited error generally precludes a defendant from obtaining reversal of a judgment by asserting error in the granting of the defendant's own motion. (13b) (See fn. 5.), (11d) In this instance we do not understand defendant to be asserting that the granting of his motion for self-representation was error because the motion was untimely or because the showing made in support of the motion was insufficient under the criteria established in Windham, supra, 19 Cal. 3d 121, 128.[5] Rather, defendant maintains that the ruling on his motion was an abuse of discretion because the motion's announced purpose, obtaining a verdict of death, is contrary to fundamental public policy.
The issue presented, then, is whether a trial court in a capital case abuses its discretion by granting a competent defendant's midtrial motion for self-representation, when the motion is made for the announced purpose of seeking a verdict of death. We conclude that in such a case the defendant's stated intention to incur the death penalty does not in and of itself establish an abuse of discretion in the granting of the self-representation motion.
Although defendant's midtrial motion for self-representation did not have a constitutional basis (Windham, supra, 19 Cal. 3d 121, 129, fn. 6), the United States Supreme Court's decision in Faretta v. California, supra, 422 U.S. 806, recognizing a Sixth Amendment right of self-representation, is nonetheless instructive on the point raised by defendant. (13c) The basic teaching of Faretta is "that the state may not constitutionally prevent a defendant charged with commission of a criminal offense from controlling his own fate by forcing on him counsel who may present a case which is not consistent with the actual wishes of the defendant." (Windham, supra, 19 Cal. 3d 121, 130.) As the high court stated: "The language and spirit of the Sixth Amendment contemplate that counsel, like the other defense tools *1221 guaranteed by the Amendment, shall be an aid to a willing defendant not an organ of the State interposed between an unwilling defendant and his right to defend himself personally. To thrust counsel upon the accused, against his considered wish, thus violates the logic of the Amendment." (Faretta, supra, 422 U.S. at p. 820 [45 L.Ed.2d at p. 573].)
The United States Supreme Court found firm support for this conclusion in a review of the Sixth Amendment's historical origins. The common law rule in England, as the court noted, "has evidently always been that `no person charged with a criminal offense can have counsel forced upon him against his will.'" (Faretta, supra, 422 U.S. at p. 826 [45 L.Ed.2d at p. 576].) The one exception serves only to reinforce the rule: the only English tribunal ever to adopt a practice of forcing counsel upon an unwilling defendant was the Star Chamber, whose name has "for centuries symbolized disregard of basic individual rights." (Id. at p. 821 [45 L.Ed.2d at p. 574], fn. omitted.) In prerevolutionary America, "the basic right of self-representation was never questioned" (id. at pp. 827-828 [45 L.Ed.2d at p. 577]), and in federal courts "the right of self-representation has been protected by statute since the beginnings of our Nation" (id. at p. 812 [45 L.Ed.2d at p. 569]). When the Sixth Amendment was drafted, "[n]o State or Colony had ever forced counsel upon an accused; no spokesman had ever suggested that such a practice would be tolerable, much less advisable." (Id. at p. 832 [45 L.Ed.2d at p. 579].) In short, it is clear that "[t]he Founders believed that self-representation was a basic right of a free people" (id. at p. 830, fn. 39 [45 L.Ed.2d at p. 578]) and that "the notion of compulsory counsel was utterly foreign to them" (id. at p. 833 [45 L.Ed.2d at p. 580]).
The core rationale of Faretta is that an "unwanted counsel `represents' the defendant only through a tenuous and unacceptable legal fiction" (Faretta, supra, 422 U.S. at p. 821 [45 L.Ed.2d at p. 573]), and that "although [the defendant] may conduct his own defense ultimately to his own detriment, his choice must be honored out of `that respect for the individual which is the lifeblood of the law'" (id. at p. 834 [45 L.Ed.2d at p. 581], quoting Illinois v. Allen (1970) 397 U.S. 337, 350-351 [25 L. Ed. 2d 353, 363, 90 S. Ct. 1057] (Brennan, J., conc.)).
This court's opinions have been sensitive to the basic Sixth Amendment values found controlling in Faretta, supra, 422 U.S. 806. On numerous occasions we have "recognized the need to respect the defendant's personal choice on the most `fundamental' decisions in a criminal case."[6] (People v. *1222 Frierson (1985) 39 Cal. 3d 803, 814 [218 Cal. Rptr. 73, 705 P.2d 396].) (15) Thus even in a capital case defense counsel has no power to prevent the defendant from testifying at trial (People v. Lucky (1988) 45 Cal. 3d 259, 282 [247 Cal. Rptr. 1, 753 P.2d 1052]) and the defendant may testify at the penalty phase to a preference for the death penalty (People v. Guzman (1988) 45 Cal. 3d 915, 961-963 [248 Cal. Rptr. 467, 755 P.2d 917]; People v. Grant (1988) 45 Cal. 3d 829, 849-850 [248 Cal. Rptr. 444, 755 P.2d 894]). (16) By exercise of the right of self-representation, a capital defendant may dispense with the advice and assistance of counsel entirely (People v. Joseph (1983) 34 Cal. 3d 936, 945 [196 Cal. Rptr. 339, 671 P.2d 843]), waive jury trial, and elect not to oppose the prosecution's case at the guilt phase (People v. Teron (1979) 23 Cal. 3d 103, 108-115 [151 Cal. Rptr. 633, 588 P.2d 773]; see also, People v. McKenzie (1983) 34 Cal. 3d 616, 628 [194 Cal. Rptr. 462, 668 P.2d 769] ["The choice of self-representation preserves for the defendant the option of conducting his defense by nonparticipation."]). As this court has remarked, "a capital defendant representing himself under Faretta has no duty to `present a defense' but may simply `put the state to its proof' ... [and] can presumably also take the stand and confess guilt." (People v. Chadd, supra, 28 Cal. 3d 739, 750, fn. 7 (per Mosk, J.).)
(17) Similarly, neither the trial court nor defense counsel can compel a competent defendant to present an insanity defense, no matter how strong the available evidence of the defendant's insanity at the time of the charged acts. (People v. Gauze (1975) 15 Cal. 3d 709, 717-718 [125 Cal. Rptr. 773, 542 P.2d 1365] (per Mosk, J.).) The defense attorney in Gauze, expressing a view also taken by defendant's trial attorney in this case, stated to the trial court: "I determine it to be a mandate of the Court by appointing me on this case that I am to proceed according to [the defendant's] wishes." (Id. at p. 717.) This court endorsed the view that both court and counsel are obligated to respect a competent defendant's considered and voluntary decisions on matters of fundamental importance affecting trial of the action: "... defendant Gauze made a free and voluntary choice with knowledge of its consequences. Neither counsel nor the court had power to contravene that choice." (Id. at p. 718.)
(11e) Given the importance which the decisions of both this court and the United States Supreme Court have attached to an accused's ability to control his or her own destiny and to make fundamental decisions affecting trial of the action, and given this court's recognition that it is not irrational to prefer the death penalty to life imprisonment without parole (People v. *1223 Guzman, supra, 45 Cal. 3d 915, 963-965),[7] it would be incongruous to hold that a trial court lacked power to grant a midtrial motion for self-representation in a capital case merely because the accused stated an intention to seek a death verdict. While we do not suggest that trial courts must or even should grant such midtrial motions, we do not find the trial court's ruling on the motion in this case to be violative of defendant's rights or contrary to any fundamental public policy.
Granting defendant's midtrial motion for self-representation did not contravene the policy against state-aided suicide (see People v. Deere (1985) 41 Cal. 3d 353, 362-363 [222 Cal. Rptr. 13, 710 P.2d 925]). First, defendant's proposed strategy by no means ensured the return of a death verdict. Faced with a defendant arguing a preference for the death penalty after conviction of death-eligible offenses, a jury might well conclude that death was "too good" for the defendant and that life imprisonment with no hope of parole would be the more severe and more appropriate punishment. Second, if the trier of penalty has determined death to be the appropriate punishment, and the death judgment meets constitutional standards of reliability, the judgment cannot reasonably be regarded as the defendant's doing (other than by his commission of the capital crimes) or its execution as suicide. Finally, as discussed more fully below, defendant's argument would effectively preclude death penalty prosecution of self-represented capital defendants who decline to present mitigating evidence, as there is no effective means to compel a pro se defendant to make an affirmative penalty defense.
We are not the first court to conclude that a capital defendant's announced intention to seek the death penalty does not compel denial of a motion for self-representation. In Hamblen v. State (Fla. 1988) 527 So. 2d 800, the trial court granted a capital defendant's motion for self-representation after the defendant announced his intention to plead guilty and seek the death penalty. On appeal, as in the present case, defendant contended it was error to grant the motion because it resulted in a penalty trial at which no *1224 defense to the death penalty was presented. The Florida Supreme Court rejected this contention, stating that "in the final analysis, all competent defendants have a right to control their own destinies," and that "there was no error in not appointing counsel against [the defendant's] wishes to seek out and to present mitigating evidence and to argue against the death sentence." (Id. at p. 804.)
The Illinois Supreme Court had earlier reached the same conclusion, stating: "We do not agree that the defendant's waiver of counsel should not have been accepted because the waiver frustrated the statutory intention to provide the sentencing body with all relevant mitigating evidence and this could best be done through counsel." (People v. Silagy (1984) 101 Ill. 2d 147 [77 Ill. Dec. 792, 461 N.E.2d 415, 431], cert. den. 469 U.S. 873 [83 L. Ed. 2d 156, 105 S. Ct. 227].) In that case, as here, the trial court had granted the defendant's request, made immediately after being found guilty of capital offenses and for the purpose of obtaining a death verdict, to proceed without counsel for the penalty phase. As here, the attorney remained in an advisory role and no mitigating evidence was presented at the penalty phase. On appeal defendant argued that "Society's interest in maintaining the integrity of the sentencing process ... must take precedence over his personal right to represent himself in a criminal proceeding." (Id. at p. 175 [461 N.E.2d at p. 429].) After noting that the right of self-representation is protected by the Sixth Amendment, that the defendant's decision to discharge counsel was knowingly and intelligently made, and that his announced preference for the death penalty was not irrational, the court stated: "Nor do we consider, as the defendant says, that his decision to discharge his attorneys interfered with society's interest in the fair administration of justice.... [¶] Society's interest in the proper administration of justice is preserved by giving a defendant the right freely to present evidence in mitigation, by requiring the sentencing body to find aggravating factors before imposing the death penalty, and by requiring that a sentence of death be reviewed by this court." (Id. at p. 181 [461 N.E.2d at pp. 431-432].)
(18a) A defendant may challenge the grant of a motion for self-representation on the basis that the record fails to show that the defendant was made aware of the risks of self-representation. Defendant has not challenged the granting of his self-representation motion on this basis, but we have nonetheless examined the record to determine whether it sufficiently reflects a knowing and intelligent waiver of the right to counsel. As we explain, it does.
A defendant seeking self-representation "should be made aware of the dangers and disadvantages of self-representation, so that the record will establish that `he knows what he is doing and his choice is made with eyes *1225 open.'" (Faretta, supra, 422 U.S. at p. 835 [45 L.Ed.2d at p. 582].) The test of a valid waiver of counsel is not whether specific warnings or advisements were given but whether the record as a whole demonstrates that the defendant understood the disadvantages of self-representation, including the risks and complexities of the particular case. (U.S. v. McDowell (6th Cir.1987) 814 F.2d 245, 249; Fitzpatrick v. Wainwright (11th Cir.1986) 800 F.2d 1057, 1065; United States v. Kimmel (9th Cir.1982) 672 F.2d 720, 722; People v. Longwith (1981) 125 Cal. App. 3d 400, 408 [178 Cal. Rptr. 136]; Zimmerman v. Municipal Court (1980) 111 Cal. App. 3d 174, 179 [168 Cal. Rptr. 434].)
(11f) The trial court in this case gave few specific warnings or advisements regarding the risks of self-representation, but in the unusual situation facing the court an elaborate catalog of dangers and pitfalls was unnecessary. As the trial court observed, defendant would be assisting rather than opposing the prosecutor and not only appreciated the risk of a death verdict but actively sought it. The record reveals, and the trial court found, that defendant possessed sufficient intellect to understand the proceedings and to address the court and the jury. Defendant was aware of the possible penalty verdicts on each count, and was advised by the trial court that his decision was "an enormous mistake." Defendant acknowledged that the prosecutor had practiced law longer than defendant had been alive and thus would be a skilled opponent. The record therefore establishes that defendant was sufficiently aware of the dangers and disadvantages of self-representation and made his decision with open eyes.
(18b) Although some cases have suggested that a defendant seeking self-representation ought to be advised that a self-represented defendant is precluded on appeal from asserting ineffective assistance of counsel (e.g., People v. Doane (1988) 200 Cal. App. 3d 852, 860, fn. 1 [246 Cal. Rptr. 366]; People v. Spencer (1984) 153 Cal. App. 3d 931, 945 [200 Cal. Rptr. 693]), we agree with the holding in Longwith, supra, 125 Cal. App.3d at p. 409, that such a warning is not constitutionally required.[8] (11g) The defendant's *1226 waiver of counsel in this case is not rendered invalid by the absence of an advisement regarding the appellate consequences of the waiver. Having expressly rejected full representation by a skilled professional, and having elected self-representation for the purpose of facilitating a death verdict, defendant could not reasonably have expected to obtain reversal of a judgment of death by asserting the ineffectiveness of his own unskilled efforts.
Effective assistance of counsel. (19) Defendants who have elected self-representation may not thereafter seek reversal of their convictions on the ground that their own efforts were inadequate and amounted to a denial of effective assistance of counsel. (Faretta, supra, 422 U.S. 806, 834-835, fn. 46 [45 L. Ed. 2d 562, 581].) This rule applies whether or not the self-represented defendant has been assisted by an attorney acting as advisory counsel or in some other limited capacity. (See Mullins v. Lavoie (1982) 249 Ga. 411 [290 S.E.2d 472, 474]; Carter v. State (Ind. 1987) 512 N.E.2d 158, 163-164; State v. Hutchison (Iowa 1983) 341 N.W.2d 33, 42; Parren v. State, supra, 309 Md. 260 [523 A.2d 597, 599]; State v. Harper (Mo. App. 1982) 637 S.W.2d 170, 173-174.) This must be especially true when, as here, the course charted by the self-represented defendant is contrary to the advice of counsel. In the present case, defendant made a considered decision to pursue a strategy likely to result, and intended to result, in a death verdict. Having made that decision, having persuaded the trial court to grant him self-representation, and having conducted the penalty phase according to his own plan, defendant may not predicate error on his own actions.
(20) Defendant argues that his trial attorney had an independent obligation to present an effective penalty defense on defendant's behalf. As noted, defendant's attorney acted in a limited and largely advisory capacity at the penalty phase. Once defendant requested and was granted self-representation, and assumed control of the defense case, his attorney was under no obligation to act in a manner directly contrary to defendant's express instructions.
To prevail on a claim that counsel acting in an advisory or other limited capacity has rendered ineffective assistance, a self-represented defendant must show that counsel failed to perform competently within the limited scope of the duties assigned to or assumed by counsel (see People v. Hamilton, supra, ante, pp. 1164-1165, fn. 14; People v. Doane, supra, 200 Cal. App.3d at pp. 864-866), and that a more favorable verdict was reasonably probable in the absence of counsel's failings (see Strickland v. Washington (1984) 466 U.S. 668, 694 [80 L. Ed. 2d 674, 698, 104 S. Ct. 2052]; People v. Fosselman (1983) 33 Cal. 3d 572, 584 [189 Cal. Rptr. 855, 659 P.2d 1144]). A self-represented defendant may not claim ineffective assistance on account of *1227 counsel's omission to perform an act within the scope of duties the defendant voluntarily undertook to perform personally at trial.
As noted, defendant assumed complete control of the formulation and presentation of the defense case at the penalty phase with the objective of obtaining a death verdict. Presentation of mitigating evidence was not a duty that was assigned to or assumed by the attorney. Having assigned counsel a subordinate role which expressly precluded the selection or examination of penalty phase witnesses, defendant may not now predicate error on counsel's conduct in conformity with defendant's own wishes. (See Frierson, supra, 39 Cal. 3d 803, 817 ["... when a defendant insists on a course of action despite his counsel's contrary warning and advice, he may not later complain that his counsel provided ineffective assistance by complying with his wishes"]; see also, Autry v. McKaskle (5th Cir.1984) 727 F.2d 358, 361 ["By no measure can [the capital defendant] block his lawyer's efforts and later claim the resulting performance was constitutionally deficient"]; State v. Felde (La. 1982) 422 So. 2d 370, 395, cert. den. 461 U.S. 918 [77 L. Ed. 2d 290, 103 S. Ct. 1903] [defense attorney permitted cocounsel defendant to testify to death verdict preference, offered no other penalty phase evidence, and argued for death verdict ineffective assistance claim rejected].)
Reliable verdict. (21) Relying on People v. Deere, supra, 41 Cal. 3d 353, defendant argues that permitting a defendant to withhold substantial mitigating evidence undermines the state's interest in reliable penalty determinations in capital cases. As we explain, the argument contains both practical and theoretical flaws. In brief, a rule requiring a self-represented defendant to present mitigating evidence would be unenforceable and self-defeating. For this and other reasons, a judgment of death may not be regarded as unreliable in a constitutional sense merely because a self-represented defendant chose not to present mitigating evidence at the penalty phase.
A rule requiring a pro se defendant to present mitigating evidence would be unenforceable, as the court has no means to compel a defendant to put on an affirmative defense. (See Hamblen v. State, supra, 527 So.2d at p. 804 ["there is no power that could have compelled [the defendant] to cooperate and divulge such information"].) The threat of appellate reversal would be not merely ineffective but counterproductive. A knowledgeable defendant desiring to avoid the death penalty could make a timely request for self-representation under Faretta, supra, 422 U.S. 806, and then decline to present any mitigating evidence at the penalty phase, secure in the knowledge that any death judgment would be reversed by this court, while a defendant genuinely desiring death could circumvent the rule by presenting a bare minimum of mitigating evidence. A rule so easily evaded or misused *1228 is clearly unsound. The sanction of appellate reversal is not the answer, nor has any alternative method been suggested to compel an unwilling defendant to present an effective penalty defense.
While the United States Supreme Court has frequently stated that the Eighth Amendment and evolving standards of societal decency impose a high requirement of reliability on the determination that death is the appropriate penalty in a particular case (see, e.g., Johnson v. Mississippi (1988) 486 U.S. 578, 584 [100 L. Ed. 2d 575, 584, 108 S. Ct. 1981, 1986]; Mills v. Maryland (1988) 486 U.S. 367, 377 [100 L. Ed. 2d 384, 395, 108 S. Ct. 1860, 1870]), the high court has never suggested that this heightened concern for reliability requires or justifies forcing an unwilling defendant to accept representation or to present an affirmative penalty defense in a capital case. Indeed, the lack of any legal or practical means to force a pro se defendant to present mitigating evidence, or indeed any defense at all, compels the conclusion that the death-verdict-reliability requirement cannot mean that a death verdict is unsound merely because the defendant did not present potentially mitigating evidence. Rather, the required reliability is attained when the prosecution has discharged its burden of proof at the guilt and penalty phases pursuant to the rules of evidence and within the guidelines of a constitutional death penalty statute, the death verdict has been returned under proper instructions and procedures, and the trier of penalty has duly considered the relevant mitigating evidence, if any, which the defendant has chosen to present. A judgment of death entered in conformity with these rigorous standards does not violate the Eighth Amendment reliability requirements.[9] (See Hamblen v. State, supra, 527 So. 2d 800, 804; People v. Silagy, supra, 101 Ill.2d at p. 181 [461 N.E.2d at p. 432]; see also, State v. Harding (1983) 137 Ariz. 278 [670 P.2d 383, 400] [self-represented defendant presented no mitigating evidence judgment of death affirmed]; Bishop v. State (1979) 95 Nev. 511 [597 P.2d 273, 276] [same]; Bonnie, The Dignity of the Condemned (1988) 74 Va.L.Rev. 1363, 1382-1389.)
Habeas corpus petition. Defendant has filed a habeas corpus petition to supplement the trial record with a declaration by his trial counsel summarizing the available mitigating evidence, which primarily concerned parental abuse by Bloom, Sr., and defendant's resulting psychological trauma or borderline schizophrenia. The contention advanced in the petition is that *1229 failure to present mitigating evidence at the penalty phase, in conjunction with defendant's argument to the jury requesting a death verdict, deprived him of his right to effective assistance of counsel and offended the state's interest in ensuring the reliability of death penalty verdicts. The reasons which caused us to reject this contention when raised on appeal compel its rejection in this context as well.
B. Adequacy of Sentencing Instructions.
(22) Defendant next argues that the court's instructions, coupled with the jury arguments, misled the jury regarding its obligation (1) to weigh and consider all mitigating evidence in the case (see People v. Easley (1983) 34 Cal. 3d 858, 878 [196 Cal. Rptr. 309, 671 P.2d 813]), and (2) to determine the appropriate penalty for defendant based on that evidence (see People v. Brown (1985) 40 Cal. 3d 512, 541 [220 Cal. Rptr. 637, 709 P.2d 440]).
The jury was expressly told that in deciding the penalty, it should consider all evidence in the case, including the guilt phase evidence. In addition, the jury was given a section 190.3 modified factor (k) instruction which advised the jury to consider "any other aspect of defendant's character or record that defendant proffers as a basis for a sentence less than death." Thus, the instructions made it clear that the jury was not to base its penalty decision solely upon the evidence elicited during the penalty phase.
Defendant suggests, however, that the jury arguments misled the jury into believing it should not consider the guilt phase evidence. Our review of the record indicates otherwise. The prosecutor never told the jury to ignore the guilt phase evidence; he merely observed that defendant "chose" not to present any mitigating evidence. Moreover, after reviewing the aggravating evidence arising from the three murders, the prosecutor referred to some guilt phase testimony by defendant, reminding the jury that "incidentally, you have to take into account the defendant introduced some testimony by way of defense in the guilt phase of his trial...." The prosecutor repeated this admonition when he later urged the jury to "[r]eview the evidence at the guilt phase of the trial."
We conclude that neither the instructions nor the jury arguments misled the jury regarding its obligation to review all the evidence in the case, including the guilt phase evidence.
Defendant observes that the jury was instructed in the unadorned statutory language of section 190.3 that "If you conclude that the aggravating circumstances outweigh the mitigating circumstances, you shall impose the sentence of death." (Former CALJIC No. 8.84.2.) He suggests that these *1230 instructions were inadequate to inform the jury that it had sole discretion to determine the appropriate penalty for defendant regardless of the numerical "count" of the applicable aggravating and mitigating factors. (See People v. Brown, supra, 40 Cal.3d at p. 541; People v. Allen (1986) 42 Cal. 3d 1222, 1276-1277 [232 Cal. Rptr. 849, 729 P.2d 115].)
Our review of the record indicates the jury was not misled concerning the scope of its sentencing responsibilities. The prosecutor never mentioned the numerical count of the aggravating circumstances but simply reviewed the evidence, stressed defendant's lack of remorse, and explained that the jury had two choices, life without parole or death. The prosecutor urged the jury to apply the maxim that "the punishment should fit the crime," and in doing so to review the evidence, including the guilt phase evidence of defendant's background, in order to determine the "proper" punishment for defendant.
Defendant also observes that both the prosecutor and defendant argued to the jury that no mitigating evidence had been offered in the case. Defendant contends the jury might thereby have been misled into thinking that a death verdict was compelled by the mandatory language of the sentencing instruction. As previously indicated, however, our review of the record, including the instructions and argument, has persuaded us that the jury understood its obligation to consider the substantial mitigating evidence elicited at the guilt phase of the trial. Nothing in the record suggests that the jury ignored the mitigating evidence in making its penalty decision. On these facts, we conclude no error occurred here under Brown, supra, 40 Cal. 3d 512.
C. Other-crimes Evidence.
(23) Defendant next contends that the court improperly permitted the jury to consider evidence of his other criminal acts which were assertedly irrelevant to the penalty determination and hence inadmissible at the penalty trial. Defendant refers to the evidence, previously discussed, regarding his arrest on charges of the attempted robbery of an elderly couple, and of carrying a concealed BB gun, including his statement that he would have shot one of the arresting officers had the officer not been standing behind the door of the police car.
Evidence that defendant had been arrested, but not charged, for attempted robbery was not admissible under section 190.3, factor (b). The evidence was clearly insufficient to establish that defendant in fact committed the offense for which he had been arrested. (See People v. Anderson (1978) 20 Cal. 3d 647, 650 [143 Cal. Rptr. 883, 574 P.2d 1235].) However, this evidence *1231 was elicited by defendant. Even if defendant could predicate error on the admission of evidence he elicited, the error could only be regarded as relatively minor and nonprejudicial, for no reasonable juror would vote for a death penalty merely because defendant had been arrested for, but not charged with, attempted robbery. Moreover, the jury was expressly instructed that it could not consider such evidence unless the offense (not merely the arrest) was proved beyond a reasonable doubt.
As for the evidence of defendant's concealed-weapon arrest and his subsequent statement about shooting at the officers, we may assume arguendo that none of this evidence involved prior violent criminal activity, and that accordingly it too was inadmissible. (See People v. Boyd (1985) 38 Cal. 3d 762, 777 [215 Cal. Rptr. 1, 700 P.2d 782].) Again, however, it is not reasonably possible the jury's penalty verdict was affected by the disclosure that defendant had been arrested for carrying a concealed BB gun and had admittedly considered firing it at the officers. (See People v. Brown (1988) 46 Cal. 3d 432, 448 [250 Cal. Rptr. 604, 758 P.2d 1135].)
D. Reasonable Doubt as to Weight of Sentencing Factors.
Defendant contends the jury should have been instructed that, in order to impose death, it must find beyond a reasonable doubt that the aggravating factors outweighed the mitigating ones. The contention is without merit. (People v. Miranda, supra, 44 Cal. 3d 57, 107.)
E. Double Counting of Sentencing Factors.
Defendant complains of possible double counting of sentencing factors by reason of instructions which allowed the jury to consider both the circumstances of the present offense (§ 190.3, factor (a)) and the presence of criminal activity (id., factor (b)). Although the latter factor refers to prior criminal activity other than the charged offenses, there is no indication in the record that the prosecutor urged the jury to give undue weight to the circumstances surrounding the charged offenses or that the jury was misled in this regard. (See People v. Thompson (1988) 45 Cal. 3d 86, 137-138 [246 Cal. Rptr. 245, 753 P.2d 37]; People v. Melton (1988) 44 Cal. 3d 713, 763 [244 Cal. Rptr. 867, 750 P.2d 741].)
F. Excessive Multiple-murder Special-circumstance Findings.
(24) Although defendant has not raised the point, the court erred in permitting the jury to find and consider three multiple-murder special circumstances instead of one. (See People v. Anderson (1987) 43 Cal. 3d 1104, 1150 [240 Cal. Rptr. 585, 742 P.2d 1306]; People v. Allen, supra, 42 Cal.3d *1232 1222, 1273.) Accordingly, only one multiple-murder special circumstance should have been considered by the jury during the penalty phase.
The instructions, however, did not permit consideration of any evidence that was not otherwise admissible and relevant to the penalty decision. The jury was fully aware that defendant committed three murders in the present case, and that the multiple-murder special circumstances were based on these murders. Accordingly, we find the error harmless. (See Allen, supra, 42 Cal.3d at pp. 1281-1283.)
G. Cumulative Effect of Penalty Phase Errors.
Defendant asserts that the cumulative effect of the various errors discussed above should require reversal of the penalty. As we have seen, few errors were committed, and they were too minor, separately or in combination, to have affected the verdict.
The judgment of guilt, the finding of one multiple-murder special circumstance, and the judgment of death are affirmed. The petition for writ of habeas corpus is denied.
Panelli, J., Eagleson, J., and Arguelles, J.,[*] concurred.
LUCAS, C.J.
I concur in the judgment of death, but I would reach that disposition in a slightly different manner than the majority.
In rejecting defendant's incompetent counsel claims, the majority concludes, based on its reading of Faretta v. California (1975) 422 U.S. 806 [45 L. Ed. 2d 562, 95 S. Ct. 2525], that (1) defendant was properly allowed to represent himself (with advisory counsel) despite his stated purpose to withhold mitigating evidence and obtain a death verdict, and (2) he was not entitled to a specific, advance warning that such self-representation would result in the waiver of his right to raise on appeal any claims of incompetent counsel.
Although I tend to agree with the foregoing conclusions, the lack of supportive federal precedent would lead me to base our decision on the ground that, in any event, defendant was not prejudiced by any supposed error in permitting him to proceed as he did. (I assume that any error in allowing self-representation with cocounsel or advisory counsel would not be deemed reversible per se. Cf. People v. Crandell (1988) 46 Cal. 3d 833, *1233 864-865 [251 Cal. Rptr. 227, 760 P.2d 423]; People v. Bigelow (1984) 37 Cal. 3d 731, 744-746 [209 Cal. Rptr. 328, 691 P.2d 994, 64 A.L.R. 4th 723], and cases cited.)
Here, defendant introduced substantial mitigating "background" evidence at the guilt phase, which evidence focused on his unstable relationship with his abusive father, his initial murder victim. The guilt phase evidence included testimony by defendant's mother, grandmother, former stepmother and other witnesses regarding Bloom, Sr.'s violent temper and his physical and verbal abuse of defendant, and the testimony of Dr. Kling regarding defendant's schizotypal mental disorder. Additionally, the jury knew that defendant had no prior felony convictions and was only 18 years old when he committed the offenses.
Although the foregoing evidence was not formally presented or argued at the penalty phase, the jury was expressly instructed to consider, in determining penalty, "all of the evidence which has been received during any part of the trial of this case, including the guilt phase." (Italics added.)
In addition, expanded jury instructions were given in the present case to make clear that the jury could consider "Any other circumstance which extenuates the gravity of the crime even though it is not a legal excuse for the crime, and any other aspect of defendant's character or record that defendant proffers as a basis for a sentence less than death." (Italics added.)
At one point in his argument the prosecutor reminded the jury that defendant "chose" not to present any mitigating evidence. Soon thereafter, however, the prosecutor advised the jury to "Go over the facts in this case, go over the defendant's background, see how he only goes after those who are unarmed and helpless. Review the evidence of the guilt phase of the trial." (Italics added.) Thus, contrary to defendant's contention, we must assume from the instructions and argument in this case that the jury considered the substantial mitigating evidence elicited at the guilt phase. (See People v. Rich (1988) 45 Cal. 3d 1036, 1117-1119 [248 Cal. Rptr. 510, 755 P.2d 960]; People v. Williams (1988) 44 Cal. 3d 1127, 1152 [245 Cal. Rptr. 635, 751 P.2d 901]; People v. Gates (1987) 43 Cal. 3d 1168, 1214 [240 Cal. Rptr. 666, 743 P.2d 301].)
Here, the jury received expanded instructions which permitted it to consider the mitigating guilt phase evidence. Thus, defendant's failure to formally introduce any mitigating evidence at the penalty phase was not prejudicial to his case. For the same reason, defendant's habeas corpus petition fails to state a prima facie case. The mitigating evidence referred to in the petition appears to be largely cumulative of evidence already admitted at *1234 the guilt phase. (See People v. Guzman (1988) 45 Cal. 3d 915, 968-969 [248 Cal. Rptr. 467, 755 P.2d 917]; Williams, supra, 44 Cal.3d at p. 1152.)
Moreover, the aggravating evidence which defendant helped the prosecutor present was fairly insubstantial (testimony concerning an arrest for a prior unadjudicated attempted robbery) when compared with the other aggravating circumstances in the case. Finally, even if defendant had not been allowed to represent himself, he still would have had the right to address the jury and request a death sentence. (See Guzman, supra, 45 Cal.3d at p. 962.)
Thus, I would conclude that the grant of self-representation with cocounsel or advisory counsel did not substantially affect the course or outcome of the penalty trial. Under the circumstances here, I agree that the judgment of death should stand.
MOSK, J., Concurring and Dissenting.
I concur in the affirmance of the judgment convicting defendant of the willful, premeditated, and deliberate murder of his father. I also concur in the upholding of the determination of death-eligibility.
I dissent, however, from the affirmance of the judgment convicting defendant of the willful, premeditated, and deliberate murder of his stepmother and stepsister. As I shall explain, the evidence is insufficient to support the jury's verdict of guilty as to these two offenses specifically, it is insufficient on the elements of premeditation and deliberation.
I also dissent from the affirmance of the judgment imposing the penalty of death. As I shall explain, the trial court erred by granting a request by defendant to prosecute the case for death at the penalty phase of this capital trial. The error requires reversal: it resulted in a breakdown of the adversary process and thereby rendered the jury's verdict of death unreliable as a matter of law.
I
I turn first to the issue whether the evidence is sufficient to support the jury's verdict finding defendant guilty of the willful, premeditated, and deliberate murder of his stepmother and stepsister.
When a court assesses the sufficiency of the evidence, its "task is to determine whether a reasonable trier of fact could have found that the prosecution sustained its burden of proving the defendant guilty beyond a reasonable doubt. [Citation.] The judgment must be supported by `substantial evidence,' which has been defined as evidence that `reasonably inspires *1235 confidence and is of "solid value."'" (People v. Morris (1988) 46 Cal. 3d 1, 19 [249 Cal. Rptr. 119, 756 P.2d 843] (per Kaufman, J.).) The term "substantial evidence," of course, means solid evidence and not mere speculation. In any given case, a court "may speculate about any number of scenarios that may have occurred.... A reasonable inference, however, may not be based on suspicion alone, or on imagination, speculation, supposition, surmise, conjecture, or guess work.... A finding of fact must be an inference drawn from evidence rather than ... a mere speculation as to probabilities without evidence." (Id. at p. 21, italics in original, internal quotation marks and paragraphing omitted.)
In People v. Anderson (1968) 70 Cal. 2d 15 [73 Cal. Rptr. 550, 447 P.2d 942], this court stated: "The type of evidence which this court has found sufficient to sustain a finding of premeditation and deliberation falls into three basic categories: (1) facts about how and what defendant did prior to the actual killing which show that the defendant was engaged in activity directed toward, and explicable as intended to result in, the killing what may be characterized as `planning' activity; (2) facts about the defendant's prior relationship and/or conduct with the victim from which the jury could reasonably infer a `motive' to kill the victim, which inference of motive, together with facts of type (1) or (3), would in turn support an inference that the killing was the result of `a pre-existing reflection' and `careful thought and weighing of considerations' rather than `mere unconsidered or rash impulse hastily executed' [citation]; (3) facts about the nature of the killing from which the jury could infer that the manner of killing was so particular and exacting that the defendant must have intentionally killed according to a `preconceived design' to take his victim's life in a particular way for a `reason' which the jury can reasonably infer from facts of type (1) or (2).
"Analysis of the cases will show that this court sustains verdicts of first degree murder typically when there is evidence of all three types and otherwise requires at least extremely strong evidence of (1) or evidence of (2) in conjunction with either (1) or (3)." (70 Cal.2d at pp. 26-27, italics in original.)
In my view, it is plain that a rational trier of fact should not have found defendant guilty beyond a reasonable doubt of the premeditated and deliberate murder of his stepmother and stepsister: premeditation and deliberation were not proved beyond a reasonable doubt. Indeed, the evidence of these two elements is practically nonexistent, and was certainly far too insubstantial to support a finding beyond a reasonable doubt: at most, the record supports an inference that the killings resulted from an explosion of violence without significant forethought or reflection on the part of defendant.
*1236 Specifically, there is no substantial evidence that defendant planned his attack on his stepmother and stepsister. The majority cite testimony to the effect that after shooting his father, defendant "reload[ed] the rifle, or adjust[ed] or inspect[ed] it in some manner, and then enter[ed] the residence" and killed his stepmother and stepsister. (Maj. opn., ante, at p. 1210.) Such testimony may perhaps allow speculation that defendant planned the later killings. But "speculation" is not "evidence," less still "substantial evidence."
Next, there is no substantial evidence that defendant had a motive to kill his stepmother and stepsister. The majority evidently accept an elimination-of-witnesses theory presented by the Attorney General. But the Attorney General himself admits in his brief that this theory is "merely speculation." As stated above, "speculation" is not "evidence."
Finally, there is no substantial evidence that defendant employed a manner of killing his stepmother and stepsister that indicates a preconceived design to kill in a certain way. The majority expressly find that "The manner in which defendant killed [his stepmother] was ... particular and exacting" (maj. opn., ante, at p. 1210), and impliedly find that the manner in which he killed his stepsister was similar. The record, however, reveals no substantial evidence of a "particular and exacting" manner of killing. I recognize that defendant's conduct arguably supports an inference of intent to kill. But such an intent, of course, does not amount to or entail premeditation or deliberation in and of itself. (See People v. Anderson, supra, 70 Cal.2d at p. 26.)
Therefore, I would hold that the evidence is insufficient to support the jury's verdict finding defendant guilty of the willful, premeditated, and deliberate murder of his stepmother and stepsister.
II
I turn next to the issue whether the trial court committed reversible error when it granted defendant's request to prosecute the case for death at the penalty phase of his capital trial.
Manifestly, the penalty phase of a capital trial in this state is an adversary process. "The very premise of our adversary system of criminal justice is that partisan advocacy on both sides of a case will best promote the ultimate objective" of punishment in accordance with deserts. (Herring v. New York (1975) 422 U.S. 853, 862 [45 L. Ed. 2d 593, 600, 95 S. Ct. 2550]; accord, United States v. Cronic (1984) 466 U.S. 648, 655 [80 L. Ed. 2d 657, 665, 104 S. Ct. 2039].) In other words, "The system assumes that adversarial testing *1237 will ultimately advance the public interest in truth and fairness." (Polk County v. Dodson (1981) 454 U.S. 312, 318 [70 L. Ed. 2d 509, 516, 102 S. Ct. 445].) It follows that the system requires "meaningful adversarial testing." (United States v. Cronic, supra, 466 U.S. at p. 656 [80 L.Ed.2d at p. 666].) When such testing is absent, the process breaks down and hence its result must be deemed unreliable as a matter of law. (See id. at p. 659 [80 L.Ed.2d at p. 668]; see also Rose v. Clark (1986) 478 U.S. 570, 577-578 [92 L. Ed. 2d 460, 470-471, 106 S. Ct. 3101] [to similar effect]; Satterwhite v. Texas (1988) 486 U.S. 249, 256-257 [100 L. Ed. 2d 284, 293-294 108 S. Ct. 1792, 1797] [impliedly following the Rose analysis].)
Further, as the United States Supreme Court has repeatedly emphasized, "the penalty of death is qualitatively different from a sentence of imprisonment, however long. Death, in its finality, differs more from life imprisonment than a 100-year prison term differs from one of only a year or two. Because of that qualitative difference, there is a corresponding difference in the need for reliability in the determination that death is the appropriate punishment in a specific case." (Woodson v. North Carolina (1976) 428 U.S. 280, 305 [49 L. Ed. 2d 944, 961, 96 S. Ct. 2978] (opn. of Stewart, Powell, and Stevens, JJ.); accord, Caldwell v. Mississippi (1985) 472 U.S. 320, 329-330 [86 L. Ed. 2d 231, 239-230, 105 S. Ct. 2633]; California v. Ramos (1983) 463 U.S. 992, 998-999, fn. 9 [77 L. Ed. 2d 1171, 1178-1180, 103 S. Ct. 3446], citing cases.)
Immediately after the jury returned its verdict at the guilt phase, defendant addressed the trial court as follows. "Your Honor, I would just like to say now that I have been through the convicted it is not fair. I feel that having just filed it, it might be that I would like for [defense counsel] as my co-counsel, and the reason I want to go pro[.] per[.] is so that see, I don't want to put up no defense, because really it is counterproductive. [¶] The jury has already sentenced me to death. You know what I'm saying? [¶] All they got to do now is tell me whether I die of natural causes or whether they send it up by the chamber, and it don't make no never-mind to me except for the fact that I'm only 20 years old, and I really can't picture myself, you know, life without parole means life without unless you get a clemency from the Governor, and I really don't see that happening. [¶] I really don't want to put on a defense. I just want to be able to address the jury and, you know, seek the death penalty myself, because I really don't intend spending the rest of my natural life in some institution, you know, and I would have I would like to, you know, address the jury and, you know, whatever, but I would like to do this in the capacity of pro[.] per[.] so that the prosecution is going to seek the death penalty. That's cool. [¶] All right. I'm going to help him."
*1238 Defendant subsequently made it clear that he desired to put on a case for death independent of the prosecution: he acknowledged that he "intend[ed] to call such witnesses which would aid the prosecution in obtaining the death penalty."
The trial court recognized defendant's intent. When defendant requested a continuance and law library privileges in order to prepare his case, the following colloquy ensued.
"THE COURT: It is a unique situation, a unique problem that is presented to this court. [¶] I have to tell you that it is not my intention to grant you a continuation, continuation of the penalty phase for that purpose.
"THE DEFENDANT: How can I go up against a man who has been practicing law longer than I have been alive?
"THE COURT: It doesn't sound like you are going against him. He is not arguing for life. He is arguing for death. [¶] What you are doing is concurring with the position the People are taking."
In my view, the trial court plainly erred when it granted defendant's request to prosecute the case for death.
As stated above, the penalty phase of a capital trial in this state is an adversary process and the Constitution requires heightened reliability as to its outcome. A defendant has no right to attempt to subvert the process and thereby undermine the reliability of its result, and a court has no power to allow him to do so. (See, e.g., People v. Deere (1985) 41 Cal. 3d 353, 362-364 [222 Cal. Rptr. 13, 710 P.2d 925] [holding that the state has a strong independent interest in the reliability of the penalty determination in a capital case]; People v. Chadd (1981) 28 Cal. 3d 739, 749-753 [170 Cal. Rptr. 798, 621 P.2d 837] [to similar effect]; People v. Stanworth (1969) 71 Cal. 2d 820, 832-834 [80 Cal. Rptr. 49, 457 P.2d 889] [to similar effect]; see also People v. Guzman (1988) 45 Cal. 3d 915, 960-961 [248 Cal. Rptr. 467, 755 P.2d 917] [impliedly approving the Deere holding]; People v. Williams (1988) 44 Cal. 3d 1127, 1149-1152 [245 Cal. Rptr. 635, 751 P.2d 901] [same]; People v. Burgener (1986) 41 Cal. 3d 505, 541-543 [224 Cal. Rptr. 112, 714 P.2d 1251] [following Deere].) Thus, the trial court errs when it permits a defendant to try to subvert the adversary process and undermine its reliability indirectly through counsel. (See People v. Deere, supra, 41 Cal.3d at pp. 368-370 (conc. opn. of Broussard, J.).) Consequently, it errs when it permits him to seek the same goal directly through his own efforts.
In this case, the trial court was obligated to deny defendant's request to prosecute the case for death in order to preserve the integrity of the adversary *1239 process and thereby safeguard the reliability of its outcome. It failed to do so. It thereby committed error.
In arriving at the contrary conclusion, the majority rely on Faretta v. California (1975) 422 U.S. 806 [45 L. Ed. 2d 562, 95 S. Ct. 2525]. As will appear, their reliance is misplaced: the trial court's ruling was not compelled by Faretta, nor was it even consistent with the logic of that decision.
In Faretta, the United States Supreme Court held that "The Sixth Amendment ... grants to the accused personally the right to make his defense." (422 U.S. at p. 819 [45 L.Ed.2d at p. 572].) In support the court cited, inter alia, the "nearly universal conviction, on the part of our people as well as our courts, that forcing a lawyer upon an unwilling defendant is contrary to his basic right to defend himself if he truly wants to do so." (Id. at p. 817 [45 L.Ed.2d at p. 572].) It defined "the right to self-representation" as the right "to make one's own defense personally." (Id. at p. 819 [45 L.Ed.2d at p. 572].) It observed that "the [Sixth] Amendment constitutionalizes the right in an adversary criminal trial to make a defense as we know it." (Id. at p. 818 [45 L.Ed.2d at p. 572].)
In McKaskle v. Wiggins (1984) 465 U.S. 168 [79 L. Ed. 2d 122, 104 S. Ct. 944], the court made express what it had clearly implied in Faretta. "[T]he defendant's right to proceed pro se exists in the larger context of the criminal trial designed to determine whether or not a defendant is guilty of the offense with which he is charged." (Id. at pp. 177-178, fn. 8 [79 L.Ed.2d at p. 133].)
Thus, viewed within this context the right of self-representation has as at least one of its purposes the safeguarding of the criminal trial as a proceeding that is adversarial not merely in name but also and especially in substance. (See Faretta v. California, supra, 422 U.S. at pp. 812-834 [45 L.Ed.2d at pp. 569-581].)
I return to the case at bar. To begin with, the record shows that defendant did not have a right to prosecute the case for death under Faretta.
As stated above, under Faretta a criminal defendant has a "basic right to defend himself if he truly wants to do so" (id. at p. 817 [45 L.Ed.2d at p. 572]), a "right to make a defense as we know it" "in an adversarial criminal trial" (id. at p. 818 [45 L.Ed.2d at p. 572]). He does not have a right to *1240 prosecute himself. Defendant, of course, did not seek to mount a defense, but rather desired to direct an independent prosecution.
As also stated above, at least one of the purposes of the right of self-representation is to safeguard the trial as an adversary proceeding. Defendant, however, invoked this right not to participate directly in the process but rather to destroy it with his own hands and make the penalty phase what it turned out to be a sham and a mockery of justice.
But in any event, even if defendant could have invoked the authority of Faretta in support of his request to prosecute the case for death, he did not effectively do so here. The reasons are plain. The request seems too little. When the motion is scrutinized in the context in which it was made and not in light of subsequent events, it appears to seek cocounsel status and not self-representation properly so-called. (See People v. Wheeler (1977) 68 Cal. App. 3d 1056, 1059 [137 Cal. Rptr. 791].) The request, however, was certainly too late. The motion was not made prior to trial, but only shortly before the opening of the penalty phase. (See People v. Hamilton (1988) 45 Cal. 3d 351, 369 [247 Cal. Rptr. 31, 753 P.2d 1109].)
In short, the granting of defendant's request to prosecute the case for death is not supported by Faretta and is indeed inconsistent with the logic of that decision. Faretta is a shield for the criminal defendant; he may use the right of self-representation to defend himself and preserve the adversary process. (See id., 422 U.S. at pp. 818-834 [45 L.Ed.2d at pp. 572-581].) Faretta contrary to the majority's apparent view is not a sword for the defendant; he may not use the right of self-representation to prosecute himself and undermine the adversary process. (See id. at pp. 834-835, fn. 46 [45 L.Ed.2d at p. 581].) As the Faretta court itself stated: "The right of self-representation is not a license to abuse the dignity of the courtroom. Neither is it a license not to comply with relevant rules of procedural and substantive law." (Id. at p. 835, fn. 46 [45 L.Ed.2d at p. 581].) A fortiori, the right of self-representation is not a license to subvert the very adversary process of which it is but one part.
In holding that the trial court did not err by granting defendant's request to prosecute the case for death, the majority also appear to conclude that the ruling was not inconsistent with the nature of the penalty phase as an adversary process or the constitutional requirement of heightened reliability for the penalty determination. I cannot agree.
*1241 First, the court's ruling left the penalty phase unprotected in the face of the direct attack defendant openly set out to mount against the adversary process. The majority seem to say the court took steps to safeguard the formal characteristics of the process. But it manifestly took no steps whatever to preserve its substance. And as explained above, it is the substance and not the formal characteristics that is critical here. The majority also seem to say the court could not have done more than it did. I disagree. It may well be the court could not have compelled defendant to put on a meaningful case for life. But it could perhaps have appointed independent counsel to put on such a case and it certainly could have barred defendant from prosecuting a case for death.
Second, the court's ruling permitted, if not invited, the undermining of the reliability of the penalty determination at defendant's hands. As explained above, whether the outcome of the penalty phase is reliable turns on the presence of "meaningful adversarial testing." (United States v. Cronic, supra, 466 U.S. at p. 656 [80 L.Ed.2d at p. 666].) The court, however, allowed the penalty phase to degenerate as degenerate it did into a proceeding in which there would be no "adversarial testing," "meaningful" or otherwise.[1]
I turn now from the fact of error to its consequences. In my view, on these facts reversal is required without consideration of the existence vel non of specific prejudice. As the record establishes beyond peradventure, the error resulted in a breakdown of the adversary process and thereby rendered the jury's verdict unreliable as a matter of law.
At the penalty phase the prosecution presented in aggravation evidence that defendant had attempted with a pellet gun to rob an elderly woman at a church. At a bench conference, defendant made the following complaint: "in my opinion, [the prosecutor] is not bringing out nothing aggravating. His job is to bring out aggravating circumstances. He's talking about this one robbery. There is another robbery where people were shot. If he's not *1242 going to call them, I will call them." The prosecutor responded: "There is evidence the defendant attempted to commit another robbery. However, the victim in that case, from what I am able to read from the reports, cannot identify the defendant, therefore we cannot bring him in." Defendant replied: "I'll stipulate [to identity]." Defense counsel, however, would not join in the proposed stipulation and the prosecutor refused to accept the offer. During cross-examination of one of the prosecution's witnesses, defendant elicited testimony to the effect that he was a suspect in an attempted robbery of an elderly couple during which some type of handgun was apparently fired.
The prosecution also presented evidence that defendant had been arrested by two police officers for carrying a concealed weapon a pellet gun and that he stated to one of the officers after his arrest that "if he had a choice, he would have gone ahead and shot one of us...." During cross-examination of one of the prosecution's witnesses, defendant elicited testimony that when he was arrested he had in his possession a "robbery kit," including a carton of 1,500 pellets.
The defense presented no evidence whatever in the penalty phase. Defendant had requested permission from the court to introduce photographs of the victims in death. The prosecutor stated: "I never brought [the photographs], never intended to bring them into evidence, so the court has never seen them nor have I ever intended to offer them in evidence. [¶] I felt they would have been inflammatory and the court wouldn't put them in evidence anyway." The court denied defendant's request.
In his closing argument, the prosecutor asked for the death penalty, arguing there was no evidence in mitigation: "The defendant had an opportunity, if he so chose to do, he could have presented factors in mitigation. You heard none"; and, "He had the right to show you, if there was any factors in mitigation, he could have presented testimony. He chose not to do so."
In his closing argument, defendant also asked for the death penalty, arguing there was no evidence in mitigation: "I didn't offer no mitigating circumstances, because there ain't no mitigating circumstances. There ain't none." Moreover, he developed a theme, which he stated time and again, to the effect that he would eventually get out of prison if he were sentenced to a term of life without possibility of parole. For example, at one point he said: "Let me talk a little about life without possibility of parole. [¶] People *1243 throw that term around like it means something. I'm going to tell you something. It don't mean nothing. [¶] I can't find it right now, but I think you will find that life without possibility of parole can be modified in the future. This is California. People get out." At another point he stated: "I'll tell you something, I'll be out." Finally, he said: "Give me life and I'll kill again, in prison."
At a bench conference, defendant asked the trial court to deliver the discredited "Briggs Instruction" (see People v. Ramos (1984) 37 Cal. 3d 136, 150-159 [207 Cal. Rptr. 800, 689 P.2d 430]) in an evident attempt to support the "I'll get out" theme of his argument. The court denied the request.
In view of the foregoing it is evident that there was no "adversarial testing" at the penalty phase, "meaningful" or otherwise. The "defense" if such it can be called did not merely fail to participate in the proceedings in accordance with its role to at the very least "`put the State to its proof'" (People v. Chadd, supra, 28 Cal. 3d 739, 750, fn. 7). Rather, it actually aided the state by presenting an independent case for death, including aggravating evidence that the state had chosen not to present as unreliable.
It must be emphasized that contrary to the majority's suggestion, the jury was not given instructions sufficient to repair the breakdown of the adversary process at the penalty phase if indeed any such instructions could have been given.
It is true that at the guilt phase there was presented considerable evidence concerning defendant's background and character that was potentially mitigating. It is also true that the trial court told the jurors that "In determining which penalty is to be imposed on the defendant, you shall consider all of the evidence which has been received during any part of the trial of this case, including the guilt phase." (Italics added.)
These facts, however, do not undermine my conclusion. To begin with, I have serious doubt that the jurors were effectively informed of their obligation to consider the potentially mitigating evidence presented at the guilt phase. To be sure, the court told them that in determining penalty they should take into account "any ... aspect of defendant's character ... that defendant proffers as a basis for a sentence less than death." (Italics added.) But as stated above, defendant did not proffer any such evidence. Further, *1244 both defendant and the prosecutor forcefully argued that no such evidence existed in the record. In any event, the jurors received insufficient guidance as to how they might consider the potentially mitigating evidence. Plainly, evidence does not declare its own weight and significance. (See Herring v. New York, supra, 422 U.S. at pp. 856-864 [45 L.Ed.2d at pp. 597-602] [discussing the constitutionally fundamental importance of closing argument in the adversary process].) The jurors did not receive guidance on the consideration of potentially mitigating evidence from both a prosecution and a defense perspective. Rather, they were told by both the prosecutor and defendant that there was no such evidence for them to consider.[2]
Accordingly, I believe that the trial court's erroneous grant of defendant's request to prosecute the case for death resulted in the breakdown of the adversary process and thereby rendered the jury's verdict unreliable as a matter of law. The majority appear to be of the view that reliability is assured in this case because various formal characteristics of the adversary process are evident. But to my mind there is no blinking the fact that the substance of that process was altogether lacking. And it is the substance that is critical.
The concurring opinion takes the position that the erroneous grant of defendant's request to prosecute the case for death was harmless. For the reasons stated above, I cannot conclude that the error is subject to harmless-error analysis under even the most stringent of standards. But even if I could, I would not be able to find an absence of prejudice.
The issue of penalty must be considered close. The evidence in aggravation, to be sure, was substantial. But "substantial" too as both the majority *1245 (maj. opn., ante, p. 1230) and the concurring opinion (conc. opn. of Lucas, C.J., ante, pp. 1233, 1234) concede was the evidence in mitigation. The error considered here resulted in the maximization of the former evidence and the minimization of the latter, and thereby affected the balance of aggravating and mitigating circumstances to defendant's prejudice. Accordingly, I believe that on the present record the error here cannot be deemed harmless under any standard.
In coming to the opposite conclusion, the concurring opinion asserts that "the aggravating evidence which defendant helped the prosecutor present was fairly insubstantial ... when compared with the other aggravating circumstances in the case." (Conc. opn. of Lucas, C.J., ante, p. 1234.) But this additional evidence that defendant was a suspect in an attempted robbery of an elderly couple during which some type of handgun was apparently fired cannot properly be labeled "fairly insubstantial." In the abstract, perhaps, such evidence might not be considered particularly weighty. But in this case it must be: the attempted robbery of the elderly couple was clearly more serious than either of the two crimes presented by the prosecution.
The concurring opinion also asserts that "even if defendant had not been allowed to represent himself, he still would have had the right to address the jury and request a death sentence." (Conc. opn. of Lucas, C.J., ante, p. 1234.) But although it is true that "the accused has a fundamental right to testify in his own behalf" at the penalty phase of a capital trial (People v. Guzman, supra, 45 Cal.3d at p. 962), surely defendant could not have said as a witness all that he said as counsel. For example, he could not have testified, as he did in fact argue, that the penalty of life imprisonment without possibility of parole did not really mean life imprisonment without possibility of parole.
Finally, the concurring opinion asserts that the instructions adequately informed the jurors that in determining penalty they should consider the potentially mitigating evidence introduced at the guilt phase. But as the discussion above demonstrates, the instructions did no such thing.
Accordingly, I would hold that the trial court committed reversible error when it granted defendant's request to prosecute the case for death at the penalty phase of his capital trial.
*1246 III
For the foregoing reasons, I would reverse the judgment convicting defendant of the first degree murder of his stepmother and stepsister. I would also reverse the judgment of death.
Broussard, J., concurred.
Appellant's petition for a rehearing was denied August 31, 1989. Mosk, J., and Broussard, J., were of the opinion that the petition should be granted.
NOTES
[1] Although this testimony was interpreted by both the prosecutor and defense counsel as a claim that defendant did not remember any intervening events, it seems equally consistent with a simple refusal to discuss those events.
[2] Defendant's own testimony on this point is persuasive. Referring to Bloom, Sr., defendant stated: "... he's very intimidating ... I don't care what kind of gun you have, it don't matter."
[3] The semiautomatic rifle used by defendant held 18 rounds of ammunition. The three victims suffered a total of eight gunshot wounds, two bullet holes were observed in the front windows, and eight live rounds were found scattered at the scene. Thus 18 rounds were accounted for. No evidence was offered to explain the presence of the live rounds. Presumably they spilled or were ejected from the rifle.
[4] Section 189 provides, in relevant part: "To prove the killing was `deliberate and premeditated,' it shall not be necessary to prove the defendant maturely and meaningfully reflected upon the gravity of his or her act."
[5] Factors to be considered by the court in ruling on a midtrial motion for self-representation include "the quality of counsel's representation of the defendant, the defendant's prior proclivity to substitute counsel, the reasons for the request, the length and stage of the proceedings, and the disruption or delay which might reasonably be expected to follow the granting of such a motion." (Windham, supra, 19 Cal. 3d 121, 128.)
[6] A few exceptions to this rule have been established by statutory or constitutional mandate. (See, e.g., People v. Upshaw (1974) 13 Cal. 3d 29, 33-34 [117 Cal. Rptr. 668, 528 P.2d 756] [Cal. Const., art. I, § 16, bars represented defendant from waiving jury trial without counsel's consent]; People v. Chadd (1981) 28 Cal. 3d 739, 746 [170 Cal. Rptr. 798, 621 P.2d 837] [§ 1018 requires counsel's consent to guilty plea in capital case]; People v. Stanworth (1969) 71 Cal. 2d 820, 834 [80 Cal. Rptr. 49, 457 P.2d 889] [§ 1239, subd. (b), precludes abandonment of automatic appeal from judgment of death].)
[7] While qualitatively different from the death penalty, the punishment of life imprisonment without hope of release has been regarded by many as equally severe: "When a person is doomed to spend his final years imprisoned, with no (or few) prospects of release, then in terms of his human dignity, his individuality, his freedom, and his autonomy, one could well argue that the oppressive confines of a prison constitute as great an infringement of his basic human rights as a death sentence." (Sheleff, Ultimate Penalties (1987) p. 56.) Life imprisonment without possibility of parole has been described as "`not so much a substitute for capital punishment, as a slower and more disadvantageous method of inflicting it.'" (Id. at p. 62, quoting penologist William Tallack.) As the philosopher John Stuart Mill put it: "`What comparison can there really be, in point of severity between consigning a man to the short pang of a rapid death, and immuring him in a living tomb, there to linger out what may be a long life in the hardest and most monotonous toil, without any of its alleviation or rewards debarred from all pleasant sights and sounds, and cut off from all earthly hope, except a slight mitigation of bodily restraint, or a small improvement of diet?'" (Id. at p. 60.)
[8] The choice of self-representation is not the only decision by an accused restricting issues cognizable on appeal. A guilty plea "severely restricts the defendant's right to appeal from the ensuing judgment" (Chadd, supra, 28 Cal.3d at p. 748), yet this court has never suggested that a defendant indicating a willingness to enter a guilty plea should or must be advised of this consequence. (See In re Tahl (1969) 1 Cal. 3d 122, 132 [81 Cal. Rptr. 577, 460 P.2d 449]; People v. Everett (1986) 186 Cal. App. 3d 274, 281-282 [230 Cal. Rptr. 604]; In re Chadwick C. (1982) 137 Cal. App. 3d 173, 179-180 [170 Cal. Rptr. 798, 621 P.2d 837]; People v. Watts (1977) 67 Cal. App. 3d 173, 184 [136 Cal. Rptr. 496].) We note also that the Sixth and Seventh Circuits have directed federal district judges to follow the model inquiry set forth in 1 Bench Book for United States District Judges (3d ed. 1986) 1.02-2 when faced with a request for self-representation; this model inquiry does not provide for an advisement that a pro se defendant cannot claim ineffective assistance of counsel on appeal. (U.S. v. McDowell, supra, 814 F.2d at p. 250; U.S. v. Moya-Gomez (7th Cir.1988) 860 F.2d 706, 732, fn. 25.)
[9] This conclusion is consistent with our decision in People v. Williams (1988) 44 Cal. 3d 1127, 1152 [245 Cal. Rptr. 635, 751 P.2d 901], stressing that failure to present mitigating evidence generally does not make a death judgment unreliable in a constitutional sense in the absence of misleading or erroneous instructions and argument. To the extent that Deere, supra, 41 Cal. 3d 353, suggests that failure to present mitigating evidence in and of itself is sufficient to make a death judgment unreliable, it is based on a mistaken understanding of the Eighth Amendment's reliability requirement and its reasoning in that regard is hereby disapproved.
[*] Retired Associate Justice of the Supreme Court sitting under assignment by the Chairperson of the Judicial Council.
[1] By acting as it did the majority's assertion to the contrary notwithstanding the trial court also contravened the policy against state-aided suicide. As this court stated in People v. Deere, supra, 41 Cal. 3d 353: "If the question is whether this defendant may elect to sacrifice his life to atone for the murders he committed, the answer is affirmative. While at common law suicide was a felony punishable by forfeiture of property to the king and ignominious burial, there is nothing in modern law to prevent a person from resolving or attempting to end his life. [Citation.] Indeed, there is a body of law evolving that appears to respect a person's choice of how and when to die. [Citation.] [¶] However, if the question is whether a person may compel the people of the State of California to use their resources to take his life, the answer must be negative." (Id. at pp. 361-362, italics added.)
[2] It is not altogether clear whether defendant's express "death wish" was sincere. I recognize that when he was being examined by a psychiatrist for a competency hearing after the penalty phase but before sentencing, defendant "admitted" he had sought the death penalty not to end his life but to expedite appeal to this court in the hope of reversal of the judgment in its entirety. I find it difficult to credit defendant's "admission": it is plainly inconsistent with the considerable delay defendant caused in the proceedings.
It is abundantly clear, however, that defendant reveled in the attention he received during his trial. In exploiting his own vices, he was much like Theodore Bundy, the condemned murderer who received vast news coverage throughout the country before his execution in early 1989. Several years ago, United States District Judge Gerhard Gesell chose to impose a sentence of life imprisonment on the killer of two agents of the Federal Bureau of Investigation rather than death. He explained: "`It would not serve the ends of effective justice to allow the defendant the luxury of all the special attention a capital penalty would generate. His mistaken views of his own importance would be fed by the continued controversy and supplications surrounding the current legal controversy on the matter of capital punishment. [Defendant], you will die in jail, but at such time as God appoints.'" (Quoted in Dershowitz, Executions Embolden Fame-seeking Killers, S.F. Chronicle (Feb. 2, 1989) p. A23, col. 4.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3119949/ | Order issued October J..? , 2012
In The
Qtnurt nf Appeals
lf:ift4 llistrirt nf IDcxas at llallas
No. 05-12-01296-CV
TEXAS DEPARTMENT OF LICENSING AND REGULATION, Appellant
v.
THE MIAN DEVELOPMENT CORP., Appellee
ORDER
We GRANT appellant's October 24, 2012 motion for an extension of time to file a brief TO
THE EXTENT that appellant shall file its brief on or before November 27, 2012. We caution
appellant that no further extension of time will be granted in this accelerated appeal absent
extraordinary circumstances.
I
I | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1206592/ | 550 F.3d 764 (2008)
UNITED STATES of America, ex rel., Jody SHUTT, Plaintiffs-Appellees,
v.
COMMUNITY HOME AND HEALTH CARE SERVICES, INC., a California corporation; Nida M. Campanilla, an individual, Defendants-Appellants.
No. 07-56060.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted November 17, 2008.
December 16, 2008.
*765 Jeffrey A. Clair (presented argument and authored brief), United States Department of Justice, Washington, D.C., for the plaintiffs-appellees.
Eric Olson (presented argument) and John M. Gantus (authored brief), John M. Gantus & Associates, Glendale, CA, for the defendants-appellants.
Before: MYRON H. BRIGHT,[*] STEPHEN S. TROTT, and HAWKINS, Circuit Judges.
HAWKINS, Circuit Judge:
Facing a question of first impression, we conclude that an order granting summary judgment is final and appealable under 28 U.S.C. § 1291 even though the district court retained jurisdiction over a pending claim by a qui tam relator for a share of the award under the False Claims Act ("FCA"), 31 U.S.C. § 3730(d).[1]
FACTS
Relator Jody Shutt originated this FCA action against Nida Campanilla ("Campanilla"), the sole owner and president of Community Home and Health Care Services ("Community Home"), an agency that provided nursing and home health services and received at least $2.77 million in Medicare reimbursements from May 2003 to August 2004.
Subsequently, the United States pursued criminal charges against Campanilla who entered a guilty plea to one count of health care fraud, in violation of 18 U.S.C. § 1347. In the agreement, she stipulated to making illegal payments to physicians, patients, and marketers, forging physician signatures on Medicare forms documenting the medical necessity of claimed services, submitting reimbursement claims to Medicare for home health services she knew were not medically necessary, and submitting reimbursement claims for services that were not performed as represented. *766 Campanilla also admitted that the scheme had caused Medicare a loss of at least $608,558.49 and agreed to make full restitution of that amount.
Several months later, the United States intervened in this FCA suit against Campanilla and Community Home, raising both FCA claims and separate common law claims and seeking a civil penalty of $5,500 and treble damages. The district court granted partial summary judgment to the government, awarding a civil penalty of $5,500 and treble the damages Campanilla had admitted in her plea agreement.[2] The district court dismissed the government's remaining common law claims without prejudice while retaining jurisdiction over the relator's claim for a share of the judgment pursuant to 31 U.S.C. § 3730(d).
DISCUSSION
We have jurisdiction over appeals from all final decisions of the United States district courts. 28 U.S.C. § 1291. Although the parties do not dispute appellate jurisdiction, the court must consider sua sponte whether an order is final and thus appealable under 28 U.S.C. § 1291. See WMX Techs., Inc. v. Miller, 104 F.3d 1133, 1135 (9th Cir.1997) (en banc). A prevailing party's decision to dismiss its remaining claims without prejudice generally renders a partial grant of summary judgment final. United Nat'l Ins. Co. v. R & D Latex Corp., 141 F.3d 916, 918 (9th Cir.1998).
In concluding that a relator's pending claim against the United States for a share in the judgment does not interfere with the finality of the district court order, we are guided by White v. New Hampshire Dep't of Employment Sec., 455 U.S. 445, 102 S. Ct. 1162, 71 L. Ed. 2d 325 (1982). There the Supreme Court addressed a related issue: whether a request for attorney's fees raises legal issues collateral to the main action prompting an inquiry separate and apart from the decision on the merits. Id. at 451-52, 102 S. Ct. 1162. Following White, we held that a district court retains the power to award attorney's fees after a notice of appeal from the decision on the merits has been filed, Masalosalo v. Stonewall Ins. Co., 718 F.2d 955, 957 (9th Cir.1983), and adopted the "bright-line rule" that "all attorney's fees requests are collateral to the main action," rendering a "judgment on the merits ... final and appealable even though a request for attorney's fees is unresolved," Int'l Assoc. of Bridge Local Union 75 v. Madison Indus., Inc., 733 F.2d 656, 659 (9th Cir. 1984).
Although relators' claims for a percentage of FCA awards are likely to be larger in amount than those of attorneys in some instances, those claims are similarly "collateral" to the judgment on the merits. Congress's decision to allow qui tam relators a share of FCA awards is designed to encourage relators to initiate FCA suits and to compensate them for their efforts. The determination of the relator's share of an FCA award, like the award of attorney's fees, raises factual issues "collateral to the main action" because it involves a factual inquiry distinct from one addressing the merits.
The criteria for determining the relator's share, as set out in the Department of Justice's "Relator's Share Guidelines" ("Guidelines"), generally are not relevant to the defendant's liability under the FCA. See Marc S. Raspanti & David M. Laigaie, Current Practice and Procedure Under the Whistleblower Provisions of the Federal *767 False Claims Act, 71 Temp. L.Rev. 23, 53 (1998) (quoting the Guidelines). For example, the Guidelines suggest considering the circumstances in which the relator reported the false claims, the report's effects, the extent of the relator's relevant knowledge, the level of assistance provided by the relator and the relator's counsel, and any substantial adverse impact on the relator of filing the complaint. Id.
To be sure, the existence of a nationwide practice and the potential safety issues involved may be relevant both to the merits and to allocating the award. See id. However, these determinations, along with other criteria noted in the Guidelines, including the size of the award and the scope of the FCA proceeding, id., usually cannot be fully resolved until after the merits of the FCA claim have been addressed. The district court would therefore rarely have occasion to determine the relator's share of an award prior to or even simultaneously with the merits of the underlying claim.
The important purpose of promoting efficient judicial administration, Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 170, 94 S. Ct. 2140, 40 L. Ed. 2d 732 (1974), is also better served by treating the relator's claim as collateral to the merits. Although such a rule creates some risk of occasional "piecemeal" appeals, in many instances a court of appeals ruling on the merits of a dispositive motion might make an allocation of the award between the government and the relator unnecessary or duplicative. For example, where a district court incorrectly grants a plaintiff's summary judgment motion, an opportunity to review that judgment avoids the need for the district court to determine the relator's share when the claims should have been dismissed or when an ensuing trial would require a new allocation of the award to reflect the relator's participation.
CONCLUSION
For these reasons, we hold a judgment on the merits of an FCA claim is a separate, final, and appealable decision even where the district court has retained jurisdiction over the collateral issue of allocating the FCA award between the United States and the relator. We therefore reach the merits of this appeal and affirm the district court's grant of summary judgment for the reasons stated in an unpublished memorandum disposition filed herewith.
AFFIRMED.
NOTES
[*] The Honorable Myron H. Bright, Senior United States Circuit Judge for the Eighth Circuit, sitting by designation.
[1] Although the Fifth Circuit appears to consider potential litigation over the relator's share to be "collateral" to the main action, it has addressed the issue only in dicta. See United States v. United States ex rel. Thornton, 207 F.3d 769, 773 (5th Cir.2000).
[2] In a separate memorandum disposition, we deal with Campanilla's claims that the civil judgment violated constitutional guarantees against double jeopardy and excessive fines. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1209879/ | 555 F.3d 543 (2009)
Luis DOMINGUEZ, Plaintiff-Appellee,
v.
CORRECTIONAL MEDICAL SERVICES, et al., Defendants,
Julie Fletcher, Defendant-Appellant.
No. 08-1212.
United States Court of Appeals, Sixth Circuit.
Argued: December 5, 2008.
Decided and Filed: February 17, 2009.
*545 ARGUED: John L. Thurber, Office of the Michigan Attorney General, Lansing, *546 Michigan, for Appellant. Shawn C. Cabot, Christopher Trainor & Associates, White Lake, Michigan, for Appellee. ON BRIEF: John L. Thurber, Office of the Michigan Attorney General, Lansing, Michigan, for Appellant. Shawn C. Cabot, Christopher J. Trainor, Christopher Trainor & Associates, White Lake, Michigan, for Appellee.
Before: MERRITT, MOORE, and COLE, Circuit Judges.
OPINION
COLE, Circuit Judge.
Plaintiff-Appellee Luis Dominguez filed his claims under 42 U.S.C. § 1983 alleging that on July 7, 2002, while housed at a Michigan Department of Corrections ("MDOC") facility, he was subjected to excessive force and inadequate medical care in violation of the Eighth Amendment, as well as gross negligence under Michigan state law. The issue before this Court is whether the district court properly denied Defendant-Appellant Julie Fletcher's motion for summary judgment. For the reasons set forth below, we AFFIRM the judgment of the district court.
I. BACKGROUND
A. Factual Background
This case arises from medical treatment Dominguez received while an inmate at the Carson City Correctional Facility, located in Carson City, Michigan. On July 7, 2002, Dominguez and other inmates attended an outdoor weight-training session. It was a hot day with temperatures reaching at least ninety degrees. Toward the end of the one-and-one-half hour session, Dominguez complained to a fellow inmate, Pablo Rodriguez, that he felt dizzy and needed to catch his breath. Rodriguez tried to help steady Dominguez. Nonetheless, Dominguez fell to the floor, complaining that he could not breathe. Rodriguez brought water from a nearby faucet and poured it over Dominguez's head to try to cool him down. After about twenty minutes, Dominguez started to feel better and was able to walk back to his housing unit.
Arriving back at the housing unit, Dominguez proceeded to a guard office where corrections officer Crystal Galvan-Casas was working. Dominguez informed Galvan-Casas that he had just come from his weight-training session and did not feel well. She told him to take a shower and cool off. Dominguez then went to the bathroom to shower but returned a short time later. Galvan-Casas did not know whether Dominguez had actually been able to take a shower. Dominguez stated he was afraid he would fall down and Galvan-Casas noticed he was "wobbly." Based on her concern arising from Dominguez's condition, at around 3:30 p.m., Galvan-Casas telephoned nurse Julie Fletcher.
During the call, Fletcher took notes of her conversation with Galvan-Casas. (See Progress Notes, Joint Appendix ("JA") 75.) The notes indicate that Galvan-Casas told Fletcher that Dominguez appeared to be suffering from heat exhaustion. (See id.) Fletcher did not provide Galvan-Casas with any instructions for how to care for Dominguez, but she said she would check on Dominguez when she passed out medication at around 7:00 p.m. Galvan-Casas then handed the phone to Dominguez, and Fletcher instructed him to drink fluids, lie down, and rest. Dominguez then returned to his "cube" in the housing unit.
During her rounds, at about 4:00 p.m., Galvan-Casas checked in on Dominguez to ask him how he was doing. He told her that his head hurt. Dominguez's cube-mate stated that he believed that Dominguez was getting worse. Galvan-Casas again called Fletcher, informing her that Dominguez's condition had deteriorated *547 and that he was throwing up all the water he was drinking. Fletcher then agreed to see Dominguez in the medical unit. Galvan-Casas sent for a wheelchair and had Dominguez wheeled over to the medical unit. Another guard, Craig Humphreys, who accompanied Dominguez to the medical unit, observed him sweating profusely and noticed vomit on his clothing.
After arriving at the medical unit, Dominguez met with Fletcher and told her he had become light-headed and dizzy while exercising outside. Dominguez explained that he was experiencing numbness in his left arm and had difficulty catching his breath. Fletcher checked his blood pressure, pulse, temperature, and oxygen saturation, listened to his heart, and checked his grip strength. Dominguez alleges, and Fletcher's notes do not refute the assertion, that she did not attempt to measure Dominguez's core temperature. At some point during the examination, Dominguez vomited againthis time a clear substance. Fletcher claims she contacted Physician's Assistant Mark Boomershine of MDOC's Duane Waters Hospital in Jackson, Michigan. Boomershine and Fletcher allegedly discussed Dominguez's condition. Fletcher then advised Dominguez to return to his housing unit to rest, drink water, avoid sports and weight-lifting, and take aspirin. According to Fletcher, Dominguez walked out of the medical unit without assistance. Fletcher also completed a Suspected Heat Related Illness Report Form.
Dominguez then returned to his cube. The parties dispute whether Fletcher knew or should have known that Dominguez's cube was excessively hot. However, there is no indication in the record that Fletcher inquired into the ambient temperature of the housing units. Moreover, there is no evidence that Fletcher ordered that Dominguez be placed in one of the two air-conditioned holding cells in the medical unit, both of which were empty at the time.
At around 6:30 p.m., Galvan-Casas again went to Dominguez's cube to check on his condition. She found him unconscious on the floor and was unable to wake him. Another guard arrived and continued attempts to revive Dominguez while Galvan-Casas went to call for medical assistance. Galvan-Casas states that she called "health care" and the "control center" to inform them that Dominguez had lost consciousness and needed medical attention. (Deposition of Galvan-Casas 64, JA 181.) Fletcher's notes indicate that she received a call from an officer in Dominguez's housing unit at about 6:35 p.m. Fletcher's notes do not state whether she had been informed that Dominguez had been unconscious; however, she concedes this fact on appeal. Her notes do indicate that she was told that Dominguez had been lying down since his earlier visit to the medical unit, was now complaining of dizziness, and had been unable to consume any water.
Fletcher instructed the guard to give Dominguez water. However, Fletcher's notes state that she received a second call at 6:40 p.m. informing her that Dominguez, who apparently had been revived, vomited when he tried to drink water. Based on the news from this second call, Fletcher told the guard that she would see Dominguez at the medical unit.
Another inmate brought Dominguez by wheelchair to see Fletcher at 6:55 p.m. Fletcher's notes indicate that she was informed that Dominguez could not hold down water, felt dizzy, and his entire side felt "prickly." (Progress Notes, JA 76) Fletcher took Dominguez's vital signs and contacted Dr. Robert Dorr, D.O., an osteopathic physician who was on duty at Duane Waters Hospital, at about 7:10 p.m. Fletcher and Dorr discussed Dominguez's *548 condition, and agreed that Dominguez appeared to be suffering from dehydration. Dorr instructed Fletcher to monitor Dominguez in an air-conditioned room, to encourage him to drink water, and to apply ice to his armpits and groin. Dominguez was given water, and ice bags were applied to his body. Fletcher then left Dominguez with an officer while she resumed her duty of passing out medication.
Around 7:25 p.m., Dominguez's condition rapidly worsened. Dominguez's speech became slurred, he slumped in his wheelchair, and he began shaking uncontrollably.[1] Shortly thereafter, Dominguez became completely non-responsive. The record is unclear as to whether Fletcher came back to check on Dominguez or whether the guard watching Dominguez called for her; however, on her return, Fletcher attempted to insert an oral airway, but was unable to do so because Dominguez's mouth was clenched shut.
At some point, emergency medical services ("EMS") was contacted. EMS arrived on the scene at about 7:41 p.m. and assumed Dominguez's medical care. EMS then transferred Dominguez to Carson City Hospital. Fletcher had no further role in Dominguez's care.
At Carson City Hospital, doctors were unable to diagnose Dominguez's condition. He was transported by helicopter for treatment at Foote Hospital in Jackson, Michigan.
As a result of the events on July 7, 2002, Dominguez remains in a "`locked-in state' as a quadriplegic with limited communication but complete consciousness." (Final Br. of Plaintiff-Appellee Dominguez 4.) The Parole Board released Dominguez on medical parole in 2002. He was ultimately discharged in 2004.
B. Procedural Background
Dominguez sued eleven MDOC employees, Correctional Medical Services ("CMS"), and two of CMS's employees claiming that they violated his Eighth Amendment rights. Fletcher moved for summary judgment based, in part, on qualified immunity. On September 25, 2007, the magistrate judge issued a Report and Recommendation recommending that Fletcher's summary judgment motion be denied.
On February 14, 2008, the district court accepted in part and rejected in part the Report and Recommendation. (Opinion and Order of Feb. 14, 2008 ("Dist.Ct.Op."), JA 530-53.) In its opinion, the court denied Fletcher's motion for summary judgment as to qualified immunity on Dominguez's deliberate indifference claim and also determined that Dominguez's claim for gross negligence under Michigan law should proceed to trial. Fletcher's timely notice of appeal followed.
II. JURISDICTION
We first consider whether this Court has jurisdiction. "Title 28 U.S.C. § 1291 limits appellate jurisdiction to `final decisions of the district courts.'" Estate of Kirby v. Duva, 530 F.3d 475, 480 (6th Cir.2008). As a general matter, a district court's grant of summary judgment on a qualified-immunity claim constitutes a final appealable decision under 28 U.S.C. § 1291. See, e.g., Dunigan v. Noble, 390 F.3d 486, 488 (6th Cir.2004). A district court's denial of summary judgment on qualified immunity, however, is a final decision *549 under § 1291 only "to the extent that it turns on an issue of law." Mitchell v. Forsyth, 472 U.S. 511, 530, 105 S. Ct. 2806, 86 L. Ed. 2d 411 (1985). Mixed issues of law and fact are treated as issues of law. Williams v. Mehra, 186 F.3d 685, 690 (6th Cir.1999) (en banc) (citing Whitney v. Brown, 882 F.2d 1068, 1071 (6th Cir.1989)). "[F]or appellate jurisdiction to lie over an interlocutory appeal, a defendant seeking qualified immunity must be willing to concede the facts as alleged by the plaintiff and discuss only the legal issues raised by the case." Sheets v. Mullins, 287 F.3d 581, 585 (6th Cir.2002) (citations omitted). Fletcher concedes the disputed facts and limits her arguments to the legal issues arising from those facts. This Court, therefore, has jurisdiction to consider this appeal.
III. ANALYSIS
A. Standard Of Review
When no facts are in dispute, whether an official receives qualified immunity is a question of law. Champion v. Outlook Nashville, Inc., 380 F.3d 893, 900 (6th Cir.2004) (citing Dickerson v. McClellan, 101 F.3d 1151, 1157 (6th Cir.1996)). This Court reviews the district court's denial of summary judgment de novo. Williams, 186 F.3d at 689. Summary judgment is warranted where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c). In considering a motion for summary judgment, we view the factual evidence and draw all reasonable inferences in favor of the non-moving party. Williams, 186 F.3d at 689. A "mere scintilla of evidence is insufficient; `there must be evidence on which the jury could reasonably find for the [non-movant].'" Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)).
B. Qualified Immunity
"To state a claim under 42 U.S.C. § 1983, a plaintiff must set forth facts that, when construed favorably, establish (1) the deprivation of a right secured by the Constitution or laws of the United States (2) caused by a person acting under the color of state law." Sigley v. City of Parma Heights, 437 F.3d 527, 533 (6th Cir.2006) (citing West v. Atkins, 487 U.S. 42, 48, 108 S. Ct. 2250, 101 L. Ed. 2d 40 (1988)). "Under the doctrine of qualified immunity, `government officials performing discretionary functions generally are shielded from liability from civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.'" Phillips v. Roane County, 534 F.3d 531, 538 (6th Cir.2008) (quoting Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S. Ct. 2727, 73 L. Ed. 2d 396 (1982)). Determining whether the government officials in this case are entitled to qualified immunity generally requires two inquiries: "First, viewing the facts in the light most favorable to the plaintiff, has the plaintiff shown that a constitutional violation has occurred? Second, was the right clearly established at the time of the violation?" Id. at 538-39 (citing Silberstein v. City of Dayton, 440 F.3d 306, 311 (6th Cir.2006)); cf. Pearson v. Callahan, ___ U.S. ___, 129 S. Ct. 808, ___ L.Ed.2d ___ (2009) (holding that the two-part test is not longer considered mandatory; thereby freeing district courts from rigidly, and potentially wastefully, applying the two-part test in cases that could more efficiently be resolved by a modified application of that framework).
*550 1. Constitutional Violation
For the failure to provide medical treatment to constitute a constitutional violation, Dominguez must show that the defendants acted with "deliberate indifference to serious medical needs." Estelle v. Gamble, 429 U.S. 97, 104, 97 S. Ct. 285, 50 L. Ed. 2d 251 (1976). "[T]hat a [medical professional] has been negligent in diagnosing or treating a medical condition does not state a valid claim ... under the Eighth Amendment." Id. at 106, 97 S. Ct. 285. For a claim to be cognizable, "a prisoner must allege acts or omissions sufficiently harmful to evidence deliberate indifference to serious medical needs." Id. It is only this indifference that offends the "`evolving standards of decency' ... of the Eighth Amendment." Id. A constitutional claim for deliberate indifference contains both an objective and a subjective component. The objective component requires a plaintiff to show the existence of a "sufficiently serious" medical need. Farmer v. Brennan, 511 U.S. 825, 834, 114 S. Ct. 1970, 128 L. Ed. 2d 811 (1994). The subjective component, in contrast, requires a plaintiff to "allege facts which, if true, would show that the official being sued subjectively perceived facts from which to infer substantial risk to the prisoner, that he did in fact draw the inference, and that he then disregarded that risk." Comstock v. McCrary, 273 F.3d 693, 703 (6th Cir. 2001) (citing Farmer, 511 U.S. at 837, 114 S. Ct. 1970).
The parties agree that Dominguez demonstrated a sufficiently serious medical need and therefore focus on the subjective component. Thus, the central question on appeal is whether Fletcher subjectively perceived a substantial risk to Dominguez, which she then disregarded. This subjective standard "is meant to prevent the constitutionalization of medical malpractice claims," Comstock, 273 F.3d at 703 (citations omitted); however, "a plaintiff need not show that the officer acted with the specific intent to harm." Phillips, 534 F.3d at 540. This Court has previously determined that "deliberate indifference to a substantial risk of serious harm to a prisoner is the equivalent of recklessly disregarding that risk." Id. (citing Comstock, 273 F.3d at 703). Because government officials do not readily admit the subjective component of this test, it may be "demonstrat[ed] in the usual ways, including inference from circumstantial evidence ... and a factfinder may conclude that a prison official knew of a substantial risk from the very fact that the risk was obvious." Terrance v. Northville Reg'l Psychiatric Hosp., 286 F.3d 834, 843 (6th Cir.2002) (citing Farmer, 511 U.S. at 842, 114 S. Ct. 1970); see also Phillips, 534 F.3d at 540 (citing Comstock, 273 F.3d at 703).
Viewing the facts in the light most favorable to Dominguez, we conclude that the district court was correct to determine that the facts show that Fletcher was aware of risks associated with excessive heat, dehydration, and heat stroke. It is not necessary that Fletcher was specifically aware that Dominguez could become a quadriplegic as a result of his condition, but rather, that Fletcher knew that serious risks accompany heat-related illnesses and dehydration. As a trained medical professional, a registered nurse, Fletcher was aware or should have been aware of such dangers.
Nonetheless, Fletcher ignored and/or acted with deliberate indifference when faced with those risks. First, she was aware, or should have been aware, of the outdoor temperature on July 7, 2002 and that housing units were not air-conditioned.
Later, at about 3:30 p.m., Fletcher received a call from Galvan-Casas describing *551 Dominguez's condition. While there was nothing inappropriate about Fletcher's initial treatment instructions, Fletcher's care demonstrates deliberate indifference when she informed Dominguez that despite his serious symptoms she would not see him until her regularly scheduled medication run at around 7:00 p.m. See Terrance, 286 F.3d at 844 ("[A] prison employee's two-hour delay in providing medical care to an inmate known to have a serious condition may constitute deliberate indifference.") (citing Cooper v. Dyke, 814 F.2d 941, 945-46 (4th Cir.1987)).
Eventually, Fletcher agreed to see Dominguez after his condition worsened, and Fletcher was informed that Dominguez was "suffering from heat exhaustion." (Progress Notes, JA 75.) At this point, Dominguez had vomit on his clothes, and he vomited again during his examination. While the parties dispute whether Fletcher should have taken his core temperature reading, it is not clear that her failure to do so amounts to a constitutional violation. Rather, the more troubling aspect of Fletcher's care is her decision to allow Dominguez to return to his non-air-conditioned cube despite the apparent severity of Dominguez's symptoms. See Terrance, 286 F.3d at 843 ("`[W]hen the need for treatment is obvious, medical care which is so cursory as to amount to no treatment at all may amount to deliberate indifference.'") (quoting Mandel v. Doe, 888 F.2d 783, 789 (11th Cir.1989)).
An unspecified guard at the housing unit contacted Fletcher a third time when Galvan-Casas found him unconscious on the floor of his cube. For the purposes of this appeal, Fletcher concedes that the guard informed her that Dominguez was found unconscious. Despite this new information, Fletcher informed the guard that Dominguez's care would have to wait another twenty-five minutes-until her arrival at 7:00 p.m.
Dominguez made his second trip to the medical unit at 6:55 p.m. At that time, Fletcher contacted Dorr, who instructed her to treat and monitor Dominguez in an air-conditioned environment. Nonetheless, after providing Dominguez with water and ice, Fletcher left Dominguez with a non-medical corrections officer so that she could continue passing out medication to other prisoners. Considering Dominguez's condition, we believe that this too demonstrates serious disregard to Dominguez's medical needs.
We further agree with the district court's determination that Fletcher was aware of the substantial risk that heat exhaustion and/or heat stroke posed to him, but she was indifferent to the serious risk of that harm. The district court correctly noted five separate times when Fletcher's actions could have been found to be deliberately indifferent:
(1) telling Dominguez and ... Galvan-Casas at sometime between 3:30 p.m. and 3:45 p.m. that she would first examine Dominguez at around 7:00 p.m. .... after dismissing as "irrelevant" a [guard's] report that Dominguez was "suffering from heat exhaustion"; (2) knowing when she examined Dominguez at 4:10 p.m. that he was suffering from a "Suspected Heat Related Illness," vomiting in her presence, sweating profusely, light-headed and dizzy with resolved arm numbness, and unable to catch his breath, yet simply concluding that he was "probably mildly dehydrated" and "just needed to increase his fluids," giving Dominguez a small glass of water (knowing he was vomiting) and two aspirins, and sending Dominguez back to his cell ... while an air conditioned holding cell in the medical unit remained unoccupied; (3) instructing a 6:35 p.m. caller *552 regarding Dominguez's continuing dizziness that she would see Dominguez at the 7:00 p.m. medication lines; (4) again instructing a 6:45 p.m. caller reporting that Dominguez was vomiting water he attempted to drink that she would see him at 6:55 p.m. when she arrived for her medication line duties; and (5) applying ice packs to Dominguez while he remained in his wheelchair instead of placing him on a gurney.
(Dist. Ct. Op. 16, JA 545.) Thus, we conclude that a reasonable jury could determine that the totality of the circumstances demonstrates deliberate indifference on the part of Fletcher, allowing Dominguez to meet his first burden in overcoming Fletcher's qualified immunity defense.
2. Clearly Established Right
"For a right to be clearly established, `[t]he contours of the right must be sufficiently clear that a reasonable official would understand that what [she] is doing violates that right.'" Feathers v. Aey, 319 F.3d 843, 848 (6th Cir.2003) (quoting Russo v. City of Cincinnati, 953 F.2d 1036, 1042 (6th Cir.1992)).
Fletcher does not contest that Dominguez was entitled to medical care and attention under the Fourteenth Amendment. In Estate of Carter v. City of Detroit, 408 F.3d 305 (6th Cir.2005), this Court recognized that "where the circumstances are clearly sufficient to indicate the need of medical attention for injury or illness, the denial of such aid constitutes the deprivation of constitutional due process." Id. at 313 (citations omitted). As applied to this case, Dominguez's right to adequate medical care has long been clearly established. Therefore, we conclude that Dominguez has satisfied both requirements for overcoming Fletcher's qualified immunity defense.
C. Immunity Under Michigan Law
Michigan law offers government officers or employees immunity from tort liability under certain circumstances. Mich. Comp. Laws § 691.1407(2). Government employees are immune if they are acting or reasonably believe they are acting within the scope of their employment, are engaged in the discharge of the government function, and their "conduct does not amount to gross negligence that is the proximate cause of the injury or damage." Id. Section 691.1407(2)(c) defines gross negligence as "conduct so reckless as to demonstrate a substantial lack of concern for whether an injury results." Id.
The parties do not dispute that Fletcher was acting within the scope of her authority and was engaged in the discharge of her government function. Therefore, we consider only whether Fletcher's conduct amounted to gross negligence that was the proximate cause of Dominguez's injury. The Michigan Supreme Court has determined that in order to be the proximate cause of the injury or damage, a defendant's conduct must be "the one most immediate, efficient, and direct cause preceding an injury." Robinson v. City of Detroit, 462 Mich. 439, 613 N.W.2d 307, 311 (2000). In defining proximate cause under section 691.1407(2), the Robinson Court specifically overruled its prior decision in Dedes v. Asch, 446 Mich. 99, 521 N.W.2d 488 (1994) and found that proximate cause in section 691.1407(2) did not include simply "a proximate cause." Id. In Robinson, the court applied its definition of proximate cause to conclude that police officers in pursuit of an underage driver who was driving recklessly were immune from liability for injuries caused to the driver's innocent passengers. Id. at 319. The court reasoned that the reckless conduct of the fleeing driver was the proximate cause of the injuries to the passengers, *553 not the officers' decision to chase the driver or their actions during the pursuit. Id.
We find that Michigan's immunity statute is not fatal to Dominguez's state law claim. Based on the facts of this case, we are unable to conclude that Fletcher's actions were not the proximate cause of Dominguez's injury. Unlike the scenario in Robinson, where reckless drivers were still involved in the activity at the time of the injury, Dominguez's health continued deteriorating long after he ceased exercising. Rather, after feeling dizzy he repeatedly sought medical help from Fletcher. In fact, Fletcher had multiple opportunities to provide adequate medical care and to, in all likelihood, prevent Dominguez's injuries. As such, this Court affirms the district court's decision that Fletcher is not entitled to summary judgment on Dominguez's gross negligence claim under Michigan law.
IV. CONCLUSION
For all of the above reasons, we AFFIRM the decision of the district court denying Fletcher summary judgment based on qualified immunity and immunity from tort liability under Michigan Law.
NOTES
[1] In the district court, Dominguez had alleged that at some point before MDOC officials transferred him to the hospital, officers had unnecessarily thrown him on the floor and performed an illegal drug search. However, Dominguez does not reargue those points before this Court. And whether any search took place is irrelevant to this appeal. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2630951/ | 235 P.3d 1267 (2010)
STATE
v.
CORDERO.
No. 102304.
Court of Appeals of Kansas.
July 30, 2010.
Decision Without Published Opinion Affirmed. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1513308/ | 56 N.J. Super. 340 (1959)
153 A.2d 349
MURRAY JOSEPH, PLAINTIFF-APPELLANT,
v.
GUS LESNEVICH, ET AL., DEFENDANTS-RESPONDENTS.
Superior Court of New Jersey, Appellate Division.
Argued May 18, 1959.
Decided July 15, 1959.
*343 Before Judges CONFORD, FREUND and HANEMAN.
Mr. Robert J. Carluccio argued the cause for plaintiff-appellant (Messrs. Carluccio & Carluccio, attorneys).
Mr. Sidney Dincin argued the cause for defendants-respondents, Credit Discount Company and Max Grobow.
Mr. William Bannon argued the cause for defendant-respondent, Palisade Trust Company (Messrs. Milton, McNulty & Augelli, attorneys; Mr. Charles J. Milton, of counsel; Mr. Bannon on the brief).
The opinion of the court was delivered by FREUND, J.A.D.
Plaintiff, Murray Joseph, was the true owner of seven United States Treasury negotiable bonds, each in the amount of $1,000 and each payable to bearer. On March 23, 1951 the bonds were stolen from his home in Fort Lee. The burglary, together with the serial numbers of the instruments, was immediately reported to the municipal *344 police department and to the Federal Bureau of Investigation. Three newspapers circulated throughout or in parts of Bergen County reported the theft.
Two years and three months later a New York brokerage house presented the bonds to a redemption agent of the Treasury Department in Philadelphia. Treasury paid the redemption price to the bearer and notified the police and plaintiff. Over five years later plaintiff brought this action.
From the theft to the ultimate redemption, the bonds had a peculiar history. They found their way into the hands of five separate possessors, excluding the New York broker. It is against four of these five and against one other defendant that plaintiff proceeds on the theory they are liable in tort for conversion of personalty. 89 C.J.S. Trover & Conversion § 14, p. 539.
Defendants Gus Lesnevich and Louis Gentilhuomo were partners engaged in the used car business in Cliffside Park in 1951, trading as Champ Motors. According to a statement Gentilhuomo gave the police, "Things at the used car lot were not going so well and we were on the verge of giving up the business." In October 1951 Lesnevich received a letter which he opened in the presence of his partner and two others. In the envelope were the seven $1,000 bonds with a letter reading:
"Dear Gus: I heard you were in need of financial help and I am sending these bonds to you to use for your business, I will see you sometime in the future and identify myself
Your Pal and Friend"
Gentilhuomo asked Lesnevich "if this could be a joke of some kind and he said he didn't know," so Gentilhuomo said "lets go to Grobows, he should know."
Defendant Max Grobow was the president of the defendant Credit Discount Co. (hereinafter "credit company"), which had its office in Englewood and was engaged in the business of financing automobiles. By March 1951 it had extended to Champ Motors a line of credit up to $50,000. *345 The loans were secured by chattel mortgages and bills of sale on automobiles purchased by Champ Motors for resale.
According to Max Grobow's affidavit, Lesnevich and Gentilhuomo came to his office in early October 1951, stated that they could use additional funds to increase their stock of used cars, and offered the seven bonds as collateral security for a loan of $6,700. Grobow replied that he would accept the bonds as security, and the partners returned on October 21 with the bonds to consummate the pledge. Lesnevich received a check from credit company for $6,700, drawn on the defendant Palisade Trust Company (hereinafter "the bank"). The bank also had its office in Englewood.
Grobow stated in his affidavit that the bonds pledged were complete and regular on their face, that his company took them before they were overdue, in good faith, for value, and without notice of any infirmity in the instruments or defect in the title of the partners-pledgeors.
Near the end of July 1952 Lesnevich and Gentilhuomo advised the credit company they would not repay the collateral loan and hence would not retake the bonds. They requested the pledgee to use the proceeds of the bonds as payment on the amounts then due and return to them any difference. Accordingly, on August 1, 1952 the credit company closed out the partnership's account and issued a check to Champ Motors for the balance of $171.68. On the same day, Max Grobow personally purchased the bonds from his company. On September 9, 1952 Max sold the bonds to his son, Edward Grobow (now deceased), for $6,950. On June 16, 1953 Edward executed two forms appointing the Palisade Trust Company as his agent to collect the proceeds of the bonds. The bank in turn placed the order with its New York broker, with the results noted above. Having received net proceeds of $6,380.09 on the bonds, the bank credited Edward's account therewith on June 18, 1953. Kenneth A. Bentley, the bank's assistant vice-president, deposed in an affidavit of record that the bonds appeared to him to be genuine and that there was nothing in Edward's conduct or in any previous *346 association with him to cause doubt that Edward had title to and the right to sell the bonds.
Plaintiff's complaint names as converters: Lesnevich and Gentilhuomo, on the theory of receipt of stolen property and vicarious partnership liability; the credit company and Max Grobow, on the theory they had notice of suspicious circumstances and could not qualify as holders in due course; and the bank, on the theory it "knew or should have known the suspicious surroundings * * *." Edward Grobow's estate was not made a party to the suit. In support of the claim of notice of suspicious circumstances on the part of Grobow and the credit company, the complaint contains the following crucial allegations respecting the Lesnevich-to-credit company transfer:
"5. * * * Mr. Max Grobow * * * in turn had someone call the Defendant Palisade Trust Company to check the validity of the bonds.
6. A few minutes later, Mr. Max Grobow * * * said to the Defendants Lesnevich and Gentilhuomo upon information and belief, that the bonds were good, even if you found them on the street.
7. The Defendants Gus Lesnevich and Louis Gentilhuomo thereupon pledged said bonds * * *."
Lesnevich in his answer admitted the allegations in the fifth and sixth paragraphs.
The credit company, Grobow, and the bank moved for summary judgment. Although in an action for the conversion of personalty it is no defense to assert the status of a bona fide purchaser for value where the transferor (Lesnevich) had no power to transfer (Ashton v. Allen, 70 N.J.L. 117 (Sup. Ct. 1903); Prosser, Torts (2d ed. 1955), § 15, pp. 71-72; 1 Restatement, Torts, § 229, p. 585), a commonly recognized exception to this rule is in the case of negotiable instruments where the defendant qualifies as a holder in due course. See, e.g., Prosser, supra, at p. 72, note 77 and cases cited. Cf. City of Elizabeth v. Force, 29 N.J. Eq. 587 (E. & A. 1878); Boyd v. Kennedy, 38 N.J.L. 146 (Sup. Ct. 1875). The positions of the credit *347 company and Grobow on the one hand and the bank on the other were different in one respect. Grobow and his company claimed to be entitled to the benefit of the exception in favor of holders in due course. The bank made no such claim but contended that it acted as agent in good faith without notice of any defect in its principal's (Edward Grobow's) title to the bonds.
The trial judge of the Law Division found no genuine issue as to any material fact and that the above-named movants were entitled to judgment as a matter of law. R.R. 4:58-3. Plaintiff appeals, generally on the ground that the pleadings and affidavits raise triable issues of fact as to whether these defendants were on notice of his rights in the bonds at the times they respectively acquired possession.
Preliminarily, we touch upon two procedural questions relating to the taking of the appeal, not raised by defendants. Plaintiff's notice of appeal, filed December 29, 1958, states that the summary judgment was entered on November 11, 1958. If accurate, the appeal would be untimely as beyond the 45-day limit permitted by R.R. 1:3-1(b). We have ascertained from the record on file in the clerk's office that the judgment was actually entered on November 19, the day recited as the day of entry in the trial judge's opinion. Indeed, the inaccuracy in the notice of appeal is patent since the notice of motion for summary judgment was not returnable until November 13. Plaintiff should correct the record accordingly.
Secondly, the claims against Lesnevich and Gentilhuomo remain undisposed of and are still pending in the Law Division. There is thus a question as to whether the summary judgment was merely, in effect, an interlocutory order, not susceptible of appeal without obtaining leave of court. R.R. 2:2-3(a). This court recently reviewed the problem and pertinent authorities in Sarnicandro v. Lake Developers, Inc., 55 N.J. Super. 475, 478 (App. Div. 1959), and the conclusion there reached was in favor of entertaining the appeal, the parties not having argued or considered the *348 possibility of a procedural bar. There being no question but that leave to appeal would have been granted had application been made therefor, we proceed to a consideration of the merits without further discussion of the finality of the judgment as to the defendants-respondents.
We consider first the correctness of the trial action in relation to the defendants Grobow and credit company.
Our statute, R.S. 7:2-52 (Uniform Negotiable Instruments Law, § 52), defines a holder in due course as a holder who has taken the instrument under the following conditions, among others:
"III. That he took it in good faith and for value;
IV. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it."
Notice of a defect in the title of the person negotiating the instrument is defined as "actual knowledge of the * * * defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith." R.S. 7:2-56 (N.I.L. § 56). Once the transferor's title is shown to be defective, as here, the burden is upon the holder to prove he acquired the title as holder in due course. R.S. 7:2-59 (N.I.L. § 59).
It is settled that proof of circumstances calculated merely to arouse suspicion will not disentitle one from the status of a holder in due course. Driscoll v. Burlington-Bristol Bridge Co., 8 N.J. 433, 480 (1952), cert. denied 344 U.S. 838, 73 S.Ct. 25, 97 L.Ed. 652, reh. denied 344 U.S. 888, 73 S.Ct. 181, 97 L.Ed. 687; Eastern Acceptance Corp. v. Kavlick, 10 N.J. Super. 253, 257 (App. Div. 1950). Evidence of suspicious circumstances is of probative value only insofar as it conduces to a finding of active bad faith. The purchaser of a negotiable instrument is not subject to constructive notice afforded by public record or newspaper. Gilmore, "Good Faith Purchase," 63 Yale L.J. 1057 (1954). Carelessness or negligence in purchasing the instrument is *349 significant only when, taken in connection with other matters, it evidences bad faith. Mutual Finance Corp. v. Dickerson, 123 N.J.L. 62, 65 (Sup. Ct. 1939); 4 Williston, Contracts (rev. ed. 1936), § 1157, p. 3333. The duty of inquiry devolves upon such purchaser only to the extent that the failure to make inquiry indicates "a deliberate desire on his part to evade knowledge because of a belief or fear that investigation would disclose a vice in the transaction." First National Bank v. Goldberg, 340 Pa. 397, 17 A.2d 377, 379 (Sup. Ct. 1941). See also Graham v. White-Phillips Co., 296 U.S. 27, 56 S.Ct. 21, 80 L.Ed. 20, 102 A.L.R. 24 (1935); In re Stroudsburg Security Trust Co., 145 Pa. Super. 44, 20 A.2d 890 (Super. Ct. 1941).
The first area of dispute between the parties concerns whether or not a factual question existed in relation to the contention that the credit company and Max Grobow had knowledge of such facts that their action in acquiring the bonds amounted to bad faith. This, in turn, involves the application of the summary judgment rule, R.R. 4:58, as construed by the cases.
Summary judgment may be rendered only "if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show palpably that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law. * * *" R.R. 4:58-3. Affidavits on such a motion must be on personal knowledge, not hearsay. R.R. 4:58-6. Should a party opposing a motion for summary judgment show by affidavit that he cannot for specific reasons present essential facts in opposition, the court may deny the motion or order a continuance to permit affidavits to be obtained, depositions to be taken, or discovery to be had, or it may make any other just order. R.R. 4:58-7.
Two general inquiries are projected in application to the matter before us. (1) If it was required to be assumed for purposes of the motion before the trial court that an issue of fact was presented as to whether Lesnevich informed *350 Grobow of the circumstances under which he came into possession of the bonds, was that factual issue a material one? In other words, on a finding in the affirmative as to the existence of such facts, would a jury properly be permitted to decide that Grobow had taken the bonds in bad faith so that his company and he were not holders in due course? (2) On the affidavits presented by the opposing sides here, was it appropriate for the trial court to conclude that no factual issue was presented concerning Grobow's having received the information as to how Lesnevich obtained the bonds?
We consider these questions in inverse order.
Defendants argue that they were not required to meet the facts stated in the complaint as plaintiff did not verify them by affidavit on the motion for summary judgment. Plaintiff responds that he could not substantiate by affidavit the recitals in the complaint as to notice of suspicious circumstances because he had no personal knowledge of the conversations with Grobow and because testimony would have to be elicited from Lesnevich and Gentilhuomo, whom he could not control on the motion for summary judgment. He points to Lesnevich's answer, concededly not binding on the other defendants, admitting the recital of the circumstances attending the submission of the bonds to Grobow.
In the case before us plaintiff obviously could not have made an affidavit as to the dealings between Lesnevich and Gentilhuomo on the one hand, and Grobow and the credit company on the other, because having no personal knowledge of the facts had to depend upon the defendant for his proof. In such a case the trial court was required to be critical of the moving papers but not of those in opposition. Monmouth Lumber Co. v. Indemnity Ins. Co., 21 N.J. 439, 449 (1956); Judson v. Peoples Bank and Trust Company of Westfield, 17 N.J. 67, 76 (1953). This is particularly true when such subjective facts as good faith on the part of the moving party are drawn in question, as here. Ibid. See also Congdon v. Jersey Construction Co., 55 N.J. Super. *351 571, 580 (App. Div. 1959), indicating that great caution should be exercised in passing on a motion for summary judgment against a party who is heavily dependent upon the production by his adversary of evidence and factual data pertinent to his claim or position.
A critical examination discloses that Grobow's affidavit leaves much to be desired, under the rules of the foregoing cases. It contains no specific and circumstantial denial of the facts stated in the complaint, or clearly inferable therefrom, as to Lesnevich's bringing the bonds to him and Grobow's checking with the bank on the significance of Lesnevich's story as to how he came into possession of the bonds. The affidavit is a mere conclusional assertion of good faith and absence of facts sufficient to put him on notice. Consider, moreover, that the trial court, without objection from either counsel, stated it was willing to accept as in affidavit form, for the purpose of the motion, a statement Gentilhuomo had given the police, which clearly implied that Grobow was told how Lesnevich came into possession of the bonds.
If the facts mentioned were material on the issue of good faith, the court would not have been justified in finding, as defendant Grobow argues, that these facts were not sufficiently asserted by the plaintiff. Neither would it have been justified in granting summary judgment on that basis. It should have required a specific and circumstantial denial of the facts in an affidavit by Grobow, and if that were forthcoming, given plaintiff an opportunity to obtain controverting proof by affidavit, depositions or answers to interrogatories by Lesnevich and Gentilhuomo.
Our position on the first issue posed above, i.e., as to the materiality of the facts stated in (or sufficiently inferable from) the complaint, is in the affirmative. In our judgment, if the fact-finder at a trial concluded that Lesnevich related his story to Grobow as to the circumstances under which he acquired the bonds, it would also have been within its purview to decide that Grobow took the bonds in bad *352 faith, i.e., that he designedly refrained from pursuing an inquiry as to defects in Lesnevich's title to the bonds because of a fear that investigation would disclose a vice in the transaction. The sheer incredibility of the story as to the letter from the "Pal and Friend" and the ready availability of the facts, by inquiry of the Treasury Department, as to whether the bonds (the serial numbers of which had been reported to the Treasury Department), had been lost or stolen, made the issue of good or bad faith one upon which the jury could have found against Grobow and the credit company. Were there such a finding Grobow and the credit company could not be regarded as holders in due course.
We therefore conclude that summary judgment was improperly granted as to the defendants Grobow and credit company insofar as the issue of their status as holders in due course is concerned.
The entry of summary judgment in favor of the Palisade Trust Company, however, is unassailable. This is not an action for negligence or wrongful conduct on the part of the bank in transmitting information to Grobow with respect to the validity of the bonds. The only possible liability suggested on the bank's part is in its committing an act of conversion in acting as Edward Grobow's agent in liquidating the bonds in 1953. But there is utterly nothing in the papers of record from which an inference can be drawn that the bank in collecting the proceeds on the bonds in 1953 had knowledge that they were the same bonds which had been sent to Lesnevich and pledged to the credit company in 1951. There is nothing to indicate the bank had reason to doubt Edward's title to, and right to redeem, the bonds. The authorities cited in the brief submitted on behalf of the bank clearly sustain the propriety of the dismissal of the claim against it. See First National Bank v. Goldberg, supra; Gruntal v. United States Fidelity & Guaranty Co., 254 N.Y. 468, 173 N.E. 682, 73 A.L.R. 1337 (Ct. App. 1930); Annotation, "Liability to true owner of broker or other agent who sells negotiable securities which *353 have been stolen," 73 A.L.R. 1342 (1931); 1 Restatement, Torts, § 233(3), p. 596; 2 Restatement, Agency, § 349, comment (g), p. 769; 8 Am. Jur., Brokers, § 134, p. 1062.
Insofar as Grobow and the credit company are concerned, there remains for consideration the question as to whether summary judgment was not properly entered in their favor on the theory of the statute of limitations. N.J.S. 2A:14-1 provides for a six-year period of limitations on actions for the conversion of personal property. Plaintiff filed his complaint on July 31, 1958. The bonds were stolen from plaintiff in March 1951. Lesnevich received them on about October 1, 1951. He pledged them to the credit company on October 21, 1951. Max Grobow purchased them from the credit company on August 1, 1952. Thus the suit was commenced more than six years from the date of theft, of their receipt by Lesnevich, and of their transfer to the credit company. Grobow's purchase was within one day of the six-year period.
The question is: When did plaintiff's cause of action for conversion accrue? Did the time begin to run from the date of the theft, or did the time begin to run on different dates as against each successive alleged converter? If the latter, may one alleged converter (Grobow) whose alleged conversionary act took place within the six-year period "tack" on any time within which the bonds were in the possession of transferors in his chain of title?
Defendants maintain plaintiff's cause of action accrued at the date of the theft and that the action is consequently barred. Cited in support for their position is a single sentence from Weiss v. Stelling, 130 N.J.L. 235, 237 (E. & A. 1943):
"A cause of action for the conversion of chattels is complete when the chattel is first tortiously taken."
Compare Lowney v. Knott, 83 R.I. 505, 120 A.2d 552, 57 A.L.R.2d 1036 (Sup. Ct. 1956), where the court said:
*354 "It is well established that a cause of action in trover does not accrue to the aggrieved party in all instances at the time of conversion." (120 A.2d at page 554)
We cannot attribute to the Weiss court an intention to lay down as a general proposition any rule to the effect that a cause of action for the conversion of personalty accrues as against subsequent converters when the chattel is first tortiously taken by the thief. This is evident from the reference in Weiss to 4 Restatement, Torts, § 899(c), p. 526, where the rule is stated to be that:
"A cause of action for the conversion of chattels is complete when the chattel is first tortiously taken or retained by the defendant. * * *" (Emphasis added)
That the Restatement was not using the term "defendant" synonymously with "thief" is made clear by a subsequent sentence in the paragraph indicating that the defendant may in some cases tack on the time within which a thief or previous taker had possession. It should also be noted that even as to a thief, the period does not begin to run until the thief affords the true owner a reasonable opportunity of knowing the whereabouts of the property and of asserting his title. See 34 Am. Jur., Limitation of Actions, § 135, p. 109. Cf. 54 C.J.S. Limitations of Actions § 119, p. 23.
We are therefore satisfied that the period of limitations did not commence to run against the defendants herein as of March 1951 merely because that was the date of the original theft.
The next question is when did each of the defendants "tortiously take" the chattel. Specifically, did the credit company commit a conversionary act when it asserted a security interest in the bonds as pledgee or was a conversion committed only on August 1, 1952 when the company exercised full dominion over the bonds by selling them to its president? 1 Restatement, Torts, § 229, p. 585, holds that the mere acquisition of property from one who has no power to transfer the same renders the purported vendee, lessee, pledgee, donee, *355 or bailee liable in conversion. As to such persons, the weight of authority is that a demand and refusal is not necessary to trigger the accrual of the cause of action held by the true owner. See Prosser, Torts (2d ed. 1955), § 15, pp. 72-73, text at notes 74, 75. Compare Mueller v. Technical Devices Corp., 8 N.J. 201, 208 (1951). It therefore appears that under the Weiss case plaintiff's cause of action accrued as against the credit company when it became pledgee of the bonds on October 21, 1951.
It is settled that ignorance of the facts giving rise to the cause of action does not prevent the statute of limitations from running. Weinstein v. Blanchard, 109 N.J.L. 332 (E. & A. 1932); Sullivan v. Stout, 120 N.J.L. 304, 118 A.L.R. 211 (E. & A. 1938); Zimmerman v. Cherivtch, 5 N.J. Super. 590 (Law Div. 1949); 6 Williston, Contracts (rev. ed. 1938), § 2020, p. 5675. An exception to the rule has been recognized in a majority of jurisdictions in cases of fraudulent concealment. But in the absence of fraudulent concealment, the fact that a person has no knowledge of the identity of the thief or converter will not prevent the statute of limitations from running in favor of persons who have dealt with the property without knowledge it has been stolen. See Annotation, 136 A.L.R. 658 (1942).
In the present case, although there is a question of fact as to whether the credit company and Grobow were holders in due course, there is nothing to indicate that they had actual knowledge of the fact the bonds were stolen property, that they failed to hold the bonds as openly and notoriously as the nature of the property would permit, or that they were guilty of any other affirmative act of wrongdoing. Nor are there facts to the contrary stated in the complaint. Compare Quimby v. Blackey, 63 N.H. 77 (Sup. Ct. 1884); Vaut v. Gatlin, 31 Okl. 394, 398, 120 P. 273 (Sup. Ct. 1911); Chilton v. Carpenter, 78 Okl. 210, 189 P. 747 (Sup. Ct. 1920); 2 C.J.S. Adverse Possession § 239, p. 885; 34 Am. Jur., Limitation of Actions, § 136, p. 110. *356 If the defendants or those in privity with them did not participate in the fraudulent acts, the defendants cannot be deprived of the benefit of the statute of limitations. Munson v. Hallowell, 26 Tex. 475 (1863); 54 C.J.S. Limitations of Actions § 207, p. 229.
In Cutshall v. Yates, 95 Okl. 277, 219 P. 343 (Sup. Ct. 1923), an instruction to the jury that limitations began from the time plaintiff had knowledge of the defendant's possession of misappropriated jewelry was held to constitute reversible error. To like effect see Blount v. Parker, 78 N.C. 128 (Sup. Ct. 1878). Commercial Union Ins. Co. v. Connolly, 183 Minn. 1, 235 N.W. 634 (Sup. Ct. 1931), the case most nearly in point, was an action in replevin by the owner of stolen negotiable bonds against one who claimed to be a purchaser in good faith. The court held the defendant not to be a holder in due course and rejected the defense of limitations because the defendant had come into open possession of the bonds well within the period of limitations, said open possession being evidenced by a sale of the bonds to the defendant. In the instant case, the credit company's "open possession" of the bonds commenced on October 21, 1951, which was beyond the period of limitations.
Noel v. Teffeau, 116 N.J. Eq. 446 (Ch. 1934), and State v. United States Steel Corp., 22 N.J. 341, 357 (1956), establish that parties under a statutory or moral duty to inform the plaintiff of the facts giving rise to a cause of action may be estopped to assert the defense of limitations. Such cases are not apposite where, as here, the defendant is not claimed to have had knowledge of the identity of the plaintiff or of his rights.
We have been cited to no authority, nor have we been able to find any, that would indicate that the statute of limitations, in the circumstances of this case, would begin to run on some date other than when the credit company took the bonds as pledged property on October 21, 1951. That being so, it matters not that plaintiff first discovered *357 the whereabouts of the bonds in 1953; suit was not instituted until 1958, which was beyond the six-year period.
A word is necessary in relation to the right of the defendant Grobow to assert the defense of limitations. His independent conversionary act took place within the six-year period. The subject of whether a subsequent wrongful transfer will alter the running of the period as from the original conversion is exhaustively considered in O'Connell v. Chicago Park District, 376 Ill. 550, 34 N.E.2d 836, 135 A.L.R. 698 (Sup. Ct. 1941). The court applied the theory suggested by Professor Ames that the doctrine of tacking adverse possession, firmly established with relation to land (see, e.g., O'Brien v. Bilow, 121 N.J.L. 576, 579 (E. & A. 1938)), should be applied to the case of successive conversions of chattels. See also Loughran v. Town of Pelham, 126 F.2d 714 (2 Cir. 1942); 41 Am. Jur., Pledge and Collateral Security, § 61, p. 626; 4 Restatement, Torts, § 899, p. 526; 2 C.J.S. Adverse Possession § 237, p. 884. In this view, which we deem sound in principle, plaintiff's action against the defendant Grobow is also barred.
Accordingly, the entry of summary judgment in favor of the defendants credit company and Grobow must be affirmed, as well as that in favor of the bank. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1179765/ | 13 Cal. 4th 68 (1996)
THE PEOPLE, Plaintiff and Respondent,
v.
ERIC ALDEN PANIZZON, Defendant and Appellant.
Docket No. S046141.
Supreme Court of California.
April 18, 1996.
*72 COUNSEL
Douglas C. Littlejohn and Dennis A. Fischer, under appointments by the Supreme Court, for Defendant and Appellant.
Daniel E. Lungren, Attorney General, George Williamson, Chief Assistant Attorney General, Carol Wendelin Pollack, Assistant Attorney General, Robert Carl Schneider, Marc E. Turchin, Susan D. Martynec and Shawn A. McGahey, Deputy Attorneys General, for Plaintiff and Respondent.
OPINION
BAXTER, J.
Defendant Eric Panizzon pled no contest to various felony counts pursuant to a plea bargain that specifically provided for the imposition of certain prison time. After the trial court sentenced defendant in *73 accordance with the plea bargain, defendant sought to appeal the sentence. The People requested the Court of Appeal to dismiss the appeal on two grounds: (1) defendant had failed to obtain a certificate of probable cause as required under Penal Code section 1237.5[1] and rule 31(d) of the California Rules of Court;[2] and (2) defendant had waived the right to appeal his sentence as part of the plea bargain. The Court of Appeal denied the dismissal request, but rejected defendant's appeal on its merits.
As we shall explain, the Court of Appeal erred in denying the People's request for a dismissal. Although defendant purports not to contest the validity of the negotiated plea, he is in fact challenging the very sentence to which he agreed as part of the plea. Since the challenge attacks an integral part of the plea, it is, in substance, a challenge to the validity of the plea, which requires compliance with the probable cause certificate requirements of section 1237.5 and rule 31(d). Because defendant failed to adhere to these requirements, we conclude the Court of Appeal should not have reached the merits of defendant's appeal. As an alternative but secondary ground for our ruling, we accept, for purposes of argument, defendant's contention that his challenge is an attack on the sentence and not the plea, and, even upon this basis, we find it is barred because the terms of the plea bargain prohibit him from attacking the sentence on appeal. We therefore reverse the judgment of the Court of Appeal, and remand the matter to that court with directions to enter a dismissal of the appeal.
I. BACKGROUND AND PROCEDURAL FACTS
As part of a negotiated plea bargain, defendant agreed to enter a plea of no contest (nolo contendere) to one count of kidnapping for ransom (§ 209, subd. (a)), two counts of anal rape by a foreign object (§ 289, subd. (a)), one count of soliciting another to dissuade a witness from testifying or to suborn perjury (§ 653f), and to admit a weapons use allegation (§ 12022, subd. (a)). Also as part of the plea bargain, defendant agreed to a sentence of life with the possibility of parole, plus 12 years. He also acknowledged that a restitution fine of not less than $200 and not more than $10,000 would be imposed and that he waived the right to appeal the sentence. In exchange for the plea, the People agreed to dismiss one conspiracy count (§ 182), two counts of rape by a foreign object (§ 289, subd. (a)), six counts of sexual battery by restraint (§ 243.4, subd. (a)), and one count of residential burglary (§ 459). The trial court accepted defendant's plea on the specified counts and dismissed the others. Approximately one month later, in conformance with *74 the plea bargain, the trial court sentenced defendant to life with the possibility of parole, plus 12 years, and imposed restitution fines totaling $400.
Defendant subsequently filed a notice of appeal identifying the claim that his sentence was disproportionate to the sentences imposed upon his codefendants and thereby violative of the federal and state constitutional prohibitions against cruel and unusual punishment.[3] The People responded by requesting dismissal of the appeal on the grounds that defendant failed to obtain a certificate of probable cause (§ 1237.5; rule 31(d)) and that defendant had waived the right to appeal. After denying the People's request, the Court of Appeal rejected defendant's appeal on the merits and affirmed the judgment. Both defendant and the People petitioned for review.
II. DISCUSSION
(1a) In this court, both sides complain of error by the Court of Appeal. The People, on the one hand, contend the court should not have disregarded defendant's failure to comply with section 1237.5 and rule 31(d) and his waiver of the right to appeal the sentence. Defendant, on the other hand, argues the court erroneously rejected the constitutional challenges to his sentence. We examine the People's claims of error first, as they are potentially dispositive.
As pertinent to this case, the rules governing a criminal defendant's right to appeal are set forth in section 1237.5 and rule 31(d).
Section 1237.5 provides in relevant part: "No appeal shall be taken by the defendant from a judgment of conviction upon a plea of guilty or nolo contendere ... except where both of the following are met: [¶] (a) The defendant has filed with the trial court a written statement, executed under oath or penalty of perjury showing reasonable constitutional, jurisdictional, or other grounds going to the legality of the proceedings. [¶] (b) The trial court has executed and filed a certificate of probable cause for such appeal with the county clerk." (2) Notwithstanding the broad language of section 1237.5, it is settled that two types of issues may be raised in a guilty or nolo contendere plea appeal without issuance of a certificate: (1) search and seizure issues for which an appeal is provided under section 1538.5, subdivision (m); and (2) issues regarding proceedings held subsequent to the plea for the purpose of determining the degree of the crime and the penalty to be imposed. (People v. Jones (1995) 10 Cal. 4th 1102, 1106 [43 Cal. Rptr.2d *75 464, 898 P.2d 910], and cases cited; see generally, Cal. Criminal Law: Practice and Procedure (Cont.Ed.Bar 2d ed. 1994) §§ 39.4, 42.7, pp. 1016, 1103.)
(3) Rule 31(d) has two paragraphs. As we recently explained, the first paragraph implements section 1237.5's certificate requirement by "limit[ing] the time for the defendant to file the required statement of grounds, provid[ing] the statement may serve as the notice of appeal, and stat[ing] the appeal `shall not be operative' unless the trial court executes and files the certificate of probable cause."[4] (People v. Jones, supra, 10 Cal.4th at p. 1106.) The second paragraph implements rules governing those appeals that are not subject to section 1237.5's certificate requirement, i.e., appeals raising solely search and seizure or post-plea issues.[5] While the two paragraphs of rule 31(d) set forth different procedures for making an appeal operative, a defendant cannot manipulate the rule to bypass the statutory certificate requirement. Consequently, "[a]lthough an appeal purporting to rest solely on noncertificate grounds may be operative under rule 31(d), [second paragraph,] and may therefore result in preparation of a record and briefing, section 1237.5 does not allow the reviewing court to hear the merits of issues going to the validity of the plea unless the defendant has obtained a certificate of probable cause, or has sought and obtained relief from default in the reviewing court." (People v. Jones, supra, 10 Cal.4th at p. 1112, fn. 5.)
(4) The purpose for requiring a certificate of probable cause is to discourage and weed out frivolous or vexatious appeals challenging convictions following guilty and nolo contendere pleas. (People v. Breckenridge (1992) 5 Cal. App. 4th 1096, 1101 [8 Cal. Rptr. 2d 1]; see also People v. Manriquez (1993) 18 Cal. App. 4th 1167, 1171 [22 Cal. Rptr. 2d 779].) The objective is to promote judicial economy "by screening out wholly frivolous guilty [and nolo contendere] plea appeals before time and money is spent *76 preparing the record and the briefs for consideration by the reviewing court." (People v. Hoffard (1995) 10 Cal. 4th 1170, 1179 [43 Cal. Rptr. 2d 827, 899 P.2d 896]; see People v. Ballard (1985) 174 Cal. App. 3d 982, 987-988 [220 Cal. Rptr. 323].)
(5) It has long been established that issues going to the validity of a plea require compliance with section 1237.5. (People v. Ward (1967) 66 Cal. 2d 571, 574 [58 Cal. Rptr. 313, 426 P.2d 881] (Ward).) Thus, for example, a certificate must be obtained when a defendant claims that a plea was induced by misrepresentations of a fundamental nature (People v. DeVaughn (1977) 18 Cal. 3d 889, 896 [135 Cal. Rptr. 786, 558 P.2d 872]) or that the plea was entered at a time when the defendant was mentally incompetent (People v. Laudermilk (1967) 67 Cal. 2d 272, 282 [61 Cal. Rptr. 644, 431 P.2d 228]). Similarly, a certificate is required when a defendant claims that warnings regarding the effect of a guilty plea on the right to appeal were inadequate. (People v. Kaanehe (1977) 19 Cal. 3d 1, 8 [136 Cal. Rptr. 409, 559 P.2d 1028].)
(1b) In this case, defendant does not purport to challenge the validity of his no contest plea. Nonetheless, he seeks to appeal the constitutionality of the sentence to which he agreed as part of the negotiated plea bargain. Under these circumstances, do the requirements of section 1237.5 apply?[6]
The following principles guide our analysis. In determining whether section 1237.5 applies to a challenge of a sentence imposed after a plea of guilty or no contest, courts must look to the substance of the appeal: "the crucial issue is what the defendant is challenging, not the time or manner in which the challenge is made." (People v. Ribero (1971) 4 Cal. 3d 55, 63 [92 Cal. Rptr. 692, 480 P.2d 308].) Hence, the critical inquiry is whether a challenge to the sentence is in substance a challenge to the validity of the plea, thus rendering the appeal subject to the requirements of section 1237.5. (People v. McNight (1985) 171 Cal. App. 3d 620, 624 [217 Cal. Rptr. 393] (McNight).)
In McNight, supra, 171 Cal. App. 3d 620, the Court of Appeal determined, under circumstances very similar to those here, that a defendant's challenge to the imposition of a negotiated sentence went to the heart of his plea agreement and therefore constituted a challenge to the validity of the plea. There, as part of a negotiated plea, the defendant pled guilty to three counts *77 of rape and one firearm use allegation. In exchange for the plea, the prosecution dismissed various other charges and agreed to recommend a prison term of 21 years. After the trial court imposed the recommended sentence, the defendant filed a notice of appeal and applied to the trial court for a certificate of probable cause pursuant to section 1237.5. Although the defendant did not purport to contest the validity of the plea itself, he sought to challenge the sentence on the ground that consideration of mitigating circumstances should have resulted in imposition of a sentence less than the agreed-upon sentence. (171 Cal. App.3d at pp. 622, 624.) After the trial court denied his application for a certificate, the defendant tried to convince the Court of Appeal that section 1237.5 was inapplicable because he did not seek withdrawal of his guilty plea, but only appellate review of the post-plea sentencing procedure.
The Court of Appeal rejected the defendant's argument. Applying the "substance-of-the-appeal" test, the court determined that the defendant was, in effect, claiming he was prejudiced by the trial court's acceptance of the prosecutor's recommended sentence and by his counsel's failure to argue mitigating circumstances. (McNight, supra, 171 Cal. App.3d at p. 624.) In finding that the claim challenged the validity of the guilty plea, the court drew from our decision in People v. Collins (1978) 21 Cal. 3d 208, 215 [145 Cal. Rptr. 686, 577 P.2d 1026]: "`The state, in entering a plea bargain, generally contemplates a certain ultimate result; integral to its bargain is the defendant's vulnerability to a term of punishment.... When a defendant gains total relief from his vulnerability to sentence, the state is substantially deprived of the benefits for which it agreed to enter the bargain. Whether the defendant formally seeks to withdraw his guilty plea or not is immaterial; it is his escape from vulnerability to sentence that fundamentally alters the character of the bargain.'" (McNight, supra, 171 Cal. App.3d at p. 624.) After noting that the trial court had acted in complete accordance with the terms of the plea agreement at the sentencing hearing, the Court of Appeal held that, under those circumstances, the imposition of sentencing at the post-plea hearing was not so separate and distinct from the defendant's plea of guilty as to implicate a post-plea sentencing issue for which a certificate under section 1237.5 was not required. (171 Cal. App.3d at p. 625; see also People v. Sabados (1984) 160 Cal. App. 3d 691, 695-696 [206 Cal. Rptr. 799] [where defendant pled to a specific degree of crime with knowledge that sentence would be 25 years to life, claim of disproportionality of sentence challenged the validity of the plea and could not be considered on appeal absent certificate of probable cause].)
Defendant does not address McNight, supra. Nor does he deny that the agreed-upon sentence of life with the possibility of parole, plus 12 years, *78 was an integral part of the plea agreement. Instead, defendant emphasizes that his claim of error, i.e., that the bargained sentence is unconstitutional when compared to the sentences of his codefendants, is based on events that occurred after the no contest plea was entered.[7] In defendant's view, such error represents the "archetypal instance" of post-plea error for which a probable cause certificate is not required. This argument is without merit.
While a trial court's error in making certain decisions after a plea may give rise to challenges that do not require compliance with section 1237.5, all the trial court did here was to sentence defendant in accordance with the previously entered plea. The mere fact that this happened a month after the plea, however, is not determinative. Moreover, that the events supposedly giving rise to defendant's disproportionality claim occurred afterwards likewise is of no consequence. Rather, "the crucial issue is what the defendant is challenging." (People v. Ribero, supra, 4 Cal.3d at p. 63, italics added.) Here, by contesting the constitutionality of the very sentence he negotiated as part of the plea bargain, defendant is, in substance, attacking the validity of the plea. For that reason, and consistent with McNight, supra, 171 Cal. App. 3d 620, we hold that the certificate requirement of section 1237.5 applies.
In the proceedings below, the Court of Appeal reached the opposite conclusion. Relying upon People v. Sumstine (1984) 36 Cal. 3d 909 [206 Cal. Rptr. 707, 687 P.2d 904] and People v. Knauer (1988) 206 Cal. App. 3d 1124 [253 Cal. Rptr. 910], both of which followed the general rule that section 1237.5 is inapplicable to sentencing errors arising after a plea is taken, the court disregarded defendant's failure to obtain a certificate. That reliance was misplaced. Unlike the instant situation, the negotiated pleas in those decisions related to the issue of guilt without specification of the penalty to be imposed.[8] Since the sentencing decisions were clearly separate and distinct from the defendants' pleas, in substance as well as temporally, any challenges to the sentencing did not implicate the validity of the pleas and therefore did not require compliance with section 1237.5. Here, however, the sentence defendant received was part and parcel of the plea agreement he negotiated with the People. Accordingly, the statutory certificate requirement applies because defendant's contention that the sentence violated the constitutional prohibition against cruel and unusual punishment falls squarely within the parameters of a challenge to the plea.
*79 The reasoning we employ finds support in Ward, supra, 66 Cal. 2d 571, the seminal case holding that compliance with section 1237.5 is not required where the defendant asserts that error occurred in post-plea adversary hearings conducted by the trial court for the purpose of determining the degree of the crime and the penalty to be imposed. In explaining the rationale for this holding, Ward observed in part that, in such situations, the concomitant of imposing section 1237.5's requirements "would mean... that the prosecution must meet its traditional burden of proof in a hearing held for the purpose of determining the degree of a crime, but paradoxically a defendant would be denied the right to question on appeal whether the burden had been met." (66 Cal.2d at p. 576.) But, recognized Ward, when a defendant pleads guilty to a particular degree of the crime, thus obviating the need for an adversary hearing to determine the degree of the crime, "there is rationale for confining the right of appeal to a situation in which fundamental errors may have occurred." (Id. at p. 575.) In those situations, Ward implied, the right of appeal is properly subject to the requirements of section 1237.5. (66 Cal.2d at p. 575; see People v. Zamora (1991) 230 Cal. App. 3d 1627, 1635 [282 Cal. Rptr. 100].) Similarly, where, as here, a defendant agrees to a particular sentence as part of a plea bargain, a separate adversary hearing is unnecessary and the prosecution need not meet the traditional burden of proof in order to determine the proper penalty to be imposed. In such instances, the rationale for circumscribing the right to appeal pursuant to section 1237.5 applies with equal force.[9]
In sum, we are persuaded by McNight's reasoning that a challenge to a negotiated sentence imposed as part of a plea bargain is properly viewed as a challenge to the validity of the plea itself. Therefore, it was incumbent upon defendant to seek and obtain a probable cause certificate in order to attack the sentence on appeal. (§ 1237.5.) (6a) Yet even if we accept defendant's contention that his claim is an attack on the sentence that does not require a certificate, we conclude the appeal must still be dismissed. We proceed to discuss this alternative ground for dismissal of the appeal, accepting for such purpose defendant's argument that his claim attacks merely the sentence and not the plea. As we shall demonstrate, defendant is barred from challenging the negotiated sentence on appeal because the terms of the plea bargain prohibit such a challenge.
(7) The negotiated plea agreement, which results in the waiver of important constitutional rights, "is an accepted and integral part of our *80 criminal justice system." (People v. Vargas (1993) 13 Cal. App. 4th 1653, 1658 [17 Cal. Rptr. 2d 445]; see People v. West (1970) 3 Cal. 3d 595, 604 [91 Cal. Rptr. 385, 477 P.2d 409].) Such agreements benefit the system by promoting speed, economy and finality of judgments. (13 Cal. App.4th at p. 1658.)
"When a guilty [or nolo contendere] plea is entered in exchange for specified benefits such as the dismissal of other counts or an agreed maximum punishment, both parties, including the state, must abide by the terms of the agreement." (People v. Walker (1991) 54 Cal. 3d 1013, 1024 [1 Cal. Rptr. 2d 902, 819 P.2d 861]; see In re Troglin (1975) 51 Cal. App. 3d 434, 438 [124 Cal. Rptr. 234] [both the People and the accused should be held to the terms of a plea bargain].) Of course, before taking the plea, the trial court must admonish the defendant of the constitutional rights that are being waived, as well as the direct consequences of the plea. (People v. Walker, supra, 54 Cal.3d at p. 1022.) Just as a defendant may affirmatively waive constitutional rights to a jury trial, to confront and cross-examine witnesses, to the privilege against self-incrimination, and to counsel as a consequence of a negotiated plea agreement, so also may a defendant waive the right to appeal as part of the agreement. (People v. Vargas, supra, 13 Cal. App.4th at pp. 1658-1660; see People v. Nguyen (1993) 13 Cal. App. 4th 114 [16 Cal. Rptr. 2d 490]; accord, U.S. v. Rutan (8th Cir.1992) 956 F.2d 827; U.S. v. Navarro-Botello (9th Cir.1990) 912 F.2d 318; U.S. v. Wiggins (4th Cir.1990) 905 F.2d 51.)[10]
To be enforceable, a defendant's waiver of the right to appeal must be knowing, intelligent, and voluntary. (People v. Vargas, supra, 13 Cal. App.4th at p. 1659; People v. Nguyen, supra, 13 Cal. App.4th at p. 119.) Waivers may be manifested either orally or in writing. (People v. Berkowitz (1995) 34 Cal. App. 4th 671, 678 [40 Cal. Rptr. 2d 150].) The voluntariness of a waiver is a question of law which appellate courts review de novo. (People v. Vargas, supra, 13 Cal. App.4th at p. 1660.)
(6b) In examining the particular facts before us, we observe that prior to entering his plea of no contest, defendant read and signed an 11-page document entitled "Waiver of Constitutional Rights and Plea of Guilty or `No Contest'" (the Waiver and Plea agreement). That document reflected, inter alia, the following information and statements initialed by defendant:
"A. CHANGE OF PLEA CONDITIONS
*81 ".... .... .... .... .... .... ....
"3. My lawyer has told me that if I plead guilty or no contest to the above charge(s) and admit the prior conviction(s) enhancement(s), prior prison term(s) and/or serious felony offense(s), the court will sentence me as follows unless the court concludes the negotiated plea is not in the interest of justice, in which case the court will allow me to set aside my plea and enter a plea of not guilty:
"Agreement: Defendant to receive 6 yrs. on Ct. 3 and 3 yrs. on Ct. 5, consecutive with PC 12022(a) allegation. Defendant to receive 2 yrs. on PC 653(F) [sic] charge consecutive to all other cts. Total determinative sentence = 12 yrs. Def. will receive life term on PC 209 charge.
".... .... .... .... .... .... ....
"B. CONSEQUENCES OF PLEA
".... .... .... .... .... .... ....
"11. I understand that I am pleading guilty or no contest to an offense and/or admitting special allegation(s) which means by law I CANNOT be placed on probation and that I MUST be sentenced to state prison for the term selected by the judge. [Citations.]
".... .... .... .... .... .... ....
"F. ENTRY OF PLEA
"1. I have had enough time to talk to my lawyer about the case and have told him/her all the facts and circumstances known to me about the case.
"2. My lawyer has carefully gone over with me this Waiver of Constitutional Rights form. My lawyer has explained the possible sentence which could be imposed as a result of my plea of guilty/no contest. I understand the nature of the charge(s) against me.
"3. I have discussed with my attorney the charge(s), prior conviction(s), enhancement(s), prior prison term(s), and/or serious felony offense(s) alleged against me and any facts and possible defenses.
".... .... .... .... .... .... ....
"5. I offer my plea of `Guilty' or No Contest freely and voluntarily with a full understanding of all the matters set forth on this form. No one has *82 made any threats against me, used any force against me, my family or loved ones, nor has anyone made any promises except as set out on this form in order to convince me to plead guilty or no contest. I am not under the influence of any drug(s), medication, alcohol or any other substance which would impair my judgment.
".... .... .... .... .... .... ....
"7. I hereby waive and give up my right to appeal from the sentence I will receive in this case. I also waive and give up my right to appeal the denial of any and all motions made and denied in my case.
"8. I have personally initialed each of the above boxes and discussed them with my attorney. I understand each and every one of the rights outlined above and I hereby WAIVE and GIVE UP each of them in order to enter my plea to the above charge(s)."
Below defendant's signature on the Waiver and Plea agreement, the following statement appears along with defense counsel's signature:
"I am the attorney of record and I have explained each of the above rights to the defendant. I have explored the facts with him/her and studied his/her possible defenses to the charge(s) and enhancing allegations. I believe there is a factual basis for each of the pleas and admissions set forth above. I concur in his/her decision to waive the above rights and to enter a plea of guilty or no contest. I further stipulate this document may be received by the court as evidence of defendant's intelligent waiver of these rights and that it should be filed by the clerk as a permanent record of that waiver. No promises of a particular sentence or sentence recommendation have been made by me or, to my knowledge, by the prosecuting attorney or the court which has not been fully disclosed in this form. I personally went over this document with the defendant. I observed the defendant to read, date and sign this document."
The document also reflected the People's concurrence in the plea, as well as the trial judge's signature and his findings that defendant "expressly, knowingly, understandingly, and intelligently waived" his constitutional rights and that defendant's plea was "freely and voluntarily made with an understanding of the nature and consequences thereof."
At a hearing on the change of plea, defendant represented he recognized the Waiver and Plea agreement and affirmed he had had ample time to review it with his attorney. As to the charges to which defendant agreed to *83 plead no contest, defendant acknowledged his maximum prison exposure of life with the possibility of parole plus 19 years and the agreed-upon sentence of life with the possibility of parole plus 12 years. He also confirmed that he had read, understood, and personally initialed the relevant paragraphs of the agreement, and that he had signed and dated it. Defense counsel likewise acknowledged his signature on the document and expressed his belief that defendant was knowingly and intelligently giving up his constitutional rights. The trial court then found that defendant had freely and voluntarily waived his constitutional rights.
Defendant asserts the above record fails to demonstrate a valid waiver of the right to appeal because he was not properly admonished regarding that right. (People v. Rosso (1994) 30 Cal. App. 4th 1001, 1006 [36 Cal. Rptr. 2d 218].) This assertion is devoid of merit.
(8) As noted previously, a trial court normally must admonish a defendant of the direct consequences of a plea of guilty or nolo contendere. (People v. Walker, supra, 54 Cal.3d at p. 1022.) However, a court may rely upon a defendant's validly executed waiver form as a proper substitute for a personal admonishment. (People v. Castrillon (1991) 227 Cal. App. 3d 718, 722 [enforcing, as part of a plea agreement, defendant's written waiver of the right to appeal the denial of a motion to suppress pursuant to § 1538.5, subd. (m)]; cf. In re Ibarra (1983) 34 Cal. 3d 277, 286 [193 Cal. Rptr. 538, 666 P.2d 980] ["[A] defendant who has signed a waiver form [waiving Boykin-Tahl rights] upon competent advice of his attorney has little need to hear a ritual recitation of his rights by a trial judge."].) "Only if in questioning the defendant and his attorney the trial court has reason to believe the defendant does not fully comprehend his rights, must the trial court conduct further canvassing of the defendant to ensure a knowing and intelligent waiver of rights." (People v. Castrillon, supra, 227 Cal. App.3d at p. 722; cf. In re Ibarra, supra, 34 Cal.3d at p. 286 ["The judge need only determine whether defendant had read and understood the contents of the form, and had discussed them with his attorney."].) Thus, in People v. Castrillon, supra, a trial court was not required to question a defendant specifically regarding the right to appeal where both the defendant and his attorney had signed a waiver form and had attested to the defendant's knowing and voluntary relinquishment of his rights and where the trial court's examination of the defendant and his attorney raised no questions concerning defendant's comprehension of his rights and of the consequences of his plea. (227 Cal. App.3d at pp. 722-723; see also People v. Kelly (1994) 22 Cal. App. 4th 533 [27 Cal. Rptr. 2d 383] [written waiver of right to appeal contained in change of plea form enforced where form recited that defendant's attorney had reviewed and explained the terms and consequences of the plea to *84 defendant]; People v. Evanson (1968) 265 Cal. App. 2d 698 [71 Cal. Rptr. 503] [waiver of right to jury trial upheld where defense counsel represented to trial court that he had explained such right to the defendant], cited with approval in In re Tahl (1969) 1 Cal. 3d 122, 133, fn. 6 [81 Cal. Rptr. 577, 460 P.2d 449].)
(6c) Consideration of the foregoing principles leads us to conclude that the record in this case demonstrates an enforceable waiver of defendant's right to appeal his sentence. Even though the trial court did not admonish defendant regarding the right to appeal, the Waiver and Plea agreement signed by defendant and his attorney contains defendant's representations that he understood the sentence that would be imposed if he pleaded no contest, that he had discussed with his attorney both the paragraph specifying the sentence to be imposed and the paragraph containing the waiver of the right to appeal the sentence, and that he fully understood all matters set forth in the document without exception. The Waiver and Plea agreement also reflects defense counsel's representation that he personally went over the document with defendant and concurred in defendant's decision to waive the rights specified in the document, as well as counsel's stipulation that the trial court could consider the document as evidence of defendant's intelligent waiver of such rights. At the court hearing, both defendant and his attorney attested to the document's valid execution. Additionally, the in-court questioning of defendant and his attorney raised no doubts as to defendant's understanding of his rights and the consequences of his no contest plea. Under these circumstances, we are satisfied that defendant's waiver of the right to appeal the bargained sentence was knowing, intelligent, and voluntary despite the absence of a specific admonishment by the trial court. (People v. Castrillon, supra, 227 Cal. App.3d at p. 722; cf. In re Ibarra, supra, 34 Cal.3d at pp. 284-286.)
People v. Rosso, supra, 30 Cal. App. 4th 1001, does not support defendant's position. In that case, the reviewing court rejected the People's claim that the defendant had orally waived his appellate rights as follows: "`[The Court]: ... Have you discussed these [constitutional] rights with your attorney? [¶] [Rosso]: Yes. [¶] The Court: Do you understand each and every one of these rights? [¶] [Rosso]: Yes, I understand. [¶] The Court: Do you waive and give up these rights and your right to appeal? [¶] [Rosso]: Yes, I waive them.'" (30 Cal. App.4th at p. 1006.) As noted in the decision, however, this was the only mention of appellate rights. The record in that case, unlike that here, apparently contained no evidence of a written waiver of appellate rights read and signed by the defendant after discussion with his attorney and no evidence that an attorney had explained the right to appeal to the defendant. Consequently, People v. Rosso, supra, stands in sharp contrast to the instant situation and does not call for a different result.
*85 Defendant next argues that any error occurring after the entry of his plea constituted "future sentencing error" that was beyond the scope of the waiver. In particular, defendant contends that "[w]hen, as here, the sentence a defendant receives pursuant to a plea bargain is challenged on the basis of its constitutional disproportionality in comparison with sentences imposed subsequently on his codefendants, even a specific waiver as to sentencing error cannot logically encompass prospective events that the defendant did not contemplate in agreeing to a specified sentence." Relying upon the principle that a waiver is "an intentional relinquishment or abandonment of a known right or privilege" (Johnson v. Zerbst (1938) 304 U.S. 458, 464 [82 L. Ed. 1461, 1466, 58 S. Ct. 1019, 146 A.L.R. 357], italics added; People v. Charles (1985) 171 Cal. App. 3d 552, 569 [217 Cal. Rptr. 402] (conc. opn. of White, P.J.)), defendant asserts that a specific waiver of the right to appeal a negotiated sentence is unenforceable as to "unforeseen or unknown errors" occurring subsequent to the waiver.
To support this argument, defendant relies upon two cases finding that a defendant's waiver of "possible future error" is outside the defendant's contemplation and knowledge at the time the waiver is made. (People v. Sherrick (1993) 19 Cal. App. 4th 657, 659 [24 Cal. Rptr. 2d 25]; People v. Vargas, supra, 13 Cal. App.4th at p. 1662.) But while these authorities generally support the proposition that a defendant's general waiver of the right to appeal,[11] given as part of a negotiated plea agreement, will not be construed to bar the appeal of sentencing errors occurring subsequent to the plea, the defendants in those decisions were attempting to appeal sentencing issues that were left unresolved by the particular plea agreements involved. In People v. Sherrick, supra, 19 Cal. App. 4th 657, the defendant was permitted to argue on appeal that the trial court utilized a patently erroneous standard in determining his ineligibility for probation where the plea agreement and waiver of appellate rights evidently contemplated no specific sentence or probation eligibility. Similarly, in People v. Vargas, supra, 13 Cal. App. 4th 1653, the defendant was not barred from challenging an alleged misapplication of conduct credits on appeal where the plea agreement and waiver of appellate rights apparently made no mention of conduct credits. In each of those decisions, the appellate court viewed the sentencing issue as not being within the contemplation and knowledge of the defendant at the time the waiver was made and so refused to extend thereto a general waiver of the right to appeal.
That, however, is not the situation here. Not only did the plea agreement in this case specify the sentence to be imposed, but by its very terms the *86 waiver of appellate rights also specifically extended to any right to appeal such sentence. Thus, what defendant seeks here is appellate review of an integral element of the negotiated plea agreement, as opposed to a matter left open or unaddressed by the deal. Since both the length of the sentence and the right to appeal the sentence are issues that cannot fairly be characterized as falling outside of defendant's contemplation and knowledge when the waiver was made, the reasoning of People v. Sherrick, supra, and People v. Vargas, supra, is inapposite.
Defendant's characterization of the issue on appeal as an "unforeseen or unknown error" is off the mark because the sentence imposed by the court was neither unforeseen nor unknown at the time defendant executed the Waiver and Plea agreement. Moreover, the essence of defendant's claim is that his sentence is disproportionate to his level of culpability (see People v. Dillon (1983) 34 Cal. 3d 441 [194 Cal. Rptr. 390, 668 P.2d 697]), a factor that also was known at the time of the plea and waiver. Thus, the real thrust of defendant's claim concerns events predating entry of the plea and waiver.
It is true that in People v. Dillon, supra, we looked to the relatively lenient sentences of a defendant's coconspirators to underscore our conclusion that the punishment imposed upon the defendant was grossly disproportionate to his individual culpability. (34 Cal.3d at p. 488.) But even if defendant here did not know or contemplate the fact that his codefendants would later negotiate and receive sentences more lenient than his, we see no reason to deem his waiver of appellate rights unenforceable.
The reasoning articulated by the United States Supreme Court in upholding the general validity and enforceability of plea agreements is persuasive in putting into proper perspective the claim that a defendant should be relieved of a waiver of appellate rights because of the subsequent occurrence of unforeseen events perceived to be favorable to the defense. "Often the decision to plead guilty is heavily influenced by the defendant's appraisal of the prosecution's case against him and by the apparent likelihood of securing leniency should a guilty plea be offered and accepted. Considerations like these frequently present imponderable questions for which there are no certain answers; judgments may be made that in the light of later events seem improvident, although they were perfectly sensible at the time. The rule that a plea must be intelligently made to be valid does not require that a plea be vulnerable to later attack if the defendant did not correctly assess every relevant factor entering into his decision." (Brady v. United States (1970) 397 U.S. 742, 756-757 [25 L. Ed. 2d 747, 761, 90 S. Ct. 1463].) This logic applies with equal force to dispel any notion that the subsequent *87 unfolding of unknown or unforeseen events somehow renders a waiver of appellate rights unintelligent or otherwise defective at the time it was given.
Contrary to defendant's assertions, nothing in U.S. v. Jacobson (2d Cir.1994) 15 F.3d 19 compels a different conclusion. In that case, the defendant pled guilty to one count of conspiracy to receive misbranded and adulterated drugs in interstate commerce and to commit wire fraud. Both he and the government agreed not to appeal in the event the court imposed a sentence within a range of eight to fourteen months under the federal sentencing guidelines.[12] After receiving a sentence of 12 months, the defendant appealed on the ground that the length of sentence, when compared with those subsequently received by his coconspirators, was based on a constitutionally impermissible factor (naturalized status) and therefore constituted a denial of due process. The appeals court held that the defendant did not waive his right to appeal on the aforementioned ground. Although the court recognized that an agreement not to appeal a sentence within the agreed guidelines range is enforceable, it observed that a waiver of the right not to be sentenced on the basis of a constitutionally impermissible factor may be invalid. (15 F.3d at pp. 22-23, citing U.S. v. Marin (4th Cir.1992) 961 F.2d 493, 496 ["a defendant could not be said to have waived his right to appellate review of a sentence ... based on a constitutionally impermissible factor such as race"].) Accordingly, the court read the plea agreement at issue narrowly, noting that the defendant's appeal raised no guidelines issues. (15 F.3d at p. 23.) Additionally, the court rejected the government's argument that the defendant had waived his challenge by failing to raise the issue in the district court. Observing that the coconspirators were all sentenced after him, the court reasoned that an objection based on unconstitutional disparity could not have been made at the time of the defendant's sentencing. (Ibid.)
U.S. v. Jacobson, supra, does not, as defendant suggests, undermine the enforceability of his waiver of the right to appeal his negotiated sentence. In this case, the People do not argue that defendant's failure to raise the disparity issue at the time of his sentencing constituted an implied waiver of the right to appeal such a matter. Consequently, defendant's reliance upon *88 that portion of the federal decision is misplaced.[13] Moreover, defendant here makes no claim that his sentence which reflected the terms of his negotiated plea bargain with the People was based upon a constitutionally impermissible factor arguably not waivable by agreement. Accordingly, this case does not call for construing defendant's waiver of the right to appeal the sentence in a manner so as to avoid a waiver of that issue.
Finally, invoking the principle that "[a]n appellate court may `correct a sentence that is not authorized by law whenever the error comes to the attention of the court'" (In re Harris (1993) 5 Cal. 4th 813, 842 [21 Cal. Rptr. 2d 373, 855 P.2d 391]), defendant argues that California decisional law has long recognized the necessity of affording judicial review where, as here, a sentence is challenged as invalid or in excess of the court's jurisdiction. We disagree.
Appellate courts have relied upon the principle to which defendant refers in allowing habeas corpus review of a claim or sentencing error amounting to an excess of jurisdiction when a defendant has delayed in raising the issue (e.g., In re Harris, supra, 5 Cal.4th at p. 842) and in holding that an unauthorized sentence is no bar to the imposition of a proper, even if more severe, judgment thereafter (e.g., People v. Serrato (1973) 9 Cal. 3d 753, 764-765 [109 Cal. Rptr. 65, 512 P.2d 289], disapproved on other grounds, People v. Fosselman (1983) 33 Cal. 3d 572, 583, fn. 1 [189 Cal. Rptr. 855, 659 P.2d 1144]; People v. Massengale (1970) 10 Cal. App. 3d 689, 693 [89 Cal. Rptr. 237]). These authorities, however, do not support appellate review of a sentence disproportionality claim where, as here, the sentence has been negotiated as part of a plea bargain and is not in excess of the maximum statutory penalty.[14] Indeed, considerations of fairness weigh against the availability of review since the absence of a fully developed factual record in a plea bargained case is likely to place the People at a significant disadvantage in meeting such a claim.
*89 Accordingly, we find that a valid, express, and unrestricted waiver of the right to appeal a negotiated sentence should be deemed to include a waiver of the right to appeal it on the ground that it is disproportional and therefore invalid.
III. CONCLUSION
Although defendant maintains he is not contesting the validity of his bargained plea, he seeks to challenge the very sentence he negotiated as part of the plea. Consistent with the reasoning of McNight, supra, 171 Cal. App. 3d 620, we conclude that such a claim is, in substance, an attack on the validity of the plea which is not reviewable on appeal because defendant failed to seek and obtain a certificate of probable cause. (See People v. Jones, supra, 10 Cal.4th at p. 1112, fn. 5.) Further, even if it is assumed that defendant's claim does not challenge the validity of the plea, the claim still is not reviewable on appeal because the terms of the plea bargain preclude any appeal of the negotiated sentence.
In light of our conclusion that the Court of Appeal should not have disregarded defendant's failure to comply with section 1237.5 and rule 31(d) or, alternatively, his waiver of appellate rights, we do not reach the merits of defendant's challenge to the sentence.[15] The judgment of the Court of *90 Appeal is reversed, and the matter is remanded to that court with directions to dismiss defendant's appeal.
Lucas, C.J., Kennard, J., George, J., Werdegar, J., and Chin, J., concurred.
MOSK, J.
I dissent.
I cannot conclude that defendant validly waived his right to appeal his sentence on the effective ground that it is disproportionate to his personal responsibility and moral culpability in violation of the cruel and unusual punishments clause of the Eighth Amendment to the United States Constitution, as applied to the states under the due process clause of the Fourteenth Amendment, and the cruel or unusual punishment clause of article I, section 17, of the California Constitution. (See People v. Marshall (1990) 50 Cal. 3d 907, 937-938 [269 Cal. Rptr. 269, 790 P.2d 676].) The Court of Appeal rejected this claim on the merits. So would I.
Convicted defendants generally enjoy a right of appeal under state law. (Pen. Code, § 1237.) If they can waive this right at all, they must do so "knowing[ly], intelligent[ly] and voluntar[il]y." (People v. Vargas (1993) 13 Cal. App. 4th 1653, 1657, 1659 [17 Cal. Rptr. 2d 445].) Defendant seems not to have made his purported waiver knowingly. His claim of disproportionality depends in part on the sentences meted out to his codefendants. It appears that he was not aware of such sentences at the time of his purported waiver. (See People v. Vargas, supra, 13 Cal. App.4th at pp. 1662-1663.)
Second, I question whether certain types of claims, including one that the sentence violates certain constitutional norms, may be waived. "For example, a defendant could not be said to have waived his right to appellate review of a sentence imposed in excess of the maximum penalty provided by statute or based on a constitutionally impermissible factor such as race." (U.S. v. Marin (4th Cir.1992) 961 F.2d 493, 496.)
Third, I cannot countenance the use of this written form to enter defendant's various pleas. In my concurring and dissenting opinion in In re Ibarra (1983) 34 Cal. 3d 277, 291 [193 Cal. Rptr. 538, 666 P.2d 980], joined by two other justices, I expressed "grave reservations about the use of waiver forms in a felony context." Most problematic here, the waiver of the right to appeal is buried at the end of the form, amid a panoply of disparate clauses. Evidently the subject of waiving appeal was of little importance to the form drafter. And although defendant was carefully examined about his understanding of the rights he was waiving, appeal was not mentioned. I am not *91 convinced that he realized the implications of signing the obscure provision waiving his right to appeal, notwithstanding his ritualized oral declaration that he understood the form's provisions.
I would affirm the Court of Appeal's judgment.
NOTES
[1] Unless otherwise indicated, all further statutory references are to the Penal Code.
[2] Unless otherwise indicated, all further references to rules are to the California Rules of Court.
[3] The notice of appeal also identified an issue regarding the propriety of consecutive sentencing on two of the counts. Defendant, however, relied solely upon the disproportionality issue in his briefs to the Court of Appeal.
[4] The first paragraph of rule 31(d) provides in pertinent part: "If a judgment of conviction is entered upon a plea of guilty or nolo contendere, the defendant shall, within 60 days after the judgment is rendered, file as an intended notice of appeal the statement required by section 1237.5 ...; but the appeal shall not be operative unless the trial court executes and files the certificate of probable cause required by that section. Within 20 days after the defendant files the statement the trial court shall execute and file either a certificate of probable cause or an order denying a certificate and shall forthwith notify the parties of the granting or denial of the certificate."
[5] Rule 31(d)'s second paragraph provides: "If the appeal from a judgment of conviction entered upon a plea of guilty or nolo contendere is based solely upon grounds (1) occurring after entry of the plea which do not challenge its validity or (2) involving a search or seizure, the validity of which was contested pursuant to section 1538.5 ..., the provisions of section 1237.5 ... requiring a statement by the defendant and a certificate of probable cause by the trial court are inapplicable, but the appeal shall not be operative unless the notice of appeal states that it is based upon such grounds."
[6] Although the matter was not identified in the notice of appeal, defendant also claims he was inadequately admonished regarding the waiver of appellate rights contained in the waiver and plea agreement. Under People v. Kaanehe, supra, such a claim is clearly subject to section 1237.5. (19 Cal.3d at p. 8.)
[7] According to the facts recited in the Court of Appeal's opinion below, codefendant Stephen Gillen received a 12-year prison sentence for simple kidnapping and use of a firearm and codefendant Jeffrey Locas received 732 days in the county jail for simple kidnapping.
[8] Moreover, in People v. Sumstine, supra, the particular sentencing claim appears to have been reserved as part of the plea agreement. (36 Cal.3d at p. 914.)
[9] We recognize, of course, that Ward was decided in the context of the former indeterminate sentencing laws. Under the present determinate sentencing scheme, a plea of guilty to a particular degree of a crime, entered without an agreement as to the specific penalty to be imposed, may require a separate adversary hearing to determine the appropriate sentence. Nonetheless, the broad principle recognized in Ward, i.e., that the right of appeal may be properly confined where a plea eliminates the need for further adversary hearings, remains persuasive in the context of determinate sentencing and is fully applicable here.
[10] Although some jurisdictions have invalidated, as a matter of public policy, all waivers of the right to appeal (e.g., State v. Ethington (1979) 121 Ariz. 572 [592 P.2d 768]; People v. Butler (1972) 43 Mich. App. 270 [204 N.W.2d 325]), defendant concedes that the great majority of other jurisdictions that have addressed the issue have approved the use of such waivers.
[11] In using the term "general waiver," we mean a waiver that is nonspecific, e.g., "I waive my appeal rights" or "I waive my right to appeal any ruling in this case."
[12] Specifically, the waiver stated: "`In the event that the Probation Department or the Court contemplates any Guidelines adjustments, enhancements, or calculations not referred to above, the parties each reserve the right to make all appropriate arguments concerning the same. Notwithstanding the previous sentence, it is specifically understood and agreed that neither party will appeal a sentence by the Court that falls within the sentencing ranges calculated above, or at the sentencing ranges applicable in the event the Court rejects the Government's recommendation for the additional two-level reduction described above, even should the Court and/or Probation Department reach that sentencing range by a Guidelines analysis different from that set forth above.'" (15 F.3d at p. 23, fn. 1.)
[13] Although the briefing in this case is unclear on the point, it may also be that defendant was in fact aware of his codefendants' negotiated sentences at the time the trial court sentenced defendant pursuant to the plea agreement. While the record appears to establish that defendant may not have known of his codefendants' negotiated sentences on October 15, 1993, when he entered his no contest plea, it discloses that the trial court entered codefendant Gillen's plea (which included Gillen's negotiated sentence) on October 18, 1993 approximately one month before defendant was actually sentenced on November 16, 1993. Accordingly, it may be that, unlike the situation in U.S. v. Jacobson, supra, defendant could have raised the disparity issue at the time of his sentencing.
[14] We likewise reject defendant's related claim that People v. Wingo (1975) 14 Cal. 3d 169 [121 Cal. Rptr. 97, 534 P.2d 1001], which recognized that a sentence disproportionality claim (involving a non-negotiated sentence) is cognizable on habeas corpus despite a defendant's implied waiver for having failed to assert the claim previously, supports review of a disproportionality claim under the present circumstances.
[15] It has not escaped our attention that some appellate courts have proceeded to address the merits of a defendant's appeal following a guilty or nolo contendere plea despite the defendant's failure to strictly comply with section 1237.5 and rule 31(d). (E.g., People v. Young (1991) 228 Cal. App. 3d 171, 179 [278 Cal. Rptr. 784]; People v. Ellis (1987) 195 Cal. App. 3d 334, 338 [240 Cal. Rptr. 708]; People v. Arwood (1985) 165 Cal. App. 3d 167, 173 [211 Cal. Rptr. 307]; People v. Tirado (1984) 151 Cal. App. 3d 341, 348 [198 Cal. Rptr. 682]; People v. Musante (1980) 102 Cal. App. 3d 156, 158 [162 Cal. Rptr. 158].) Reasoning that improperly presented appellate issues could return in the form of a petition for a writ of habeas corpus, such courts chose to dispose of the issues on their merits in the apparent belief that the "interest of judicial economy" would be served thereby. (E.g., People v. Ellis, supra, 195 Cal. App.3d at p. 338; People v. Arwood, supra, 165 Cal. App.3d at p. 173; People v. Tirado, supra, 151 Cal. App.3d at p. 348.) We agree, however, with those other appellate courts that condemn such practice as frustrating the very purpose of section 1237.5 to discourage frivolous appeals. (E.g., People v. Ballard, supra, 174 Cal. App.3d at p. 987; People v. Pinon (1979) 96 Cal. App. 3d 904, 909 [158 Cal. Rptr. 425].) As one such court astutely observed, the purposes behind section 1237.5 will remain vital only if appellate courts insist on compliance with its procedures. (People v. Pinon, supra, 96 Cal. App.3d at p. 909.)
In the same vein, we admonish trial courts to carefully evaluate whether a defendant has shown "reasonable constitutional, jurisdictional, or other grounds going to the legality of the proceedings" justifying a certificate of probable cause. (§ 1237.5, subd. (a).) For the goal of judicial economy to be realized, it is critical that trial courts rigorously perform their duty to screen out frivolous or vexatious appeals before time and money are spent preparing the record and the briefs for consideration by the appellate courts. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1190343/ | 3 Cal. 4th 1088 (1992)
839 P.2d 1020
13 Cal. Rptr. 2d 511
THE PEOPLE, Plaintiff and Respondent,
v.
THEODORE JOHN WREST, Defendant and Appellant.
Docket No. S005780.
Supreme Court of California.
November 23, 1992.
*1097 COUNSEL
William J. Kopeny, under appointment by the Supreme Court, for Defendant and Appellant.
Daniel E. Lungren, Attorney General, George Williamson, Chief Assistant Attorney General, Carol Wendelin Pollack, Acting Assistant Attorney General, John Gorey, Susan Lee Frierson and Tricia Ann Bigelow, Deputy Attorneys General, for Plaintiff and Respondent.
OPINION
LUCAS, C.J.
This is an automatic appeal from a judgment of death. Finding no reversible error, we affirm the judgment in its entirety.
*1098 FACTS
Appellant's Guilty Plea and Its Factual Basis
In an amended information, appellant was charged in the following counts: count I, the murder of Virginia Aceves (Pen. Code, § 187; all undesignated statutory references are to this code), personal use of a deadly or dangerous weapon (§ 12022, subd. (b)), and allegations of three special circumstances multiple murder (§ 190.2, subd. (a)(3)), robbery-murder (§ 190.2, subd. (a)(17)(i)), and rape-murder (§ 190.2, subd. (a)(17)(iii)); count II, the murder of Nancy Croom (§ 187), personal use of deadly or dangerous weapon (§ 12022, subd. (b)), and a special circumstance allegation of rape-murder (§ 190.2, subd. (a)(17)(iii)); and, count III, the attempted murder of Kimi Marie Hansel (§§ 187, 664), the personal use of a deadly and dangerous weapon (§ 12022, subd. (b)), and an allegation that appellant inflicted great bodily injury upon the victim (§ 12022.7).
In eight additional counts (IV through XI), appellant was charged with burglary (§ 459), rape (§ 261, former subd. (2)), robbery (§ 211), and weapons enhancements (§§ 12022, subd. (b), 12022.5), including firearm (§ 12022, subd. (a)), and habitual criminal (§§ 667, subd. (a), 1192.7, subds. (c)(18), (23)) allegations.
Appellant initially pleaded not guilty and denied all special allegations; his motion to sever the case into three trials was denied, but the murder charges were severed from the remaining counts. Appellant's case proceeded to trial on the murder charges (counts I, II, and III) and related special allegations. After 11 court days of voir dire and examination, a jury was death qualified and impaneled to try the cause. On the afternoon before the jury was impaneled, appellant withdrew his plea of not guilty and entered a plea of guilty to the first degree murders of Virginia Aceves and Nancy Croom and to the attempted murder of Kimi Hansel (counts I, II, and III). He also admitted all special-circumstance allegations, the weapons enhancements on the first three counts, and the great bodily injury allegation on count III.[1]
The evidence at the preliminary hearing, which the parties stipulated contained the factual basis for appellant's pleas of guilty and admissions of special circumstances, reveals the following: On the evening of March 6, 1987, appellant stabbed three women within the radius of a few blocks on *1099 the streets of Santa Barbara. Two of the women died; a third was permanently paralyzed.
Nancy Croom, 47, was found dead, naked from the waist down, under the hoist area in an automobile transmission shop. She suffered a total of 33 stab wounds to her head, neck, face, and back. Her body had been dragged to the shop from the steps of a nearby church, where her purse and personal belongings were found.
Approximately one hour before she was killed, Croom was with appellant and another man, sitting in the doorway of the Santa Barbara Community Center drinking wine. Croom's brother-in-law, a homeless person named John Logan, stopped to talk with them. He saw appellant lick Croom's nose and heard him say to her: "I'd like to come all over your body." Croom pushed appellant back, threw wine on him, and retorted: "I don't want to hear it." Appellant replied: "That's not how you acted when I bought you the mickey of wine." When Croom responded she was married, appellant fell back against the wall and remarked: "She never even told me she was married." A man matching appellant's description was later observed by witnesses chasing a woman of Croom's description down the street in the same area.
While walking down the alley toward her apartment, Kimi Marie Hansel, a 22-year-old waitress and part-time student, heard appellant running behind her. Before she could turn around, appellant hit her in the middle of the back, pushing her five feet forward and knocking the wind out of her. Appellant called her a "bitch" and hit and stabbed her repeatedly until she momentarily lost consciousness. As he dragged her on her back by her wrists, appellant asked Hansel to look up at him. Smiling, he remarked to her: "You are not going to live long, are you?" When she did not respond, he stated: "Now, I'm going to take you in the bushes and fuck you." Hansel felt her body drop and again lost consciousness. Although Hansel survived appellant's attack, one of the stab wounds he inflicted transected her spine, paralyzing the right side of her body.
After attacking Hansel, appellant encountered a third victim, Virginia Aceves, age 55, as she was entering the alley. Steve Putnam, a friend of Hansel's who was coming to her house, saw appellant and Aceves struggling in the alley. Aceves was crying: "Please don't do this." Putnam saw appellant stab Aceves in the neck. Putnam grasped his bike chain and approached appellant. Knife in hand, appellant pivoted and told Putnam to get out. Appellant then ran down the alley, holding his knife and something else in his hands. Putnam proceeded down the alley, observed Hansel's body, but *1100 did not recognize her, and then called police. A police search of the area revealed, among other things, a trail of personal items belonging to Aceves running for two blocks from the alley, including a wallet, purse, and perfume samplers. No money was found in the wallet or purse, or along the trail. Appellant's fingerprints were found on the perfume samplers.
Aceves suffered 12 knife wounds. Her death was caused by a sharply incised stab wound inflicted with considerable force in the left temporal region of the brain. The wound pierced the skull and severed the medulla from the pons, effectively separating her brain into two pieces.
The Penalty Phase
At the penalty phase, the prosecution introduced evidence of three uncharged violent criminal acts committed by appellant. In 1979, while a freshman in high school, appellant secretly entered the house of Eleanor Smith Bolin, a high school English teacher who lived in his neighborhood, placed a stocking over his head, and hid in her closet. When Bolin came home, he surprised her by jumping out of the closet with a 28-inch fireplace shovel raised over his head and a knife in his hand exclaiming: "I am going to kill you." After a struggle during which appellant brought the knife against Bolin's chest and repeated his threat to kill her, Bolin struck him in the face and he fled. After appellant left, Bolin observed a number of unusual things inside the house. A piece of cotton rope, which was kept in a drawer in the garage, was found under a cushion on the living room couch. The couch was approximately 36 feet away from the area where appellant surprised Bolin. A bottle of ammonia and a washcloth taken from the utility room were also found in the living room. After the attack, Bolin stayed with her parents and friends until she moved back into her house. Eventually, she sold the house and moved away. Bolin testified to continuing emotional trauma from appellant's attack.
In 1982, appellant entered the house of Rose Peck at 6:25 a.m. With a pole in his hand, he exclaimed he was going to kill Peck and her daughter. Peck had two daughters, ages four and eleven, who were in the house at the time. In a 25-minute struggle, appellant struck Peck with the pole several times. Appellant demanded money and, at Peck's invitation, took $5 from the top of the dresser and left. Peck's four-year-old daughter witnessed the struggle, screaming: "Quit hitting mommy. Leave my mommy alone." Peck's older daughter hid in a bedroom closet. Peck suffered a black eye and a large bruise on her left leg as a result of appellant's attack.
In 1987, appellant, armed with a rifle, entered the home of Shannon Page Alton at 9 a.m. Finding Alton home alone and in bed, he said: "I won't hurt *1101 you. I just want money." He put a sock in her mouth, tied another sock around her wrists, and tied her feet together with pantyhose. He told her he had previously been in her house and had taken money. He again assured Alton he would not hurt or rape her. After going through the drawers and cabinets in the kitchen, appellant returned to the bedroom, holding a butcher knife. He forced Alton into the closet and raped her. He then combed his hair, put on a jacket he had taken from the closet, and looked at himself in the mirror. After appellant left, police found the rifle outside the Alton residence. The rifle had been taken during a burglary; appellant's fingerprints were found on an ammunition box at the scene of the burglary.
Judith Eileen Cummins, appellant's sister, testified on his behalf, as follows: Appellant's father died when he was two years old. Appellant had difficulty with speech and did not begin talking until he was three. He was ridiculed by classmates and companions for his speech and his family's poverty. At age 12 he stole an automobile. Appellant had a poor self-image and developed increasing anger and frustration during his teens. Cummins believed appellant should not be executed because he had never been given a chance in life.
DISCUSSION
I. Appellant's Guilty Plea
Appellant pleaded guilty in open court after signing an eight-page written waiver form. The form, entitled "Waiver of Constitutional Rights and Plea of Guilty or `No Contest,'" included printed, numbered paragraphs initialed by appellant describing the rights he waived and the consequences of his plea and the signatures of appellant and his attorney. By executing the form, appellant represented he had personally initialed the paragraphs and discussed them with counsel and he understood each of the rights described in the form and waived them in order to enter his plea.
Appellant initialed paragraphs stating he offered an unconditional plea of guilty to the described charges and affirmed his knowledge of the consequences of such a plea, i.e., that a penalty trial would take place in which the only possible outcomes were life in prison without possibility of parole or the death penalty and that each of appellant's pleas could be considered, individually and collectively, as aggravating circumstances in assessing the appropriate penalty. He also initialed separate paragraphs evincing his understanding and waiver of specifically described constitutional rights to jury trial, to confront witnesses, to testify or refuse to testify, and to call witnesses. Finally, he affirmed in the waiver form that he had discussed his plea *1102 with counsel, informed counsel of all facts and circumstances of the case known to him and received legal advice as to his rights, and voluntarily elected to plead guilty because he was guilty or believed there was sufficient evidence to prove his guilt beyond a reasonable doubt.
Appellant's attorney also signed the form, affirming he had explained appellant's rights to him, discussed possible defenses with him, found a factual basis for appellant's plea, and concurred in appellant's decision to plead guilty. By their signatures, both appellant and his attorney also represented that no promises or threats had been made to obtain the guilty and special circumstances pleas.
After reviewing and executing the waiver form, appellant and his attorney appeared in open court. Before accepting appellant's plea, the trial judge asked the prosecutor to review the form with appellant on the record and informed appellant he was free to consult with his attorney at any time if he had any questions about the waiver of his rights. In response to questions from the prosecutor, appellant reaffirmed his signature and initials on the waiver form. The prosecutor asked appellant about each count, enhancement, and special circumstance and obtained appellant's express assurances that he understood a penalty trial would be held and that his pleas would be used as aggravating circumstances to determine whether the penalty would be death or life in prison without possibility of parole. In addition, the prosecutor explained each of appellant's constitutional rights; appellant reaffirmed on the record his understanding and voluntary waiver of each right.
After the prosecutor's questions, the court interrogated appellant, verifying appellant's understanding that he would be "stuck with" and unable to withdraw his pleas at a later date and that, regardless of the pleas, the prosecutor would be able to present all the evidence about all of appellant's crimes to the jury at the penalty phase. At the close of the interview, appellant responded "guilty" to each of the charges and "admit it" to each of the special circumstance allegations. The trial court accepted the pleas and admissions, specifically finding they were voluntarily made after a valid waiver of appellant's constitutional rights.
(1) Under both the state and federal Constitutions, a valid plea of guilty must be preceded by a knowing and voluntary waiver of defendant's rights. "[T]he record must contain on its face direct evidence that the accused was aware, or made aware, of his right to confrontation, to a jury trial, and against self-incrimination, as well as the nature of the charge and the consequences of his plea." (In re Tahl (1969) 1 Cal. 3d 122, 132 [81 Cal. Rptr. *1103 577, 460 P.2d 449], italics in original; see also People v. Howard (1992) 1 Cal. 4th 1132, 1174-1180 [5 Cal. Rptr. 2d 268, 824 P.2d 1315].) "No specific formula is required, as long as the record shows by direct evidence that the accused was fully aware of his rights." (People v. Cooper (1991) 53 Cal. 3d 771, 839 [281 Cal. Rptr. 90, 809 P.2d 865].) The California Constitution also provides that a jury may be waived "by the consent of both parties expressed in open court by the defendant and the defendant's counsel." (Cal. Const., art. I, § 16.) Finally, under section 190.4, subdivision (a), special circumstance issues are to be tried by jury "unless a jury is waived by the defendant and by the people."
Appellant contends the record does not establish a knowing, intelligent, and voluntary waiver of his right to jury trial as required by the constitutional and statutory provisions just cited. (2) Initially, he maintains that the on-the-record proceedings failed to inform him the jury would have to be convinced of his guilt of the crimes "beyond a reasonable doubt." Appellant cites no authority that such an admonition is required; we are aware of no such authority and perceive no reason to impose a required admonition in the form proposed by appellant.
(3) Second, appellant argues there must be a waiver of jury trial on the special-circumstance allegations, separate and distinct from the crimes charged, citing People v. Memro (1985) 38 Cal. 3d 658, 700-705 [214 Cal. Rptr. 832, 700 P.2d 446]. In Memro, the trial court accepted a stipulation to a court trial of a special-circumstance allegation without any on-the-record expression by defendant of a jury waiver. We held that a separate, personal waiver from defendant was required. In contrast with Memro, such a separate, personal waiver occurred in this case. Among the questions and answers in the on-the-record colloquy between appellant and the prosecutor appear the following:
"[The Prosecutor]: You understand you have a right to a trial by jury, which means that 12 citizens selected by your lawyer and by myself would hear all the facts of this case and decide whether or not you were guilty of the charges, the enhancements, the special allegations, or any other special allegations that are charged in this particular case?
"Do you understand that?
"The Defendant: Yes.
"[The Prosecutor]: All 12 citizens would have to agree that you were guilty in order to be convicted of any charge against you. And all 12 citizens *1104 would have to agree that you are not guilty in order to acquit you. And all twelve would have to agree of [sic] any enhancements, prior prison terms, any serious allegations, or the special circumstances.
"Do you understand that?
"The Defendant: Yes.
"[The Prosecutor]: By initialing that box [indicating the jury waiver box on the waiver form] you're indicating that you did hereby waive and give up your right as to the charges we've discussed earlier, any enhancements and special allegations that we've already talked about; is that right?
"The Defendant: Yes.
"[The Prosecutor] : In other words, you don't want a jury trial on the issue of guilt or the special circumstances or the enhancements, right?
"The Defendant: Right.
"[The Prosecutor]: And you've discussed that with your lawyer, Mr. Cannon?
"The Defendant: Yes." (Italics added.)
The dialogue set forth above, considered in light of the remainder of the record preceding the acceptance of appellant's plea, reflects an express and personal understanding and waiver of appellant's right to jury trial on the special circumstance allegations. The mere fact that the prosecutor's questions combined issues of guilt, special circumstances, and enhancements did not vitiate the waiver. As in People v. Diaz (1992) 3 Cal. 4th 495, 565 [11 Cal. Rptr. 2d 353, 834 P.2d 1171], defendant was made aware that "the waiver of his right to trial by jury applied to all aspects of his special circumstances case, from beginning to end" and defendant himself informed the court that he had taken advantage of the opportunity to discuss the issue of jury-trial waiver with defense counsel. (Ibid., italics in original.) Under these circumstances, no more was required to meet constitutional or statutory standards. (See also People v. Simpson (1991) 2 Cal. App. 4th 228, 233-237 [2 Cal. Rptr. 2d 589].)
Certain other appellate decisions, including People v. Sandoval (1987) 188 Cal. App. 3d 1428, 1431 [234 Cal. Rptr. 97], People v. Gastile (1988) 205 Cal. App. 3d 1376, 1380-1381 [253 Cal. Rptr. 283], and People v. Moreno *1105 (1991) 228 Cal. App. 3d 564, 571-572 [279 Cal. Rptr. 140], might be read to state or imply that our decision in Memro, (supra, 38 Cal.3d at pp. 700-705) somehow demands that a defendant's waiver of his jury-trial right on special circumstance allegations be taken in accordance with a prescribed ritual, e.g., a separate interrogation of defendant about his special circumstance jury trial rights as distinct from his other jury trial rights. As we have explained, Memro does not so hold. It simply requires that a valid waiver of the jury-trial right on a special circumstance actually cover the special circumstance. It does not require such a waiver to be taken in accordance with any particular procedure. To the extent the appellate decisions just cited hold or suggest to the contrary, they are disapproved.
(4) Third, appellant maintains the court's finding of waiver is invalid because, immediately after the questions and answers set forth above, appellant responded "no" when the prosecutor asked: "You feel like you know all the ins and outs of that [i.e., jury trial], do you?" While it might have been preferable for the prosecutor or the trial judge to have explored the reasons for appellant's cryptic negative answer in this regard, any failure to do so did not prejudice his rights. There is no constitutional requirement that appellant understand "all the ins and outs" of a jury trial in order to waive his right to one. The record contains a complete description of the essential elements of jury trial as conveyed to appellant as well as affirmation of his express understanding of those elements and his desire nonetheless to enter a plea of guilty and to admit the special-circumstance allegations.
For the reasons stated above, there was no error in the receipt by the trial court of appellant's waivers and plea of guilty.
II. The Prosecution's Penalty Phase Argument
Appellant points to six examples of allegedly improper argument by the prosecutor. (5) At the outset, by failing to interpose any objection at trial, defendant waived any error or misconduct emanating from the prosecutor's argument that could have been cured by a timely admonition. (People v. Morris (1991) 53 Cal. 3d 152, 220 [279 Cal. Rptr. 720, 807 P.2d 949]; People v. Daniels (1991) 52 Cal. 3d 815, 891 [277 Cal. Rptr. 122, 802 P.2d 906].) As shown below, even assuming error or misconduct, each of appellant's examples could have been so cured.
(6a) Initially, appellant faults the prosecutor for arguing deterrence as a basis for imposing the death penalty. The prosecutor's argument included the following remarks:
"So this will be the last time ... you will have to listen to me in this particular trial."
*1106 "So, I had to edit things out, because if I wanted to say everything I could to you, it would be beyond your limits of endurance and probably beyond mine, too. So I made some decisions, and they're right or wrong, on behalf of my client."
"I could talk to you about Scripture and verse from the Old Testament that supports capital punishment. But I'm not."
"And I could talk to you about the fact that the death penalty plays an indispensable role in the justice system as a deterrent for crime, but I'm not. There are statistics that could be cited for either side as to that."
"But as to the deliberations and what you should decide as to whether the defendant, Theodore John Wrest, should live or die, they don't make a difference."
"I could read you testimonials on the part of the people who have been convicted of serious crimes who said they stopped doing their crimes because of fear of the death penalty. But I'm not."
"And I'm not going to stand here and philosophically debate whether the merits of life without possibility of parole is probably a worse penalty than death. I'm not going to insult your intelligence by making that argument because we all know why it isn't or otherwise we'd have more people being asked to be executed in the State of California and we wouldn't be going through this process."
"And I'm not going to sit here and talk about rehabilitation and the role it could play."
"I'm not going to talk about the fact of whether the death penalty could provide someone with the opportunity to repent at the time of death or whether a long stay in prison will allow somebody to find God or find rehabilitation."
(7) An argument that the death penalty should be imposed upon a particular person because of the deterrent effect it would have on others is generally inappropriate because it "`addresses the minds of the jury to the deterrence of designated "potential killers" rather than the penalty to be adjudged to the defendants.... The sought imposition of the death penalty thus rests upon the unproven and illegitimate assumption that it acts as a deterrent to the described "potential killers"....'" (People v. Bittaker (1989) 48 Cal. 3d 1046, 1105 [259 Cal. Rptr. 630, 774 P.2d 659]; People v. *1107 Purvis (1963) 60 Cal. 2d 323, 341-342 [33 Cal. Rptr. 104, 384 P.2d 424].) (8) Moreover, the prosecutor's reference to Old Testament support for capital punishment was improper such an argument tends to diminish the jury's sense of responsibility for its verdict and to imply that another, higher law should be applied in capital cases, displacing the law in the court's instructions. (See, e.g., Commonwealth v. Chambers (1991) 528 Pa. 558 [599 A.2d 630].)
(6b) Although the prosecutor's comments here were strategically phrased in terms of what he was not arguing, they embody the use of a rhetorical device paraleipsis suggesting exactly the opposite. Repetition of the statement, "I am not arguing X," strongly implied the prosecutor was in fact asserting the validity and relevance of X, but, for lack of time, was concentrating on other, presumably more important topics.
When considered in context, however, the prosecutor's remarks were not prejudicial.[2] The brief reference to deterrence was immediately undermined by the prosecutor himself, who represented that evidence existed on both sides of the issue and then immediately reminded the jury of its duty to judge this defendant as an individual in the context of his crimes. The reference came in the course of a long argument, the bulk of which was properly and specifically focused on the factors in aggravation and mitigation. Where, as in this case, "the prosecutor ... frankly acknowledged the weakness of the deterrence theory as applied to the death penalty" a brief reference to that topic was "undoubtedly harmless and could not have affected the jury's verdict." (People v. Ghent (1987) 43 Cal. 3d 739, 770 [239 Cal. Rptr. 82, 739 P.2d 1250].) The same can be said of the prosecutor's brief reference to Scripture, which was totally undeveloped in the course of the argument.
(9) Appellant also points to several exhortations in the prosecutor's argument to "imagine" what was going through the minds of the victims and "to consider what impact [appellant's acts] had upon the victims in this particular case. Six separate victims that can never, never have those memories taken away." The argument was proper. The impact of a capital *1108 defendant's crimes upon victims can be considered by a penalty phase jury. (Payne v. Tennessee (1991) 501 U.S. ___ [115 L. Ed. 2d 720, 111 S. Ct. 2597]; People v. Edwards (1991) 54 Cal. 3d 787, 839 [1 Cal. Rptr. 2d 696, 819 P.2d 436].) As a part of victim impact argument, the jury can be urged to put itself in the shoes of the victim. (People v. Douglas (1990) 50 Cal. 3d 468, 536 [268 Cal. Rptr. 126, 788 P.2d 640].)
(10a) Appellant maintains the prosecutor prejudicially misstated the evidence in his opening statement at the penalty phase, citing eight supposed instances of misconduct in this regard. No objection was made to any of these instances at trial; appellant fails to demonstrate that, assuming misconduct, an admonition would have been an ineffective remedy. (11a) Moreover, remarks made in an opening statement cannot be charged as misconduct unless the evidence referred to by the prosecutor "was `so patently inadmissible as to charge the prosecutor with knowledge that it could never be admitted.'" (People v. Martinez (1989) 207 Cal. App. 3d 1204, 1225, fn. 5 [255 Cal. Rptr. 691].) (10b) As shown below, in each case, the variance between prosecutorial statement and actual proof is minor or nonexistent. In no case can an inference of misconduct be drawn.
Appellant first claims the prosecutor falsely maintained that one victim, Eleanor Smith Bolin, lived in a house she had built for herself, on the assumption she would never be married. Ms. Bolin testified that at the time of the attack, she was single, lived alone, and had built her own home. Appellant also claims there was no evidence to support the prosecutor's statement that Bolin was so frightened after appellant's attack that her parents stayed with her, she then stayed with friends, and later moved out of the house. Ms. Bolin testified her parents stayed with her at her request on the evening after the attack. Thereafter, she stayed with her parents and friends until she moved back into her house, where she stayed by herself for some unspecified time before selling the house.
The prosecutor stated that another of appellant's victims, Mrs. Peck, suffered a swollen black eye and lost part of her sight in that eye. Mrs. Peck testified that appellant hit her "really hard" in the left eye, blackening that eye. She also testified to serious spinal and back injuries. The prosecutor also described Ms. Croom's life as "hard" and referred to her "little room." Witness John Logan testified that Ms. Croom was a "street person who wandered the streets" and stayed in a hotel.
The prosecutor stated Robert Gilmore, a person whom appellant allowed to enter Salvation Army facilities where appellant was living, would testify *1109 that appellant left town immediately after the murders and hid in Santa Monica for several weeks. Gilmore actually testified that appellant unlocked the door of the Salvation Army facility and allowed Gilmore to sleep in the chapel on the night of the murders. According to Gilmore, appellant told him he would return at 5 a.m. to let him out of the chapel before anyone noticed his presence. Appellant did not appear as promised. When Gilmore next saw appellant several weeks later, appellant explained he had "gone south," which Gilmore thought meant Santa Monica or Huntington Beach.
The prosecutor also said Gilmore would testify appellant was "not particularly intoxicated" when Gilmore last saw him on the night of the murders; Gilmore testified that appellant was intoxicated "to some degree."
The prosecutor stated that John Logan would testify Nancy Croom flirted with appellant to induce him to buy her a bottle of wine. Mr. Logan testified that he saw appellant and Ms. Croom together in front of the Filipino Community Center in downtown Santa Barbara. When appellant made sexual overtures toward Ms. Croom she pushed him back, threw wine on him, and said, "I don't want to hear it." Appellant replied: "That's not how you acted when I bought you the mickey of wine."
Finally, the prosecutor stated that what Kimi Hansel thought were blows to her back and other parts of her body were actually eight stab wounds. Appellant complains the record does not show the number of stab wounds suffered by Ms. Hansel. It does, however, reveal she had received, at appellant's hands, "multiple stab wounds around her neck, upper shoulder, left arm, left wrist," including "an almost lethal puncture wound" in the back of her neck. Ms. Hansel testified she received what she thought were "hard hits" to her back.
As these examples show, every claim of misconduct made by appellant involves either a permissible argument from the evidence or a minor deviation therefrom. Even assuming one or more of appellant's claims constituted error or misconduct, he is not entitled to reversal of the penalty phase judgment. (11b) "[P]rosecutorial misconduct in an opening statement is not grounds for reversal of the judgment on appeal unless the misconduct was prejudicial or the conduct of the prosecutor so egregious as to deny the defendant a fair trial." (People v. Harris (1989) 47 Cal. 3d 1047, 1080 [255 Cal. Rptr. 352, 767 P.2d 619].) (10c) In this case, no objection was made to any of the alleged instances. The jury was informed that the prosecutor's opening statement was not evidence. Any inconsistency between the opening statement and the evidence was inconsequential. Appellant was permitted to confront all witnesses and to challenge and rebut all evidence offered against *1110 him. Under these circumstances, appellant suffered no conceivable prejudice. (People v. Barajas (1983) 145 Cal. App. 3d 804, 809 [193 Cal. Rptr. 750].)
(12) Appellant next accuses the prosecutor of introducing evidence of nonviolent criminal activity (two burglaries and theft of a gun) in aggravation of his violent crimes. Although the jury heard of appellant's burglary of the Alton residence, the evidence emanated from statements made to Ms. Alton by appellant himself during his violent attack on her. As appellant tied and gagged Ms. Alton, he told her he had been inside her house before, at a time when she was home, and had taken $10 from the kitchen counter. Appellant blamed Ms. Alton's husband, who he claimed had left the garage door open, for facilitating the commission of his crime. This evidence was properly admitted for the purpose of showing the context of appellant's violent crime; the jury could reasonably infer appellant's statements were made to induce fear in his victim. (People v. Melton (1988) 44 Cal. 3d 713, 757 [244 Cal. Rptr. 867, 750 P.2d 741].)
The jury also heard evidence, in the form of a stipulation, that the rifle appellant used in his attack on Ms. Alton and left in her yard was stolen during a burglary at Hope Ranch some time before the attack. Appellant's fingerprints were found on an ammunition box at the scene of the Hope Ranch burglary. This evidence was also properly admitted for an independent purpose to show appellant's identity as Ms. Alton's attacker.
Contrary to appellant's view, the prosecutor did not refer in final argument to appellant's nonviolent crimes as evidence in aggravation. Both the prosecutor, in argument, and the court, in instructions, referred to the three identified episodes of violent crime as the aggravating evidence. No other crimes or incidents were mentioned by the prosecution in this regard. (People v. Melton, supra, 44 Cal.3d at p. 757.)
(13) Appellant next contends the prosecutor incorrectly informed the jury it must decide the issue of penalty as a group, without resort to individual opinions and beliefs. To the contrary, the prosecutor's few references to "the jury," to deliberations "as a jury," and to "the 12 of you" in no way implied that each juror was not to make an individual decision. The court instructed that both the People and the defendant were "entitled to the individual opinion of each juror" and that: "Each of you must decide the case for yourself, but should do so only after a discussion of the evidence and instructions with the other jurors." It also charged the jurors they were not to be "influenced to decide any question in a particular way because a majority of jurors, or any of them, favor such a decision." The prosecutor himself *1111 asked the jury to rely on the court's instructions rather than his own statements. No error or misconduct occurred.
(14) Finally, appellant argues that the prosecutor told the jury that the death penalty should be imposed simply because appellant had admitted the special-circumstance allegations. Appellant takes the prosecutor's remarks out of context. Although the prosecutor implied that appellant had "crossed the line" between murders with special circumstances and other murders, he also stated that crossing that line was essential for appellant "to be eligible" for the death penalty in California. Moreover, the court's instructions emphasized the jury was to decide which of the alternative penalties life in prison without possibility of parole or death was to be imposed on appellant in light of the aggravating and mitigating factors as shown by the evidence. In the absence of anything in the record to the contrary, we presume the jury followed these instructions. (People v. Frank (1990) 51 Cal. 3d 718, 728 [274 Cal. Rptr. 372, 798 P.2d 1215].)
(15) We have also considered appellant's contention that he was denied a fair trial by the cumulative effect of the allegedly improper arguments set forth above. Each of appellant's claims lacks merit, was waived, or was clearly harmless beyond a reasonable doubt. Their cumulative effect did not infringe on any of appellant's state or federal constitutional, statutory, or other legal rights. (People v. Sully (1991) 53 Cal. 3d 1195, 1249 [283 Cal. Rptr. 144, 812 P.2d 163].)
III. Penalty Phase Jury Instructions
During penalty phase deliberations, the jury submitted to the court the following inquiry:
"Is the jury allowed to develop mitigating circumstances that were not explicitly presented in the courtroom by making inferences based upon other evidence or testimony?
"For instance, can the jury attempt to develop the state of mind of the defendant by inference from other evidence in spite of the fact that the defense did not specifically make a claim covering or presenting direct evidence of the state of mind of the defendant?"
After consultation with counsel and with the express agreement of appellant's trial attorney, the court instructed the jury as follows:
"Now, obviously, the mitigating circumstances are set forth in the instructions that you have. I can't elaborate on the instructions. I can say that the *1112 jury is entitled to draw reasonable inferences the key word is reasonable inferences from the evidence that's been presented. But, the jury is not entitled to speculate."
(16) Appellant initially asks us to construe the court's answer, which referred the jury to previous instructions, including an expanded section 190.3, factor (k) instruction (CALJIC former No. 8.84.1), as somehow inhibiting the jury's ability to find mitigation from evidence of defendant's state of mind that might have been presented by the prosecution rather than the defense. He further asserts that such mitigation (in the form of probable mental illness) can be inferred from prosecution evidence of the vicious and unrelenting nature of appellant's attacks on his victims.
Although appellant is correct in his assertion that the expanded section 190.3, factor (k) instruction refers to "any sympathetic or other aspect of the defendant's character or record which may have been offered by the defendant as a basis for a sentence less than death," the court's answer does not restrict the jury's consideration of mitigation to evidence presented by the defense. On its face, the response speaks, without restriction, of all "the evidence." Moreover, the expanded section 190.3, factor (k) instruction does not restrict consideration of mitigating factors to those factors revealed by appellant's trial presentation. Indeed, it admonishes in part: "In determining which penalty is to be imposed on defendant, you shall consider all the evidence which has been received during any part of the trial of this case." (Italics added.) In sum, appellant points to nothing in the instructions or any other part of the record that prevented the jury from drawing the inference of mental illness he asserts was available.
(17) Appellant also maintains that, by admonishing the jury not to speculate and declining to elaborate on previous instructions, the court: (1) "implied there was no mitigating mental state ... that would not depend upon speculation"; and (2) effectively informed jurors "they were not to find any mitigation not enumerated in the instructions." We perceive no such implications in the court's remarks. CALJIC former No. 8.84.1, as given by the court, set forth correctly and in detail the mitigating and aggravating factors and specifically directed jurors to consider "any other circumstance which extenuates the gravity of the crime, even though it is not a legal excuse for the crime; and any sympathetic or other aspect of the defendant's character or record which may have been offered by the defendant as a basis for a sentence less than death, whether or not related to the offense for which he's on trial." (Italics added.) There was no "reasonable likelihood" the jury misunderstood the nature or scope of the factors to be considered in its penalty decision. (Boyde v. California (1990) 494 U.S. 370, 380-381 [108 L. Ed. 2d 316, 328-329, 110 S. Ct. 1190].)
*1113 (18) Appellant next argues, without any supporting authority, that the court was required to include in its response to the jury's question an admonition that each juror was required to reach an individual decision. As noted in part II above, the court correctly charged the jury in this respect. It was not required to repeat that portion of the charge in response to the jury's question.
(19) Finally, appellant challenges the following instruction: "Both the People and the defendant have a right to expect that you will conscientiously consider and weigh the evidence and apply the law of the case and that you'll reach a verdict regardless of what the consequences of such verdict may be." Although we have disapproved the use of such a "regardless-of-the-consequences" instruction, we did so in a context in which the jury was also told to ignore sympathy as a factor in its penalty determination. (People v. Brown (1985) 40 Cal. 3d 512, 537, fn. 7 [220 Cal. Rptr. 637, 709 P.2d 440], revd. on other grounds sub nom. California v. Brown (1987) 479 U.S. 538 [93 L. Ed. 2d 934, 107 S. Ct. 837].) Where no antisympathy instruction was given and jurors were told they could consider "pity," we found no error in a "regardless-of-the-consequences" instruction. (People v. Howard (1988) 44 Cal. 3d 375, 443 [243 Cal. Rptr. 842, 749 P.2d 279].)
The instructions given in this case were closer to those in Howard (supra, 44 Cal. 3d 375) than those in Brown (supra, 40 Cal. 3d 512). The jury here was instructed to consider sympathy and any other factor it deemed appropriate under the circumstances. In light of the instructions as a whole and the arguments of counsel, we perceive no "reasonable likelihood" the jury was misled as to the seriousness of its penalty decision or the relevant factors it could consider. (People v. Clair (1992) 2 Cal. 4th 629, 688 [7 Cal. Rptr. 2d 564, 828 P.2d 705].)
Appellant argues that the combination of alleged errors in penalty phase jury instructions deprived him of a fair trial. Finding no error in those instructions, we reject appellant's argument. The jury was correctly and completely instructed on the law applicable to capital penalty phase decisions. Appellant is not entitled to a new penalty phase trial.
IV. Defense Counsel's Penalty Phase Argument
(20) Appellant contends his trial attorney was ineffective in arguing to the jury as follows: "If you vote for the death penalty, particularly with the new Supreme Court that we have, he'll probably get it." He asserts his attorney's remark violated the rule of Caldwell v. Mississippi (1985) 472 U.S. 320 [86 L. Ed. 2d 231, 105 S. Ct. 2633]. In Caldwell, the prosecutor advanced *1114 an argument suggesting the opposite, i.e., that the ultimate life-or-death decision rested with the appellate courts rather than the jury. The United States Supreme Court held the prosecutor's argument unfairly minimized "the jury's sense of the importance of its role" in capital sentencing. (Id. at p. 325 [86 L.Ed.2d at p. 237].)
Defense counsel's argument did not diminish the jury's sense of responsibility for its decision. To the contrary, it heightened that sense by emphasizing the death penalty would probably be carried out if the jury decided to impose it. In this regard, it added a realistic dimension to the court's instruction: "It is now your duty to determine which of the two penalties, death or confinement in the state prison for life without possibility of parole, shall be imposed on defendant." (Italics added.)
Counsel's statements regarding what the appellate courts might or might not do, whether emanating from the prosecution or from the defense, are necessarily founded on speculation and are irrelevant to the penalty determination process. (Cf. People v. Morris, supra, 53 Cal. 3d 152, 181-183.) Once the jury is told a sentence of "death" or "life in prison without possibility of parole" means just that, such arguments are also unnecessary. Without approving defense counsel's argument in this case, we simply observe appellant was not prejudiced in this instance by his own attorney's argument; indeed, it served to aid his cause by emphasizing the realistic, life-and-death dimension to the jury's verdict.
V. Effective Assistance of Counsel
Appellant argues he was denied effective assistance of trial counsel at both the guilt and penalty phases. He faults the performance of his attorney in several respects. After a brief review of the applicable law, we will discuss each of appellant's contentions.
(21) "To establish entitlement to relief for ineffectiveness of counsel defendant must show (1) trial counsel failed to act in a manner to be expected of reasonably competent attorneys acting as diligent advocates and (2) it is reasonably probable that a more favorable determination would have resulted in the absence of counsel's failings." (People v. Duncan (1991) 53 Cal. 3d 955, 966 [281 Cal. Rptr. 273, 810 P.2d 131], citing People v. Lewis (1990) 50 Cal. 3d 262, 288 [266 Cal. Rptr. 834, 786 P.2d 892]; see also Strickland v. Washington (1984) 466 U.S. 668, 687-696 [80 L. Ed. 2d 674, 693-699, 104 S. Ct. 2052].)
(22) "Under Strickland v. Washington, our review of counsel's performance is to be highly deferential. As the court there noted: `It is all too *1115 tempting for a defendant to second-guess counsel's assistance after conviction or adverse sentence, and it is all too easy for a court, examining counsel's defense after it has proved unsuccessful, to conclude that a particular act or omission of counsel was unreasonable. [Citation.] A fair assessment of attorney performance requires that every effort be made to eliminate the distorting effects of hindsight, to reconstruct the circumstances of counsel's challenged conduct, and to evaluate the conduct from counsel's perspective at the time. Because of the difficulties inherent in making the evaluation, a court must indulge a strong presumption that counsel's conduct falls within the wide range of reasonable professional assistance; that is, the defendant must overcome the presumption that, under the circumstances, the challenged action `might be considered sound trial strategy.' [Citation.] There are countless ways to provide effective assistance in any given case. Even the best criminal defense attorneys would not defend a particular client in the same way. [Citation.]'" (People v. Duncan, supra, 53 Cal.3d at p. 966, quoting Strickland v. Washington, supra, 466 U.S. at pp. 689-690 [80 L.Ed.2d at pp. 694-695].) With these principles in mind, we review appellant's contentions.
(23) Appellant maintains his attorney did not effectively represent him with respect to his guilty plea and special circumstance admissions; he asserts counsel did not explain appellant's rights, and counsel had no reasonable tactical basis for advising appellant to plead guilty and admit the special circumstance allegations. As discussed in part I above, the record does not support appellant's assertion regarding his rights; to the contrary, it shows appellant had a full and fair opportunity to consult with his lawyer and that, as a result of the consultation and proceedings in open court, appellant fully understood and voluntarily waived each of his rights. Appellant cites nothing in the record in support of his assertion.
The record also reveals a tactical basis for appellant's guilty plea and any supporting advice given by counsel in that regard. In view of eyewitness identifications by Kimi Hansel and Steve Putnam, and the corroborating evidence, counsel could reasonably have viewed the guilt phase evidence as overwhelming. Within the bounds of reasonable tactical decisionmaking, he could also have perceived a guilty plea as a demonstration of appellant's honesty and candor that would elicit jury sympathy or, at a minimum, avoid an irremediable adverse jury reaction to an unfounded denial of the crimes. The beginning of counsel's argument to the jury is evidence of such a strategy. As counsel stated: "He [appellant] hasn't made any excuses whatsoever. No denials. And, in fact, anytime anybody pleads guilty, it has to be the idea of the person who is pleading guilty.... So I think right off the *1116 bat you need to put this in context by saying to yourself that he hasn't made any excuses...." Appellant has failed to demonstrate ineffective assistance of counsel with respect to the guilty plea or appellant's admission of the special circumstance allegations.
(24) Appellant next argues his counsel was deficient in failing to introduce evidence in mitigation at the penalty phase. He maintains counsel should have introduced certain evidence to corroborate the testimony of appellant's sister, e.g., school records, evidence of appellant's placement in a home, a death certificate of his father, corroboration of early substance abuse, expert psychiatric or psychological testimony showing mental illness or retardation, and other items. The record contains no reference to any such evidence; without engaging in speculation, we cannot infer anything about its existence, availability, or probative force, or the probable consequences of its use at trial. Appellant has thus failed to support his claim of ineffective assistance in this regard as well. (People v. Szeto (1981) 29 Cal. 3d 20, 35 [171 Cal. Rptr. 652, 623 P.2d 213]; People v. Pope (1979) 23 Cal. 3d 412, 426, fn. 16 [590 P.2d 859].)
(25) Pointing to his previous contentions regarding alleged prosecutorial misconduct in argument, appellant asserts his counsel was ineffective in failing to object to the prosecutor's comments. As we have held, the prosecutor committed no misconduct and the few slight factual variations between the prosecutor's opening statement and the evidence presented were not prejudicial to appellant. (See pt. II.) Defense counsel was not ineffective in failing to object when the prosecutor's conduct afforded little, if any, basis for objection.
Again incorporating prior arguments, appellant maintains counsel was ineffective because he failed to: (1) emphasize to the jurors their individual, as opposed to collective, responsibility in determining the penalty; (2) object to the "regardless-of-the-consequences" instruction; (3) propose instructions helpful to appellant on mitigation; (4) object to allegedly inadmissible evidence such as the theft and burglary from the Alton residence; and (5) suggest a proper answer to the jury's middeliberation question regarding the development of mitigating evidence through inference. Appellant offers no legal argument or reference to the record on these points not previously advanced by him in connection with the contentions reviewed in parts I through IV above. For the reasons stated in our discussion there, we find no support for appellant's assertion that he was denied the effective assistance of counsel at any stage of these proceedings.
*1117 DISPOSITION
The judgment of death is affirmed in its entirety.
Mosk, J., Panelli, J., Kennard, J., Arabian, J., Baxter, J., and George, J., concurred.
Appellant's petition for a rehearing was denied January 13, 1993.
NOTES
[1] After the penalty phase trial and verdict, appellant withdrew his previously entered plea of not guilty to count V (rape), entered a plea of guilty to that count, and admitted the weapon enhancements. The remaining counts IV, VI, VII, VIII, IX, X, and XI were dismissed.
[2] Appellant asserts the prosecutor continued to press a deterrence theme throughout his argument, pointing to two passages in addition to the one quoted above. He takes both passages out of context. Although the prosecutor did state that "giving the defendant the death penalty will restore a certain confidence and trust in the system's ability to deal with people who transgress it," he did so as part of an argument that defendant's crimes were "so aggravated that it outweighs any mitigating circumstances here, so that the community and so that the people know there is more to justice, that the penalty must fit the crime." In addition, the prosecutor's reference to delivering a "message" to "the rest of the people" was followed by an immediate reference to defendant: "The message is: `Mr. Wrest, we have a death penalty in California and it's applicable in certain cases and under certain facts, but, Mr. Wrest, you didn't cross that line.'" Neither of these passages contains an impermissible argument based on deterrence of others. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2131028/ | 42 Cal. App. 3d 960 (1974)
117 Cal. Rptr. 295
THE PEOPLE, Plaintiff and Respondent,
v.
JOHN HENRY CASTRO, Defendant and Appellant.
Docket No. 6667.
Court of Appeals of California, Fourth District, Division One.
November 6, 1974.
*962 COUNSEL
Paul Bell, under appointment by the Court of Appeal, for Defendant and Appellant.
Evelle J. Younger, Attorney General, Jack R. Winkler, Chief Assistant Attorney General, Daniel J. Kremer, Assistant Attorney General, Harley D. Mayfield and Karl J. Phaler, Deputy Attorneys General, for Plaintiff and Respondent.
OPINION
AULT, J.
On the basis of evidence seized in their residence during a search pursuant to a warrant, appellant John Henry Castro and his wife Gloria were charged by indictment with one count of possessing controlled substances for sale (Health & Saf. Code, § 11351), four counts of receiving stolen property (Pen. Code, § 496, subd. 1), one count of possessing narcotic paraphernalia (Health & Saf. Code, § 11364), one count of possessing marijuana (Health & Saf. Code, § 11357), and eight counts of possessing property from which the serial numbers had been removed (Pen. Code, § 537e, a misdemeanor). Later by supplemental indictment it was alleged Castro had suffered four prior felony convictions (two convictions of Pen. Code, § 459; Veh. Code, § 506 and Pen. Code, § 288a). The court denied pretrial motions under Penal Code sections 995, 1531 and 1538.5 and, after an in camera hearing, also motions to disclose the identity of the informant.
One month later, pursuant to a plea bargain, Castro pleaded guilty to possessing heroin (Health & Saf. Code, § 11351) and receiving stolen property (Pen. Code, § 496, subd. 1). The court dismissed the remaining *963 13 counts and struck the allegations concerning his prior convictions in the furtherance of justice. Sentenced to serve concurrent terms in state prison, Castro appeals from the judgment, seeking review of the denial of his motions to disclose the informant and to suppress evidence (Pen. Code, § 1538.5). A certificate of probable cause has been filed pursuant to Penal Code section 1237.5.[1]
DISCUSSION
(1a) An order denying a motion to disclose the identity of an informant is not subject to review on appeal after the defendant has entered a plea of guilty (People v. Archuleta, 16 Cal. App. 3d 295, 299 [93 Cal. Rptr. 881]). This is so because the purpose of the motion relates solely to the defendant's guilt or innocence, an issue which is removed by the guilty plea. (2) A judgment entered upon a plea of guilty is not appealable on the merits, and irregularities not going to jurisdiction or to the legality of the proceedings will not be reviewed (People v. Laudermilk, 67 Cal. 2d 272, 281-282 [61 Cal. Rptr. 644, 431 P.2d 228]).
It is apparent, both from the context of defendant's motion and the questions he submitted to be propounded to the informant in the in camera hearing (Evid. Code, § 1042, subd. (d)), that defendant sought disclosure of the informant in the hope of showing a third person had dominion and control over the contraband he was charged with possessing. (3) Indeed, disclosure could only have been ordered on a showing the informant would be a material witness on the issue of guilt (People v. Garcia, 67 Cal. 2d 830, 839 [64 Cal. Rptr. 110, 434 P.2d 366]). Defendant eliminated that issue when he pleaded guilty to possessing stolen property and possessing heroin for sale, testifying in the process that he received a bicycle, knowing it was stolen, and possessed three ounces of heroin for sale which he hid in his backyard. Defendant cannot admit he possessed the contraband by pleading guilty and then question the judgment on the ground some witness he was not permitted to discover might possibly have testified otherwise. (See People v. Brown, 18 Cal. App. 3d 1052, 1055 [96 Cal. Rptr. 476].) The two positions are inconsistent.
Defendant seeks to avoid application of the general rule barring appellate review of the issue after a guilty plea by claiming the right to appeal from *964 the order denying disclosure was a part of his plea bargain and thus preserved. (1b) While a plea bargain has been permitted to accomplish that result where the pretrial ruling specifically reserved for appeal was collateral to and not inconsistent with the guilty plea (see People v. Glover, 40 Cal. App. 3d 1006, 1010-1011 [115 Cal. Rptr. 714], where appellate review of the denial of the motion to dismiss for lack of a speedy trial was permitted), it has not been permitted to do so where, as here, the result would be wholly illogical and totally inconsistent (see People v. Brown, supra, 18 Cal. App. 3d 1052, 1054-1055). In any event, the record does not support defendant's contention the issue was preserved for appeal as a part of a plea bargain.
Before appearing in court to change his plea, defendant, his counsel and the prosecutor, negotiated a plea bargain and all three eventually signed a written change of plea form. Added to the form in handwriting were the words: "Defendant reserves the right to appeal the court's denial of any pretrial motion." At the insistence of the prosecutor, these words were blocked out of the form and initialed by the defendant before the document was filed with the court. We set out in Appendix "A" the full transcript of the proceedings relating to this aspect of the plea bargain.
It is apparent from the record that no agreement had been reached when the parties initially appeared. The prosecutor insisted the defendant waive his right to appeal from the denial of his motion to suppress evidence (Pen. Code, § 1538.5, subd. (m)). The defendant opposed this, and his attorney was fearful he would waive the statutory right to appeal from the denial of the motion to suppress unless the record reflected he specifically reserved it. When the trial judge discovered this impasse, he properly refused to proceed with the change in plea and suggested the parties talk further to see if they could reach an agreement. When they returned to court, defendant's attorney announced the agreement, stating: "We've discussed the matter that was presented by the Court, and would state at this time that we would not waive our right to appeal for the record. The District Attorney is satisfied with that." This statement cannot be interpreted as enlarging defendant's right to appeal or be expanded into an agreement that he reserved the right to raise issues which are not reviewable on appeal. Such an understanding was not expressed by defendant or his attorney, accepted by the prosecutor, or approved by the court.
Defendant's position is not strengthened by the fact he obtained a certificate of probable cause under Penal Code section 1237.5 based upon a declaration, stating: "Reasonable constitutional or jurisdictional grounds exist for an appeal in this matter to wit; denial of the informant's identity, denied my right to cross-examine and confront a material witness on the issue of my innocence and I was, therefore, unable to receive a fair trial. *965 It was partially on this basis that my plea of guilty was entered." The certificate was obtained almost two months after defendant changed his plea. The declaration was presented to, and the certificate was signed by, the judge who had heard the motion to disclose the identity of the informant and not by the judge who had taken the change of plea. (4) The terms of a plea bargain must be gathered from what was said and done at the time the bargain was made, and not by a declaration filed by the defendant two months later. (5) The certificate is a procedural requirement to perfect an appeal from a judgment based upon a plea of guilty; it does not provide grounds for an appeal or determine the issues which are reviewable. (See People v. Ribero, 4 Cal. 3d 55, 63 [92 Cal. Rptr. 692, 480 P.2d 308].)
(1c) For the reasons stated above, we hold denial of the motion to disclose the identity of the informant is not reviewable on an appeal from a judgment based upon the defendant's plea of guilty. We also hold the right to such a review was not a part of the plea bargain in this case and that defendant, unlike the defendant in People v. Brown, supra, 18 Cal. App. 3d 1052, is not entitled to a remand with instructions to permit him to withdraw his plea of guilty.
Penal Code section 1538.5, subdivision (m), states a defendant may seek review of a denial of his motion to suppress evidence "notwithstanding the fact that such judgment of conviction is predicated upon a plea of guilty."
(6a) Defendant contends his motion under Penal Code section 1538.5 should have been granted because the affidavit supporting the search warrant did not furnish probable cause to search. He relies upon Stoehr v. Superior Court, 34 Cal. App. 3d 197 [109 Cal. Rptr. 756].
In his affidavit dated June 7, 1973, Officer Jaffe stated he had reasonable cause to believe a specified two-story one-family dwelling, together with its yards and garages, and also five described automobiles at that location contained the following personal property: specified stolen property, including a color TV, a tape deck, guns and one "Petri" 35mm single lens reflex camera with an 80-200mm zoom lens mounted on a homemade rifle stock; narcotics including heroin; and paraphernalia for packaging and use of heroin. Jaffe related his experience in burglary and narcotics investigation and his experience with a confidential informant found by him to be reliable. The critical part of the affidavit states: "Said informant told me the following regarding said premises: That on at least one occasion within the past eight days, said informant was at said premises; and on each such occasion, said informant observed one `Petri' 35mm single lens reflex camera with a telephoto lens, mounted on a rifle stock, located in the downstairs *966 portion of said premises; and also observed a large quantity of brown powder in bulk form in a rubber condom in a bedroom at said premises. Said informant also told me that within the past ten days said informant observed colored balloons containing a brown powder within the above-mentioned lime green Volkswagen, white Volkswagen and black Corvair; and said informant told me that the resident of said premises `stashes' heroin in the cars on the premises. Said informant told me that all of the brown powder said informant observed in bulk form and in the rubber balloons in the last ten days was heroin."
The affidavit found defective in Stoehr, supra, stated merely that the informant reported seeing "heroin in the residence." By contrast the affidavit here gives the informant's detailed description of the stolen camera and his rough description of the heroin's quantity and packaging as well as the location of the contraband within the house. (7) The weight to be given allegations in the affidavit is to be determined by the trier of fact. (Skelton v. Superior Court, 1 Cal. 3d 144, 150 [81 Cal. Rptr. 613, 460 P.2d 485].) (6b) The affidavit is not insufficient as a matter of law, and the trial court's ruling on the motion to suppress must be upheld.
The judgment is affirmed.
Brown (Gerald), P.J., and Whelan, J., concurred.
A petition for a rehearing was denied November 18, 1974, and appellant's petition for a hearing by the Supreme Court was denied January 8, 1975.
*967 APPENDIX "A"
The transcript reads as follows: "Mr.... (defense counsel): Your Honor, on behalf of Mr. Castro, I'd like to reserve the right to reserve any decisions on pretrial motions. Also, there's been some confusion on recent dates. I'd like to, for the record, preserve the right although I think it's statutorily given us
"THE COURT: Is that understood between all parties?
"Mr.... (prosecutor): No, your Honor. I'd rather we agreed not to appeal it on a 1538. In fact, he had that in the plea bargain agreement and I had him strike it.
"Mr.... (defense counsel): I'd like to state for the record that I'd like to reserve that right. At this point it's unclear what that means, but I'd like to stay on the record.
"THE COURT: Well, if you are at odds on that score, maybe you had better talk about it some more.
"Mr.... (defense counsel): Well, I don't know whether that would be a part of the actual plea between the District Attorney and I, and I would note that he does object to it, but there is a question in my mind under the Escobar decision whether or not he could do that. So I'd like to just state for the record that we do, we reserve that right, because I think under the statute and the 1538.5 we have the right. But, as I said, some recent cases shed some doubt on that.
"THE COURT: Apparently you talked about it, because it is stricken from the form.
"Mr.... (defense counsel): That's correct, your Honor.
"THE COURT: It might well be the subject of bargaining in connection with the plea bargain; that is, the right to appeal. Perhaps you had better talk about it before and then perhaps I had better set aside my order relative to the plea until you have resolved that issue.
"Mr.... (defense counsel): (Nodding.)
"THE COURT: All right. The order that I made accepting the pleas will be set aside, and we'll put this at the call this matter again in a few minutes.
"Mr.... (defense counsel): All right. Thank you, your Honor.
".... .... .... .... ....
"THE BAILIFF: Your Honor, number 8 is ready again.
"THE COURT: All right. People versus Henry John Castro [sic] and Gloria Cecelia Castro.
"Mr.... (Defense counsel): Yes, your Honor. We've discussed the matter that was presented by the Court, and would state at this time that we would not waive our right to appeal for the record. The District Attorney is satisfied with that.
"THE COURT: All right. The record may so indicate."
NOTES
[1] Penal Code section 1237.5 reads: "No appeal shall be taken by defendant from a judgment of conviction upon a plea of guilty or nolo contendere, except where: (a) The defendant has filed with the trial court a written statement, executed under oath or penalty of perjury showing reasonable constitutional, jurisdictional, or other grounds going to the legality of the proceedings; and (b) The trial court has executed and filed a certificate of probable cause for such appeal with the county clerk." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2283460/ | 130 Cal.Rptr.2d 347 (2003)
105 Cal.App.4th 1293
Lillian L. COLORES, Plaintiff and Appellant,
v.
The BOARD OF TRUSTEES of the California State University, et al., Defendants and Appellants.
No. B151173.
Court of Appeal, Second District, Division Three.
January 31, 2003.
As Modified February 18, 2003.
*352 Remer, DiVincenzo & Griffith and Joseph P. DiVincenzo, Corona Del Mar, for Plaintiff and Appellant.
California State University Office of General Counsel, Christine Helwick, General Counsel, LeRoy Anderson, Los Angeles, and Abraham C. Meltzer, Long Beach, for Defendants and Appellants.
CROSKEY, Acting P.J.
Plaintiff Lillian Colores appeals from a summary judgment in her suit for constructive wrongful discharge from employment at a state university. In granting summary judgment, the trial court ruled, as a matter of law, that the facts of this case cannot support plaintiffs allegation of constructive discharge. Defendants are the Board of Trustees of the California State University, James Rosser and Steven Garcia ("the university," "Rosser," "Garcia," and collectively, "defendants"). Rosser is the president of the university's Los Angeles campus. Garcia is the vice president of administration and finance at such campus.
Although plaintiff alleged eight causes of action, our opinion concerns only a cause of action against the university for constructive wrongful termination in violation of public policy. The university's cross-appeal challenges an order that denied its first motion for summary adjudication of issues on that cause of action. The denial was based on the trial court's determination that an employee who takes a disability retirement from employment is not precluded from recovering on a wrongful constructive discharge cause of action.
The thrust of plaintiffs suit is that defendants targeted her for removal from employment because of her involvement in uncovering unlawful activities on the campus.[1] The suit alleges that plaintiff has a physical disability which is exacerbated by stress, that defendants intentionally made her job extremely stressful, and that they did this to accomplish their goal of causing her to leave her employment.
*353 Using our independent judgment to review the rulings on the motions for summary judgment and summary adjudication, we find there are triable issues of material fact concerning whether plaintiff was constructively discharged, and we hold that plaintiffs disability retirement does not preclude her from claiming constructive discharge. Therefore, the university was not entitled to an adjudication on the fourth cause of action, for tortious constructive discharge in violation of public policy. We will therefore reverse the summary judgment and remand the case for further proceedings.[2]
BACKGROUND OF THE CASE
1. The Operative Complaint
According to plaintiffs complaint, she worked for the university, from February 1977 to November 1998, in its office of administration and finance (the same department of which defendant Garcia is now vice president). In 1986, about halfway through her employment, she was diagnosed as suffering from fibromyalgia, which she describes as "a disabling medical condition marked by chronic and debilitating pain and fatigue" which can be aggravated by stress. In 1993, the university created an "ADA" file for her (Americans with Disabilities Act). During her employment with the university, plaintiffs job performance was consistently rated as commendable to outstanding, she received progressive salary increases, and was a model employee, despite her disability.
Plaintiff began working at the university as a receptionist, and worked her way up to the position of director of procurement, contracts and support services, a position which she obtained in 1983 and remained in until July 1998, when she was forced to take a full-time medical leave of absence because the wrongful actions and omissions of the defendants caused her to become disabled from work. By November 1998, her medical condition had not improved sufficiently to enable her to return to work, and she applied for, and received, medical retirement with the university. Her condition has not improved and she remains unable to return to work. She was 49 years old when she filed this action.
Plaintiff alleges that defendant's wrongful acts against her began in July 1997, and were designed to harass her, defame her employment reputation, and create an abusive and hostile work environment, for the purpose of causing her an inordinate amount of stress, which would in turn exacerbate her medical condition to the extent that she would be forced to leave her job at the university, all of which was accomplished by defendants. Defendants *354 Rosser's and Garcia's motivation was then desire to "protect and maintain self-serving and unlawful acts and practices within the administration of [the university]." These acts and practices consisted of misappropriating state funds, equipment, and services, by and through employees in the university's department of facilities operations. Defendants forced not only plaintiff but also two other women at the university out of their jobs. These women, Jacqueline Avery and Roshni Thomas, participated with plaintiff in the uncovering of such unlawful activities.
Between the time Garcia arrived at the university and plaintiff took medical leave, he directed numerous persons to document her for termination. They refused to do so because no cause existed to terminate plaintiff; however, with each new directive for documentation, plaintiff became more stressed and fearful for her job. Garcia also changed plaintiffs supervisor five times and stripped her of many of her responsibilities, doing so in a manner that demeaned and humiliated her and called into question her competence and honesty. After her doctor directed plaintiff to limit her work day to four hours, one supervisor began giving her work assignments that required far more than four hours per day to complete, and at defendants' instruction, directed her to process leases and other documents that violated university policy and the law, which she refused to do. Eventually, the stress of her work environment caused the chronic pain and fatigue associated with fibromyalgia to become highly exacerbated. Since July 1998, plaintiffs health has been in ruins, she is not likely to recover sufficiently to be able to return to work in a capacity similar to that which she held at the university, and she has been emotionally devastated by defendants' abusive treatment.
2. Defendants' Demurrers and Motions for Summary Judgment
Plaintiff alleged eight causes of action. As noted in footnote 2, three were disposed of by demurrer. Four others were disposed of by defendants' first alternative motion for summary judgment or adjudication, and were not made an issue in this appeal. The sole remaining count is the one we addressplaintiffs fourth cause of action, against the university, for constructive tortious discharge in violation of public policy. The trial court determined that as a matter of law, plaintiff was not constructively discharged.
ISSUES ON APPEAL
Plaintiff contends the question whether she was constructively discharged presents a triable issue of material fact and therefore the university cannot establish a complete defense to her cause of action for constructive tortious discharge in violation of public policy.[3]
The university raises the issue as to whether there can be a constructive discharge if the plaintiff-employee takes a disability retirement rather than simply resigning from her employment. The university contends that, under the laws governing the Public Employees Retirement System, a disability retirement does not sever the employment relationship. Thus, the argument goes, disability retirement cannot support a claim of constructive discharge.[4] The university also contends that *355 plaintiffs statutory tort claim was not timely filed with the state.
DISCUSSION OF PLAINTIFF'S APPEAL
1. Standard of Appellate Review
We conduct a de novo review of the order granting the university a summary judgment. (Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465, 474, 261 Cal. Rptr. 735.) In doing so, we apply the same rules the trial court was required to apply in deciding the university's motion for summary judgment.
As the party moving for summary judgment, the university bore an initial burden of production of a prima facie showing that there is no triable issue of material fact in this case and it is entitled to judgment as a matter of law. Only if the university carried that burden was plaintiff faced with a burden of production of her own to make a prima facie showing of the existence of a triable issue of material fact. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850, 107 Cal.Rptr.2d 841, 24 P.3d 493.) "A prima facie showing is one that is sufficient to support the position of the party in question. [Citation.] No more is called for." (Id. at p. 851, 107 Cal.Rptr.2d 841, 24 P.3d 493.)
"[Generally, from commencement to conclusion, the party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law.... There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.... Thus, a plaintiff bears the burden of persuasion that `each element of the `cause of action' in question has been `proved,' and hence that `there is no defense' thereto. (Code Civ. Proc, § 437c, subd. (o)(1).) A defendant bears the burden of persuasion that `one or more elements of the `cause of action' in question `cannot be established,' or that `there is a complete defense' thereto. (Id., § 437c, subd. (o)(2).)" (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p.
850, 107 Cal.Rptr.2d 841, 24 P.3d 493, italics and footnotes omitted.)
"[H]ow the parties moving for, and opposing, summary judgment may each carry their burden of persuasion and/or production depends on which would bear what burden of proof at trial. [The California Supreme Court has] held to the effect that the placement and quantum of the burden of proof at trial [are] crucial for purposes of summary judgment. [Citation.] ... Thus, if a plaintiff who would bear the burden of proof by a preponderance of evidence at trial moves for summary judgment, he must present evidence that would require a reasonable trier of fact to find any underlying material fact more likely than nototherwise, he would not be entitled to judgment as a matter of law, but would have to present his evidence to a trier of fact. By contrast, if a defendant moves for summary judgment against such a plaintiff, he must present evidence that would require a reasonable trier of fact not to find any underlying material fact more likely than nototherwise, he would not be entitled to a judgment as a matter of law, but would have to present his evidence to a trier of fact." (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 851, 107 Cal.Rptr.2d 841, 24 P.3d 493, fns. omitted.)
A defendant moving for summary judgment is not required "to conclusively negate an element of the plaintiffs cause of action.... [A]U that the defendant need do is to show that the plaintiff *356 cannot establish at least one element of the cause of actionfor example, that the plaintiff cannot prove element X. Although he remains free to do so, the defendant need not himself conclusively negate any such elementfor example, himself prove not X. ... The defendant has shown that the plaintiff cannot establish at least one element of the cause of action by showing that the plaintiff does not possess, and cannot reasonably obtain, needed evidence[.]" (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at pp. 853-854, 107 Cal.Rptr.2d 841, 24 P.3d 493, fns. omitted.)
Because a summary judgment denies the adversary party a trial, it should be granted with caution. (Michael J. v. Los Angeles County Dept. of Adoptions (1988) 201 Cal.App.3d 859, 865, 247 Cal.Rptr. 504.) Declarations of the moving party are strictly construed, those of the opposing party are liberally construed, and doubts as to whether a summary judgment should be granted must be resolved in favor of the opposing party. The court focuses on issue-finding; it does not resolve issues of fact.
2. The Doctrine of Constructive Discharge
"In an attempt to avoid liability [for wrongfully discharging an employee], an employer may refrain from actually firing an employee, preferring instead to engage in conduct causing him or her to quit. The doctrine of constructive discharge addresses such employer-attempted `end runs' around wrongful discharge and other claims requiring employer-initiated terminations of employment. [¶] ... [¶] Constructive discharge occurs when the employer's conduct effectively forces an employee to resign. Although the employee may say, `I quit,' the employment relationship is actually severed involuntarily by the employer's acts, against the employee's will. As a result, a constructive discharge is legally regarded as a firing rather than a resignation. [Citation.]" (Turner v. Anheuser-Busch, Inc. (1994) 7 Cal.4th 1238, 1244-1245, 32 Cal. Rptr.2d 223, 876 P.2d 1022 ("Turner").)
"[T]he cases are in agreement that the standard by which a constructive discharge is determined is an objective onethe question is Svhether a reasonable person faced with the allegedly intolerable employer actions or conditions of employment would have no reasonable alternative except to quit.' [Citations.]" (Turner, supra, 7 Cal.4th at p. 1248, 32 Cal.Rptr.2d 223, 876 P.2d 1022, fn. omitted.)
"In order to establish a constructive discharge, an employee must plead and prove, by the usual preponderance of the evidence standard, that the employer either intentionally created or knowingly permitted working conditions that were so intolerable or aggravated at the time of the employee's resignation that a reasonable employer would realize that a reasonable person in the employee's position would be compelled to resign. [¶] For purposes of this standard, the requisite knowledge or intent must exist on the part of either the employer or those persons who effectively represent the employer, i.e., its officers, directors, managing agents, or supervisory employees." (Turner, supra, 7 Cal.4th at p. 1251, 32 Cal. Rptr.2d 223, 876 P.2d 1022.)
The length of time an employee remains on the job after the onset of the alleged intolerable conditions may be one factor in determining whether a reasonable person would find the conditions intolerable, but "[n]either logic nor precedent suggests it should always be dispositive." (Turner, supra, 7 Cal.4th at p. 1254, 32 Cal.Rptr.2d 223, 876 P.2d 1022.) "The mere existence of illegal conduct in a *357 workplace does not, without more, render employment conditions intolerable to a reasonable employee." (Ibid.) Nor does a negative performance rating. (Id. at p. 1255, 32 Cal.Rptr.2d 223, 876 P.2d 1022.) "In order to amount to a constructive discharge, adverse working conditions must be unusually `aggravated' or amount to a `continuous pattern' before the situation will be deemed intolerable." (Id. at p. 1247, 32 Cal.Rptr.2d 223, 876 P.2d 1022, fn. omitted.)
"Standing alone, constructive discharge is neither a tort nor a breach of contract, but a doctrine that transforms what is ostensibly a resignation into a firing. Even after establishing constructive discharge, an employee must independently prove a breach of contract or tort in connection with employment termination in order to obtain damages for wrongful discharge. [Citation.] [¶] An employee may prove, for example, that a constructive discharge is a breach of an express or implied contract of employment. In the absence of an express or implied agreement to the contrary, an employment relationship without a fixed term is presumed to be validly terminable at the will of either party, employer or employee, at any time. [Citations.] However: `In the employment context, factors apart from consideration and express terms may be used to ascertain the existence and content of an employment agreement, including "the personnel policies or practices of the employer, the employee's longevity of service, actions or communications by the employer reflecting assurances of continued employment, and the practices of the industry in which the employee is engaged."' [Citation.] [¶] Thus, a constructive discharge may, in particular circumstances, amount to breach of an employer's express or implied agreement not to terminate except in accordance with specified procedures or without good cause. [Citation.]" (Turner, supra, 7 Cal.4th at pp. 1251-1252, 32 Cal. Rptr.2d 223, 876 P.2d 1022.)
"Apart from the terms of an express or implied employment contract, an employer has no right to terminate employment for a reason that contravenes fundamental public policy as expressed in a constitutional or statutory provision. [Citation.] An actual or constructive discharge in violation of fundamental public policy gives rise to a tort action in favor of the terminated employee. [Citations.]" (Turner, supra, 7 Cal.4th at p. 1252, 32 Cal.Rptr.2d 223, 876 P.2d 1022.)
"In order to sustain a claim of wrongful discharge in violation of fundamental public policy, [the plaintiff] must prove that his dismissal violated a policy that is (1) fundamental, (2) beneficial for the public, and (3) embodied in a statute or constitutional provision. [Citation.] [¶] Tort claims for wrongful discharge typically arise when an employer retaliates against an employee for `(1) refusing to violate a statute ... [,] (2) performing a statutory obligation ... [,] (3) exercising a statutory right or privilege ... [, or] (4) reporting an alleged violation of a statute of public importance.' [Citation.]" (Turner, supra, 7 Cal.4th at p. 1256, 32 Cal. Rptr.2d 223, 876 P.2d 1022, fns. omitted.)
In the instant case, the trial court granted the university's motion for summary adjudication of the fourth cause of action because it determined that "none of the matters characterized by plaintiff as intolerable, considered separately or collectively, creates a triable issue of fact. A reasonable person in plaintiffs position would not have felt compelled to resign, and plaintiff was not constructively discharged as a matter of law." We have reviewed the evidence submitted to the trial court, and we cannot agree that the question is so cut and dried.
*358 3. Plaintiff Presented Evidence That She Was Constructively Discharged
We find there is much more substance to the evidence presented by the plaintiff than has been acknowledged by the trial court or the university. As we explain, we conclude that plaintiffs showing is sufficient to raise a triable issue as to whether a reasonable person, faced with the conditions under which plaintiff worked after defendant Garcia came to the university, would have felt compelled to resign.
a. General Background of Plaintiff's Employment
According to the evidence presented by plaintiff, she was an employee at the university for over 21 years, in its office of administration and finance, beginning as a receptionist in 1977. In 1983 she was named the director of one of the departments in that officethe department of procurement, contracts and support services. In July 1998, she took a full time medical leave of absence because of her fibromyalgia. By November of that year, her condition had not improved enough to enable her to return, and she was approved for medical retirement. Plaintiff presented evidence that during the entire time she worked at the university, her performance reviews rated her commendable to outstanding, and she received progressive salary increases that were consistent with her excellent work. She had a reputation at the university for honesty and integrity, for being very competent, and for accomplishing difficult projects on time and under budget.
b. Evidence Respecting Misappropriation of University Assets and the Women Who Uncovered the Misappropriation
According to plaintiffs evidence, significant amounts of state funds and other assets were misappropriated for the benefit of university employees, by an Alfred Henderson, who was, for some time, the director of facilities operations, and also by some of the employees that Henderson supervised. (The department attends to custodial, construction and building maintenance.) Plaintiff presented evidence that these illegal acts were facilitated by the office of defendant president Rosser, "acting principally by and through ... Rosser's personal assistant and personal friend, Ms. Rosie McNutt." The illegal activity included payment of overtime compensation to facilities operations staff for work not performed, or performed off-campus for the benefit of university employees; use or misappropriation of university equipment, inventories and supplies for non-campus related work, performed for the benefit of university employees; and use of approximately $200,000 of funds slated for seismic retrofitting of university buildings but funneled instead for remodeling work on Rosser's office.
During 1996 and 1997, in the course of carrying out certain of her duties, plaintiff discovered evidence of such misappropriations and she informed Jacqueline Avery, her supervisor, of these matters. Avery was the interim vice president of administration and finance (the position that defendant Garcia later took over on a permanent basis). About this same time, Avery was investigating the faculties operations' budget deficit of approximately $300,000. Avery fired director Henderson in January 1997, and Roshni Thomas replaced him. Avery directed Thomas and plaintiff to establish a secured warehouse for facilities operations so that the university would have an established means of accounting for equipment, inventory and supplies, and be able to control vendor selection. According *359 to plaintiff, many facilities operations employees were hostile to plaintiff and members of her staff and circumvented their policies and procedures.
c. Evidence Concerning Defendant Garcia's Treatment of Plaintiff
During the spring of 1997, Rosser hired defendant Garcia to replace Avery as vice president of administration and finance. One of the things that stands out in the evidence presented by plaintiff to the trial court is the dichotomy between (1) how plaintiffs job skills were characterized by her fellow workers and by her written evaluations, on the one hand, and (2) Garcia's apparently negative vision of her future at the university, on the other. From the evidence presented by plaintiff, a jury could reasonably conclude that her supervisors thought her performance was commendable and outstanding, and although Garcia acknowledged (under oath) that he had no cause to terminate plaintiff, he nevertheless instructed person after person to document plaintiff for termination.
Jacqueline Avery was instructed to document plaintiff for termination, but she refused to do so. A woman by the name of Suzanne Curtis was told in her job interview with Garcia that her main task when she came to work at the university would be to document plaintiff for termination. This interview took place after Garcia had nearly six months to become acquainted with the high quality of plaintiffs work. We find significance in plaintiffs evidence reflecting that while Garcia repeatedly told Curtis that plaintiff was incompetent, he never gave Curtis any specifics regarding why he held that belief. As Curtis began to document plaintiff, she concluded that plaintiff was actually a very valuable and capable employee, and she went out of her way to convey that view to Garcia. Nevertheless, plaintiffs evidence suggests that Garcia remained focused on terminating her. Curtis described him as having a mean streak when it came to plaintiff. After Curtis left, Garcia continued to give instructions to others to document plaintiff for termination.
There is evidence that Garcia's apparently hostile attitude caused plaintiff no small amount of stress because she believed that Garcia was out to terminate her since people repeatedly told her so. Suzanne Curtis stated she saw "enormous stress" in plaintiff. William Gaffney, a human relations manager, stated he spoke with plaintiff about her being targeted for termination and found her distressed, confused about why things were happening, and worried about losing her job. Indeed, Gaffney apparently believed that all three women involved in investigating and uncovering corruption at the university and establishing the secured warehouse were targetedplaintiff, Jacqueline Avery and Roshni Thomas. There is also evidence that within a short time after coming to the university, Garcia relieved all three woman of their duties respecting the secured warehouse, stripped Avery of many of her responsibilities, and fired Thomas even though she had just received an outstanding performance review. Avery became so distressed with her own working conditions that she quit in October 1997 and filed a claim against the university. It is reasonable to infer that the departure of these other two women caused plaintiff stress.
Plaintiff was also faced with people trying to orchestrate problems for her. An Ellis Kirschenbaum told William Gaffney to falsify a memo to make it look like plaintiff had made a mistake on a contract. Then, at Garcia's request, Sri Renganathan, one of plaintiffs supervisors, made a demand to plaintiff that she process unlawful orders.
According to the evidence, Garcia not only engaged in a massive reorganization of the department that plaintiff oversaw, he reorganized it in a fashion that was *360 disruptive of her position, duties, status, and reputation at the university. For example, Garcia never spoke with plaintiff first before transferring, to the oversight of the campus chief of police, half of the units in her department. Indeed, she was told, in front of the chief himself, that she would no longer oversee two of the units. Moreover, it was the chief, not Garcia, who told her she was losing a third unit, with the chief telling her he did not know why the change was occurring but he believed it had "something to do with an audit." There is evidence that Garcia posted notices on plaintiffs door to advise her she was being relieved of the management, which she said was never done by a supervisor at the university. There is no evidence that Garcia ever reassured plaintiff that her job performance was not the cause of the reorganization. Plaintiff related her feelings of humiliation at the implication that her duties were changed because she was dishonest and/or incompetent.
Garcia, for the most part, refused to talk to plaintiff about matters that related to her duties. However, he was accessible to others, even employees subordinate to plaintiff, thus refuting his assertion that he did not speak with employees who had a supervisor to whom they could speak. That added to her stress and feelings of isolation and humiliation. Additionally, between February and July 1998, Garcia placed plaintiff under the supervision of four different people, which also added to her stress. Plaintiff submitted evidence that the last of these supervisors, Sri Renganathan, gave her excessive and unnecessary assignments that were far in excess of what plaintiff could accomplish in the four hours per day her doctor had advised her to work.
Given the evidence of Garcia's stated determination to get rid of plaintiff, and his inability to find anyone that would document her for termination,[5] a reasonable inference could be drawn that the purpose of both his "reorganization" of plaintiffs work and the manner in which he accomplished the reorganization was to push plaintiff to quit her job. Her status as an ADA employee with a medical condition of fatigue and pain that worsens because of stress was information available to Garcia and would provide motivational evidence supporting a conclusion that he had a design to effect her termination. One could also infer that since he couldn't convince Avery, Curtis and others that plaintiffs record justified termination, he came up with a plan to make it seem like plaintiffs performance was of low quality, or even dishonestand the plan was the reorganization of her duties and the excessive and unnecessary assignments given to her.
As for Garcia's motives in trying to push plaintiff out, Suzanne Curtis stated he told her of his concern that plaintiffs friendship with Jacqueline Avery might pose problems if there were future issues with Avery, who had left the university. Curtis had the impression that Rosser was likewise concerned about plaintiff and Avery. William Gaffney stated Garcia believed plaintiff had too much power. According to Avery, Garcia told her he would not let anyone hold himself or Rosser hostage to information, which Avery took to mean the information she, plaintiff and Roshni Thomas had uncovered about misuses of university money and other assets, including Rosser's alleged misuse of university funds for his own office.
This evidence raises a triable issue as to whether a reasonable person, when faced with such working conditions, would find them so intolerable or aggravated that she *361 would feel there was no reasonable alternative but to quit. Although the record reflects that Rosser stated to plaintiff that she would have a job at the university as long as he worked there, that remark compels no different conclusion. First, there is a triable issue that no reasonable employee would want to stay at the university under the conditions described in plaintiffs evidence. Moreover, given the evidence suggesting Rosser's alleged misuse of university funds, a jury could reasonably conclude that Rosser's remark was a veiled threat to the effect that, if plaintiff remained silent about alleged misconduct, and thus did not get him into trouble, she could keep her job.
4. Plaintiff Presented Evidence She Was Constructively Discharged in Violation of Fundamental Public Policy
As noted above, besides proving constructive discharge from employment, a plaintiff must also prove a tort or a breach of a contract, in connection with the termination, that entitles her to damages for wrongful discharge. {Turner, supra, 7 Cal.4th at p. 1251, 32 Cal.Rptr.2d 223, 876 P.2d 1022.) And, as noted earlier, a termination in contravention of a fundamental public policy expressed in a statute or constitutional provision can constitute a tort. (Id. at p. 1252, 32 Cal.Rptr.2d 223, 876 P.2d 1022.) To sustain a claim that she was discharged in violation of fundamental public policy, the plaintiff must prove the dismissal violated a policy that is fundamental, beneficial to the public, and embodied in a statute or constitutional provision, and such claims typically arise when an employer retaliates against the employee because she refused to violate a statute, performed a statutory obligation, exercised a statutory right or privilege, or reported an alleged violation of a statute of public importance. (Id. at p. 1256, 32 Cal. Rptr.2d 223, 876 P.2d 1022.)
Plaintiff's January 1999 tort claim that she filed with the State of California[6] alleged, among other things, that the university retaliated against her "in relation to `whistle blowing'" and "directed her to commit illegal action."[7] The claim also makes reference to a letter plaintiff's attorney wrote to Rosser in August 1998. The letter alleges plaintiff and "her colleagues uncovered embezzlement, mishandling and misappropriation of public funds with implications reaching as far as your office [and thereafter plaintiff] and fellow whistleblowers have been the target of a vendetta to rid them from [the university]. These retaliatory actions against [plaintiff] have been orchestrated by your administration with Steve Garcia ... as the henchman." Another portion of the letter speaks of plaintiff's "participation in the whistle blowing."
The university contends plaintiff cannot reasonably assert retaliation based on whistleblowing because she cannot be deemed to be a whistle blower since she did not report, to an outside government agency, to a law enforcement agency, or to the Chancellor's office, wrongdoing at the university. Rather, asserts the university, it was Jacqueline Avery, not plaintiff, who reported Henderson's embezzlement to the *362 campus police, the Los Angeles Police Department and the state auditor. The university contends that plaintiff merely did her job when she reported wrongdoing to Avery, and with respect to the alleged misuse of earthquake retrofit funds to remodel defendant Rosser's office, plaintiff did not report that to anyone. Moreover, asserts the university, while plaintiff states that the uncovering of misuse of state assets took place in 1996 and early 1997, Garcia did not come to the university until June 1997.
The university applies the concept of whistleblowing too narrowly. It is true that plaintiff was simply doing her job when she uncovered the unauthorized use of state assets by Henderson and others associated with facilities operations. It is also true that she reported her findings to Avery rather than to some other governmental agency. This, however, will not defeat her right to whistleblower status. First, plaintiff was employed by a governmental agency and she had every reason to expect that Avery would not sweep the information under the rug but rather would conduct an investigation into the matter, as Avery did. Thus, plaintiff, in contrast to an employee of a private employer, had no need to inform some other governmental agency in order to qualify as a "whistleblower" within the meaning of Labor Code section 1102.5, subdivision (b). (Compare with Green v. Ralee Engineering Co., supra, 19 Cal.4th at pp. 72-73, 76-77, 78 Cal.Rptr.2d 16, 960 P.2d 1046.)
Indeed, it would seem reasonable that Avery was the person whom the university would expect plaintiff to advise about the wrongdoing she had uncovered, rather than taking it upon herself to inform some other governmental agency. Moreover, it is clear that plaintiff was an integral part of the whistleblowing process, as were Avery and Roshni Thomas (who also reported wrongdoing to Avery). It is contended by plaintiff that all three women ultimately left the university because of Garcia's actions. Plaintiff presented the trial court with evidence that a university human relations manager had always felt the three women were being targeted for termination. What the three women had in common was their gender, their status as employees in Garcia's department, and their activities in association with uncovering wrongdoing, and according to Avery, Garcia told her he fired Thomas because "he was not going to allow Ms. Thomas or anyone else to hold him or President Rosser hostage to information." Suzanne Curt
is felt that the person with the real concern about Avery and plaintiff was Rosser himself. Such evidence would clearly support a jury's conclusion that the actions taken against plaintiff were in retaliation for her whistleblowing activity.
5. Plaintiff Presented Evidence of a Breach of an Implied Employment Contract
Citing Foley v. Interactive Data Corp., supra, 47 Cal.3d at p. 680, 254 Cal. Rptr. 211, 765 P.2d 373, the Turner court observed that an implied employment agreement may be found in the employer's personnel practices and policies and the employee's length of service. (Turner, supra, 7 Cal.4th at p. 1252, 32 Cal.Rptr.2d 223, 876 P.2d 1022.) Here, plaintiff presented evidence, respecting both factors, *363 that raises a triable issue whether she had an implied employment contract rather than "at-will" employment (Lab.Code, § 2922) with the university. Garcia testified that it is not the practice of the university to terminate employees without cause, and he acknowledged there was no cause to terminate plaintiff. Additionally, plaintiff worked for the university for over 21 years, working her way up from receptionist to director of procurement, contracts and support services, continually receiving superior performance ratings. This is evidence of what Foley called an "enforceable expectation" about continued employment. (Foley, at p. 680, 254 Cal. Rptr. 211, 765 P.2d 373.) Coupled with the triable issue whether plaintiff was constructively discharged, the evidence would warrant trying a cause of action for breach of an implied employment agreement, if plaintiff had alleged one. Since we are sending this back for trial, plaintiff will be free to seek permission to amend her complaint to allege such a count. California has a policy of liberality in permitting amendments to pleadings during the course of litigation. (Berman v. Bromberg (1997) 56 Cal.App.4th 936, 945, 65 Cal. Rptr.2d 777.)
6. The University Has Not Negated the Issue of Damages
The university contends plaintiff has not, and cannot, establish a causal connection between the university's actions and plaintiffs medical disability, that is, she cannot establish damages caused by the university. The university asserts that its evidence establishes that plaintiff was granted medical disability because of her objective medical conditions of fibromyalgia and rheumatoid arthritis, and that those conditions were not caused by the university. We do not agree. a. Plaintiffs Application for Disability Retirement Does Not Support the University's Position
On her application for disability retirement, dated June 21, 1998, plaintiff was asked: "What is your specific disability and when and how did it occur?" She answered: "Diagnosis: Fibromyalgia, Rheumatoid Arthritis Was diagnosed approx. 11 yrs ago. Exacerbations occur causing extreme pain in my arms, wrist, shoulders, hips and knees, swelling and arthritic stiffness knees and hands, extreme fatigue prevents me from performing my duties. Am unable to work full time due [sic] the fatigue, pain, and difficulty attention span [sic], memory and communication. Stress further exacerbates my condition." The application form also asked: "Was your injury caused by a third party? (Subrogation)."[8] Plaintiff answered: "No." The application was signed under penalty of perjury.
We find nothing in plaintiffs application that precludes a finding of a nexus between plaintiffs medical condition as supporting disability retirement, and her contention that the university's treatment of her after Garcia arrived at the university in the spring of 1997 exacerbated the medical condition she already had, and did so to the extent that she could no longer work. She simply described her disability and its progression. As for the subrogation question, absent definitive evidence about what plaintiff thought that question meant, we cannot say that her "no" answer precludes a claim for damages against the university. *364 b. The PERS Medical Reports and PERS Letter Do Not Support the University's Position
The appellate record also contains reports from four doctors who used a two-page PERS medical report form to report on plaintiffs medical condition. According to the diagnosis of Andrew Muller, M.D., who is board certified in internal medicine, and who first saw plaintiff in 1986, plaintiff has rheumatoid arthritis complicated by fibromyalgia, with severe limitation in her hands, feet, hips and shoulder, including a 40% range of motion in her shoulder. The university asserts the report "directly refutes [plaintiffs] allegations that the reason she applied for PERS medical disability was because of retaliatory action and intolerable work conditions caused by [the university]." It asserts that plaintiff cannot credibly contend that people at the university caused her to have a severely limited range of motion in her shoulder.
Peng Thim Fan, M.D., who first saw plaintiff in 1997, is a clinical professor of medicine in the division of rheumatology at the University of California Los Angeles school of medicine. His diagnosis is "fibromyalgia chronic fatigue, rheumatoid arthritis." He found "swelling in the wrist and knees and severe reduction in [range of motion] in the wrist and the ankles." The university asserts that surely "people at [the university] did not cause [plaintiffs] wrists and knees to swell." Dr. Fan reported he advised plaintiff to reduce the amount of prednisone she was taking, but warned her that her fibromyalgia symptoms would flare up when she did so. The university argues that it cannot be blamed for a reduction in her prednisone dosage.
Emilio Cruz, M.D., had a diagnosis of "fibromyalgia and chronic fatigue syndrome chronic pain syndrome." He reported memory loss and a progressive, severe gait condition. Maria T. Cendejas, D.O., first saw plaintiff in August 1995. She reported a "gradual onset" of plaintiffs illness. Her diagnosis was "cervical and lumbar myofascitis compounded by fibromyalgia and degenerative disease. Belated knee degeneration."
In its November 20, 1998 letter to plaintiff, PERS advised her that her application for disability retirement was approved, and stated its finding that she was "incapacitated for the performance of [her] duties ... based on [her] internal (arthritis/chronic pain) condition." The university asserts it is thus "clear that the reason [plaintiff] was granted medical disability retirement by PERS, was because of her objective medical conditions, which had first been diagnosed eleven years previously and had gradually worsenednot because of any supposed retaliation or intolerable conditions at work. [Plaintiffs] doctors verified that she had fibromyalgia and rheumatoid arthritis. Her four doctors said that [she] was not injured on the job. Not one of the doctors said that [the university], or any person at [the university], had caused [plaintiffs] medical conditions."
We do not agree that the evidence presented by the university in the form of the doctor's reports (and the resulting PERS letter) conclusively negates a nexus between plaintiffs working conditions and the deterioration of her health. To begin with, that question was not asked of the doctors on the PERS medical report. The question whether plaintiff was injured (on or off the job) is not the same question as whether her working conditions had anything to do with the worsening of her fibromyalgia. There is no indication that the doctors did not understand the term "injury" in a more general sense, such as whether plaintiff fell, was hit by something, tripped, and so forth.
*365 Moreover, the expertise of these four physicians is medicine, not law. They are doctors, not attorneys specializing in personal injury torts and workers' compensation law. The university argues that their "diagnoses concern whether and why [plaintiff] should receive medical disability retirement." That is precisely the point. The physicians were concerned about medical disability, not subsequent lawsuits. They filled out medical reports, not tort claims under the Government Code. We cannot say, as a matter of law, that their medical reports, furnished for plaintiffs application for disability retirement, preclude her cause of action for tortious constructive termination (or a cause of action for constructive termination in breach of an implied employment contract). We cannot say that their reports negate her contention that the stress (anxiety, fear, humiliation, degradation) she asserts she was subjected to when Garcia became her supervisor and when, according to the evidence she presented, he set out to virtually destroy the reputation and position that she had spent some 21 years creating at the university, contributed in a significant way to the worsening of her medical conditions such that she eventually was unable to continue working. Therefore, plaintiff had no need to present medical evidence of her own to refute the university's medical evidence.
DISCUSSION OF THE UNIVERSITY'S CROSS-APPEAL
1. A Disability Retirement Does Not Preclude a Finding of Constructive Discharge
In its cross-appeal, the university challenges the trial court's order denying its initial request for summary adjudication of plaintiffs cause of action for wrongful constructive discharge. The university based that first motion for adjudication solely on the fact that plaintiff did not actually quit her job, but rather took a disability retirement. The university asserted that a disability retirement cannot be the functional equivalent of a resignation or a service-based retirement, because with a disability retirement the employment relationship is not necessarily severed, and therefore, disability retirement will not support a cause of action for constructive wrongful discharge.
In its order denying that original adjudication motion, the trial court took note of the university's point that plaintiff is functionally in a state of extended medical leave of absence and has not actually severed her employment with the university as she would have if she had taken a service-based retirement or had simply quit her job. Thus, said the court, under Government Code section 21193, she can request reinstatement to her duties if she is ever found to be no longer incapacitated. The court also observed that California recognizes a tort of wrongful discipline, falling short of an actual wrongful discharge, imposed as retaliation for whistleblowing, and in such cases, the employee is still at his or her job. (Garcia v. Rockwell Internat. Corp., supra, 187 Cal.App.3d 1556, 232 Cal.Rptr. 490.) The trial court stated it was "not persuaded that plaintiffs ability to establish constructive termination is defeated because a statute ([Gov. Code,] § 21193) would permit her in [the] future to request reinstatement on the ground of recovery. No policy of the law would be served by requiring a plaintiff in this situation to submit a formal resignation after receiving board approval of an application [for disability retirement], or to resign outright, and thus forgo entitlement to disability retirement payments. With or without a formal resignation letter, plaintiff no longer works for [the university] *366 and no longer has her job in the Office of Administration and Finance. That she has the safety net of disability retirement should not allow defendant to escape the consequences of the wrongful acts, which are alleged to have driven plaintiff to request disability retirement. Because a Tammy [v. Atlantic Richfield Co. (1980) 27 Cal.3d 167], [164 Cal.Rptr. 839, 610 P.2d 1330] claim can be stated on the basis of adverse employment action short of termination (see Garcia [v. Rockwell Internal Corp. (1986) 187 Cal.App.3d 1556], [232 Cal.Rptr. 490]), plaintiffs constructive termination claim in this case is not defeated by the theoretical possibility that, should she someday recover from her disability, she would be legally entitled to apply for reinstatement."
On appeal, the university presents what it describes as five points that demonstrate why an employee who takes a PERS disability retirement cannot reasonably claim constructive discharge. First, it argues that plaintiffs continuing right, under PERS legislation, to be reinstated to her duties at the university if she sufficiently recovers her health is inconsistent with the notion of a plaintiffs coerced termination of the employer-employee relationship that is the basis of the doctrine of constructive discharge.
Next, the university argues that the ability to receive disability retirement, which only exists when the employee is still in an employment relationship, is inconsistent with the concept of a constructive discharge. Third, the university contends that under PERS legislation, specifically Government Code section 21153, an employer has the obligation to apply for disability retirement for a disabled employee who is eligible to retire for disability unless the employee waives the right to retire for disability and elects to either withdraw her contributions or to keep her contributions in the fund and invoke her right to service retirement under section 20731. The University contends this obligation on its part to apply for disability on behalf of plaintiff had she not done so herself "cannot constitute a constructive discharge."
Fourth, relying on section 21153's prohibition against discharging an employee, because of the employee's disability, if the employee is entitled to retire for disability, the university argues that "[t]his forced retention of the employee by the employer is inconsistent with the [Turner court's] requirement of coerced termination of employment." Finally, the university contends that the decision of PERS, a state agency independent of the university, and the entity that makes the decisions on applications for disability retirement, finding plaintiff entitled to disability retirement is inconsistent with the concept of constructive discharge, "which requires the employer to have coerced the employee's resignation."
We are not inclined to substitute what the university sees as the logic of its several points, for what is the true logic of plaintiffs casethat the university, through its agents, allegedly made plaintiffs working conditions so intolerable that her preexisting medical condition worsened to the point where she was no longer able to function in her duties and needed to remove herself from her job, and thus was effectively constructively discharged. We reject the notion that an abusive employer has the right to orchestrate how its employee exits her employment by demanding that the employee quit or take a service retirement before acquiring a cause of action for wrongful constructive discharge. That plaintiff may recover sufficiently to reclaim her position does not negate the fact that she may not so recover.
*367 We also reject the university's contention that Mullins v. Rockwell Internal Corp. (1997) 15 Cal.4th 731, 63 Cal.Rptr.2d 636, 936 P.2d 1246 supports its position. In Mullins, the plaintiff employee took two medical leaves of absence before he submitted his resignation and sued for wrongful constructive termination. He alleged the leaves of absence were necessitated by the stress and humiliation that his employer's treatment of him caused him to feel. The issue in Mullins was whether the statute of limitations on a constructive-termination breach of contract cause of action begins to run when the alleged intolerable working conditions occur, or when the employee actually resigns. (Id. at p. 733, 63 Cal.Rptr.2d 636, 936 P.2d 1246.) The Supreme Court held that in any contract action for wrongful termination of employment, the statute of limitations begins to run from the date of actual termination, whether or not the employee alleges a constructive discharge. (Id. at pp. 733-734, 63 Cal.Rptr.2d 636, 936 P.2d 1246.) Based on that holding, the university asserts that the Supreme Court "dismissed the idea that medical leave constituted a coerced resignation [and] instead, the Court held that only actual resignation triggered a constructive discharge." We disagree with the university's analysis of Mullins. Given that the Supreme Court was not presented with the situation of a disability retirement where an employee does not actually sever her relationship with her employer, we do not find Mullins persuasive authority for the issue raised by the university in this case, to wit, whether such a disability retirement is inconsistent with a claim of constructive discharge.
Additionally, we reject the university's contention that if a medical disability retirement can support a cause of action for constructive wrongful discharge, then any member of PERS that takes a disability retirement in the future can sue and allege constructive discharge. That possibility is no different from the fact that any member of PERS who quits his or her job in the future can assert a cause of action for constructive wrongful discharge. In both situations, as in any wrongful discharge case, the facts will either bear out the plaintiffs cause of action or they will not.
Lastly, we note that the university's position would force employees who are not qualified for service-based retirement, but who have been so wrongfully treated by their employer that their health has deteriorated to the point that they qualify for disability retirement, to choose between taking the disability retirement and thereby losing the right to sue for constructive wrongful termination, or quitting their job in order to sue for constructive wrongful termination and thereby losing their right to PERS disability retirement. We will not adopt a rule that foists such an unreasonable choice on them.
2. The Administrative Claim Filed by Plaintiff Was Timely
Government Code sections 905.2, 911.2 and 945.4, provisions of California's Tort Claims Act, govern plaintiffs right to sue the university. Collectively, they provide that a suit against the state for money or damages generally may not be brought unless and until a plaintiff has first presented the state with a written claim. When a plaintiffs cause of action is for death, or for injury to person or personal property or growing crops, such written claim must be presented no later than six months after the plaintiff's cause of action has accrued. For claims "relating to any other cause of action," a one-year period is provided. Here, plaintiff filed her claim with the State Board of Control on January 5, 1999. Thus, if her cause of action against the university for *368 tortious wrongful constructive discharge accrued prior to July 5, 1998, it was not timely filed. The university contends plaintiffs cause of action accrued on June 21, 1998, the day on which she executed her PERS application for medical disability retirement.
We rely on Mullins v. Rockwell Internal Corp., supra, 15 Cal.4th 731, 63 Cal.Rptr.2d 636, 936 P.2d 1246, and Romano v. Rockwell Internal Inc. (1996) 14 Cal.4th 479, 59 Cal.Rptr.2d 20, 926 P.2d 1114 to resolve this question of timeliness. As already noted, the Mullins court held that in breach of contract actions alleging constructive wrongful termination of employment, it is the actual termination of employment that starts the statute of limitations period running, not when the alleged intolerable working conditions occur. (Mullins, supra, at pp. 733-734, 936 P.2d 1246.) Similarly, in Romano, the court held that in wrongful termination cases, whether the plaintiff alleges contract or tort causes of action, or violations of California's Fair Employment and Housing Act, the statute of limitations begins to run on the date the employment is actually terminated, not the date on which an employee is unequivocally informed his employment will be terminated. (Romano, supra, at pp. 483-484, 926 P.2d 1114.) When we combine these holdings with Code of Civil Procedure section 312's directive that statutes of limitation begin to run "after the cause of action shall have accrued," we conclude that for purposes of filing a tort claim for wrongful termination, the cause of action accrues when the employment is actually terminated, whether by the employer or the employee. In the instant case, that would be the day plaintiff commenced her disability retirement since the act of taking disability retirement was the functional equivalent of a constructive discharge.
On June 21, 1998, plaintiff signed her application for disability retirement, but she was not automatically given disability retirement on that date. By letter dated November 20, 1998, she was informed that her application for disability retirement had been approved, and that the effective date of such retirement would not be earlier than the day following her last day of using sick leave with compensation or other leave of absence with compensation. Based on these facts, it is clear that plaintiffs tort claim was timely filed.
DISPOSITION
The summary judgment is reversed and the cause is remanded for further proceedings consistent with the views expressed herein. Costs on appeal to plaintiff.
We Concur: KITCHING and ALDRICH, JJ.
NOTES
[1] Fundamental public policy prohibits the retaliatory discharge of employees for whistle blowing in the public interest. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 670-671, 254 Cal.Rptr. 211, 765 P.2d 373.) Labor Code section 1102.5, subdivision (b), prohibits employers from retaliating against employees for disclosing information to a government or law enforcement agency when the employee has reasonable cause to believe that such information discloses a violation of federal or state statutes or regulations. "This provision reflects the broad public policy interest in encouraging workplace whistle-blowers to report unlawful acts without fearing retaliation." (Green v. Ralee Engineering Co. (1998) 19 Cal.4th 66, 77, 78 Cal.Rptr.2d 16, 960 P.2d 1046.)
[2] Plaintiff also challenges an order that sustained defendants' demurrers to three of her causes of action. However, she has presented virtually no analysis in her appellate briefs to support her challenge. There is no presentation of the elements of the causes of action, and, correspondingly, no attempt to cite the facts alleged in her amended complaint that correspond to such elements. Nor does she cite to case or statutory authority. Her opening brief devotes a mere two pages to the demurrer issue, and her reply brief expends only one. She appears to invite us to examine the parties' trial court papers as a means of determining whether the court erred in sustaining defendants' demurrers. However, it is not appropriate to incorporate by reference, into a brief, points and authorities contained in trial court papers, even if such papers are made a part of the appellate record. (Garrick Development Co. v. Hayward Unified School Dist. (1992) 3 Cal.App.4th 320, 334, 4 Cal.Rptr.2d 897.) The dearth of true legal analysis in her appellate briefs amounts to a waiver of the demurrer issue and we treat it as such. (San Mateo County Coastal Landowners' Assn. v. County of San Mateo (1995) 38 Cal.App.4th 523, 558-559, 45 Cal.Rptr.2d 117.)
[3] Plaintiff also contends the university's second motion for summary judgment violated the letter and the spirit of Code of Civil Procedure section 437c, subdivision (f)(2). However, given our disposition of the other issues raised in this appeal, we need not and do not address that procedural issue.
[4] The statutes governing the Public Employees' Retirement System ("PERS") are at Government Code section 20000, et seq.
[5] Garcia testified at his deposition that it is not the practice of the university to terminate employees without cause.
[6] As discussed infra, California's Tort Claims Act (Gov.Code, § 900 et seq.) "requires that a claim for money or damages must first be presented to the pertinent public agency and rejected by it." (Spencer v. Merced County Office of Education (1997) 59 Cal.App.4th 1429, 1434, 69 Cal.Rptr.2d 750.)
[7] In deciding this appeal, we will focus on just one aspect of plaintiff's tort claimthe whistle blower allegations. We draw no conclusions respecting her claim that she was directed to commit illegal actions in carrying out her duties at the university. Nor do we address the cause of action discussed in Garcia v. Rockwell Intemat. Corp. (1986) 187 Cal. App.3d 1556, 232 Cal.Rptr. 490wrongful discipline in violation of public policy.
[8] In setting out, in its appellate brief, this question about third parties, the university left out the word "subrogation." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2115849/ | 154 Cal.App.3d 688 (1984)
201 Cal. Rptr. 528
DEBRA BETTS, Plaintiff and Appellant,
v.
ALLSTATE INSURANCE COMPANY et al., Defendants and Appellants.
Docket No. 26344.
Court of Appeals of California, Fourth District, Division One.
April 18, 1984.
*696 COUNSEL
Cornelius P. Bahan, B.V. Yturbide and David W. Graf for Plaintiff and Appellant.
Charles A. Lynberg, Judith Gold, Lynberg & Nelson, Ronald C. Kline, Roy G. Weatherup, Robert L. Washburn, Haight, Dickson, Brown & Bonesteel, Lascher & Lascher, Edward L. Lascher and Wendy C. Lascher for Defendants and Appellants.
Paul H. Cyril, Michael J. Brady, David R. Fuller and Christopher R. Miller as Amici Curiae on behalf of Defendants and Appellants.
OPINION
STANIFORTH, J.
In an earlier (underlying) lawsuit for damages arising out of an automobile intersection accident (Gallucci v. Betts), Anne E. Gallucci obtained a jury verdict-judgment against Debra Betts for damages of $450,000,[1] $350,000 in excess of Betts' automobile insurance policy issued by Allstate Insurance Company (Allstate). Allstate assumed the Betts defense, furnished the law firm of Ruston and Nance (Ruston) to represent Betts in the underlying lawsuit, but flatly denied liability and adamantly refused during the entire course of litigation and up to and including the *697 motion for new trial to accept Gallucci's offer to accept its policy limits in settlement.
In the present action Betts sued Allstate, alleging breach of covenant to deal fairly and in good faith. She charges a "bad faith" refusal to accept a settlement offer within the policy limits. Betts alleges Ruston was negligent in conducting the defense of her lawsuit. A jury returned special verdicts awarding (1) compensatory damages against Allstate of $500,000 (to which the trial court added prejudgment interest and costs) and (2) punitive damages of $3 million. The jury found Ruston was also negligent and awarded $500,000 jointly and severally against the lawyers and Allstate for emotional distress. A motion for new trial was conditionally granted as to the latter $500,000 award of damages unless Betts accepted a reduction of the award of $500,000 to $50,000. Betts accepted that condition and a new trial was denied in its entirety. Allstate and Ruston appeal the respective portions of the judgment against them. Betts cross-appeals the order which conditionally granted the partial new trial.
FACTS[2]
The Accident
At 1:30 a.m. on May 8, 1975, 17-year-old Debra Betts collided with a car driven by Anne Gallucci (another Allstate insured) at the signalized intersection of Imperial Highway and La Mirada Boulevard. Betts was alone in the car owned by her father. Witness Pamela Thayer was in the car which followed Gallucci into the intersection. Gallucci suffered severe brain injuries that nearly took her life and rendered her permanently incompetent, unable to relate what had happened. The accident was promptly reported to Allstate by Betts' father who claimed Gallucci had run the red light at the intersection. An employee in Allstate's Downey branch initially rated the case as one of 50-50 liability because it was an intersection collision, but later changed the evaluation to 90-10 against Betts' liability when he received Mr. Betts' statement regarding Gallucci's traffic light violation and confirmation of that fact from witness Thayer. Another Downey branch office employee, Robert Myers, was put in charge of overseeing the handling of the Betts file. He originally evaluated the case at 80-20 against liability. He later changed this to 90-10 and then to 95-5 in response to claimed factual data affecting the case and because of Ruston's view. Allstate's home office personnel were of the same opinion: they characterized this case as one of no liability whatsoever and determined it should be approached on a "deny/defend" basis.
*698 Allstate referred the Betts case to Ruston, an Orange County litigation firm, to undertake the defense of Gallucci's suit. The first attorney to review the file (Vic Eitel) was of the opinion this was a no liability or a 95-5 percent liability case. Throughout the entire pretrial period the opinion of both Allstate and its counsel was that Gallucci had horrendous injuries that could produce a verdict far in excess of $100,000 up to a million dollars in the event of a full liability finding against Betts. Allstate agents as fact bases for their "no pay/defend" stance, relied upon Betts' consistent and "patently sincere version of the fact[s]" in which she unwaveringly described her speed as safe, within legal limits, her attitude as attentive, and the green light with her as she entered the intersection.
The Allstate Investigation Who Ran the Red Light?
Shortly after the accident, Betts related her version of the accident to the Allstate adjuster who wrote down her answers and prepared a written statement. Betts was never permitted to see or read this statement until the present trial. This statement suggests Betts negligently contributed to the accident in the form of (1) excessive speed and (2) inattention. She reported she had approached the intersection at 40 miles per hour and reduced her speed somewhat, maybe to 35; seeing the light was green she accelerated a little bit and entered the intersection. She did not not notice any cross-traffic until the Gallucci vehicle was but one car length away from her. The intersection was posted for 40 miles per hour. The supervisor in the local Downey Allstate office reported Gallucci's severe brain damage and pointed out "it appears that both parties were speeding." He rated the liability as 50-50.
Thayer told officers at the scene Gallucci ran the red light. Allstate adjuster Santa Maria later took Thayer's statement under suggestive conditions. Thayer was in a hospital under medication. Within a month after the accident, Thayer gave a revised version which contradicted her first statement. She was confused as to where she was, the direction to which she had been traveling and whether she had been stopped or moving. With the change in her story, Allstate came to regard her as "flaky" and "unreliable," unable to substantiate Betts' account.
Allstate immediately hired Truesdale Laboratories, a reputable accident reconstruction firm, to investigate the accident. The author of the first Truesdale report, McElwain, concluded Betts had been driving at 45 to 50 miles per hour and Gallucci was found to have been wearing a seatbelt and had been traveling 15 to 20 miles per hour on the assumption that she was making a left turn.
*699 On July 24, 1975, supervisor Myers wrote to Allstate district casualty claims supervisor Majorie Boyce to express his concern over the Truesdale report. He proposed further contacts with the expert in an effort to change the conclusions concerning Betts' speed, suggesting a mistaken assumption that Gallucci had been making a left turn as a possible basis for change. Furthermore he scolded Boyce. "This appears to be the type of a report that we would have wanted over the phone orally rather than in written form."
Myers also admitted to knowledge of this damaging fact: Betts' statement did not tell whether she looked in both directions for cross-traffic before entering the intersection to check that it was safe even though she may have had the green light. Myers stressed this was most important. He suggested further contact with the insured to "restatementize her on this key issue." He concluded with comparative negligence involved, a $100,000 policy involved, and brain damage involved "we need a little extra effort on this case." While the liability estimate was changed from 50-50 to 90-10 based upon Thayer's statement and Myers estimated 95-5 exposure, nevertheless on August 12, 1975, Allstate created a $50,000 reserve. Such reserve was felt to be warranted because of the seriousness of the injuries.[3]
With this state of knowledge Allstate ordered a second, then a third Truesdale report. The second differed little from the first. Thus, in spite of Boyce's effort to have Truesdale "review" the entire subject, the second report (authored by McElwain and dated Sept. 3, 1975) again stated Gallucci was traveling at a lesser rate of speed than Betts. In short the second Truesdale report refused to say Betts' speed was less than an excessive 45 to 50 miles per hour.
In June 1976 Truesdale was prevailed upon by Allstate representative Strowmatt to issue yet a third report with a new author, Pennycook. Pennycook proposed Betts' rate of speed (estimated by Truesdale's first report at 45 to 50 and unchanged in the second report) might have been as low as 30. However, Pennycook admitted to Powers (the Ruston attorney then working on the case) that a scientifically acceptable basis for the calculation was not possible. Powers called the defect in the report to Allstate's attention. He described Pennycook's conclusion as not being scientifically supportable. With this as Allstate's state of knowledge concerning the Truesdale findings, Powers interviewed Pennycook and concluded that the two men at Truesdale had so hopelessly "botched" matters as to require employment of another reconstruction firm. Thus the third Truesdale report *700 was also rejected as useless because it was inaccurate and vulnerable to attack by Gallucci. Thereafter from Allstate's head office to the district level the hiding of the Truesdale reports became a focus of activity.
First, Myers reacted by seeking to conceal the Truesdale reports. He proposed the first report be returned to Truesdale for deletion of Allstate's name and any other matters indicating Allstate requested the report. Secondly he suggested a law firm be hired without delay into whose hands the altered report would be placed and thereafter in the event of discovery the law firm would be in a position to assert the work product privilege. Myers said he wanted "the lawyers at Ruston and Nance to claim that they had requested that report and it was attorney work product." Instructions were sent to Boyce to do this precise thing to alter the report so no one would know that Allstate had asked for it. Ruston's Powers unequivocally condemned the coverup stating "it would be completely wrong; it would be lying; it would be altering a piece of potential evidence; it would be potentially perjury."
In face of the developing evidence of liability, district manager Boyce received a home office directive ordering defense on the basis of "no negligence claimant ran red light." By October 9, 1975, however, Allstate's Myers had begun to question the no liability stance. He wrote to Boyce on another subject with a copy to house counsel Smith to which he added a "blind post script" to Smith's copy. In it he acknowledged Betts' failure to check the intersection before entry as a troublesome fact. He acknowledged as a fact she was traveling some five to ten miles above the speed limit. Myers stressed the fact Betts was speeding and not looking, yet viewed the case as at best a 90-10 exposure. Response from higher officials at Allstate was not long in coming. On November 13, 1975, Smith delivered a written message to Myers followed up by a telephone conference. In essence, the writing said Betts was legally in the intersection and therefore improper lookout and excessive speed could not be material. Smith disagreed with the existing reserve of $50,000 or any settlement close to it.
These further facts, critical to any rational evaluation of exposure of Betts, were known to Allstate pretrial. Less than a month after the accident Allstate learned the injuries suffered by Gallucci were most severe. In addition to fractures and contusions the diagnosis included a brain stem injury with coma. Medical costs were already approaching $21,000. Boyce obtained this information concerning Gallucci's costs by a practice known as "backdooring." Gallucci's file was in another Allstate district office being processed for her medical payment coverage under her Allstate policy. Despite Gallucci's husband's express refusal to give authorization to Allstate, their agents went into her records. In an effort to disguise the transfer of *701 information, Boyce crossed out the file marks identifying it as part of Gallucci's medical payments claim and substituted a styling to indicate the material originated in connection with Gallucci's injury claim against Betts. There was evidence that this misidentification procedure as well as the "backdooring" (invasion of cross-files) was a general practice of Allstate.
The Gallucci Investigation
Gallucci's attorney John Trotter hired expert Harry Krueper, a respected specialist in accident reconstruction.
Krueper was of the opinion (and so reported Aug. 12, 1976) on the basis of calculations from data derived from Betts' own deposition and other physical site evidence it was Betts, not Gallucci, who had run the red light.
For some reason not made clear, an agreement between opposing counsel was reached by which Allstate counsel would not seek to compel production of the basis of Krueper's opinion in exchange for Trotter's cessation of efforts to depose Truesdale's McElwain. Due to the self-confessed negligence, Allstate's trial attorney, Dragonette, when he deposed Krueper, did not ask sufficiently pointed questions to elicit his opinion or its factual basis. Trotter (in the present trial) was of the opinion Ruston and Allstate must have anticipated Krueper's damaging testimony; surprise was only pretextual; Allstate, of course, learned of Krueper's opinion and its fact basis early in the trial.
At trial the defense was unable to make a showing of any effective rebuttal to the evidence of liability. Defense expert witness Auksmann was admittedly not qualified to challenge Krueper's conclusions or facts. Ruston attorney Powers refused to stipulate to Gallucci's incompetency and therefore lawyer Trotter brought her into the courtroom. The court promptly declared her incompetent. Allstate district claims representative Strowmatt states she was one of the "most pathetic pieces of humanity I've ever observed." In this continuing collapse of the defense position and the overwhelming evidence of an enormous exposure because of Gallucci's injuries, Allstate continued adamant in its no-pay position.
Strowmatt (who had estimated up to 20 percent exposure on the collapse of witness Thayer) admitted (in his deposition in the present action) that after Krueper's testimony the cause was an excess judgment case involving potential bad faith. Smith, claims attorney at Allstate's home office, acknowledged Krueper's testimony required a readjustment of the no liability stance and called for a 50-50 allocation. Finally, the two and one-half year no-pay stance was in the face of knowledge of the Allstate officials that *702 Betts early in the proceeding had made a "slip of the tongue" in her deposition.[4]
With knowledge of all the foregoing facts, the Allstate home office absolutely rejected offers by Gallucci to settle within the policy limits and denied all settlement authority to local representatives. Dragonette recommended payment of the policy limits but was refused authority. After the collapse of witness Thayer, Myers requested settlement authority but was refused (in a July 22, 1977, telephone conversation). Significantly, the contents of this telephone conversation were unrecorded and the written correspondence between home office claims Attorney Thorton and Myers omitted any reference to the discussion.
By the time of Myers' request for authority, the Trotter firm had made two offers to settle within the policy limits. One demand was made orally by Mr. Handweiler on June 8, 1977, the second was made in writing by Mr. Bahan on July 18, 1977. Handweiler's demand for the policy limits was made to Ruston attorney Powers. Powers realized the potential conflict in interest between Betts and Allstate precipitated by this demand. He reported the demand to Allstate but failed to report it to Betts. But Bahan's demand letter reviewed the facts pointing to liability of Betts and called attention to the catastrophic nature of the injuries. Powers however stated there was then no evidence of liability warranting a settlement.
Strowmatt then wrote to Betts concerning the demand letter, explaining no offer was made because discovery had not yet been concluded primarily because of the Trotter firm's refusal to cooperate with regard to key witness Thayer. This statement was at a time, however, when Thayer had already been deposed and had recanted.
Nineteen-year-old Betts went to Ruston's office to participate in the meeting concerning Bahan's demand. Betts said she relied entirely on Dragonette, Allstate's trial attorney. She had no reason to doubt that he was advising her or making a decision other than in her best interest. She did *703 not understand the reference to a settlement conference nor did she understand what was meant by the Strowmatt letter saying that her policy limits were being demanded. At that meeting there was no discussion of a possible conflict of interest arising because of the settlement demand. Betts was told nothing about the known liability problems arising from the Truesdale findings, Gallucci's employment of a specialist on traffic signals, or Thayer's dismissal, not as a favorable witness, but as "a flake." Betts was not informed of the settlement recommendation of Dragonette and Strowmatt.
The jury could draw a rational inference the lawyers assured Betts she would win at trial. Typical of the statements made to her were: "You had a green light and you got to give that a try. You shouldn't have someone else in the wrong get the money. They're trying to get the money and you had a green light and you should try it. We can win. While we admire you Ms. Betts there is not too many people like you who stand behind what they say and feel the right and take action upon it." Myers recounted Betts and her father had met with the defense attorneys and they "both tell us to try the case." Betts maintained she had done nothing wrong and should the verdict exceed the limits she would "just file bankruptcy."
Dragonette signed a letter to the insurance company (actually written by Strowmatt) asserting Betts was virtually judgment proof. He noted her understanding that should the jury not believe her and should a substantial verdict result she would file bankruptcy to discharge the obligation. Most important to the lawyer was this: Betts was positive she had the green light and the other party was entirely at fault. He stated Betts understood the law of comparative negligence but simply did not feel the accident was one percent her fault.[5]
Pursuant to instructions from Allstate's office, Dragonette's response (Aug. 4, 1977) to Bahan's demands was to continue the "deny/defend" posture of the insured.
A judicial settlement conference was held on August 10, 1977; Allstate refused to pay one cent in settlement. The conference occurred without any notice to Betts. Strowmatt was present and the court questioned him at the outset as to any offer. He stated that he had "zilch" or "zip" (no money) to offer. Thereupon the court terminated the conference. Myers made a record suggesting it was Trotter who was responsible for the settlement *704 conference failure; that Allstate had made no offer because of the court's thinking that "the plaintiff did not prove her case."
At the Gallucci trial Betts testified in accord with her previous assertions. Based upon Betts' facts, site data and extensive calculation, Krueper demonstrated Betts had violated the traffic signal. Powers conceded, as noted above, after Krueper's testimony, the matter was an excess judgment case involving potential bad faith.
During the course of the trial, Trotter again attempted to settle the claim within policy limits. A deadline of August 10, 1977, or settlement was mentioned in the Bahan demand letter, yet Trotter continued his offer to settle before the jury verdict. At the commencement of the trial and during its progress Powers and Strowmatt realized the policy limits should be offered; they agreed then they did not feel bound by the deadline set in Bahan's letter. They, however, did not explore the subject because they felt settlement authority would not be forthcoming. It would be "academic."
During jury deliberations Trotter approached Powers telling him "I think you're going to lose the case. We will still take the $100,000. Why don't you go call Allstate." Powers said he would call and get back to him first thing in the morning. The next morning Powers said he called Spear, Allstate district claims manager, and informed him of the offer and recommended acceptance. He said, "They don't want to pay anything."
On September 16, 1977, more than two weeks after Krueper's testimony, the jury returned its verdict in favor of Gallucci in the net amount of $450,000.
Immediately after the excess verdict a senior claims attorney for Allstate, Wathen, took over active control of the case from Ruston. Allstate's posture, however, remained the same regarding settlement. At this late date Ruston engaged in a series of acts (which will be explored later in connection with the negligence claim against the Ruston firm), in failing to look after Betts' obligation arising from the excess verdict. For example, Trotter wished, in exchange for an assignment of Betts' rights, to release her from personal liability. Powers advised her not to assign; Trotter was described as the "enemy."
Allstate filed a motion for new trial. Pending its hearing, Allstate failed to explore the possibility of paying the $100,000 limits immediately in exchange for an offer of a full satisfaction. Although initially authorizing $100,000 for that purpose, Allstate lawyer Wathen reversed himself. Wathen feared the money, if offered, would be irretrievably lost in the event the *705 motion for new trial was granted or Allstate prevailed on appeal.[6] At no time during this period was Betts ever advised by anyone she might have to sue Allstate. Moreover, there was an attempted manipulation of Betts to keep her from seeking independent counsel. Only after Betts was examined at a debtor's examination by Trotter and his offer to pay the cost of such consultation with an independent attorney did Dragonette give Betts the name of a lawyer to consult.
In the postjudgment period Allstate attempted to change its files by the inclusion of a suggestion had Allstate known of Krueper's testimony in time the matter would have been settled, but the opposition's tactics had prevented such knowledge. After the judgment, Ruston continued to cooperate with Allstate. Powers wrote to Allstate: The verdict was "not supported by the evidence."
DISCUSSION
I
ALLSTATE APPEAL
A.
(1) In addition to the duties imposed upon the parties to a contract by the express terms of their agreement, the law implies in every contract a covenant of good faith and fair dealing. (Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809, 818; Comunale v. Traders & Generals Ins. Co. (1958) 50 Cal.2d 654, 658 [328 P.2d 198, 68 A.L.R.2d 883].) The implied promise requires each contracting party to refrain from doing anything to impair the right of the other to receive the benefits of the agreement. (Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 940 [132 Cal. Rptr. 424, 553 P.2d 584]; Comunale v. Traders & Generals Ins. Co., supra, 50 Cal.2d at p. 658.) And as was pointed out in Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 818: "The precise nature and extent of the duties imposed by such implied promise will depend upon the contractual purposes."
The California Supreme Court in Comunale v. Traders & Generals Ins. Co., supra, 50 Cal.2d 654, addressed the nature and extent of duties imposed by this implied covenant in liability insurance policies. (2) There *706 the Supreme Court held an insurer in determining whether to settle a claim must give at least as much consideration to the welfare of the insured as it gives to its own interest. The governing standard is whether a prudent insurer would have accepted the settlement offer if it alone were to be liable for the entire judgment. (See Johansen v. California State Auto. Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9, 16 [123 Cal. Rptr. 288, 538 P.2d 744].) (3) An insurer may be held liable for a judgment against the insured in excess of its policy limits where it has breached the implied covenant of good faith and fair dealing by unreasonably refusing to accept a settlement offer within the policy limits. (Commercial Union Assur. Cos. v. Safeway Stores, Inc. (1980) 26 Cal.3d 912, 916-917 [164 Cal. Rptr. 709, 610 P.2d 1038].) Allstate's argument that liability for an excess judgment is not imposed unless there is a "bad faith" breach of the contract is unsound. Liability is imposed "for failure to meet the duty to accept reasonable settlements, a duty included within the implied covenant of good faith and fair dealing." (Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 430 [58 Cal. Rptr. 13, 426 P.2d 173].) "[R]ecovery may be based on an unwarranted rejection of a reasonable settlement offer and ... the absence of evidence, circumstantial or direct, showing actual dishonesty, fraud, or concealment is not fatal to the cause of action." (Ibid., italics added; see also Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573 [108 Cal. Rptr. 480, 510 P.2d 1032].)
(4) The duty to deal in good faith with the other party to the contract of insurance "is a duty imposed by law, not one arising by the terms of the contract itself." (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at p. 574, italics added.) In other words, this duty of dealing fairly and in good faith is nonconsensual in origin rather than consensual.
(5) The obligation of good faith and fair dealing requires the insurer to settle a claim in an appropriate case although the express terms of the policy do not impose such a duty. (Murphy v. Allstate Ins. Co., supra, 17 Cal.3d at p. 941.) The insurer must settle "within policy limits where there is a substantial likelihood of recovery in excess of those limits." (Ibid., italics added.) This duty to settle is implied in law to protect the insured from exposure to liability in excess of coverage as a result of the insured's gamble on which only the insured might lose. (Ibid.; Shapero v. Allstate Ins. Co. (1971) 14 Cal. App.3d 433 [92 Cal. Rptr. 244].) (6) "[I]n deciding whether or not to compromise the claim, the insurer must conduct itself as though it alone were liable for the entire amount of the judgment." (Johansen v. California State Auto. Assn. Inter-Ins. Bureau, supra, 15 Cal.3d at p. 16.)
Thus, the permissible considerations in evaluating the reasonableness of the settlement offer are whether in light of the victim's injury and the probable *707 liability of the insured the ultimate judgment is likely to exceed the amount of the settlement offer. Such factors as the limits imposed by the policy, a desire to reduce the amount of future settlements, or a belief that the policy does not provide coverage do not affect a decision as to whether the settlement offer in question is a reasonable one.
B.
(7) A key factual question put to the jury was: Were the repeated offers made by the Trotter firm reasonable in the light of all of the circumstances of this case? If reasonable, their rejection by Allstate became unreasonable, therefore imposing on Allstate responsibility for the excess judgment.
The judgment was four and one-half times the offer of settlement. It is a rational inference the value of Gallucci's claim was the equivalent of the amount of the judgment. An acceptance of an offer within the policy limits was a most reasonable method of dealing with her claim.
These conclusions do not just arise by hindsight. There is uncontradicted evidence Allstate, whether blindly or purposefully, accepted the statement of the 17-year-old Debra Betts and upon that basis and that basis alone proclaimed its "no pay/defend stance" and refused to make any offer whatsoever. There was a mountain of available evidence which put Allstate on notice that this was a case of enormous liability. The findings of the Truesdale expert are the most significant. They demonstrate the Allstate prediction of 95-5 exposure had no rational basis.
Allstate failed to question the accuracy and soundness of its own client's conclusion. Gallucci's expert was able to take Betts' exact words and make out a prima facie case for Betts' liability. Betts' first account, if facts not conclusions are the measure, would support at least an offer of the policy limits once the enormous Gallucci damages were known. These facts warrant the rational inference of either a wilful or negligent failure by Allstate to investigate the facts surrounding Betts' liability.
In Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809, 817, it was held an insurer may breach the covenant of good faith and fair dealing by failing to properly investigate its insured's claim. By equal parity of reasoning a failure to investigate and fairly appraise the third party's claim against the insured would breach the covenant of good faith and fair dealing. (Ibid.) Allstate's figurative hiding its head in the sand (or hiding adverse reports) is not a law-sanctioned approach to reasonable investigation and performance of its duty.
*708 There is more than substantial evidence to support the jury's conclusion Allstate unreasonably rejected the policy limits offer made on several occasions by Gallucci's attorney. The compensatory money award, the excess over the policy limits plus interest, is affirmed.[7]
C.
(8a) The next question is: Was Allstate's breach of duty accompanied by oppression, fraud and/or malice warranting exemplary damages? In an action for breach of an obligation not arising from contract, Civil Code section 3294, subdivision (a), provides for sanctions by way of exemplary damages "where the defendant has been guilty of oppression, fraud, or malice." The plaintiff, in addition to the actual damages, "may recover damages for the sake of example and by way of punishing the defendant." (Civ. Code, § 3294, subd. (a).)
Under subdivision (c)(1) of the same section, "malice" means "conduct which is intended by the defendant to cause injury to the plaintiff or conduct which is carried on by the defendant with a conscious disregard of the rights or safety of others." The term "oppression" means "subjecting a person to cruel and unjust hardship in conscious disregard for that person's rights" (Civ. Code, § 3294, subd. (c)(2)), and the term "fraud" means "an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury" (Civ. Code, § 3294, subd. (c)(3); see Johns, California Damages (2d ed. 1977) at pp. 394-395). (9) Thus an insurer's bad faith may not only breach the implied covenant of good faith and fair dealing but also can be treated for tort purposes as a basis for exemplary damages where it occurs in a context of malice, fraud or oppression. (Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 817.)
As summarized above, there was more than substantial evidence before the jury to support a finding Allstate had breached its duty to deal reasonably and in good faith with Betts, rendering Allstate liable to pay compensatory damages for all detriments caused by the breach. (10) However, such a determination does not in itself establish Allstate acted with the quality of intent which is requisite to an award of punitive damages. (Neal v. Farmers *709 Ins. Exchange (1978) 21 Cal.3d 910, 922 [148 Cal. Rptr. 389, 582 P.2d 980].)
To find the requisite intent for an award of punitive damages, it is necessary to search beyond the facts of (un)reasonable response to those adducing motive and intent. (Ibid.) There must be substantial evidence of an intent to vex, injure and annoy, a conscious disregard of the plaintiff's rights, before punitive damages may be awarded. (Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 462 [113 Cal. Rptr. 711, 521 P.2d 1103].)
(8b) A brief highlighting of the evidence demonstrates the substantial evidence that warranted the jury in making a finding Allstate intended to vex, injure, and annoy. From almost the day of commencement of its duty to represent, defend and indemnify Betts, Allstate adopted an objectively unreasonable "no liability/no pay/defend" stance. This obstinate attitude-intent grew in strength in face of evidence piled upon evidence pointing to liability and ultimately to a verdict far in excess of policy limits.
There is much more here than Allstate's unwillingness to accept its responsibility to defend its insureds. Evidence abounds of an irrational refusal to face up to adverse evidence. The Truesdale reports disclosed Betts liability. The jury could draw a rational inference that Allstate deliberately concealed these adverse reports, not only from the other side but from their own insured.
Attorney Dragonette's failure for some unknown reason to pursue the cross examination of Gallucci's expert to determine his opinion and its fact basis gives rise to a whole series of rational adverse inferences suggesting Allstate's attorneys, as well as Allstate, were unwilling to develop a record which would require abandonment of their "no liability/no pay/defend" policy.
The highly questionable practice of Allstate not putting adverse facts in writing the "use the telephone" directive indicates a lack of good faith in dealing with, an intent to vex, injure and annoy, their client. Allstate's disreputable practice of violating its duty to one insured by "backdooring" examining into the cross-file of another suggests an intent to defraud or oppress its own clients.
The jury could reasonably conclude Allstate wilfully manipulated its own client through the process of coaching, encouraging a patently unreasonable belief in 17-year-old Betts that she had not run the red light contrary to a whole series of developing facts. It is a further reasonable inference that Allstate, through its counsel, attempted to instill in Betts the determination, *710 if there was an excess judgment, to go bankrupt. The posttrial manipulation of Betts again evidences an intent to vex, injure and annoy. The moment of the excess verdict (if not before) there arose a duty to offer Betts independent counsel. Ruston, the Allstate-hired law firm, was at that moment placed in a position of open conflict of interest. Yet neither Allstate nor its attorneys bothered to inform the client. It was not until Betts was examined by opposing counsel, Trotter, at the debtor's examination, that she was advised of the necessity of and thereafter tendered independent counsel.
The foregoing evidence supports a conclusion of callous indifference to, an intent to vex, injure and annoy, its insured. Allstate's counsel, even on this appeal, seek to minimize the disturbing practice by Allstate, claiming "only by a handful of disgruntled former employees" does this evidence appear.
Many of the actions by Allstate could be, with myopic charity, described as negligent failures to investigate the claim against their insured. However, from these same facts a more sinister conclusion appears an intent to vex, injure and annoy Betts.
Finally, the almost irrational refusal to authorize any settlement even after an excess judgment and denial of a motion for new trial is hard evidence of malice, a willful intent to vex, injure and annoy Betts.
(11) The Supreme Court, in Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809, 820, shed light on the duties owed to an insured in context of a claim of exemplary damages: "`[A]s a supplier of a public service rather than a manufactured product, the obligations of insurers go beyond meeting reasonable expectations of coverage. The obligations of good faith and fair dealing encompass qualities of decency and humanity inherent in the responsibilities of a fiduciary. Insurers hold themselves out as fiduciaries, and with the public's trust must go private responsibility consonant with that trust.' [Citation.] Furthermore, the relationship of insurer and insured is inherently unbalanced; the adhesive nature of insurance contracts places the insurer in a superior bargaining position. The availability of punitive damages is thus compatible with recognition of insurers' underlying public obligations and reflects an attempt to restore balance in the contractual relationship. [Citation.]" (Italics added.)
(8c) More than substantial evidence warrants the conclusion that Allstate was guilty of oppression and malice and acted with an intent to vex, injure and annoy and with a conscious disregard of Betts' rights. (Silberg v. California Life Ins. Co., supra, 11 Cal.3d 452, 462.)
*711 D.
(12a) We turn now to the further question of whether the amount of the punitive damage award ($3 million) is excessive as a matter of law. Certain established principles afford guidance in answering this question, all of which are grounded in the purpose and function of punitive damages. (13a) The first factor is the degree of reprehensibility of the conduct of the insurer. We must look at "the nature of the defendants acts in the light of the whole record." (Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d 910, 928.) Different acts may be of differing degrees of reprehensibility; the more reprehensible the act, the greater the appropriate punishment "other things being equal." (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 65 [118 Cal. Rptr. 184, 529 P.2d 608, 65 A.L.R.3d 878].) (12b) Here the jury could rationally conclude the conduct of Allstate in this case was highly reprehensible and involved an irrational not based on fact attempt to avoid financial responsibility, a calculated attempt to hide adverse evidence, misadvise the client, place lawyers in a compromising position, all to avoid making any settlement with a severely injured victim.
(13b) A second factor is the wealth of the defendant. The award is for the purpose of punishment and for sake of an example. It follows, the wealthier the wrongdoing defendant, the larger the award of exemplary damages must be in order to accomplish the statutory objective. (Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d at p. 928.) Where insurance company fraud is found, appellate courts have declared a jury could reasonably make a punitive award equal to "one week's earnings." (See Wetherbee v. United Ins. Co. of America (1971) 18 Cal. App.3d 266, 270-271 [95 Cal. Rptr. 678].) The Supreme Court in Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d at page 929, adopted the Wetherbee guideline in confirming an award equal to one week's net earnings, saying it was "required to effect the necessary punishment of defendants and serve as an example to all other insurers." (12c) The jury award here of $3 million represents less than one-half week's earnings of Allstate.
(13c) A third factor in determining "reasonableness" of punitive damages suggests a reasonable relationship be maintained between the punitive and the compensatory damages. (See Burnett v. National Enquirer, Inc. (1983) 144 Cal. App.3d 991 [193 Cal. Rptr. 206], app. dism. ___ U.S. ___ [79 L.Ed.2d 668, 104 S.Ct. 1260].) The cases refer to this requirement as a "yardstick" (id., at p. 1011) or a "useful tool" (Vossler v. Richards Mfg. Co., Inc. (1983) 143 Cal. App.3d 952, 969 [192 Cal. Rptr. 219]) or a factor upon which to base a presumption the award was the result of passion or prejudice (Grimshaw v. Ford Motor Co. (1981) 119 Cal. App.3d 757, 819 [174 Cal. Rptr. 348]). Commentators have found this requirement to be a *712 "rationalization" to reach a result the appellate court could not otherwise justify. (See Morris, Punitive Damages in Tort Cases (1931) 44 Harv. L.Rev. 1173, 1180; Mallor & Roberts, Punitive Damages: Toward A Principled Approach (1980) 31 Hastings L.J. 639, 667.)
(14) A review of recent cases shows courts do not evaluate this particular relationship by a rigid formula but rather by the fluid process of adding and subtracting different considerations: if the defendant's conduct is sufficiently reprehensible, the ratio between compensatory and punitive damages is less important; however, where the ratio of compensatory to punitive damages is extremely high and the conduct is somewhat less reprehensible, this ratio carries more weight. (See Vossler v. Richards Mfg. Co., Inc., supra, 143 Cal. App.3d 952 [ratio 1.4 to 1]; Burnett v. National Enquirer, Inc., supra, 144 Cal. App.3d 991 [ratio 3 to 1]; Rosener v. Sears, Roebuck & Co. (1980) 110 Cal. App.3d 740 [168 Cal. Rptr. 237] [ratio 15.8 to 1]; Weisenburg v. Molina (1976) 58 Cal. App.3d 478 [129 Cal. Rptr. 813] [ratio 45.2 to 1]; Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d 910 [ratio 75 to 1].) The proper consideration is whether the punitive damage award bears a reasonable relationship to its principal purpose of punishment and deterrence. As was said in Zhadan v. Downtown L.A. Motors (1976) 66 Cal. App.3d 481 [136 Cal. Rptr. 132]: "[A] `reasonable relationship' between the compensatory and the punitive damages involves much more than a simple mathematical comparison ... [g]iven a fixed amount of compensatory damages, the amount of punitive damages which will serve the purpose to punish the offense and to serve as an example to others will necessarily vary widely.... Where the objective of deterrence would not otherwise be served, the wealthy defendant cannot legitimately object to a ratio much higher than that involved in the case at bench." (P. 499.)
E.
(12d) The Allstate argument that the punitive damages must remain in the original ratio of culpability between compensatory and punitive damages as measured by the jury award fails. Such requirement is particularly inapplicable here. Allstate's conduct toward Betts was as "reprehensible" as the conduct in any of the cases where judgment was affirmed. The award is not out of line when compared to the defendant's financial resources. The trial judge was directly faced with the arguments now confronting this court. By issuing the one remittitur but not the other the court made an implied finding the punitive award was correct. (15) "`[P]unitive damage awards rendered at the trial level [are] guided by the "historically honored standard of reversing as excessive only those judgments which the entire record, when viewed most favorable to the judgment, indicates were rendered as the result of passion and prejudice...." [citation].... [A]n appellate *713 court may reverse such an award "only `"[w]hen the award as a matter of law appears excessive or where the recovery is so grossly disproportionate as to raise a presumption that it is the result of passion or prejudice."'" [Citation.]'" (Burnett v. National Enquirer, Inc., supra, 144 Cal. App.3d 991, 1010.) (12e) We decline to hold the jury's award was excessive as a matter of law.
F.
Allstate next asserts instructional errors occurred requiring reversal. The instructions given are the basic standard instructions drawn from BAJI designed to delineate well-established principles involving the breach of implied covenant of good faith and fair dealing and cover as well whether Allstate's breach was accompanied by elements of malice, fraud or oppression warranting exemplary damages.
(16) Separate, distinct and correct instructions were given covering the liability of the lawyer defendants to Betts. As basis for their contention of error Allstate emphasizes a single instruction, failing to consider the instructions as a whole. The instruction complained of is to the effect that the plaintiff would "be entitled to a verdict" if the jury found Ruston "was negligent" and "such negligence was the proximate cause of her injury." Further instructions were given which fully protected Allstate against imputation of liability due to Ruston's negligence; it was made clear Allstate could be held responsible only for the conduct of its officers, directors, agents and employees and that Ruston did not fall within that group but was an "independent contractor."
The instructions against Allstate and Ruston involved different legal/factual theories of recovery. The distinction began with instructions concerning different burdens of proof involved. It was continued in the ensuing instructions concerning duties of attorneys on the one hand and duties of insurers on the other and culminated in the instruction that each defendant is entitled to a fair and separate consideration of his or her own defense and "[was] not to be prejudiced by [your] decision as to the other." "[U]nless otherwise stated you will decide each defendant's case separately." We can find no fault with the instructions as given.
(17) Allstate next contends BAJI No. 12.96 misstates the basic test of an insurer's duty. The instruction states in part: whether "a prudent insurance company ... with unlimited liability" would accept the settlement, *714 etc. Allstate relies on language of Crisci v. Security Ins. Co., supra, 66 Cal.2d 425, 429, which used the words "a prudent insurer without policy limits" would have accepted the settlement offer, etc. This is a flyspecking distinction without difference. At least one appellate court has used the phrase "unlimited liability" as a synonym for Crisci's "without policy limits." (See Merritt v. Reserve Ins. Co. (1973) 34 Cal. App.3d 858, 872 [110 Cal. Rptr. 511].) The Supreme Court in Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809, translated the Crisci language into liability terms referring to whether the prudent insurer would have accepted the settlement if it alone were to be "liable" for the entire judgment. (At p. 818.) There was no misleading of the jury in any respect by the use of the language of BAJI No. 12.96.
(18) Allstate also complains of the refusal to give certain instructions. The trial court gave certain specific instructions, thereby making Allstate's request superfluous. For example, the rules concerning the duty of an insured to accept offers within policy limits were covered in different language by the court in an instruction defining the scope and duty in conformity with settled and correct principles. Allstate was not entitled to have the subjects covered in the particular language of its choice. (Hyatt v. Sierra Boat Company (1978) 79 Cal. App.3d 325, 335 [145 Cal. Rptr. 47].)
One of Allstate's requested instructions would have erroneously told the jury the liability for breach of implied covenant of good faith and fair dealing is dependent upon a showing of bad faith and substantial culpability. The law is otherwise. (Crisci v. Security Ins. Co., supra, 66 Cal.2d 425.)
(19) Lastly, Allstate claims it was deprived, by refusal of instructions, of the possibility of a successful defense on the grounds of bad faith, lack of clean hands, estoppel, inequitable or unconscientious conduct and/or consent on the part of Betts, their insured. The difficulty facing Allstate in requesting such instruction was a total lack of evidence to show unclean hands, estoppel, an unequitable act or bad faith on the part of Betts. To equate Betts' good faith mistaken belief in her innocence with unclean hands, estoppel or bad faith simply finds no support in the evidence. The facts show Allstate encouraged 17-year-old Betts in this erroneous belief in face of evidence pointing to a totally different conclusion. That such instructions were factually inapplicable is supported by Allstate's counsel's admission in the opening brief Betts gave a "patently sincere version of the facts." Betts original unsupportable belief and speed conclusion was furthered by Allstate's process of manipulation in failing to keep her adequately informed. There was no error in the instructions either given or refused.
*715 II
THE RUSTON APPEAL
A.
Betts sued the Ruston firm, charging these lawyers negligently conducted themselves in defense of the Gallucci personal injury action. The jury awarded $500,000 joint and severally against both Ruston and Allstate for emotional distress (as well as a separate $3 million in punitive damages against Allstate alone). The trial court remitted the $500,000 amount to $50,000 as a condition of not granting a new trial. Ruston appeals the $50,000 judgment.
(20a) Ruston contends in light of the special findings of the jury, judgment must be entered in favor of Ruston. The first issue in the special verdict was posed by this question, "Was defendant Ruston and Nance negligent?" The jury answered, "Yes." Issue number two tendered the question, "Was the negligence of defendant, Ruston and Nance, a proximate cause of the excess verdict being rendered against the plaintiff?" The jury answered this question, "No." Issue number five was the question, "If your answer to issue number one is `yes,' was the negligence of defendant, Ruston and Nance, a proximate cause of damage to plaintiff for fears, anxiety and other mental and emotional distress?" The jury answered, "Yes."
Thus the jury found the total dollar value of Betts' humiliation, emotional distress, and chagrin amounted to half a million dollars. It also found the conduct of the Ruston lawyers proximately caused, at least in part, that humiliation and emotional distress. The jury was most perceptive. While finding the negligent conduct of Ruston was not a proximate cause of the excess judgment, it found their conduct was so egregious in concert with Allstate as to cause Betts to suffer humiliation, emotional distress, chagrin, worry and nervousness to her damages of $500,000.
(21) In accepting employment to render legal services, an attorney impliedly agrees to use such skill, prudence, and diligence as lawyers of ordinary skill and capacity commonly possess, and he is subject to liability for damage resulting from failure so to perform. (Lucas v. Hamm (1961) 56 Cal.2d 583, 591 [15 Cal. Rptr. 821, 364 P.2d 685].) (22) Furthermore, it is an attorney's duty to "protect his client in every possible way," and it is a violation of that duty for the attorney to "assume a position adverse or antagonistic to his client without the latter's free and intelligent consent given after full knowledge of all the facts and circumstances." The attorney is "precluded from assuming any relation which would prevent *716 him from devoting his entire energies to his client's interest." (Anderson v. Eaton (1931) 211 Cal. 113, 116 [293 P. 788]; Klemm v. Superior Court (1977) 75 Cal. App.3d 893, 901-902 [142 Cal. Rptr. 509].)
(23) These traditional obligations of an attorney are in no way abridged by the fact that an insurer employs him to represent an insured. Typically, in such a situation, the attorney in effect has two clients, to each of whom is owed a "high duty of care." To the insured, the attorney owes "the same obligations of good faith and fidelity as if he had retained the attorney personally." (Lysick v. Walcom (1968) 258 Cal. App.2d 136, 146 [65 Cal. Rptr. 406, 28 A.L.R.3d 368].)
(24) Provided there is full disclosure and consent, an attorney may undertake to represent dual interests. However, whether in the insurer-insured context or otherwise, the attorney who undertakes to represent parties with divergent interests owes the "highest duty" to each to make a "full disclosure of all facts and circumstances which are necessary to enable the parties to make a fully informed decision regarding the subject matter of litigation, including the areas of potential conflict and the possibility and desirability of seeking independent legal advice." (Klemm v. Superior Court, supra, 75 Cal. App.3d at p. 901; American Mut. Liab. Ins. Co. v. Superior Court (1974) 38 Cal. App.3d 579, 590 [113 Cal. Rptr. 561]; Lysick v. Walcom, supra, 258 Cal. App.2d at pp. 147-149.)
(25) The loyalty owed to one client by an attorney "cannot consume that owed to the other." (Ishmael v. Millington (1966) 241 Cal. App.2d 520, 526 [50 Cal. Rptr. 592].) Thus a lawyer who, while purporting to continue to represent an insured and who devotes himself to the interests of the insurer without notification or disclosure to the insured, breaches his obligations to the insured and is guilty of negligence. (Lysick v. Walcom, supra, 258 Cal. App.2d at pp. 150-152.) Ruston mischaracterizes its duty as the obligation to achieve reasonable settlements before judgment, rather than the wider-reaching lawyer's obligation to exercise due care to protect a client's best interests in all ethical ways and at all stages.
Ruston asserts expert testimony was indispensable to a showing of its breach of duty. (26) Expert testimony is not required to establish legal malpractice in all cases. (Wright v. Williams (1975) 47 Cal. App.3d 802, 810 [121 Cal. Rptr. 194].) This is not a case in which the question of breach turned on legal technicalities requiring the fine exercise of professional judgment. The issue was simply whether Ruston did or did not abandon Betts' best interests in deference to the conflicting interest of Allstate. The proof on that issue was clear in its inculpatory impact. It speaks for itself without the aid of expert opinion.
*717 Nevertheless, if the law requires expert testimony, there was expert testimony probative of Ruston's breach of duty. The opinions of several lawyers pointed to the wisdom of settlement for policy limits. Although attorney Powers acknowledged the policy limits should have been paid in settlement after Krueper testified and it would have been a "good step" to demand such payment in Betts' best interests, he did not so advise her. Instead he told her not to worry.
Powers and the head of the Ruston firm joined Trotter in testimony to the effect that at minimum Betts should have been advised of her right to consult independent counsel after the settlement demands and certainly after the excess verdict. According to Dragonette and Wathen, Ruston's obligations, after the excess verdict, were owed only to Betts, not Allstate; other attorneys would "likely" have advised Betts to assign to Gallucci or institute her own direct action against Allstate. Trotter condemned the advice to go into bankruptcy as "egregious." That Ruston kept Betts entirely ignorant of essential facts is not disputed.
Ruston admitted to the impropriety of meeting with a representative of the insurer in advance of meeting with the insured; Allstate lawyer Carzoli was of the opinion Ruston should have obtained a waiver from Betts before allowing Strowmatt to attend Ruston's meetings with her after the verdict. The Ruston firm also recognized Betts' best interests required that, while the motion for new trial was still pending, efforts be made to negotiate full satisfaction of the excess judgment by offering the policy limits.
B.
(20b) When the facts are viewed in the light most favorable to the judgment, the record compels affirmance of the finding that Ruston breached the duty owed Betts in several respects. The lawyers failed Betts by (1) lack of disclosure and sound advice; (2) after the excess verdict, when the conflict of interest was unmistakeable, actively working to protect Allstate and persisting in manipulating Betts against her own best interests; (3) assisting in manufacturing a false record against the time when a bad faith lawsuit might be instituted; (4) rather than advising consultation of independent counsel as possible or desirable, resisting the efforts of such counsel to become informed when finally retained; (5) discouraging Betts' assignment of rights in exchange for personal release and influencing her instead in the direction of bankruptcy.
(27) General money damages for the negligent infliction of emotional distress are authorized by law. (Molien v. Kaiser Foundation Hospitals (1980) 27 Cal.3d 916 [167 Cal. Rptr. 831, 616 P.2d 813, 16 A.L.R.4th *718 518].) The jury was so instructed and so found. (28) Does substantial evidence support the jury verdict? Ruston's counsel asked this question on the motion for new trial: "Kline: What in the world is the emotional distress theory [the jury] assessed against Ruston and Nance the result of?"
The shock of the substantial damage judgment alone would be sufficient to uphold a verdict for nervousness, shock, humiliation, chagrin, worry, etc. Betts was 19 years old when this half million dollar judgment was assessed against her. She could reasonably see no possibility of ever being debt free except through bankruptcy. She was concerned about her father's house being taken, about losing her car, etc.
Aside from the excess judgment horror, Betts was put through several years of unnecessary harassment, emotional distress, as a result of the various lawyer delicts. This 17-year-old had for over 5 years lived on the edge of a financial volcano. The excess judgment was but a momentary single incident in many years of substantial emotional trauma caused at least in part by the negligent failure of the Ruston firm to attend reasonably to the interests of its client.
Counsel for Ruston was asked "what the damage should be" for the fear, anxiety etc. caused Betts. Ruston's answer "to your specific question [was] no more than $50,000." Here the reduction from $500,000 to $50,000 was made by the trial court after the response by Ruston's lawyer.
Finally the trial court recognized this was not mere negligence in failing to properly depose an expert witness but rather it was "not the type of conduct to be condoned in the legal profession as far as this court is concerned." (Italics added.) In short, the host of ethical/legal improprieties in the treatment of Betts caused her emotional damage separate and distinct from the excess verdict trauma and authorize the $50,000 award. We find no legal or factual basis for upsetting the trial court's remittitur of $500,000 to $50,000.
The judgment in all respects is affirmed.
Cologne, Acting P.J., and Butler, J., concurred.
Petitions for a rehearing were denied May 14, 1984, and the petitions of defendants and appellants for a hearing by the Supreme Court were denied June 21, 1984. Lucas, J., was of the opinion that the petitions should be granted.
NOTES
[1] The total award to Gallucci of $600,000 was offset by Gallucci's comparative negligence set at 25 percent. Thus the net verdict was $450,000.
[2] On this appeal we review the evidence conformable to the long-familiar substantial evidence rules as set forth in Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 821 [169 Cal. Rptr. 691, 620 P.2d 141], and Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429 [45 P.2d 183].
[3] By November 1975, Allstate claims Attorney Smith and Myers learned Thayer had disappeared, or was inaccessible for deposition.
[4] This was the "slip": Betts testified she had first seen the signal a half mile away from the intersection; it was then red, changing later to green. This was a slip for two reasons: the topography was such that it was unlikely if not impossible to see the signal from such distance. Doubt on her credibility, her perception in general, was raised by this impossible assertion. More important, Strowmatt (and expert Krueper) knew these signals did not operate automatically at set intervals but were designed to be actuated on the passage of vehicles over trip pads built into the surface at a point just before entry into the intersection. Thus the light would be green for traffic first activating the signal and therefore red for cross-traffic. Given the circumstances described by Betts it was virtually certain that the light was green for Gallucci and red for Betts long before she came to the intersection. This follows because the sensing device over which the slower moving Gallucci car passed was further from the intersection than the one in speeding Betts' path.
[5] On July 27, 1977, Myers wrote Strowmatt as to a manner in which Ruston should be instructed to reply to the Bahan demand; another blind postscript was added to the copy sent to Thornton referring to the ongoing efforts to quash the deposition of McElwain even as he was giving directions to Strowmatt concerning a rejection of the settlement demands.
[6] The good faith of this position may be questioned. An appeal was not seriously considered because a bond would be necessary; in the event of affirmance Trotter would be able to obtain a full satisfaction of judgment without a bad faith lawsuit.
[7] Allstate now challenges the sufficiency, competency, adequacy of the Gallucci offers. Allstate summarily rejected these offers without any attempt to seek clarification it felt them ambiguous or incomplete. Allstate cannot now in good conscience use its own failure to explore the settlement offer as a defense of its own breach of duty to tender the policy limits exactly what the Gallucci attorneys were willing to accept. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2255860/ | 176 Cal.App.4th 36 (2009)
MANSON, IVER & YORK, Plaintiff and Appellant,
v.
PAULA J. BLACK, Defendant and Respondent.
No. F056749.
Court of Appeals of California, Fifth District.
July 30, 2009.
*40 Law Office of Sandra Kuhn McCormack and Sandra Kuhn McCormack for Plaintiff and Appellant.
Paula J. Black, in pro. per., for Defendant and Respondent.
OPINION
HILL, J.
Manson, Iver & York (Manson), assignee of the original plaintiff (plaintiff), appeals from the order granting the motion of defendant, Paula J. Black, to set aside the default and default judgment against her in this case. Manson contends the trial court abused its discretion because Black's[1] motion was untimely, Black failed to show she was diligent in seeking relief, and Black was properly served with summons and complaint, so there was no violation of due process. We find no abuse of discretion and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In March 1999, plaintiff Robert Flint filed a personal injury action against Douglas Shinn and "Pamela Black," alleging he was injured in an automobile accident in which Shinn was operating a motor vehicle owned by Pamela Black. Summons and complaint were personally served on Paula Black on April 16, 1999. Black failed to file a response and the default of Pamela Black was entered on June 4, 1999. Judgment was entered against Pamela Black in the amount of $15,000 on August 4, 1999.
On May 6, 2005, plaintiff assigned his interest in the judgment to Manson. On July 11, 2005, plaintiff filed an ex parte application to amend the judgment to correct defendant's name, asserting he had discovered her name was not Pamela Black, but Paula Black. The court granted the application and entered the order the same day. The record does not reflect that any notice of this application was given to Paula Black. On October 5, 2005, plaintiff filed applications for a judgment debtor examination of Paula Black and Shinn. On November 3, 2005, both defendants appeared and were examined by Manson's counsel.
*41 On April 5, 2006, plaintiff filed with the court an assignment of judgment, showing that plaintiff had assigned his interest in the judgment to Manson. Two years later, Manson obtained an ex parte order that all documents in the case should be corrected to reflect defendant's name as Paula J. Black also known as Paula J. Whittier. Then, on July 6, 2008, Manson filed an ex parte application for an order of sale of a residence owned by Paula Whittier.
On September 17, 2008, Black filed a motion to set aside the default and default judgment against her. She asserted the following facts. In December 1997, her son's van, which was registered in her name, broke down and her ex-husband took it to San Joaquin Automotive, which was owned by Shinn, for repairs. Months later, her ex-husband asked for the van back, but Shinn said it was torn apart and would never be safe to drive again; he wanted $1,900 to put it back together. Black met with the owner of San Joaquin Automotive, whom she did not know by name, signed the van over to him, and sent a release of liability to the Department of Motor Vehicles (DMV). Unknown to her, Shinn had already been in the accident that was the subject of this lawsuit. Black was served with the summons and complaint in 1999, but they did not have her name on them. She assumed she was served in error, and called plaintiff's attorney and told him he had the wrong person. She said she had not been in an accident and did not know Shinn. She thought that ended the matter. When she received the default judgment addressed to Pamela Black, she still assumed plaintiff had the wrong person. In 2005, she was served with the order for judgment debtor examination which correctly named her as Paula Black. She called Manson's attorney and said she did not know anything about Shinn's finances; the attorney told her the examination was of her, and Manson had a default judgment against her. She consulted two attorneys who told her there was nothing she could do. She planned to tell the judge at the judgment debtor examination that the judgment had been in the name of Pamela Black for six years, but she did not get the opportunity.
Manson opposed Black's motion to set aside the judgment, arguing it was untimely and Black did not demonstrate that she acted with reasonable diligence in responding to service of process. On October 21, 2008, the court heard and granted Black's motion, finding that Black's default and the default judgment were "caused by her mistake, surprise, & excusable neglect; and due process requiring the setting aside of the judgment as Ms. Black was never properly served." Manson timely filed this appeal.
*42 DISCUSSION
(1) A default and default judgment may be set aside pursuant to the provisions of Code of Civil Procedure section 473, subdivision (b),[2] but the motion must be made within six months after entry of the default. After the time for requesting statutory relief under section 473 has passed, the court may set aside the default and judgment on equitable grounds. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981 [35 Cal.Rptr.2d 669, 884 P.2d 126] (Rappleyea).) A judgment that is void on its face may be set aside at any time. (Nagel v. P & M Distributors, Inc. (1969) 273 Cal.App.2d 176, 179-180 [78 Cal.Rptr. 65].)
An order vacating a default and default judgment is appealable as an order after final judgment. (County of Stanislaus v. Johnson (1996) 43 Cal.App.4th 832, 834 [51 Cal.Rptr.2d 73].) An order granting relief from a default and default judgment under the provisions of section 473 is reviewed for abuse of discretion. (Sprague v. County of San Diego (2003) 106 Cal.App.4th 119, 127 [130 Cal.Rptr.2d 517].) An order vacating a default on equitable grounds is also reviewed for abuse of discretion. (Rappleyea, supra, 8 Cal.4th at p. 981.)
I. Motion Under Section 473, Subdivision (b)
"The court may, upon any terms as may be just, relieve a party or his or her legal representative from a judgment, dismissal, order, or other proceeding taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect. Application for this relief shall be accompanied by a copy of the answer or other pleading proposed to be filed therein, otherwise the application shall not be granted, and shall be made within a reasonable time, in no case exceeding six months, after the judgment, dismissal, order, or proceeding was taken." (§ 473, subd. (b).)
(2) The six-month time limit for granting statutory relief is jurisdictional and the court may not consider a motion for relief made after that period has elapsed. (Stevenson v. Turner (1979) 94 Cal.App.3d 315, 318 [156 Cal.Rptr. 499].) The six-month period runs from entry of default, not entry of judgment. (Weiss v. Blumencranc (1976) 61 Cal.App.3d 536, 541 [131 Cal.Rptr. 298].) The default was entered on June 4, 1999. Black's motion for relief was filed on September 17, 2008. Consequently, to the extent the trial court's order granted statutory relief based on defendant's showing of mistake, inadvertence, surprise or excusable neglect, the motion was untimely and the court was without jurisdiction to make the order.
*43 II. Equitable Relief
A. Void judgment
(3) "The court ... may, on motion of either party after notice to the other party, set aside any void judgment or order." (§ 473, subd. (d).) "`A judgment void on its face may be set aside on motion without any time limitation. [Citations.]' [Citations.]" (Plaza Hollister Ltd. Partnership v. County of San Benito (1999) 72 Cal.App.4th 1, 19 [84 Cal.Rptr.2d 715].) It may be set aside on motion of the aggrieved party under section 473 or independent of that section. (Mechanics Bank of Richmond v. Thole (1971) 20 Cal.App.3d 884, 886 [98 Cal.Rptr. 82].) "`A judgment or order is said to be void on its face when the invalidity is apparent upon an inspection of the judgment-roll.' [Citation.]" (Dill v. Berquist Construction Co. (1994) 24 Cal.App.4th 1426, 1441 [29 Cal.Rptr.2d 746].)
(4) A trial court lacks jurisdiction to amend a judgment ex parte in a manner not prescribed by statute. In Rochin v. Pat Johnson Manufacturing Co. (1998) 67 Cal.App.4th 1228 [79 Cal.Rptr.2d 719] (Rochin), the jury returned a special verdict allocating damages among the plaintiff, the defendant, and "others." After conferring with counsel, the court deleted the "others" category from the verdict form and sent the jury back to reallocate damages. The jury returned a verdict allocating damages between the plaintiff and the defendant only. Judgment was entered based on that verdict. Subsequently, without notice to the plaintiff, the defendant submitted to the court a proposed amended judgment that reinstated the jury's original allocation of fault, and the court signed it. After the plaintiff's motion to set aside the amended judgment was denied, he filed an action in equity to set it aside.
The court stated: "`The general rule is that once a judgment has been entered, the trial court loses its unrestricted power to change that judgment. The court does retain power to correct clerical errors in a judgment which has been entered. However, it may not amend such a judgment to substantially modify it or materially alter the rights of the parties under its authority to correct clerical error. [Citations.]'" (Rochin, supra, 67 Cal.App.4th at p. 1237.) For a limited time after judgment is entered, the court retains jurisdiction to alter the judgment pursuant to various statutes, including section 473. But "[d]efendants and the trial court relied on none of the prescribed statutory means to arrive at the amended judgment. [The p]laintiff did not even have the opportunity to appear and argue against the amendment of the judgment." (Rochin, at p. 1238, fn. omitted.) The amended judgment was entered outside of the statutorily prescribed means, was not entered to correct a clerical error, and was void and subject to attack at any time. (Id. at pp. 1238-1239.)
*44 (5) In Estate of Hultin (1947) 29 Cal.2d 825 [178 P.2d 756], the timeliness of the filing of the appellant's notice of appeal depended on whether a motion for new trial had been timely filed. The clerk's file stamp on the motion indicated a filing date of June 29, 1945, which made the filing one day late. Judge Blake entered an ex parte order, on motion of the appellants, stating that the filing fee for the motion was paid on June 28, 1945, and the motion was therefore timely. Judge Beardsley, the trial judge, heard the motion for new trial, denied it, and vacated Judge Blake's order. The court noted that a clerical error may be corrected ex parte, without notice and on the court's own motion, where the error appears on the face of the record or the existence of the error is dependent upon the memory and knowledge of the judge. (Id. at p. 829.) Where the clerical error does not appear on the face of the record, but must be proved by other evidence, however, "notice of a motion to correct such an error is necessary if substantial rights are involved." (Id. at p. 830.) Because the asserted error did not appear on the face of the record and Judge Blake had no personal knowledge of it, and because it affected substantial rights (the timeliness of the new trial motion and the appeal), "notice of a motion to correct the alleged error should be a jurisdictional requirement." (Ibid.) A determination whether the clerk made an error in recording the filing date required a factual determination from potentially conflicting evidence. "In such a situation, the right to a notice and hearing is obvious." (Ibid.) The court concluded Judge Blake's ex parte order was void on its face. (Ibid.)
Thus, unless the amendment merely corrects a clerical error appearing on the face of the record, amendment of a judgment requires notice to all parties whose rights would be substantially affected, a hearing, and presentation of evidence sufficient to make the necessary factual determinations. Where the judgment is amended without notice to a party whose rights are substantially affected by the amendment, the judgment may be set aside. In McNally v. Mott (1853) 3 Cal. 235 (McNally), the court addressed facts similar to those in the instant case. The court stated:
"The defendant was sued and served by the name of George N. Mott, and making no appearance, judgment was entered against him by the same name. Afterwards, and without notice to the defendant, the plaintiff, on his own motion, obtains an order from the Court to amend the judgment by altering the name of George to Gordon, in which state the judgment now stands.
"It is very evident that the amendment is not sustained by the previous proceedings. The action is against one person and the judgment against another. We have no power to determine, on the application of the plaintiff alone, that George and Gordon are one and the same person. There is no legal proof of that fact in the record, and prima facie, two different names must be held to signify two different persons.
*45 "The judgment is reversed, and the cause remanded." (McNally, supra, 3 Cal. at pp. 235-236.)
(6) In Sakaguchi v. Sakaguchi (2009) 173 Cal.App.4th 852 [92 Cal.Rptr.3d 717] (Sakaguchi), the defendant contended he had not been properly identified in the complaint as a defendant or served with summons and complaint, and therefore the default judgment against him was void, because his first name, Takeshi, was incorrectly spelled "Takechi" in the summons and complaint. The court rejected this argument, observing: "`"if the service is otherwise properly made, and the person served is aware that he is the person named as a defendant in the erroneous manner, jurisdiction is obtained."'" (Id. at p. 857.) There was only a slight spelling error in the defendant's name, and there was no evidence in the record that the misspelling rendered the defendant unaware he was the person named as the defendant. The court concluded the spelling error did not entitle the defendant to have the judgment set aside. (Ibid.)
The judgment was originally entered against Pamela Black. Prima facie, Pamela Black was a different person from Paula Black. The difference in the names was not simply a minor misspelling of Paula's name, as was the case in Sakaguchi. As in McNally, where the entire first name was different, the court could not, on the application of plaintiff and without notice to defendant, simply change the name of defendant in the judgment from Pamela Black to Paula Black. The two names were presumed to signify two different persons, and Manson offered no proof that they were the same person.
Cases addressing amendment of a judgment to change or add the name of a judgment debtor demonstrate the need for notice to the affected defendant and a hearing regarding the propriety of the amendment. In Mirabito v. San Francisco Dairy Co. (1935) 8 Cal.App.2d 54 [47 P.2d 530] (Mirabito), the plaintiff sued San Francisco Dairy Company, alleging it was the employer of a negligent individual defendant who had been involved in an automobile accident with the plaintiff. At trial, the evidence showed the individual defendant was employed by Dairy Delivery Company, Inc. Judgment was entered against San Francisco Dairy Company and the individual. San Francisco Dairy Company appealed, contending there was insufficient evidence it was the individual's employer. The Supreme Court affirmed, finding San Francisco Dairy Company was the alter ego of Dairy Delivery Company. Thereafter, by noticed motion, the plaintiff obtained an order adding Dairy Delivery Company to the judgment as a judgment debtor. Dairy Delivery Company moved to set aside the order; the court denied the motion and Dairy Delivery Company appealed, contending the order was in excess of the trial court's jurisdiction and void for lack of jurisdiction of Dairy Delivery Company. The court concluded: "The rule has long been declared in *46 California that where the facts warrant, courts may amend pleadings to correctly designate the parties actually involved, even though the statute of limitations has run in favor of the party substituted. [Citations.] The basis of the rule is, of course, that the court having acquired jurisdiction of the person of the defendant and of the subject of the action, it necessarily possessed the power to correct a misnomer. In the cases last mentioned, it is true, no judgment had been rendered at the time of the amendment. Where, however, as here, the Supreme Court has stated the evidence is sufficient to warrant the conclusion that in effect the two corporations are identical; where, as here, the action was fully and fairly tried with at least the direct financial assistance of appellant; and where, as here, nothing appears in the record to show that Dairy Delivery Company could have produced a scintilla of evidence that would have in any way affected the results of the trial, there is no basis for a different rule. The trial court having acquired jurisdiction of San Francisco Dairy Company must likewise be held to have acquired jurisdiction of its alter ego, the appellant herein. To hold otherwise upon the facts herein would be to deny respondent the fruits of fairly contested litigation, place a premium upon acts and conduct which have misled a litigant, and frustrate the very purpose of our jurisprudence." (Mirabito, supra, 8 Cal.App.2d at p. 60.)
In Thomson v. L. C. Roney & Co. (1952) 112 Cal.App.2d 420 [246 P.2d 1017] (Thomson), the plaintiff sued L.C. Roney, Inc., and obtained a judgment against it. After the judgment was final, the plaintiff conducted a judgment debtor examination and obtained information indicating that company was the alter ego of Southwestern Development Company. The plaintiff moved to add Southwestern's name to the judgment as a judgment debtor. After a hearing and presentation of evidence, the court ordered that Southwestern's name be added to the judgment.
(7) On appeal, the court concluded the case was like Mirabito, although proof that the two companies were alter egos was not made at trial, but after entry of judgment. The court stated: "Where a court may with propriety amend a judgment, evidence dehors the record is admissible, upon proper notice to the adversary party, in order to make the judgment speak the truth. [Citations.] Since the court had jurisdiction over the defendant, it had jurisdiction to make its judgment reflect the defendant's true name. [Citations.] A question having arisen as to the identity and character of the defendant upon whom the judgment was binding the court possessed the power to adopt a suitable procedure for the purpose of determining that question. [Citation.] Under the authority of this section the court properly exercised its power by taking evidence, after proper notice, in order to determine the true name of defendant." (Thomson, supra, 112 Cal.App.2d at p. 427.)
*47 (8) Plaintiff sued Pamela Black. The proof of service indicates he served Pamela Black. The original judgment was entered against Pamela Black. Prima facie, Pamela Black was a different person from Paula Black. There is no evidence Paula Black knew she was the person plaintiff intended to name as a defendant in his complaint. Plaintiff did not amend the complaint to correct Black's name prior to entry of default and judgment; rather, he proceeded to obtain a judgment against Pamela Black. Almost six years after that judgment was entered, Manson obtained an ex parte order amending the judgment to substitute Paula Black as a judgment debtor in lieu of Pamela Black. The amendment was not the correction of a clerical error. It affected Paula's substantial rights. The amendment was made without any notice to Paula or any opportunity for her to present evidence or argument against it. It was made without any evidentiary showing that Pamela and Paula were the same person. Consequently, the judgment against Paula was void on the face of the record and could be set aside at any time.
B. Extrinsic fraud or mistake
(9) Alternatively, relief from default and default judgment was properly granted on the ground of extrinsic fraud or mistake. After the six-month period for statutory relief has passed, the court may still grant relief on equitable grounds, including extrinsic fraud or mistake. (Rappleyea, supra, 8 Cal.4th at p. 981.) "Extrinsic fraud usually arises when a party is denied a fair adversary hearing because he has been `deliberately kept in ignorance of the action or proceeding, or in some other way fraudulently prevented from presenting his claim or defense.'" (Kulchar v. Kulchar (1969) 1 Cal.3d 467, 471 [82 Cal.Rptr. 489, 462 P.2d 17] (Kulchar).) It occurs when "`the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception practiced on him by his opponent, as by keeping him away from court, a false promise of a compromise; or where the defendant never had knowledge of the suit, being kept in ignorance by the acts of the plaintiff.'" (Ibid.) In those situations, there has not been "a real contest in the trial or hearing of the case," and the judgment may be set aside to open the case for a fair hearing. (Ibid.)
(10) Extrinsic mistake occurs "when circumstances extrinsic to the litigation have unfairly cost a party a hearing on the merits." (Rappleyea, supra, 8 Cal.4th at p. 981.) In contrast with extrinsic fraud, extrinsic mistake exists when the ground of relief is not so much the fraud or other misconduct of one of the parties as it is the excusable neglect of the defaulting party to appear and present his claim or defense. If that neglect results in an unjust judgment, without a fair adversary hearing, the basis for equitable relief on the ground of extrinsic mistake is present. (Kulchar, supra, 1 Cal.3d at p. 471.) Relief will be denied, however, if the complaining party's negligence permitted the fraud to be practiced or the mistake to occur. (Id. at p. 473.)
*48 Black was served with the complaint, but it did not name her as a party; it named Pamela Black and Douglas Shinn as defendants. Black did not at that time know who Shinn was. The complaint did not identify the automobile involved in the accident, and Black was not aware of any accident in which an automobile owned by her was involved. She did not ignore the complaint, but contacted plaintiff's attorney and advised him of her belief he had served the wrong person. The attorney did not identify the vehicle involved in the accident or confirm that she was the intended defendant.
Plaintiff did not subsequently amend the complaint to name Paula Black as the proper defendant, and then pursue the litigation against her. Knowing that there was a possible error in the names and that Black believed the complaint had been served on the wrong person, plaintiff's attorney nonetheless proceeded to take the default of Pamela Black and to obtain a judgment against her. Four years later, plaintiff apparently tried to amend the judgment to name Paula Black as the defendant and judgment debtor, by asserting there was a clerical error in the judgment.[3] The trial court denied the request, on the ground the error was not a clerical error. Six years after judgment was entered, and without any notice to Black at all, plaintiff obtained an order amending the judgment to replace Pamela Black with Paula Black as the judgment debtor.
On these unique facts, we believe the trial court correctly concluded Black acted reasonably and not negligently in response to service of the complaint on her. She notified plaintiff's counsel of the perceived error in service and believed when she received a request for default judgment, again directed to Pamela Black, that she was not the intended defendant. The circumstances amounted to either extrinsic fraud, in that plaintiff continued to proceed against Pamela Black, even after knowing he had either named the wrong defendant in the complaint or served the wrong person with the complaint, or extrinsic mistake, in that Paula Black was misled to mistakenly believe that she was not the intended defendant by plaintiff's inaction after being informed that she was not Pamela Black, the named defendant. In either case, the uncorrected error in the name of defendant prevented Black from appearing and defending; that error, combined with the subsequent amendment of the judgment without notice, resulted in an unjust judgment against Black.
*49 (11) To qualify for equitable relief on the ground of extrinsic fraud or mistake, the moving party must demonstrate diligence in seeking to set aside the default once it was discovered. (Rappleyea, supra, 8 Cal.4th at p. 982.) Black discovered the default and judgment against her in October 2005, when she received the order requiring her to appear for a judgment debtor examination and Manson's attorney informed her that there was a judgment against her. The court noted Black thereafter consulted two attorneys, but received inaccurate advice that there was nothing she could do. She brought her motion to set aside the judgment in 2008, after Manson attempted to obtain an order for the sale of her residence and she learned from her own legal research that a motion to set aside the judgment was an available remedy. Implicitly, the court found Black acted diligently, in light of the discouraging legal advice she received.
We find no abuse of discretion in the trial court's grant of equitable relief.
III. Bona Fide Purchaser
Manson asserts that a motion to set aside a default or default judgment will not be granted against a bona fide purchaser, citing Marlenee v. Brown (1943) 21 Cal.2d 668, 675 [134 P.2d 770] (Marlenee). It argues Black's motion to set aside the default and default judgment should have been denied because Manson was a bona fide purchaser. Marlenee, however, did not involve the setting aside of a default or a default judgment. In Marlenee, the executrix of the estate of her deceased husband sought to set aside the order of the probate court affirming the sale of real property of the estate to a third party, who subsequently conveyed the property to the Browns, who claimed to be bona fide purchasers for value without notice of the executrix's claimed interest. Marlenee also did not involve a claimed bona fide purchaser of a judgment. Rather, it involved a bona fide purchaser of real property that was the subject of the legal proceedings in which the challenged order was made. Nothing in Marlenee suggests that a judgment creditor's assignment of a judgment to a third party, without more, necessarily precludes setting aside the judgment.
(12) An assignment transfers the interest of the assignor to the assignee. Thereafter, "`[t]he assignee "stands in the shoes" of the assignor, taking his rights and remedies, subject to any defenses which the obligor has against the assignor prior to notice of the assignment.'" (Johnson v. County of Fresno (2003) 111 Cal.App.4th 1087, 1096 [4 Cal.Rptr.3d 475].) Thus, whatever defenses Black could raise against the judgment obtained by plaintiff, she was free to raise against Manson as the assignee of plaintiff's judgment. Nothing in Marlenee abrogates this rule.
Manson contends the prejudice to it as an innocent purchaser or assignee must be considered. It asserts it "had every right when it purchased the *50 judgment in 2005 to believe the judgment was valid because the judgment had been entered in 1999 and respondent had taken no action to set aside the default or vacate the judgment." The judgment was assigned to Manson on May 6, 2005. At that time, the judgment was against Pamela Black. Plaintiff's attorney had been notified prior to entry of judgment of a possible error in defendant's name. Plaintiff's attorney also had in his possession, at least as of September 15, 2003, DMV documents indicating the owner of the vehicle at the time of plaintiff's accident was Paula Black, not Pamela Black. Two months after the assignment, plaintiff requested and obtained an ex parte amendment of the judgment to name Paula as the judgment debtor, without giving notice to her. Consequently, Manson was assigned an apparently valid judgment against Pamela Black. It has not shown it had any reason to believe plaintiff had a valid judgment against Paula Black at the time the judgment was assigned. Any error in amending the judgment without notice to Black was attributable to plaintiff and Manson. We find no error in the trial court's grant of equitable relief.
DISPOSITION
The order is affirmed. Defendant Black is awarded her costs on appeal.
Vartabedian, Acting P. J., and Kane, J., concurred.
NOTES
[1] References to Black without a first name are to Paula Black.
[2] All further statutory references are to the Code of Civil Procedure, unless otherwise indicated.
[3] The record is not clear. The docket entries indicate a motion to correct a clerical error in the judgment, supported by a memorandum of points and authorities and request for judicial notice, was filed on September 15, 2003, and denied on October 22, 2003, because "[t]his was not a clerical error." The only portion of the motion appearing in the clerk's transcript, however, is the request for judicial notice, which does not indicate the nature of the correction requested, but includes a printout of DMV records showing the registered owners of a vehicle, one of whom was Paula Black. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2265057/ | 54 Cal.App.4th 684 (1997)
MARGARET C. CARLSON, Plaintiff and Appellant,
v.
MIKE EASSA, Defendant and Respondent.
Docket No. H015399.
Court of Appeals of California, Sixth District.
April 24, 1997.
*687 COUNSEL
Joanne Kelly and John Viljoen for Plaintiff and Appellant.
Cayce & Ottone and Christopher C. Cayce for Defendant and Respondent.
OPINION
ELIA, J.
In this appeal, plaintiff Margaret C. Carlson seeks review of an order denying her motion to vacate a stipulated judgment in a "URESA" action for child support arrearages. (Fam. Code, § 4800 et seq.) Appellant contends the judgment was void because the district attorney settled her claim without her consent, contrary to Welfare and Institutions Code section 11478.2, subdivision (j). We agree that the settlement was unauthorized and reverse the postjudgment order.
Background
This action began in September 1991, when appellant filed an action for paternity and child support against respondent Mike Eassa. Paternity was established in March 1995, when the court determined that respondent was the father of Brett Steven Tracy, born July 13, 1977. Because appellant resided in Delaware, child support issues were governed by the Uniform Reciprocal Enforcement of Support Act (URESA), Family Code section 4800 et seq.
After protracted litigation, respondent was found to be the minor's father and ordered to pay temporary support. The issue of permanent child support was not heard until August 25, 1995. At that hearing, Stephen Hooper, the deputy district attorney representing appellant, informed the court that around the 10th of July he had received a call from Amy Silvestri, who represented a United States Senator from Delaware. According to Hooper, Silvestri had told him "in very specific terms" that appellant had contacted the senator's office because "this case had taken entirely too long, and she *688 wanted it resolved or settled immediately." Silvestri was "very emphatic and very firm that it was to be resolved immediately." Hooper then contacted respondent's counsel and suggested they settle the case immediately. Respondent offered $6,000, which Hooper accepted.
A few days after the settlement, however, Hooper received a letter from appellant indicating there had been a misunderstanding. At the hearing he thought Silvestri was "backing away" from her previous request that he should settle the case. Hooper claimed that he would not have settled without a firm statement from Silvestri, and he now felt bound to honor the $6,000 agreement with respondent, "even if it's a bad bargain." Respondent's attorney simply asked the court to confirm the district attorney's authority to settle the matter.
After a conference in chambers, the court announced that it would continue the matter one week to approve the settlement on condition that respondent tender the money at that time. On September 1, 1995, Hooper advised the court that Delaware, the initiating jurisdiction, had requested he not sign the stipulation. Hooper stated he would not object to being ordered to sign it; or, he suggested, the court could accept the settlement without a signature. The trial court accepted tender of respondent's check for $6,000 and ordered the matter concluded. The stipulated judgment was filed September 5, 1995.
On November 29, 1995, appellant moved to vacate the September 5 order and requested support according to applicable guidelines retroactive to September 1991. Appellant asserted that she had not authorized settlement at "such a small amount." Appellant maintained that the September order was ineffective as to her, because she did not participate and the district attorney did not legally represent her. Citing Welfare and Institutions Code section 11478.2, subdivision (j), appellant argued that the district attorney was not permitted to enter into any stipulation for support without consent of all parties or their attorneys.
Appellant submitted a declaration from Amy Silvestri in support of the motion to vacate. Silvestri confirmed that appellant had enlisted her help because "the case had gone on for too long" and appellant wanted to know if "there was a way to expedite it." Silvestri stated: "I told Mr. Hooper that Ms. Carlson was very frustrated with the delays and that she wanted the case to proceed as quickly as possible. I explained that I was calling only to inquire on Ms. Carlson's behalf why the case was taking so long and whether anything could be done to move it along any more quickly. Mr. Hooper said that he understood and would do everything he could to keep *689 the case moving along." Silvestri added that she never told Hooper to take any specific action such as advancing the hearing or settling the case. When confronted after the settlement, she said, Hooper attempted to justify his action by saying he had "the impression" that appellant wanted him to settle the case, even though he had not specifically been asked to do so. Because the settlement was unacceptable to appellant, however, he assured Silvestri that he would "do his best" to remedy the situation by having the settlement withdrawn or reconsidered.[1]
Respondent opposed appellant's motion to vacate on several grounds. First, he argued, Hooper had ostensible authority to settle the matter, because Sylvestri's communication to him gave him reason to believe that appellant wished the matter settled. Any misunderstanding, respondent added, was appellant's own fault, because she used the United States Senator's office to exert pressure on the district attorney. Respondent also urged the court to apply estoppel principles against appellant, because she "gave specific authorization to her agents" to settle the issue of arrearages. By authorizing settlement, she had "implicitly authorized" the district attorney to accept an amount lower than she had expected to receive. Finally, respondent argued Welfare and Institutions Code section 11478.2, subdivision (j), was inapplicable in a URESA case; consequently, appellant's authorization was not required.
In a supplemental argument, respondent suggested the court lacked "equitable jurisdiction" to vacate the prior order, because appellant had failed to avail herself of her right to appeal from the September order. As to the merits, respondent argued that Hooper had had actual authority to sign the stipulation because the court had ordered him to do so: "That was the authorization." He further pointed out that appellant had given the Delaware Division of Child Support Enforcement a power of attorney, which "transferred" authority to negotiate and settle her claim to the District Attorney of Monterey County.
The trial court characterized the issue as "simply whether the District Attorney had a duty to seek and to secure Petitioner's agreement to the *690 stipulated settlement." Finding no such duty, the court denied the motion to vacate.
Discussion
(1a) Before addressing the merits of the controversy, we must ascertain the appealability of the trial court's order. Upon request the parties submitted supplemental briefing on the question of whether this court has jurisdiction to hear the appeal. Having reviewed their supplemental arguments and the relevant statutory authority, we conclude the appeal is proper because the underlying judgment is void.
Code of Civil Procedure section 904.1 describes the judicial acts from which a party may appeal.[2] Subdivision (a)(2) of the statute authorizes an appeal from an order made after an appealable judgment. The broad language of this provision appears to confer appealability upon any postjudgment order if the judgment was itself appealable. Such a conclusion would be erroneous, however. (2) "To be appealable, a postjudgment order must satisfy two additional requirements.... [¶] The first requirement ... is that the issues raised by the appeal from the order must be different from those arising from an appeal from the judgment. (See Rooney v. Vermont Investment Corp. (1973) 10 Cal.3d 351....) `The reason for this general rule is that to allow the appeal from [an order raising the same issues as those raised by the judgment] would have the effect of allowing two appeals from the same ruling and might in some cases permit circumvention of the time limitations for appealing from the judgment.' (Id. at p. 358.) ... [¶] The second requirement ... is that `the order must either affect the judgment or relate to it by enforcing it or staying its execution.' [Citation.]" (Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644, 651-652 [25 Cal. Rptr.2d 109, 863 P.2d 179], fn. omitted; City and County of San Francisco v. Shers (1995) 38 Cal. App.4th 1831, 1838 [46 Cal. Rptr.2d 57]; Fundamental Investment etc. Realty Fund v. Gradow (1994) 28 Cal. App.4th 966, 979 [33 Cal. Rptr.2d 812].)
(3a) In light of these standards, an order denying a motion to vacate a judgment is generally not appealable; otherwise, an appellant would receive "either two appeals from the same decision, or, if no timely appeal has been made, an unwarranted extension of time in which to bring the appeal." (In re Marriage of Brockman (1987) 194 Cal. App.3d 1035, 1040 [240 Cal. Rptr. 96].) (1b) In this case, the postjudgment order did not decide new issues, *691 but merely "affirmed" the validity of the judgment. Thus, it initially appears that appeal from the postjudgment order is precluded.
(3b) As appellant points out, however, an exception to this general rule applies when the underlying judgment is void. In such a case, the order denying the motion to vacate is itself void and appealable because it gives effect to a void judgment. (194 Cal. App.3d at p. 1040; Adoption of Matthew B. (1991) 232 Cal. App.3d 1239, 1267 [284 Cal. Rptr. 18]; Residents for Adequate Water v. Redwood Valley County Water Dist. (1995) 34 Cal. App.4th 1801, 1805 [41 Cal. Rptr.2d 123]; see also In re Marriage of Goodarzirad (1986) 185 Cal. App.3d 1020, 1031 [230 Cal. Rptr. 203] [stipulated judgment].)
(4) A judgment is void if the court rendering it lacked subject matter jurisdiction or jurisdiction over the parties. Subject matter jurisdiction "relates to the inherent authority of the court involved to deal with the case or matter before it." (Conservatorship of O'Connor (1996) 48 Cal. App.4th 1076, 1087 [56 Cal. Rptr.2d 386].) Lack of jurisdiction in this "fundamental or strict sense means an entire absence of power to hear or determine the case, an absence of authority over the subject matter or the parties." (Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 288 [109 P.2d 942, 132 A.L.R. 715].)
In a broader sense, lack of jurisdiction also exists when a court grants "relief which [it] has no power to grant." (Armstrong v. Armstrong (1976) 15 Cal.3d 942, 950 [126 Cal. Rptr. 805, 544 P.2d 941]; Becker v. S.P.V. Construction Co. (1980) 27 Cal.3d 489, 493 [165 Cal. Rptr. 825, 612 P.2d 915].) Where, for instance, the court has no power to act "except in a particular manner, or to give certain kinds of relief, or to act without the occurrence of certain procedural prerequisites," the court acts without jurisdiction in this broader sense. (Abelleira v. District Court of Appeal, supra, 17 Cal.2d at p. 288.)
Collateral attack of such judgments is disfavored, even when the judgment is unauthorized by statute. (See, e.g., Pacific Mut. Life Ins. Co. v. McConnell (1955) 44 Cal.2d 715, 727 [285 P.2d 636] [judgment contrary to statute]; Armstrong v. Armstrong, supra, 15 Cal.3d at pp. 950-951 [mistaken application of law not reaching court's power to act]; Conservatorship of O'Connor, supra, 48 Cal. App.4th at p. 1087-1088 [excess of jurisdiction]; Law Offices of Stanley J. Bell v. Shine, Browne & Diamond (1995) 36 Cal. App.4th 1011, 1021-1022 [43 Cal. Rptr.2d 717] [excess of jurisdiction].) In some cases, however, if the trial court has made "a grant of relief to one of the parties [which] the law declares shall not be granted," such judgment may be *692 considered void for lack of jurisdiction notwithstanding the court's jurisdiction over the person and the subject matter. (Michel v. Williams (1936) 13 Cal. App.2d 198, 200 [56 P.2d 546]; Jones v. World Life Research Institute (1976) 60 Cal. App.3d 836, 847-848 [131 Cal. Rptr. 674]; Vasquez v. Vasquez (1952) 109 Cal. App.2d 280, 283 [240 P.2d 319].) An unauthorized grant of relief "is to be distinguished from a judgment in which the relief granted is simply in excess of the amount to which a party is otherwise entitled under the law applicable to his cause of action." (Jones v. World Life Research Institute, supra, 60 Cal. App.3d at p. 848.) Thus, to the extent that appeal from an order denying a motion to vacate constitutes a collateral attack on an underlying judgment from which appeal was not taken, the appeal is not necessarily precluded merely because the court lacked the "wrong" kind of jurisdiction in entering the judgment.
(5) In this case, appellant contends that the stipulated judgment was void because she was not asked to consent to or sign the stipulation, contrary to the mandate of Welfare and Institutions Code section 11478.2, subdivision (j).[3] Respondent maintains that this statute is inapplicable to URESA actions. We must resolve this issue before determining whether the court erred, and if so, whether that error rendered the judgment void.
Section 11478.2, subdivision (j), provides as follows: "A person who is receiving services under Section 11475.1 but who is not currently receiving public assistance on his or her own behalf or on behalf of a child shall be asked to execute, or consent to, any stipulation establishing or modifying a support order in any action in which that person is named as a party, before the stipulation is filed. The district attorney or Attorney General shall not submit to the court for approval a stipulation to establish or modify a support order in such an action without first obtaining the signatures of all parties to the action, their attorneys of record, or persons authorized to act on their behalf."
Clearly, appellant was not asked to consent to the stipulation proffered by the district attorney to the court; on the contrary, Hooper submitted the document without appellant's signature and with full knowledge that she opposed the settlement he had reached with respondent. Thus, if section 11478.2 governed this action, the district attorney's acts were unauthorized.
We agree with appellant that section 11478.2 applies to this action. This statute was enacted in 1991 for the express purpose of encouraging local district attorneys to make support enforcement efforts one of their highest *693 priorities, and to pursue such cases diligently "to enable families to be self-supporting and to avoid welfare dependency." (Stats. 1991, ch. 495, § 1.) The same legislation made "related and conforming changes" to existing URESA provisions for initiating proceedings, diligently prosecuting actions, and enforcing orders, thereby clarifying the district attorney's representation of the public interest. (Legis. Counsel's Dig., Sen. Bill No. 106, 1991 (Reg. Sess.) Summary Dig., p. 206.)
There is no reason expressed either in URESA or in California's support enforcement program to hold the district attorney to different standards and procedures merely because the child who ultimately benefits from his or her services resides in another state. On the contrary, URESA itself directs the prosecuting attorney to "prosecute the case diligently." (Fam. Code, § 4831, subd. (b).) "Prosecuting attorney" is defined as "the public official in the appropriate place who has the duty to enforce criminal laws relating to the failure to provide for the support of any person." (Fam. Code, § 4802, subd. (h).) In California, that function is served by the district attorney of each county.[4] (§ 11475.1, subd. (a).) In order to comply with this mandate, the district attorney need only adhere to his or her duties under the procedural scheme set forth in section 11475.1 et seq. Resort to this scheme would be consistent with URESA's choice-of-law provision, Family Code section 4820, as well as the federal mandate that child support orders be made pursuant to the forum state's law. (28 U.S.C. § 1738B(g); cf. State of Ohio v. Barron (1997) 52 Cal. App.4th 62, 67 [60 Cal. Rptr.2d 342].)[5] Indeed, the district attorney in this case evidently assumed his duties were defined by sections 11475.1 et seq., because he expressly designated himself as attorney under sections 11475.1 and 11478.2 as well as under pertinent URESA provisions each time he drafted a superior court order.
Section 11475.1 establishes a unit within the district attorney's office of each county. That unit has the responsibility of "promptly and effectively establishing, modifying, and enforcing child support obligations ... and determining paternity in the case of a child born out of wedlock." (§ 11475.1, subd. (a).) Subdivision (g) defines "`enforcing obligations'" to include "the obtaining by the district attorney of an initial order for child *694 support." Subdivisions (b) and (c) set forth the required contents of the complaint and answer form provided to the defendant, and subdivision (f) permits the district attorney to seek temporary child support. Subdivision (j) confirms the district attorney's authority to intervene "in any action under the Family Code, or other proceeding wherein child support is an issue."
No exception is made for plaintiffs who reside outside of California. Indeed, such persons are specifically acknowledged in subdivision (m) of section 11475.1, where guidelines are provided for determining venue of the action.[6] It is thus apparent that all children, even those living in other states, are the intended beneficiaries of the diligent prosecution of support obligations of parents in this state.
Section 11478.2 reinforces this conclusion. Subdivision (a), which clarifies that the district attorney represents the public interest (not the recipient of services), applies to "all actions involving paternity or support, including, but not limited to, proceedings under the Family Code." Subdivision (g), which requires notice to the recipient of services when a support order is obtained, states that the notice in URESA cases should be made in conformity with URESA. Subdivision (l) prescribes different ways of sending the notices required by the statute to recipients of section 11475.1 services depending on their residence: California residents are to receive all notices by personal delivery or by first-class mail, whereas in URESA actions the district attorney must mail the notices to the court of the initiating state.[7]
Respondent argues that these specific references to URESA in subdivisions (g) and (l) of section 11478.2 imply that all other subdivisions do not apply to URESA actions. He suggests that if the Legislature had intended every subdivision of section 11478.2 to apply to URESA actions, it would have said so in each subdivision, and it would not have "made a point of distinguishing" between URESA and non-URESA actions in subdivision (g). Respondent's reasoning is flawed. If the Legislature intended section 11478.2 not to apply to URESA obligees, then what was the point of making special provision for sending notice of proceedings and orders to these *695 parties? The only logical answer can be that the district attorney's duties under section 11478.2 apply to all recipients of services under section 11475.1, including URESA obligees, except where a different procedure is specifically denoted. Respondent does not contradict appellant's assertion that she was a "recipient of services" under section 11475.1.
We must conclude, therefore, that URESA actions were intended to be prosecuted according to the same procedures as any other child support enforcement effort. Although no court has made this recognition explicit, published decisions have assumed section 11475.1 is applicable to URESA proceedings in describing the procedural history of the case under review, in noting that they were conducted pursuant to section 11475.1. (See, e.g., In re Marriage of Comer (1996) 14 Cal.4th 504, 511 [59 Cal. Rptr.2d 155, 927 P.2d 265]; In re Marriage of Ward (1994) 29 Cal. App.4th 1452, 1455 [35 Cal. Rptr.2d 32]; In re Marriage of Angoco & San Nicolas (1994) 27 Cal. App.4th 1527, 1532 [33 Cal. Rptr.2d 305].) We see no reason to exclude section 11478.2, part of the same procedural scheme, from the duties of the prosecuting attorney in enforcement of child support obligations brought pursuant to URESA.
Respondent protests, however, that URESA actions should be exempt from the procedural mandates of section 11478.2 because obtaining the signature of every out-of-state plaintiff would cause undue delays and pose obstacles to compliance with federal time restrictions. We are unconvinced. Both Congress and this state's Legislature have placed the highest priority on the right of children to adequate support. The requirement that a custodial parent approve a settlement of support promotes that interest and advances the state's purpose of obviating reliance on public assistance to provide for children's needs. The risk of delay in obtaining the signature of the custodial parent is far outweighed by the necessity of resolving support issues in a balanced and thoughtful manner. Whether that parent lives in the same county, another county, or a more distant state should not be a basis for bypassing these considerations.
The Legislature has underscored the importance of involving parents in settlements of their support rights by restating the requirement in a separate provision. Family Code section 4065, like the statute at issue here, expressly prohibits the district attorney from stipulating to a child support order below the guideline formula amount without the consent of the recipient parent. In addition, under that provision the trial court may not approve such a stipulated agreement unless the parties declare, among other things, that they *696 agree to the order and that the needs of the child will be adequately met.[8] Even in general civil contexts, the Legislature has deemed the personal approval of the litigants, either orally before the court or by written agreement, to be a prerequisite to entry of stipulated judgments. (Code Civ. Proc., § 664.6; Levy v. Superior Court (1995) 10 Cal.4th 578, 583-586 [41 Cal. Rptr.2d 878, 896 P.2d 171].) Because settlement of a lawsuit ends the litigation, it is "such a serious step that it requires the client's knowledge and express consent." (Id. at p. 583.)
In the context of child support, the Legislature has made it plain that settlement with the obligor parent is an especially "serious step." Accordingly, in a case not involving public assistance, settlement of a child support issue should not be undertaken without the consent of all parties to the action. If the district attorney has not obtained the signature of each party, the party's attorney of record, or authorized representative, the stipulation is not valid.
A judgment is void on its face if the defect is apparent upon examination of the record. (Becker v. S.P.V. Construction Co., supra, 27 Cal.3d at p. 493; National Diversified Services, Inc. v. Bernstein (1985) 168 Cal. App.3d 410, 415 [214 Cal. Rptr. 113]; Estate of Lee (1981) 124 Cal. App.3d 687, 691 [177 Cal. Rptr. 229].) Here, because the court was without authority to enter any judgment upon a purported stipulation to which both parties had not agreed, the judgment on its face is invalid. This is not merely a mistaken application of the law or a grant of excess relief, but a complete absence of power to accord relief, a judgment "completely outside the scope of the court's jurisdiction to grant...." (Jones v. World Life Research Institute, supra, 60 Cal. App.3d at p. 845; cf. Wells Fargo & Co. v. City etc. of S.F. (1944) 25 Cal.2d 37, 43-44 [152 P.2d 625] [grant of excess relief not void]; Armstrong v. Armstrong, supra, 15 Cal.3d at pp. 950-951 [mistaken application of law].) As one court has suggested, "The mere fact that the court has jurisdiction of the subject matter of an action before it does not justify an exercise of a power not authorized by law, or a grant of relief to a party that the law declares shall not be granted." (Selma Auto Mall II v. Appellate Department (1996) 44 Cal. App.4th 1672, 1683-1684 [52 Cal. Rptr.2d 599].)
*697 A situation comparable to the one before us arose in In re Marriage of Kreiss (1990) 224 Cal. App.3d 1033 [274 Cal. Rptr. 226]. There a former wife had not been served with notice of a motion to terminate spousal support, contrary to the mandate of former Civil Code section 4809. The respondent, her former husband, contended that the lack of service was merely a procedural irregularity, which did not make the judgment void and subject to collateral attack. Alternatively, he argued, the appellant waived the notice requirement of the statute; and she had actual notice of the proceeding in any event. This court rejected all of the respondent's contentions. Although the appellant did not bring her motion to set aside the order until after the time had expired under Code of Civil Procedure section 473, nevertheless the failure to comply with the statutory prerequisite of notice rendered the order void on its face and subject to collateral attack at any time. (224 Cal. App.3d at pp. 1039-1040.)
(1c) The same result is compelled in this case. As the Supreme Court noted in Levy v. Superior Court, supra, 10 Cal.4th 578 with respect to general civil settlements, a personal approval requirement "protects parties from impairment of their substantial rights without their knowledge and consent." (Id. at p. 585.) Here it is not only the substantial rights of the parties, but the welfare of a child that is to be protected. Even acts in excess of jurisdiction may be deemed void, although fundamental jurisdiction exists, where a child's welfare is the subject of the litigation. (See, e.g., In re Marriage of Goodarzirad, supra, 185 Cal. App.3d 1020, 1027.) Because the record here does not reflect appellant's consent in accordance with section 11478.2, subdivision (j), the judgment approving the district attorney's settlement of appellant's child support claim was void, and the motion to vacate should have been granted.
Disposition
The order denying appellant's motion to vacate the September 5, 1995, judgment is reversed. Costs on appeal to appellant.
Premo, Acting P.J., and Wunderlich, J., concurred.
NOTES
[1] At the ensuing hearing Hooper recounted his conversation with Sylvestri with respect to appellant's desire that the case be "resolved" more quickly. According to Hooper, "... I told her, `Hey, if we could settle it for a decent amount, it would have happened.' The only way we could get the decent amount would [be to] go to hearing because we disagreed with [respondent's counsel] and Mr. Eassa on what the case was worth. But when we got the call from Amy Silvestri on behalf of Margaret Carlson, they said, `This is taking too long. Margaret Carlson wants this case over, and over now.'" Hooper said he was frustrated with this case because he had not been able to settle the matter favorably, and because appellant had "stepped outside the channels of communication; went through a political office to try to exert pressure on the District Attorney to get it resolved."
[2] This section provides, in relevant part: "(a) An appeal may be taken from a superior court in the following cases: [¶] (1) From a judgment ... [¶] (2) From an order made after a judgment made appealable by paragraph (1)."
[3] All further statutory references are to the Welfare and Institutions Code unless otherwise indicated.
[4] If the district attorney fails to prosecute the case, the Attorney General may undertake the representation of the public interest. (Fam. Code, §§ 4831, 4851.)
[5] Family Code section 4820 states: "Duties of support applicable under this chapter are those imposed under the laws of any state where the obligor was present for the period during which support is sought. The obligor is presumed to have been present in the responding state during the period for which support is sought until otherwise shown." Subdivision (h)(l) of 28 United States Code section 1738B provides that, with two exceptions not relevant here, "the forum State's law shall apply" in any proceeding to establish, modify, or enforce a child support order.
[6] Section 11475.1, subdivision (m)(1)(E) states that if the support obligee does not reside in California and certain exceptions do not apply, venue shall be in the county of the obligor's residence.
[7] Section 11478.2, subdivision (l) provides: "(l) The notices required in this section shall be provided in the following manner: [¶] (1) In all cases in which the person receiving services under Section 11475.1 resides in California, notice shall be provided by mailing the item by first-class mail to the last known address of, or personally delivering the item to, that person. [¶] (2) In all actions enforced under Chapter 6 (commencing with Section 4800) of Part 5 of Division 9 of the Family Code, unless otherwise specified, notice shall be provided by mailing the item by first-class mail to the initiating court."
[8] Family Code section 4065 provides different approval requirements than section 11478.2, subdivision (j). In cases where the stipulation is for an amount below guidelines, the latter statute requires a declaration that, inter alia, the party is fully informed of his or her child support rights and has agreed to the stipulated order without coercion. The district attorney may not stipulate to such an order if the recipient parent has not consented. It does not specifically denote consent by a signature, but neither does it designate the party's attorney or other representative as authorized to sign a stipulation. Because the parties have not raised or discussed Family Code section 4065 in these proceedings, we make no comment on the relationship between that statute and section 11478.2, subdivision (j). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2259314/ | 25 Cal.Rptr.3d 1 (2004)
126 Cal.App.4th 1161
Victor HERNANDEZ et al., Plaintiffs and Respondents,
v.
BOARD OF EDUCATION OF The STOCKTON UNIFIED SCHOOL DISTRICT, Defendant and Respondent;
Dwight Williams, Jr., et al., Interveners and Appellants.
No. C044986.
Court of Appeal, Third District.
August 2, 2004.
*3 Browne & Woods, Eric M. George, Beverly Hills, and Nick J. G. Sanchez, Costa Mesa, for appellants and interveners.
Peter Roos, San Francisco, CA, for plaintiffs and respondents.
Ruiz & Sperow, Celia M. Ruiz, Amy R. Levine, Emeryville, and Susanne N. Starecki, for defendant and respondent.
*2 ROBIE, J.
In its final order in this 34-year-old school desegregation case, the trial court: (a) found the Stockton Unified School District was no longer segregated (that is, it was operating as a "unitary" school system without vestiges of past discrimination and no longer operating as a "dual" or segregated school system); (b) dissolved its prior orders, injunctions, and decrees; (c) approved the settlement agreement between the school district and the original petitioners in this action; and (d) dismissed the action, while retaining jurisdiction to enforce the settlement agreement for two years under Code of Civil Procedure section 664.6. Interveners (current students of the Stockton Unified School District, their parents, and taxpayers living in the school district) challenge the trial court's orders.
Interveners argue once the court found the district had reached "unitary status," the court should have immediately returned complete "control of the [school district] to the duly-elected Board of Education." Interveners further contend the settlement agreement violates the Education Code in its use of certain grant funds and also violates the California Constitution by granting preferences based on race. (Cal. Const., art I, § 31.)
We shall affirm. The trial court did not retain jurisdiction to continue its plenary supervision over the school district. Although it has the authority to phase out its plenary control to ensure an orderly transition from court supervision to supervision by the school district's governing board, instead it properly reserved its jurisdiction to allow the parties to request that it enforce the settlement agreement they drafted, pursuant to the terms that they agreed upon. We further conclude the school district's allocation of the grant funds complies with the Education Code. No evidence in this record suggests the grant funds are being distributed in a manner that discriminates against, or grants preferential treatment to, any individual or group on the basis of race.
FACTUAL AND PROCEDURAL BACKGROUND
A
Initial Action And The Trial Court's Findings
In 1970, Victor Hernandez and others (Hernandez petitioners) filed a petition for a writ of mandate on behalf of the "Negro, Mexican-American, and low income students of the Stockton Unified School District" to bring an end to the segregation of Stockton's public school system.
The case was tried in 1974. The trial court issued its findings of fact and conclusions of law on April 7, 1975. The court found "the Stockton Unified School District, in the 1973-74 school year, had a total enrollment of 29,160. Of these, 82 (0.28%) were American Indian, 4,359 (14.9%) were Black, 969 (3.3%) were Oriental, 7,115 (24.4%) were Spanish Surname, 822 (2.8%) were Filipino, 487 (1.7%) were *4 other minorities, and 15,327 (52.6%) were Anglo."
Based on these foundational numbers, the court found the composition of the student population of 26 of the district's 30 elementary schools was racially imbalanced when compared with the school district's overall population. Racially imbalanced schools were those schools where the proportion of white or minority students was over or under represented by more than 15 percent when compared to the district-wide representation of those students. Thirteen of the elementary schools were identifiable as predominantly "Anglo" and 13 of those schools were predominantly of the racial minority races. Four out of the five junior high schools and two of the three senior high schools were similarly racially imbalanced. The schools in the north of Stockton were racially identifiable as "Anglo" schools and those in the south were identifiable as minority schools. The segregation of the school district extended to staff and faculty of these schools.
The trial court found this segregation intentional and in violation of the Fourteenth Amendment to the United States Constitution. The court also found de facto segregation in violation of the California Constitution, article I, section 1. This segregation denied equal educational opportunities to the petitioners. As a result, the court ordered the district to adopt and implement desegregation plans to eliminate all vestiges of a racially segregated school system and ordered the school district to submit the plans to the court for approval.
The trial court entered a final judgment on April 27, 1978, commanding the district to adopt and implement its proposed desegregation plans.
B
The Desegregation Plans
The desegregation plans were revised, with court approval, several times.[1] As relevant here, these amended desegregation plans provided for the establishment and maintenance of magnet schools or magnet programs. Magnet programs provide a race neutral means to prevent racial or ethnic isolation by providing educational choices for district students. These programs are designed to provide courses of instruction that will substantially strengthen students' knowledge of academic subjects and/or their grasp of tangible and marketable vocational skills. Magnet schools and programs initially assisted the school district's desegregation efforts by "`providing exemplary programs to attract students from all racial/ethnic backgrounds'" and subsequently worked to minimize the effects of White flight and racial isolation in many of the schools.
*5 In the ensuing years since this litigation was commenced, the makeup of the school district's population has changed. As of October 2001, the school district had 23,436 students. White students (other than those of the Hispanic origin) made up 14.1 percent of the total student population. Students of other races make up 85.9 percent of the total population, with Hispanic students representing 49.4 percent of the entire student population. All of the secondary students and 96.6 percent of the elementary school students attend schools that are racially balanced.
C
The Interveners
In October 2002, interveners filed a motion to intervene in this case. Interveners are students of the school district, their parents, and taxpayers who live within the district's boundaries. The trial court granted them leave to intervene, but stayed the effect of its order for 90 days to allow the school district and the Hernandez petitioners time to hash out a settlement agreement to resolve the litigation.
D
The Motions To Approve Unitary Status And The Settlement Agreement
Meanwhile, the district and the Hernandez petitioners entered into a settlement agreement to resolve the case. In the proposed settlement agreement, the school district and the Hernandez petitioners agreed to stipulate that the school district had reached "unitary status" in exchange for the dismissal of the action and two major terms.
1. Unitary Status
The term "unitary" in desegregation cases is an ambiguous term. (Board of Ed. Oklahoma City v. Dowell (1991) 498 U.S. 237, 245, 111 S.Ct. 630, 635, 112 L.Ed.2d 715, 726.) Some courts use it to identify a school district which has eliminated both segregation and completely remedied all vestiges of past discrimination; other courts use that term to describe a district that has currently desegregated student assignments, whether that status is solely due to a court-ordered desegregation plan. (Ibid.) In the latter instance, vestiges of the past discrimination may still exist in the district. (Ibid.) We shall discuss the reasons for and the effect of the determination that a school district has become unitary below.
Here, the stipulation concerning unitary status stated the school district had complied in good faith with each of the court desegregation decrees and court approved desegregation plans in compliance with the equal protection clause of the United States Constitution. Further, the stipulation provided the school district had eliminated all vestiges of intentional discrimination in its programs, procedures and operations to the extent practicable and had taken all reasonably feasible steps to correct any de facto racial isolation in its schools. The stipulation further stated the school district was unitary in all areas of its operation, including, but not limited to, student assignment, facilities and resources, faculty and staff assignment, transportation, extracurricular activities, and student achievement.
2. Settlement Agreement
In exchange for the stipulation of unitary status, the first of the two major terms the school district agreed to in the settlement agreement is that the district would agree to assign students to schools in accordance with a particular student assignment plan for the 2003-2004 school year. That plan keeps the magnet programs intact, allocates seats to them based *6 on geographical distribution, requires magnet recruitment efforts, and requires monitoring of student assignments by race, ethnicity, and socioeconomic status.
The second major term the school district agreed to was a two-year, phaseout of the supplemental "Targeted Instructional Improvement Grant" (TIIG) funding in place at the time the agreement was signed. This agreement was to phase out the use of these funds on south Stockton schools that were formerly identifiable as minority schools and gradually redistributed those funds among the lowest performing schools. This funding phaseout period was for the 2003-2004 and 2004-2005 school years. The reason for this gradual phaseout provision was to ensure an orderly transition period for these schools and prevent turmoil in these programs.
As to these two key terms, the settlement agreement provides that the school district will have fully performed when it: (1) adopts the student assignment plan; (2) makes initial student assignment decisions consistent with that plan for the 2003-2004 school year; and (3) adopts the TIIG funding distribution plan provided for in the settlement agreement. The settlement agreement explicitly states the Hernandez petitioners "may only enforce [these provisions of the settlement agreement] for the [school] District's failure to complete" these three tasks. The Hernandez petitioners may not challenge the quality of the school district's implementation of these provisions, the attainment of any of their objectives, or the efficacy or appropriateness of the district's compliance beyond this. The settlement agreement also contained the agreements: (a) to stipulate that the school district had reached unitary status; (b) to bring joint motions to approve the settlement agreement and declare the school district unitary and dismiss the action; (c) a release of all claims and waiver of appeal rights; and (d) boilerplate terms common to most settlement agreements concerning the construction and operation of the settlement agreement itself. The settlement agreement was approved by the board of education for the school district and its key provisions adopted at its regular public meetings.
E
The Trial Court's Rulings
The trial court issued an order granting preliminary approval to the settlement agreement on March 4, 2003. The court set a fairness hearing for approval after notice to the class members for April 30, 2003. The Hernandez petitioners and the school district filed a joint motion for: (a) a declaration that the school district was unitary in all of its operations; (b) vacating all prior court orders in this case and entry of a dismissal; and (c) ending all court supervision of the school district. They also filed a second motion for final approval of the settlement agreement. Interveners opposed these motions.
On March 11, 2003, the school district moved to extend the stay of the intervention order. The Hernandez petitioners joined in that motion.
The interveners filed their own motion on April 3, 2003, to enjoin the court's prior desegregation order and as a result returning plenary control of the school district to its governing board. That motion was originally scheduled for a hearing on April 29, 2003.
In response to the school district's motion, the trial court extended the stay of its intervention order to May 30, 2003, but granted interveners permission to oppose the Hernandez petitioners' and school district's motion to approve the settlement agreement. Further, the court scheduled *7 the interveners' injunction motion for that same day and time.
After the April 30 hearing, the trial court found the school district was unitary in all areas of its operations and had eliminated all vestiges of intentional segregation in its programs, procedures, and operations. In this order, the court vacated its prior 1978 judgment, dissolved its prior orders, injunctions, and decrees and dismissed the action. Specifically, the court terminated its own supervision of the school district and returned that supervision to the school district's governing board. Finally, the court approved the settlement agreement between the school district and the Hernandez petitioners while retaining jurisdiction to enforce the settlement agreement for two years under Code of Civil Procedure section 664.6. At the same time, the court denied interveners' motion for a preliminary injunction and permanently stayed its order granting intervenors leave to intervene.
Interveners appeal.
DISCUSSION
I
Dismissal Of The Action
Interveners argue the trial court had to immediately dismiss this action and return all control over the school district back to the its governing board once the trial court entered a finding that the school district was unitary in all of its operations. As soon as the court made that finding, the interveners claim, the court was without power to do anything but dismiss the action and therefore could neither approve the settlement agreement nor retain jurisdiction to enforce it. We reject this argument.
A
Court Control Over Desegregation May Be Phased Out
In 1954, the United States Supreme Court, in Brown v. Board of Education of Topeka (1954) 347 U.S. 483, 493, 74 S.Ct. 686, 691, 98 L.Ed. 873, 880, concluded "segregation of children in public schools solely on the basis of race, even though the physical facilities and other `tangible' factors may be equal, deprive[s] the children of the minority group of equal educational opportunities." The court concluded the operation of a "`separate but equal'" (or dual) educational system was inherently unequal and denied those children equal protection of the laws guaranteed by the Fourteenth Amendment of the United States Constitution. (Id. at p. 495, 74 S.Ct. 686.) In the next year, the Supreme Court ordered the district courts to supervise the desegregation of the school districts and ordered those districts to desegregate with "all deliberate speed." (Brown v. Board of Ed. of Topeka (1955) 349 U.S. 294, 301, 75 S.Ct. 753, 757, 99 L.Ed. 1083, 1106.)
In 1968, in Green v. School Board of New Kent County (1968) 391 U.S. 430, 88 S.Ct. 1689, 20 L.Ed.2d 716, the Supreme Court concluded the time for "`"deliberate speed"'" had "`run out'" and the school districts once segregated by law must "come forward with a plan that promises realistically to work, and promises realistically to work now." (Id. at pp. 438-439, 88 S.Ct. 1689.) The Green court further stated it was the duty of the school district "to take whatever steps might be necessary to convert to a unitary system in which racial discrimination would be eliminated root and branch." (Id. at pp. 437-438, 88 S.Ct. 1689.) The Supreme Court further identified the various parts of the school system the court must examine in order to ascertain whether the school has *8 reached the goal of a unitary system: student attendance, faculty, staff, transportation, extracurricular activities, and facilities. (Id. at p. 435, 88 S.Ct. 1689.)
Under this line of cases, the trial court has plenary authority to prescribe injunctive relief that will remedy segregation and eliminate the vestiges of the past discrimination from the school's system. However, the power of the courts to impose its equitable authority over a school system is not unlimited. "`Local control over the education of children allows citizens to participate in decisionmaking, and allows innovation so that school programs can fit local needs.' (Board of Ed. of Oklahoma City v. Dowell (1990) 498 U.S. 237, 248[, 111 S.Ct. 630, 637, 112 L.Ed.2d 715].) Judicial displacement of local control is justified when local authorities have denied students equal protection of laws. Judicial supervision is intended as a temporary measure (id. at p. 247[, 111 S.Ct. at pp. 636-637]), not as `judicial tutelage for the indefinite future.' (Id. at p. 249[, 111 S.Ct. at p. 638].)" (Board of Education v. Superior Court (1998) 61 Cal.App.4th 411, 419, 71 Cal.Rptr.2d 562.)
"As explained in Freeman v. Pitts [1992] 503 U.S. 467, 489[, 112 S.Ct. 1430, 1445, 118 L.Ed.2d 108], at the outset of a school desegregation case the court's authority is invoked to remedy a particular constitutional violation. The nature of the violation determines the scope of the remedy. `[T]he court's end purpose must be to remedy the violation and, in addition, to restore state and local authorities to the control of a school system that is operating in compliance with the Constitution. [Citation.]' (Ibid.)" (Board of Education v. Superior Court, supra, 61 Cal.App.4th at p. 419, 71 Cal.Rptr.2d 562.)
"A court's exercise of its discretion to relinquish judicial control is determined by the school district's compliance with the court decree, whether retention of judicial control is necessary to achieve compliance and whether the school district has demonstrated its good faith commitment to both the decree and the constitutional provisions that were originally the predicate for judicial intervention. (Freeman v. Pitts, supra, 503 U.S. at p. 491[, 112 S.Ct. at p. 1446].)" (Board of Education v. Superior Court, supra, 61 Cal.App.4th at pp. 419-420, 71 Cal.Rptr.2d 562.) This inquiry is at the heart of the court's determination as to whether a school district has reached the goal of operating as a unitary school system.
The Supreme Court explained, "The concept of unitariness has been a helpful one in defining the scope of the district courts' authority, for it conveys the central idea that a school district that was once a dual system must be examined in all of its facets, both when a remedy is ordered and in the later phases of desegregation when the question is whether the district courts' remedial control ought to be modified, lessened, or withdrawn. But, as we explained last Term in Board of Ed. of Oklahoma City Public Schools v. Dowell, 498 U.S. 237, 245-246, 111 S.Ct. 630, 112 L.Ed.2d 715 (1991), the term `unitary' is not a precise concept: [¶] `[I]t is a mistake to treat words such as "dual" and "unitary" as if they were actually found in the Constitution.... Courts have used the terms "dual" to denote a school system which has engaged in intentional segregation of students by race, and "unitary" to describe a school system which has been brought into compliance with the command of the Constitution. We are not sure how useful it is to define these terms more precisely, or to create subclasses within them.' [¶] It follows that we must be cautious not to attribute to the term a utility it does not have. The term `unitary' does not confine the discretion and authority *9 of the District Court in a way that departs from traditional equitable principles." (Freeman v. Pitts, supra, 503 U.S. at pp. 486-487, 112 S.Ct. 1430.)
There is a split of authority in the federal circuit courts as to the effect of a trial court's finding a school district has reached "unitary status." (Annot., Circumstances Warranting Judicial Determination or Declaration of Unitary Status with Regard to Schools Operating Under Court-Ordered or -Supervised Desegregation Plans and the Effects of Such Declarations (1989) 94 A.L.R.Fed. 667, 698-723, §§ 9-11, and cases cited.) For example, in the Fifth Circuit, "a unitariness finding `is critical because once it is made a federal court loses its power to remedy the lingering vestiges of past discrimination absent a showing that either the school authorities or the state had deliberately attempted to fix or alter demographic patterns to affect the racial composition of the schools.' [Citation.]" (Price v. Austin Independent School Dist. (5th Cir.1991) 945 F.2d 1307, 1314-1315.) On the other hand, the Tenth Circuit has concluded that a unitary finding alone does not end the power of the court to enter further orders or enforce prior orders of the court concerning desegregation. (Dowell By Dowell v. Board of Educ. of Oklahoma (10th Cir.1986) 795 F.2d 1516, 1523, cert. den. (1986) 479 U.S. 938, 107 S.Ct. 420, 93 L.Ed.2d 370.)
In Board of Ed. Oklahoma City v. Dowell, supra, 498 U.S. at page 248, 111 S.Ct. 630 (a later proceeding in the same case), the Supreme Court stated, "Dissolving a desegregation decree after the local authorities have operated in compliance with it for a reasonable period of time properly recognizes that `necessary concern for the important values of local control of public school systems dictates that a federal court's regulatory control of such systems not extend beyond the time required to remedy the effects of past intentional discrimination. [Citation.]" (Italics added.) The court remanded the action for the district court to determine whether the school district had made a sufficient showing of constitutional compliance such that the injunction against the school district should be dissolved. (Id. at p. 249, 111 S.Ct. 630.) Further, the Supreme Court left intact the Tenth Circuit's conclusion that the court's prior unitary finding bound the parties but did not terminate the litigation. (Id. at p. 246, 111 S.Ct. 630.) The language of this case necessarily indicates that a school district will have achieved unitary status for a period of time before the trial court declares that it is unitary and must withdraw its orders and dissolve preexisting injunctions. Further, the case stands for the proposition that a simple finding of unitary status does not terminate the case.
In Freeman v. Pitts, supra, the Supreme Court reviewed a decision of a district court to relinquish control over portions, but not all, of a Georgia school district's desegregation efforts because the court concluded the district was operating in a unitary manner in those areas. (503 U.S. at pp. 471, 474, 112 S.Ct. 1430.) The district court, however, retained jurisdiction over the areas where vestiges of the dual system remained: teacher and principal assignments, resource allocations, and the quality of education. (Id. at p. 474, 112 S.Ct. 1430.) The Supreme Court concluded that the trial court had the authority to relinquish supervision over a school district "in incremental stages, before full compliance has been achieved in every area of school operations." (Id. at p. 490, 112 S.Ct. 1430.) "This discretion derives both from the constitutional authority which justified its intervention in the first instance and its ultimate objectives in formulating the decree." (Id. at p. 489, 112 S.Ct. 1430.) *10 The court stated, "Just as a court has the obligation at the outset of a desegregation decree to structure a plan so that all available resources of the court are directed to comprehensive supervision of its decree, so too must a court provide an orderly means for withdrawing from control when it is shown that the school district has attained the requisite degree of compliance. A transition phase in which control is relinquished in a gradual way is an appropriate means to this end." (Id. at pp. 489-490, 112 S.Ct. 1430.)
Given the split of authority in the federal circuit courts, and the Supreme Court's explicit sanction of incremental withdrawal from school districts in Freeman v. Pitts, we conclude the trial did not abuse its discretion here. As part of its order finding the district to be unitary, the trial court dissolved all of its prior orders, injunctions, returns of writ of mandate, decrees, desegregation plans, and other court-imposed obligations in this case. It vacated its prior judgment finding segregation in the school district. It dismissed the action with prejudice. The trial court thus terminated its active supervision over the school district and placed all of the school district's operations in the hands of its governing board.
All the trial court retained was the potential of being asked to enforce two contractual provisions during the two-year period following its dismissal of the action: one year for the student assignment plan, and two years for the TIIG funding phaseout provision. The parties explained these provisions were necessary to ensure a smooth transition from court supervision to the supervision by the school district's governing board for both the students and for the magnet programs supported by these funding measures. The court's decision to reserve jurisdiction on these two items was a rational exercise of the court's discretion at the conclusion of this 34-year-old case to transition full control over the school district from the court to its governing board.
B
The Trial Court Did Not Retain Plenary Control Over The District When It Retained Jurisdiction Under Code of Civil Procedure Section 664.6
We reach the same conclusion for an independent reason. The only remaining strand tying the trial court to further potential involvement in this case ever again is its retention of "jurisdiction in this matter under Code of Civil Procedure section 664.6 for two years from the date of entry of judgment, for the sole purpose of enforcing the February 25, 2003 Settlement Agreement and General Release. At the end of such time, the docket in this case is to be closed." The reservation of jurisdiction under Code of Civil Procedure section 664.6 does not improperly extend the court's plenary authority over the school district and all of its operations that was justified by its violation of the United States Constitution's mandate of equal protection under the laws. Rather, this reservation simply grants the parties a streamlined procedure to enforce an agreement they made between themselves.
Code of Civil Procedure section 664.6 provides: "If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement."
"Prior to the enactment of section 664.6, a party seeking to enforce a settlement *11 agreement had to file a new action alleging breach of contract and seeking either contract damages or specific performance of the settlement terms, or alternatively had to supplement the pleadings in a pending case. [Citations.] Although a summary judgment motion could be filed based on the newly pleaded contract or specific performance claim, summary judgment could be granted only if the opposing party failed to raise a triable issue of fact. [Citation.] Expeditious enforcement of a settlement agreement was therefore not always possible. [¶] Section 664.6 was enacted to provide a summary procedure for specifically enforcing a settlement contract without the need for a new lawsuit." (Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 809, 71 Cal.Rptr.2d 265.)
The power of the trial court under Code of Civil Procedure section 664.6, however, is extremely limited. "Although a judge hearing a section 664.6 motion may receive evidence, determine disputed facts, and enter the terms of a settlement agreement as a judgment [citations], nothing in section 664.6 authorizes a judge to create the material terms of a settlement, as opposed to deciding what terms the parties themselves have previously agreed upon." (Weddington Productions, Inc. v. Flick, supra, 60 Cal.App.4th at p. 810, 71 Cal.Rptr.2d 265.) For this reason, the appellate court in Weddington, invalidated a judgment entered under Code of Civil Procedure section 664.6 that imposed a license agreement on one party because the terms of the license were not reflected in the writing signed by the parties. (Id. at p. 818, 71 Cal.Rptr.2d 265.)
A settlement agreement is simply a contract. (Weddington Productions, Inc. v. Flick, supra, 60 Cal.App.4th at p. 810, 71 Cal.Rptr.2d 265.) The retention of the trial court's jurisdiction to enforce the settlement agreement is no different than allowing a person with a contract with the school district to sue it for breach. The court is powerless to impose on the parties more restrictive or less restrictive or different terms than those contained in their settlement agreement. In this sense, the trial court has not retained plenary supervisory powers over the school district's student assignments, teacher, staff and administration hiring decisions, facilities and resources, transportation, or extracurricular activities, that are justified in the desegregation case by the school district's violation of the United States Constitution. The court simply has reserved the power to enforce, according to its terms, the contract they negotiated amongst themselves. Further, this may only happen upon motion filed by either party.
Moreover, here, a court order enforcing the settlement agreement would have quite a limited effect on the school district. Under the terms of the settlement agreement, the trial court would be limited to requiring the school district to: (1) adopt the student assignment plan; (2) make initial student assignment decisions consistent with that plan for the 2003-2004 school year (a year that has already passed); and (3) adopt the TIIG funding distribution plan for the school years starting in 2003 and 2004. The trial court's decision to retain jurisdiction to resolve these issues does not run afoul of the requirement that it extricate itself from the affairs of the school district upon a showing of full compliance with its obligations to comply with the federal and state Constitutions' mandates of equal protection.
II
The Settlement Agreement Does Not Violate The Education Code
Interveners argue the terms of the settlement agreement violate the express *12 terms of Education Code section 54203. We disagree.
TIIG funds are provided for under Education Code[2] section 54200 and following. Section 54200 provides: "The funding for court-ordered desegregation programs and for voluntary integration programs shall be combined to form a new program, the Targeted Instructional Improvement Grant Program that is hereby established."
Section 54203 provides: "(a) A school district receiving funds pursuant to this chapter shall expend the funds to accomplish the following: [¶] (1) To fund the costs of any court-ordered desegregation program, if the order exists and is still in force. [¶] (2) To provide instructional improvement for the lowest achieving pupils in the district. [¶] (b) In expending funds received pursuant to this chapter, a school district shall give first priority to funding the costs of any court-ordered desegregation program if the order exists and is still in force." Interveners claim this means "[I]n the absence of a court's desegregation order, the [school] district must prioritize TIIG funds to the lowest achieving students."
However, interveners inexcusably fail to cite to this court the very next section of the Education Code. Section 54204 provides, "Notwithstanding Section 54203, a school district, or multidistrict consortium or collaborative, receiving funds pursuant to this chapter may expend the funds to continue operating a voluntary or court-ordered desegregation program that was established before the enactment of this chapter, including a court-ordered program that the district continues operating after the court order establishing the program is dissolved." Section 54204 authorizes the school district to continue to use TIIG funds to fund the magnet school programs created under its prior desegregation plan "that the district continues operating after the court order establishing the program is dissolved." Intervenors' argument to the contrary is frivolous.[3]
III
The Settlement Agreement Does Not Violate The California Constitution
Interveners argue the terms of the settlement agreement providing funding to the existing magnet schools violates section 31 of article I of the California Constitution (section 31). Interveners allege "continuing to apply aspects of the trial court's desegregation orders to the District without a finding of a current Fourteenth Amendment violation runs not only contrary to the Fourteenth Amendment, but also contrary to Section 31 because the District is no longer suffering from the vestiges of racial discrimination. Any program adopted, enforced, or promoted to benefit the District's school children in the future must necessarily be neutral and not directed to schools that were once `racially isolated,' as the current `settlement' provides." Interveners have failed to demonstrate error.
Section 31 provides: "The State shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, *13 ethnicity, or national origin in the operation of public employment, public education, or public contracting."
In this provision, "`Discriminate' means `distinctions in treatment.' A `preference' means the `"giving of priority or advantage to one person ... over others."' [Citation.]" (Crawford v. Huntington Beach Union High School Dist. (2002) 98 Cal.App.4th 1275, 1280, 121 Cal.Rptr.2d 96.) Interveners have failed to demonstrate how the school district discriminated against or granted preferential treatment on the basis of race in the decision to favor the magnet schools chosen in the settlement agreement to continue receiving TIIG funds. True, these schools were "`Formerly Racially Isolated Minority" schools, but as demonstrated by the documents submitted in support of the motion, these schools are no longer racially isolated minority schools. These schools are now racially balanced and all vestiges of discrimination in them have been eliminated. Thus, the selection of one racially balanced school over another cannot constitute a preference of one or a discrimination against the other based on race.
Further, the evidence in the record shows the choice of these schools was based on the desire to preserve these educational programs. The immediate cutoff of funding from these schools threatened to put their programs and activities into turmoil. The decision was made to allow them an orderly transition period in which to secure alternative funding for these programs. This is not a preference or discrimination based upon race. Thus, interveners have demonstrated no violation of section 31.
DISPOSITION
The judgment is affirmed. The district and the Hernandez petitioners shall recover costs on appeal. (Cal. Rules of Court, rule 27(a).)
We concur: BLEASE, Acting P.J., and DAVIS, J.
NOTES
[1] There is an unexplained 19-year gap in the trial court's original file submitted as the record in this case. We grant the district's unopposed request for judicial notice of the court's orders that were inexplicably omitted from the trial court's file. (Evid.Code, § 452, subd. (d); People v. Moore (1997) 59 Cal.App.4th 168, 178, 69 Cal.Rptr.2d 56.) We deny interveners' request for judicial notice of the verified petition and related documents filed in the separate action entitled Dwight Williams, Jr. v. Board of Education of Stockton Unified School District (Super. Ct. San Joaquin County, No. CV 018753.) Interveners did not provide copies of the documents they wanted this court to take judicial notice of, nor have they demonstrated why those documents are relevant here. (Navellier v. Sletten (2002) 29 Cal.4th 82, 87, fn. 5, 124 Cal.Rptr.2d 530, 52 P.3d 703 [court refused to take judicial notice of documents in another case where the relevance of such issues presented is not apparent].) That case is not the subject of this appeal, nor part of the record on this appeal.
[2] All further statutory references are to the Education Code unless otherwise indicated.
[3] Interveners argue the expenditure of these funds in the manner proposed by the settlement agreement is contrary to public policy in that it favors better schools over less achieving schools. They fail to demonstrate how this runs afoul of the requirements of the Education Code provisions that expressly provide for the manner in which TIIG funds may be expended. Thus, we reject this argument. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2116645/ | 678 N.E.2d 374 (1997)
287 Ill. App. 3d 303
222 Ill. Dec. 762
VERNON HILLS III LIMITED PARTNERSHIP, Plaintiff and Counter-defendant-Appellee,
v.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendant (Bucon, Inc., d/b/a Butler Construction Company, Defendant and Counterplaintiff-Appellant).
No. 2-96-0724.
Appellate Court of Illinois, Second District.
April 3, 1997.
*375 Peter G. Swan, Emalfarb, Swan & Bain, Highland Park, Matthew R. Hale, Troy H. Ellis, Polsinelli, White, Vardeman & Shalton, Kansas City, MO, for Bucon, Inc., dba Butler Construction Co.
John H. Anderson, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, for Vernon Hills III Ltd. Partnership.
Presiding Justice GEIGER delivered the opinion of the court:
The defendant and counterplaintiff, Bucon, Inc. (Bucon), appeals from the April 23, 1996, order of the circuit court of Lake County granting summary judgment in favor of the plaintiff and counterdefendant, Vernon Hills III Limited Partnership (VHLP), on its claim for declaratory judgment. The trial court ruled that Bucon forfeited its mechanic's lien by failing to commence an action to foreclose the lien within 30 days after receipt of VHLP's written demand to sue, as required by section 34 of the Mechanics Lien Act (the Act) (770 ILCS 60/34 (West 1994)). On appeal, Bucon argues that the trial court erred in finding that VHLP's letter of July 29, 1994, constituted a written demand to sue pursuant to section 34 of the Act. We affirm and remand.
The facts necessary for the disposition of this appeal are as follows. On February 18, *376 1993, VHLP contracted with Bucon to design and build a shopping center in Vernon Hills. Bucon was to design and construct all of the buildings, as well as numerous site improvements, including the parking lot and utility connections. The contract provided that Bucon would be paid approximately $15 million for the project. Bucon commenced construction in the spring of 1993, and a certificate of substantial completion was issued on August 22, 1994.
On July 21, 1994, Bucon filed a mechanic's lien against the shopping center in the Lake County recorder's office. The lien was in the amount of $1,315,249. On August 1, 1994, Bucon received, via certified mail, a letter from VHLP dated July 29, 1994. The letter provides, in pertinent part:
"Pursuant to Article 11.4 of that certain Design Build Contract dated as of February 18, 1993, * * * between [VHLP] and [Bucon] for the design and construction of a retail shopping center * * * located in Vernon Hills, Illinois, this letter shall serve as notice of your breach on the Contract pursuant to Article 11.5.2 of the Contract. Article 11.5.2 of the Contract provides that `[i]n no event may Design/Builder file, or permit those whom it controls or for whom it has legal responsibility under the Contract to file, a mechanics' * * * lien or claim for lien for work performed under the Contract * * *.' However, on July 21, 1994, a claim for lien in the amount of $1,315,249.00 was filed in the Lake County Recorder's Office * * *. This course of action is clearly in violation of the Contract.
We hereby demand that you either immediately release your lien or bring suit to enforce it so that this matter can be expeditiously resolved. We fully intend to look to your organization in order to recapture any additional costs we may incur in connection with your actions. In addition, in the event this lien is not released of record immediately, we will pursue all other rights and remedies available in the Contract, at law or in equity in response to your breach and your failure to fulfill the requirements of this letter."
On August 3, 1994, Bucon received a follow-up letter from VHLP's attorney dated July 28, 1994. The letter provided as follows:
"You should be receiving, if you have not received already, a copy of ownership's letter in connection with the mechanic's lien you recently filed under Illinois' Mechanic's Lien Statute (770 ILCS 60/1, et seq.). It is not the purpose of this letter to alter the contents of ownership's letter, but I did want to initiate with you a discussion as to why you have filed the lien and what purpose you think it will serve and further to suggest a dialogue to accomplishing the mutual objectives of your company and ownership. If you are so inclined, please give me a call."
Thereafter, VHLP's attorney and Bucon's attorney had several conversations in which they discussed the lien. During these conversations, Bucon's attorney explained that, although Bucon intended to preserve its rights under the Act, it would nonetheless assist VHLP in closing out the project. VHLP's attorney reiterated VHLP's position that Bucon had breached the contract by filing the lien.
On August 4 and 17, 1994, VHLP's attorneys wrote Bucon regarding certain paperwork that had to be completed in order to close out the project and to get the property ready for sale. After August 1994, Bucon and VHLP continued to correspond through their attorneys with respect to completing the steps necessary to close out the project. Bucon fully cooperated with these efforts to complete the project.
On October 27, 1994, VHLP made a claim to Bucon seeking liquidated damages arising from construction delays on the project. Between November 1994 and August 1995, Bucon and VHLP engaged in negotiations in an attempt to settle Bucon's lien and VHLP's delay claim. The parties arrived at a tentative settlement agreement whereby Bucon would discount its lien from $1,315,249 to $922,901.50 and the parties would mutually release their claims. However, this settlement agreement broke down when the parties were unable to reach an agreement with *377 respect to alleged defects in the building's roof.
On January 13, 1995, VHLP filed suit against Bucon claiming damages in excess of the amount of Bucon's lien. On February 27, 1995, VHLP filed an amended five-count complaint. Count IV, which is the only count relevant on appeal, sought a declaration that Bucon had forfeited its mechanic's lien by failing to commence an action to foreclose its lien within 30 days after receipt of VHLP's written demand to sue as required by section 34 of the Act (770 ILCS 60/34 (West 1994)). In June 1995, Bucon filed a counterclaim against VHLP seeking a judgment in the amount of its contract balance. On August 30, 1995, Bucon filed a separate action seeking enforcement of its lien.
On January 19, 1996, VHLP filed a motion for summary judgment on count IV of the amended complaint. VHLP argued that its letter of July 29, 1994, was a written demand, made pursuant to section 34 of the Act, that Bucon commence suit to enforce its mechanic's lien. Although Bucon received VHLP's letter on August 3, 1994, it did not file suit to enforce its lien within the next 30 days. VHLP therefore concluded that Bucon had forfeited its lien under section 34 of the Act.
In response to the motion, Bucon argued that VHLP's July 29, 1994, letter was not a written demand to sue under section 34 of the Act. Bucon argued that the letter did not contain any reference to section 34 and did not indicate that Bucon's failure to commence suit within 30 days would render its lien void. In support of its position, Bucon submitted the affidavit of its attorney stating that he did not understand the July 29, 1994, letter to be a demand pursuant to section 34 of the Act. Bucon's attorney also stated that he was unaware of section 34 at the time he received the letter and that at no time did VHLP's attorney mention the statute or its contents. Alternatively, Bucon argued that, even if the July 29, 1994, letter was a written demand to sue under section 34 of the Act, VHLP was estopped from asserting the defense due to its subsequent conduct and attempts to settle the lien.
On April 23, 1996, the trial court granted VHLP's motion for summary judgment and declared Bucon's mechanic's lien forfeited and null and void. On May 23, 1996, the trial court made this order final and appealable pursuant to Supreme Court Rule 304(a) (155 Ill.2d %. 304(a)). Bucon filed a timely notice of appeal.
Bucon first argues that the trial court erred in determining that, as a matter of law, VHLP's July 29, 1994, letter satisfied the statutory demand requirements of section 34 of the Act. Bucon argues that this question is a disputed material fact which precludes the entry of summary judgment.
The purpose of a motion for summary judgment is to determine whether a genuine issue of triable fact exists (Purtill v. Hess, 111 Ill. 2d 229, 240, 95 Ill. Dec. 305, 489 N.E.2d 867 (1986)), and a motion for summary judgment should be granted only when "the pleadings, depositions, 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" (735 ILCS 5/2-1005(c) (West 1994)). In determining the existence of a genuine issue of material fact, the court must construe the evidence strictly against the moving party and liberally in favor of the nonmoving party. Gatlin v. Ruder, 137 Ill. 2d 284, 293, 148 Ill. Dec. 188, 560 N.E.2d 586 (1990). The disposition of a summary judgment motion is not discretionary and the standard of review is de novo. Quinton v. Kuffer, 221 Ill.App.3d 466, 471, 164 Ill. Dec. 88, 582 N.E.2d 296 (1991).
Section 34 of the Act provides, in pertinent part:
"Upon written demand of the owner * * * served on the person claiming the lien * * *, requiring suit to be commenced to enforce the lien or answer to be filed in a pending suit, suit shall be commenced or answer filed within 30 days thereafter, or the lien shall be forfeited. Such service may be by registered or certified mail, return receipt requested, or by personal service." 770 ILCS 60/34 (West 1994).
The failure of the lienholder to commence suit within 30 days of receipt of a written notice made pursuant to section 34 of the Act *378 operates to forfeit and remove the mechanic's lien. Pickus Construction & Equipment Co. v. Bank of Waukegan, 158 Ill.App.3d 141, 146, 110 Ill. Dec. 393, 511 N.E.2d 228 (1987).
We are not aware of any Illinois case that has specifically articulated the precise language required of a written demand to sue made pursuant to section 34 of the Act. Lacking any such judicial interpretation, we will look to the plain meaning of the statute's language, as well as the legislature's intent in enacting the statute. See In re Application of County Collector, 181 Ill. App. 3d 345, 348, 130 Ill. Dec. 77, 536 N.E.2d 1288 (1989). The best indication of the legislature's intent is the statute's language, and, where the statutory language is unambiguous, the court must enforce the law as written. Oak Brook Park District v. Oak Brook Development Co., 170 Ill.App.3d 221, 229, 120 Ill. Dec. 448, 524 N.E.2d 213 (1988). We also note that mechanics lien statutes are in derogation of the common law, and therefore such statutes must be strictly construed. Matthews Roofing Co. v. Community Bank & Trust Co., 194 Ill.App.3d 200, 205, 141 Ill. Dec. 143, 550 N.E.2d 1189 (1990).
Applying these rules of statutory construction to the instant case, we conclude that VHLP's July 29, 1994, letter satisfied the written demand requirements of section 34 of the Act and triggered the tolling of the 30-day limitation period. The plain language of the statute requires only that the owner of the property make a written demand to the lienholder requiring that suit be commenced to enforce the lien. Such a written demand must be served either personally or by registered or certified mail, return receipt requested. VHLP's letter of July 29, 1994, satisfies all of these statutory requirements: the letter is a written demand by the property owner (VHLP) to the lienholder (Bucon), demanding Bucon "either immediately release" the lien or "bring suit to enforce it." The letter was sent via certified mail, return receipt requested, and Bucon signed for the letter on August 1, 1994.
Bucon correctly notes that the July 29, 1994, letter makes no reference to either section 34 of the Act or the requirement that Bucon file a lien enforcement suit within 30 days. Such information, however, is not statutorily required by section 34 of the Act. We decline to impose additional notice requirements that are not contained within the plain language of the statute. It was not the responsibility of VHLP to educate Bucon, or its attorney, about the operation and effect of the Act. As the July 24, 1994, letter satisfied all of the statutory requirements of section 34, it was effective to trigger the tolling of the 30-day period during which Bucon was obligated to commence suit to enforce its lien.
Bucon also argues that, even if the July 24, 1994, letter was a sufficient demand pursuant to section 34 of the Act, VHLP is estopped from raising such a defense by reason of its conduct during the 30-day period after Bucon received the letter. Specifically, Bucon relies on VHLP's participation in settlement negotiations on Bucon's lien, as well as VHLP's repeated requests for Bucon's assistance with the paperwork necessary to close out the project. This argument is without merit.
Illinois courts have held that the time limitations contained in the various sections of the Act are jurisdictional and that there is no right to a lien unless the statutory periods are complied with. Muehlfelt v. Vlcek, 112 Ill.App.2d 190, 193, 250 N.E.2d 14 (1969). These time limitations are not subject to waiver or estoppel, because unlike statutes of limitation, they are not merely a limitation on the remedy afforded under the Act, but rather a condition that must be satisfied before the right to the remedy under the Act exists. Garbe Iron Works, Inc. v. Priester, 99 Ill. 2d 84, 88, 75 Ill. Dec. 428, 457 N.E.2d 422 (1983); D.M. Foley Co. v. North West Federal Savings & Loan Ass'n, 122 Ill.App.3d 411, 418, 77 Ill. Dec. 877, 461 N.E.2d 500 (1984). The failure to comply with the Act's time limitations results in the loss of the statutory remedy afforded under the Act. Well Done Heating & Sheet Metal Co. v. Ralph Schwartz & Associates, 112 Ill.App.3d 438, 442-43, 68 Ill. Dec. 3, 445 N.E.2d 451 (1983).
However, even if the estoppel doctrine could be applied to bar VHLP from asserting the defense provided by section 34 of the Act, the circumstances in the instant *379 case would not support the doctrine's application. Estoppel applies only in those instances where: (1) the defendant has made some misrepresentation or concealment of a material fact; (2) the defendant had knowledge, either actual or implied, that the representations were untrue at the time they were made; (3) the plaintiff was unaware of the untruth of the representations both at the time they were made and the time they were acted upon; (4) the defendant either intended or expected his representations or conduct to be acted upon; (5) the plaintiff did, in fact, rely upon or act upon the representations or conduct; and (6) the plaintiff has acted on the basis of the representations or conduct such that he would be prejudiced if the defendant is not estopped. Strom International, Ltd. v. Spar Warehouse & Distributors, Inc., 69 Ill.App.3d 696, 703, 26 Ill. Dec. 484, 388 N.E.2d 108 (1979). The mere pendency of negotiations conducted in good faith is insufficient to give rise to estoppel. Viirre v. Zayre Stores, Inc., 212 Ill.App.3d 505, 515, 156 Ill. Dec. 622, 571 N.E.2d 209 (1991).
In making its estoppel argument, Bucon focuses on several letters by VHLP attorneys to Bucon during the 30 days following its receipt of the July 24, 1994, letter. These communications related to (1) the parties' "mutual objectives" in resolving matters and closing out the project without resorting to litigation; (2) VHLP's request that Bucon assist with the paperwork necessary to close out the project; and (3) a plan for the project's closeout and the deposit of Bucon's lien waiver in escrow. Bucon argues that the totality of this conduct creates a question of fact as to whether VHLP "lulled" Bucon into not filing a suit to enforce its lien.
Contrary to Bucon's assertions, however, in none of these letters does VHLP indicate that it was withdrawing its written demand to sue. Rather, these communications discuss the steps necessary to close out the project and express the general hope that litigation could be avoided. Such correspondence does not reasonably support an inference that VHLP was relinquishing its statutory rights pursuant to section 34 of the Act. In fact, VHLP's attorney expressly indicated in a July 28, 1994, letter that it was not the intent of the communication to alter the contents of "ownership's letter in connection with the mechanic's lien" filed by Bucon. We cannot believe that Bucon was "lulled" into not filing suit, when its own attorney admitted that he was unaware of the procedural requirements set out by section 34 of the Act. We therefore conclude that VHLP was not estopped from exercising its statutory rights pursuant to section 34 and that the trial court properly entered summary judgment in its favor.
As its final argument, Bucon contends that the application of section 34 to forfeit its lien is unconstitutional. Bucon asserts that the written demand provisions of section 34 are insufficient to satisfy the requirements of procedural due process. Bucon argues that it should have been given an opportunity to be heard prior to the deprivation of its property interest in the lien.
We do not address the merits of this argument as it has not been properly presented on appeal. Supreme Court Rule 341(e)(7) (155 Ill.2d R. 341(e)(7)) admonishes appellants that argument in an appellant's brief shall include "citation of the authorities * * * relied on. * * * Points not argued are waived and shall not be raised in the reply brief* * *."
A reviewing court is entitled to have issues clearly defined with pertinent authority cited and coherent arguments presented; arguments inadequately presented on appeal are waived. Spinelli v. Immanuel Lutheran Evangelical Congregation, Inc., 118 Ill. 2d 389, 401, 113 Ill. Dec. 915, 515 N.E.2d 1222 (1987). Statements unsupported by argument or citation of relevant authority do not merit consideration on review. Holmstrom v. Kunis, 221 Ill.App.3d 317, 325, 163 Ill. Dec. 723, 581 N.E.2d 877 (1991). A reviewing court will not become an advocate for, as well as the judge of, points the appellant seeks to raise. Holmstrom, 221 Ill. App.3d at 325, 163 Ill. Dec. 723, 581 N.E.2d 877.
Bucon has barely articulated, much less properly supported, grounds for its constitutional argument. The only authority cited by Bucon in its appellate brief is Connecticut v. Doehr, 501 U.S. 1, 111 S. Ct. 2105, 115 L. Ed. 2d 1 (1991), and this authority was cited without comment. We agree with VHLP *380 that Doehr is inapposite to the situation presented here. In Doehr, the United States Supreme Court held that Connecticut's ex parte attachment procedure was unconstitutional because it permitted trial courts to make a prejudgment attachment of real estate without prior notice or hearing to the landowner. 501 U.S. at 24, 111 S.Ct. at 2119, 115 L. Ed. 2d at 21. Section 34 of the Act does not impress a lien on a landowner's property interest; instead, the section creates a statutory limitations period for a lienholder to enforce its lien. Because Bucon has failed to cite any relevant authority to support its argument, it has waived the argument pursuant to Rule 341(e)(7).
For the foregoing reasons, the judgment of the circuit court of Lake County is affirmed, and this cause is remanded for further proceedings consistent with this decision.
Affirmed and remanded.
INGLIS and HUTCHINSON, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2274545/ | 93 Cal.Rptr.2d 97 (2000)
78 Cal.App.4th 498
Jose HERNANDEZ, Plaintiff and Appellant,
v.
CALIFORNIA HOSPITAL MEDICAL CENTER, Defendant and Respondent.
No. B128311.
Court of Appeal, Second District, Division Four.
February 23, 2000.
*98 Stewart Levin, Los Angeles, for Plaintiff and Appellant.
Rushfeldt, Shelley & Drake, Earl A. Beamon, II, Dawn Cushman, Sherman Oaks, and Adrian J. Guidotti, for Defendant and Respondent.
HASTINGS, J.
Plaintiff Jose Hernandez, the son of Manuel Hernandez, appeals from summary judgment granted to defendant California Hospital Medical Center (respondent) in this medical malpractice action. After review of the record, we reverse.
FACTS
This is a survival action brought by plaintiff to recover damages allegedly resulting from injuries received by his "over eighty years old" father during his hospitalization with respondent from December 7, 1996, through December 17, 1996.[1]
*99 The operative complaint, the third amended complaint, alleges that respondent was negligent in that it "failed to maintain adequate hygiene to prevent the formation of decubiti on the sacral and coccyx region of the patient, failed to provide repositioning of the patient frequently enough to provide sufficient relief of pressure to avoid the formation of sacral and/or coccyx bedsores on the patient, failed to assess the skin condition of the patient, failed to seek medical advice and orders from a physician to treat the sacral and/or coccyx decubiti of the patient when such decubiti began to develop and to worsen, and failed to take any steps to promote healing of such sacral and/or coccyx decubiti." It was also alleged that as a result of respondent's negligence, Manuel Hernandez "suffered serious sacral and coccyx ... decubiti" and "required multiple surgeries to attempt to heal the aforesaid sacral and coccyx bedsores...." Plaintiff sought special and general damages.
Respondent moved to strike portions of the complaint, and the trial court granted the motion in part, striking plaintiffs prayer for general damages.
Respondent moved for summary judgment on the ground that plaintiff could not establish any recoverable damages. The trial court granted summary judgment for respondent, finding that plaintiff "failed to provide any competent admissible [evidence] which raises any triable issue of material fact to show that any action or inaction by defendant ... damaged decedent Manuel Hernandez." The court thereafter entered a judgment for respondent.
DISCUSSION
Plaintiff asserts error with regard to the trial court rulings granting the motion to strike and summary judgment.
1. The Motion to Strike
Plaintiff has chosen to perfect his appeal pursuant to California Rules of Court, rule 5.1 by providing us with his own appendix in lieu of a clerk's transcript. The appendix fails to provide us with a copy of respondent's motion to strike, any opposition filed by plaintiff, or the court's order granting the motion. Instead, he only includes in his appendix the notice of ruling. Appealed judgments and orders are presumed correct, and error must be affirmatively shown. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564, 86 Cal. Rptr. 65, 468 P.2d 193.) Consequently, plaintiff has the burden of providing an adequate record. (Maria P. v. Riles (1987) 43 Cal.3d 1281, 1295, 240 Cal.Rptr. 872, 743 P.2d 932.) Failure to provide an adequate record on an issue requires that the issue be resolved against plaintiff. (Id. at pp. 1295-1296, 240 Cal.Rptr. 872, 743 P.2d 932.) Without respondent's motion to strike, plaintiffs opposition, and the court's order, we cannot review the basis of the court's decision. Plaintiff has failed to carry his burden on this ruling.[2]
2. The Motion for Summary Judgment
A summary judgment motion raises only questions of law regarding the construction and effect of the supporting and opposing papers. In order for a defendant to prevail on summary judgment it has the burden of negating one essential element of the cause of action asserted or to establish an affirmative defense to the claim. In determining whether a defendant has carried its burden, "[f]irst, we identify the issues framed by the pleadings since it is these allegations to which the motion must respond by establishing a complete defense or otherwise showing there is no factual basis for relief on any theory reasonably contemplated by the opponent's *100 pleading. [Citations.] [¶] Secondly, we determine whether the moving party's showing has established facts which negate the opponent's claim and justify a judgment in movant's favor. [Citations.]" (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1064, 225 Cal.Rptr. 203.) If defendant has carried its burden, the burden then shifts to plaintiff to demonstrate a triable issue of fact on the issue presented. (Code Civ. Proc, § 437c, subd. (o)(2).) Here, we conclude that respondent failed to carry its initial burden.
The sole cause of action asserted in the complaint is medical malpractice. It alleges that plaintiffs father developed bed sores while hospitalized with respondent due to respondent's negligent care and as a result "was required to incur medical bills and monetary obligations for medical services, surgical and hospital intervention and treatment, x-rays, drugs, physicians, hospitalization and for other medical services required in the treatment and relief of the injuries and bedsores herein alleged...."
Respondent's motion for summary judgment was very narrowly drawn: it contended that plaintiff would be unable to prove the existence of any recoverable damages. The motion did not challenge any issue relating to negligence or causation, nor did it attempt to negate the allegations that plaintiffs father developed decubiti as a result of negligent treatment rendered by respondent and that he incurred medical expenses to remedy the problem.
In its separate statement of undisputed facts, respondent listed seven separate facts, of which only facts 3 and 4 are relevant to our discussion. Those facts are as follows:
"3. Manuel Hernandez's medical bills were covered by Medicare and [Medi-Cal].
"4. In plaintiffs response to defendant's Special Interrogatories requesting him to list all of the out-[of]-pocket expenses of the decedent, [plaintiff] replied that the only out of pocket expense was burial expenses in the amount of $2,600.00."
In response to the separate statement, plaintiff disputed fact number 3, stating "There is no evidence that all medical bills were completely paid by Medi-Cal and Medicare." Fact number 4 was "undisputed." In addition, plaintiff proffered his own "Additional Disputed Issues" with a single fact: "1. Manuel Hernandez incurred reasonable and necessary medical bills in excess of $100,000.00 due to the negligence of defendant, California Hospital Medical Center." The supporting evidence cited the "Declaration of Davina J. Leary, R.N., attached hereto as Exhibit No. `1'." In that declaration Ms. Leary states that she is a "licensed registered nurse with extensive experience and training in managing nursing care and providing nursing care in hospitals in Southern California." She also indicates that she had reviewed the medical records of respondent relating to plaintiffs father for his admission as well as "selected medical records of Mr. Manuel Hernandez from Country Villa Nursing Home based upon care that he received in December 1996 and thereafter, including January 1997, and medical and surgical reports and bills from Hollywood Community Hospital." She opines that "Mr. Hernandez received inadequate nursing care related to his sacral area" during his hospitalization with respondent. She concluded that plaintiffs father required the surgical and hospital treatments reflected in the records and bills from Hollywood Community Hospital, which were attached to her declaration, as a direct result of the treatment rendered at respondent's facility.[3] There is no evidence *101 within the opposition papers to challenge respondents fact No. 3, that all medical bills were paid either by Medicare or Medi-Cal.
A review of the record presented to the trial court demonstrates that the only out-of-pocket expenses identified by plaintiff in connection with this action relate to his father's burial, $2,600, identified in response to the special interrogatories. Because plaintiffs complaint does not assert that his father's death related to treatment rendered by respondent, the burial expenses identified are not causally connected to the litigation and are thus irrelevant. However, what is undisputed is that Medi-Cal or Medicare did pay for treatment rendered to plaintiffs father. Because respondent did not attempt to negate the fact that payments made by Medi-Cal or Medicare may have related to treatment required as a result of negligent treatment rendered by respondent, plaintiff had no duty to present evidence on that issue. Thus, we are left with a pure question of law: whether the fact of payment by Medi-Cal and Medicare precludes plaintiff from recovering damages for the alleged negligent treatment.
We first turn to the "collateral source" rule: "This doctrine provides that if an injured party received some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor." (Hrnjak v. Graymar, Inc. (1971) 4 Cal.3d 725, 729, 94 Cal.Rptr. 623, 484 P.2d 599.) Therefore, the collateral source rule precludes a defendant from presenting evidence that an injured plaintiffs medical expenses have been paid by an independent source. (Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1, 9, 84 Cal.Rptr. 173, 465 P.2d 61.) While the rule may effectively allow a plaintiff to receive a double recovery, "`[t]he collateral source rule expresses a policy judgment in favor of encouraging citizens to purchase and maintain insurance for personal injuries and for other eventualities.... To permit the defendant to tell the jury that the plaintiff has been recompensed by a collateral source for his medical costs might irretrievably upset the complex, delicate, and somewhat indefinable calculations which result in the normal jury verdict...."' (Hrnjak v. Graymar, Inc., supra, 4 Cal.3d at p. 730, 94 Cal.Rptr. 623, 484 P.2d 599.)
Civil Code section 3333.1 modifies the rule with regard to medical malpractice cases. As pertinent, that section provides:
"(a) In the event the defendant so elects, in an action for personal injury against a health care provider based upon professional negligence, he may introduce evidence of any amount payable as a benefit to the plaintiff as a result of the personal injury pursuant to the United States Social Security Act, any state or federal income disability or worker's compensation act, any health, sickness or income-disability insurance, accident insurance that provides health benefits or income-disability coverage, and any contract or agreement of any group, organization, partnership, or corporation to provide, pay for, or reimburse the cost of medical, hospital, dental, or other health care services. Where the defendant elects to introduce such evidence, the plaintiff may introduce evidence of any amount which the plaintiff has paid or contributed to secure his right to any insurance benefits concerning which the defendant has introduced evidence.
"(b) No source of collateral benefits introduced pursuant to subdivision (a) shall recover any amount against the plaintiff nor shall it be subrogated to the *102 rights of the plaintiff against a defendant."
The effect of this statute has been explained as follows: "The collateral source provision before us ... is one of the provisions of MICRA[[4]] which was intended to reduce the cost of medical malpractice insurance. Section 3333.1, subdivision (a) ... authorizes a defendant in a medical malpractice action to introduce evidence of a variety of `collateral source' benefitsincluding health insurance, disability insurance or worker's compensation benefits. Apparently, the Legislature's assumption was that the trier of fact would take the plaintiffs receipt of such benefits into account by reducing damages." (Barme v. Wood (1984) 37 Cal.3d 174, 179, 207 Cal.Rptr. 816, 689 P.2d 446, italics in original.) The first paragraph of footnote 5 immediately following this quote sheds more light on the subject. "Earlier drafts of section 3333.1, subdivision (a) required the trier of fact to deduct such collateral source benefits in computing damages, butas enactedsubdivision (a) simply provides for the admission of evidence of such benefits, apparently leaving to the trier of fact the decision as to how such evidence should affect the assessment of damages." (Barme v. Wood, supra, at p. 179, fn. 5, 207 Cal.Rptr. 816, 689 P.2d 446, italics added.) Thus, section 3333.1 does not preclude recovery of such damages; rather, it allows the jury to decide how to apply the evidence in calculation of damages. As such, the fact that all medical expenses may have been paid from a collateral source, here Medicare and Medi-Cal, does not stand for the proposition that a plaintiff has suffered no recoverable damages, a proposition which served as the legal foundation for respondent's motion.
However, a more basic problem is presented by the fact that at least some of the payments made on behalf of plaintiffs father were through Medi-Cal. Such payments fall outside the scope of Civil Code section 3333.1 and recovery of Medi-Cal payments may be sought against either the successful plaintiff through the Medi-Cal lien procedure or in a direct action against the third party tortfeasor.[5] "Welfare and Institutions Code section 14124.71 et seq. specifically authorizes the director of the Department to recover against third party tortfeasors Medi-Cal payments either by lien or a direct action. To accept defendants' interpretation of section 3333.1 would create a direct conflict with the statutory recoupment sections." (Brown v. Stewart (1982) 129 Cal.App.3d 331, 341, 181 Cal.Rptr. 112; see also People v. Hove (1999) 76 Cal.App.4th 1266, 1272, 91 Cal. Rptr.2d 128, and Holmes v. California State Auto. Assn. (1982) 135 Cal.App.3d 635, 638-639, 185 Cal.Rptr. 521.)
For the foregoing reasons, when respondent established that Medi-Cal and Medicare made payments on behalf of plaintiffs father, it necessarily established the fact of damage. Thus, the trial court erred in granting summary judgment.
DISPOSITION
The judgment is reversed. Costs on appeal are awarded to plaintiff.
CHARLES S. VOGEL, P.J., and BERLE, J.[*], concur.
NOTES
[1] Plaintiff's father died a year later on December 19, 1997. The Department of Health Services' death certificate lists that death resulted from a heart attack due to probable aspiration pneumonia and probable senile dementia. The survival action does not contend that death resulted from anything causally related to treatment received while plaintiff's father was hospitalized with respondent.
[2] Code of Civil Procedure section 377.34 precludes recovery of damages in a survival action "for pain, suffering, or disfigurement."
[3] Respondent objected to the declaration of Nurse Leary on various grounds. The minute order granting summary judgment states: "The Court has considered relevant, competent evidence and has disregarded irrelevant, incompetent evidence." Because we conclude respondent failed to establish a prima facie case, we need not address the sufficiency of Nurse Leary's declaration.
[4] The Medical Injury Compensation Reform Act of 1975.
[5] Because respondent's undisputed evidence included proof of payments made by both Medi-Cal and Medicare, we need not address the issue of whether payments made by Medicare may also be excluded from treatment.
[*] Assigned by the Chairperson of the Judicial Council. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1203720/ | 54 Wash. 2d 259 (1959)
339 P.2d 694
MARGARET JEAN SCHUDDAKOPF, Appellant,
v.
TACOMA SCHOOL DISTRICT NO. 10, Respondent.[1]
No. 34716.
The Supreme Court of Washington, En Banc.
May 28, 1959.
MacDonald, Hoague & Bayless (Kenneth A. MacDonald, of counsel), for appellant.
John G. McCutcheon and Keith D. McGoffin, for respondent.
PER CURIAM:
This is an action for wages which plaintiff contends are due under a contract of employment.
On April 9, 1954, plaintiff and defendant entered into a contract of employment whereby defendant agreed to employ plaintiff as an elementary school counselor during the school year 1954-1955. During June 1954, plaintiff appeared in Seattle before the committee on un-American activities of the House of Representatives of the 83rd Congress of the United States. She refused to answer certain questions bearing upon her membership in the communist party and invoked the privilege against self incrimination of the fifth amendment to the United States Constitution. On July 9, 1954, defendant conducted an employer-employee conference with plaintiff, and, on July 21, 1954, announced that it would take no action with reference to plaintiff's contract. This meant that defendant was ready to employ the plaintiff as it had agreed to do in the contract.
On August 31, 1954, the Pierce county superintendent of public schools, purportedly acting under the provisions of RCW 28.19.060, suspended appellant from teaching in the public schools of Pierce county. Prior thereto, two members of defendant These stated that plaintiff, by refusing to answer questions before the Congressional committee, had brought public criticism and disrepute upon herself and her employers. Apparently, the reasons for plaintiff's suspension were substantially the same as those set forth in the affidavits filed by the members of the school board.
*261 The trial court found that this action by the Pierce county superintendent was an original action; that the defendant was not a party to the suspension and took no part in it at any stage. This finding is supported by the record. While it is true that two members of the defendant school board filed affidavits urging that plaintiff be suspended; nevertheless, they acted in their individual capacities. The school board had already voted to comply with its contract to employ the services of plaintiff as a school teacher.
After plaintiff was suspended, she appealed to the state superintendent of public instruction. For reasons not apparent in the record, no action on this appeal was taken until December 22, 1955. Obviously, this was after the expiration of the 1954-1955 school year. On that date, the state superintendent reversed the action of the county superintendent and held that the suspension was improper.
Plaintiff instituted this action for wages. The trial court granted summary judgment to the defendant. Plaintiff appeals.
[1, 2] We are in accord with the reasoning of the trial court as set out in its memorandum opinion:
"It appears to me that the plaintiff herself was unable to perform her contract through no fault of the defendant School District because on the date when the contract was to begin, she had no right to teach in Pierce County. Lacking that right she was unable to tender performance.
"The facts of this case are squarely within the application of Section 274 of the Restatement of Contracts, which reads as follows:
"`(1) In promises for an agreed exchange, any material failure of performance by one party not justified by the conduct of the other discharges the latter's duty to give the agreed exchange even though his promise is not in terms conditional. An immaterial failure does not operate as such a discharge.
"`(2) The rule of sub-section (1) is applicable though the failure of performance is not a violation of a legal duty.'
"The comments under this section make the reason for the rule abundantly clear, and the comment to sub-section (2) is particularly pertinent in this case. It is as follows:
"`The law excuses a contracting party from performing his promise for a variety of reasons infancy, insanity, impossibility *262 caused in certain ways; but however blameless in law or in fact a party to a contract may be in failing to perform his promise, if he does fail he should not have what is promised in exchange for his performance.'
"I know of no principle which excepts teachers' contracts from this general rule of contract law.
"So in this case though the plaintiff may have been blameless in law and in fact for her inability to tender performance on September 7, and for more than a year thereafter, nevertheless she did fail and no reason exists for requiring the defendant to pay for that which it did not receive.
"It is not suggested in the plaintiff's complaint, or elsewhere, that the School District inspired, caused, or in any wise contributed to the action of the County Superintendent, or that it is in any other way responsible for the action of the County Superintendent." (Italics ours.)
The appellant urges that, under the circumstances of this case where neither party is at fault, it would be better public policy to require the school district to bear the loss. Appellant cites cases from other jurisdictions holding that if schools are closed down for reasons of public health or fire, teachers are still entitled to be paid their salaries. We are convinced that these cases are not apposite. In the instant case, because of a personal disability, the appellant was unable to teach during the 1954-1955 school year. In the "school closure" cases teachers were unable to teach because there were no schools available.
[3] It is regrettable that the state superintendent of public instruction rendered no decision in this matter until over a year after appellant appealed from the decision of the county superintendent. However, respondent was not responsible for this delay. The simple fact is that, during the school year 1954-1955, appellant was incapable of performing her contract of employment. As a consequence, she is not entitled to recover wages under that contract.
For the foregoing reasons, the judgment of the trial court should be affirmed. It is so ordered.
NOTES
[1] Reported in 339 P. (2d) 694. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2434382/ | 376 S.W.2d 295 (1964)
COMMONWEALTH of Kentucky, DEPARTMENT OF HIGHWAYS, Appellant,
v.
Edith BEGLEY, Appellee.
Court of Appeals of Kentucky.
February 28, 1964.
*296 John B. Breckinridge, Atty. Gen., William A. Lamkin, Jr., Asst. Atty. Gen., Frankfort, John J. Blackburn, Covington, for appellant.
Brock & Brock, Daniel N. Brock, Lexington, for appellee.
WILLIAMS, Judge.
This is an appeal from a judgment of the Lee Circuit Court which (1) affirmed an award of the Board of Claims for damages sustained by appellee Begley as a result of the alleged joint negligence of the Commonwealth in maintaining a bridge near Beattyville, and (2) reversed a ruling of the Board crediting against the Board's award the partial payment by a co-tortfeasor of a separate judgment for the same harm.
On October 11, 1958, at about 9 o'clock a. m., the appellee, Edith Begley, and her son were passengers in an empty pickup truck operated by her husband who was driving south toward Beattyville over the North Fork Bridge. Approaching from the opposite direction was a truck loaded with approximately 800 concrete blocks and weighing 18 tons or more. The North Fork Bridge consisted of three spans the main span over the river, and a "pony" span at each end. The "pony" span at the north end of the bridge and the main span were level; the "pony" span nearest Beattyville slanted 45 degrees upgrade from the bank to the main span. Because of this angle, motorists at either end of the bridge could not view the other end or ascertain approaching traffic until nearing the point where the angled "pony" span joined the main span. At that point, the two trucks met, stopped, and, as they began to pass, the angled "pony" span collapsed. Both trucks fell 50 feet to the bank below. The driver of the overloaded truck was killed. The appellee was severely and permanently injured.
The North Fork Bridge was a two-lane bridge built in 1906 of steel trusses and wood flooring and maintained by the Commonwealth. Signs posted at each end of the bridge read: "Load Limit 6 Tons."
The assistant director of maintenance in charge of bridges for the Highway Department testified that he had visually inspected the bridge both in January and in the summer of 1958 before its collapse. He considered the bridge safe for a gross capacity of 6 tons, but admitted that continued overstress of the bridge by loads exceeding 6 tons could render it unsafe even for smaller loads.
The evidence disclosed that the bridge was being used by trucks carrying heavy oil equipment, concrete blocks, coal, logs, bulldozers, and other heavy loads exceeding the posted load limit. During the summer of 1958, a delegation from Lee County, including the County Judge and other officials, visited the Commissioner of Highways and complained about the unsafe condition of the bridge and the heavily loaded traffic crossing it.
Appellee first sued Claude Compton, the owner of the truck overloaded with concrete *297 blocks, and obtained a judgment of $66,000, of which $12,500 has been paid.
In a later action before the Board of Claims, pursuant to KRS 44.070 et seq., appellee sued the Commonwealth for negligently failing to maintain the bridge in a reasonably safe condition. The Board found the Commonwealth jointly negligent with Compton, awarded appellee $10,000, and credited against the $10,000 award the $12,500 paid by Compton, thereby preventing any recovery against the Commonwealth. On appeal to the Lee Circuit Court, the joint negligence of the appellant was affirmed but the credit of damages was reversed, permitting recovery of the $10,000 award from the Commonwealth.
The Commonwealth contends (1) that it was not negligent or (2) if so, that the $12,500 paid by Compton must be credited against the $10,000 award by the Board of Claims.
In general, negligence is conduct involving an unreasonable risk of harm to others. It includes a failure to act where, under the circumstances, a reasonable man would do so. Restatement, Torts, sections 284, 289 (1934). To determine whether conduct creates such an unreasonable risk of harm as to be negligent, the likelihood and gravity of possible injury to others must be weighed against the utility of such conduct. Harper & James, Torts, vol. 2, section 16.9, p. 928, et seq., (1956); Prosser, Torts, section 30, p. 119, et seq., (2 ed. 1955).
With respect to defective or hazardous conditions of the highways (which include bridges), the duty of the Commonwealth, as well as private corporations and municipalities, is to exercise ordinary care to keep the highways under its charge in a reasonably safe condition for public travel. Shrader v. Commonwealth, 309 Ky. 553, 218 S.W.2d 406 (1949); Commonwealth v. Dever, 284 Ky. 150, 143 S.W.2d 1065 (1940); Louisville & Nashville R. Co. v. Muncey, 229 Ky. 538, 17 S.W.2d 422 (1928); Town of Paintsville v. Commonwealth, 21 Ky.Law Rep. 1634, 55 S.W. 915 (1900). Of course, the Commonwealth is not an insurer of the traveling public. Commonwealth Dept. of Highways v. General & Excess Ins. Co., Ky., 355 S.W.2d 695 (1962); Commonwealth Dept. of Highways v. Young, Ky., 354 S.W.2d 23 (1962). But the liability for hazardous conditions of the highways does include situations where the danger is brought about by third persons if the agency responsible for maintaining the highway or street has actual or constructive knowledge of the unsafe conditions. Criswell v. City of Jackson, 257 Ky. 222, 77 S.W.2d 622 (1935); City of Pineville v. Lawson, 225 Ky. 542, 9 S.W.2d 517 (1928).
Under the facts of this case, the Commonwealth exerted little if any care. It took no action to remedy, warn or guard against the hazardous situation which had resulted from a combination of known violations of the posted load limit and an obstruction of view across the two-lane bridge from either end. The traveling public was prevented from discovering approaching traffic until part of the bridge had been traversed. The probability that a vehicle driven with due care within the load limit would meet an approaching vehicle exceeding the load limit, and that the bridge would collapse, was so great that a failure to warn or guard against the hazard was negligent conduct. The risk was foreseeable. The negligence of the Commonwealth rests not in the creation of the hazardous condition, but in permitting the situation to continue without attempting to remedy, warn, or guard against the danger.
The appellant argues that the posting of low load limit signs as authorized by KRS 189.230 fulfills its duty to exercise ordinary care. Adequate warning of hazardous conditions in the highway system may be an exercise of ordinary care. We have some doubt whether load limit signs alone would have been sufficient warning at the North Fork Bridge had no violations *298 of the load limit been expected. In addition to the ambiguous meaning of the language "Load Limit 6 Tons," there would have been some likelihood that two trucks, with a combined weight exceeding 6 tons but each weighing less than 6 tons, would meet on the bridge and cause an overstress or collapse of it even though both drivers had exerted ordinary care for their own safety. Since that question does not arise under the specific facts of this case, it is sufficient to say that the type of warning given by the load limit signs did not remedy, warn or guard against the hazardous situation at the North Fork Bridge; the message was unrelated to the danger permitted to exist there.
The Commonwealth urges that the negligence of the driver of the overweight truck was the proximate cause of appellee's injuries. As we view it, the negligence of the truck driver was a foreseeable intervening force within the scope of the original risk. Such an intervening force will not supersede the concurrent negligence of the Commonwealth. Harper & James, Torts, vol. 2, section 16.12, p. 940, et seq. (1956); Prosser, Torts, section 49, p. 268 (2 ed. 1955). In Louisville Home Telephone Co. v. Gasper, 123 Ky. 128, 93 S.W. 1057, 9 L.R.A.,N.S., 548 (1906), this Court held that the negligent maintenance of a guy wire extending 18 inches into an alley was not superseded by the intervening negligence of the driver of a wagon which fell upon the plaintiff after striking the guy wire. As was noted in the Gasper case, supra, 93 S.W. at p. 1059:
"* * * So, the defendant is clearly responsible where the intervening causes, acts, or conditions were set in motion by his earlier negligence, or naturally induced by such wrongful act or omission, or even, it is generally held, if the intervening acts or conditions were of a nature, the happening of which was reasonably to have been anticipated, * * *. An act or omission may yet be negligent and of a nature to charge a defendant with liability, although no injuries would have been sustained but for some intervening cause, if the occurrence of the latter might have been anticipated." (Emphasis added.)
See State Contracting & Stone Co. v. Fulkerson, Ky., 288 S.W.2d 43 (1956); Miles v. Southeastern Motor Truck Lines, 295 Ky. 156, 173 S.W.2d 990 (1943); City of Louisville v. Hart's Adm'r, 143 Ky. 171, 136 S.W. 212, 35 L.R.A., N.S., 207 (1911); Watson v. Kentucky & Indiana Bridge & R. Co., 137 Ky. 619, 126 S.W. 146, 129 S.W. 341 (1910); Snydor v. Arnold, 28 Ky.Law Rep. 1250, 122 Ky. 557, 92 S.W. 289 (1906).
There is no evidence to indicate that the appellee or her husband was contributorily negligent or that the danger could have been discovered had they exercised extreme care for their own safety.
Appellant's second contention that the $12,500 paid by Compton should be credited against the $10,000 award by the Board rests upon a misinterpretation of the applicable principles of damages. Although joint or concurrent tort-feasors may be jointly or severally liable, only one full satisfaction of damages for a single harm may be recovered by the injured party. Therefore, the payment of any sums by co-tort-feasors should be credited against the value of a full legal compensation. The remainder after such credit is the extent to which co-tort-feasors may be liable. This Court's position was clearly discussed in United Society of Shakers v. Underwood, 74 Ky. (11 Bush) 265 (1875), wherein it was noted:
"* * * the plaintiff may maintain separate actions and recover separate judgments against joint trespassers, and may elect to take the largest sum assessed, or to proceed against the solvent defendant, or in case no one of them is able or can be compelled to pay the whole of the judgment rendered against him, may accept part satisfaction from one and still look to the *299 others for such balance as may be necessary to give him full legal compensation for the wrong suffered * * *." (Emphasis added.)
The remainder of damages due, after crediting Compton's payment of $12,500 against the full legal compensation of $66,000, exceeds the $10,000 limit of liability of the appellant. Accordingly, the appellant is liable for the full amount of $10,000.
The judgment is affirmed.
MONTGOMERY, J., dissenting. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2620885/ | 259 U.S. 150 (1922)
RAINIER BREWING COMPANY
v.
GREAT NORTHERN PACIFIC STEAMSHIP COMPANY.
No. 267.
Supreme Court of United States.
Argued April 21, 1922.
Decided May 15, 1922.
ERROR TO THE CIRCUIT COURT OF APPEALS FOR THE NINTH CIRCUIT.
*151 Mr. S.J. Wettrick for plaintiff in error.
Mr. Charles A. Hart, with whom Mr. Charles H. Carey and Mr. James B. Kerr were on the brief, for defendant in error.
MR. JUSTICE CLARKE delivered the opinion of the court.
In 1917 the plaintiff in error shipped two carloads of beer from San Francisco, consigned to the American Transfer Company at Seattle, Washington, which contained 2,565 separate packages or cases addressed to separate individuals. The shipment moved by water to Flavel, Oregon, thence by the line of railway to Portland, Oregon, and thence by the Northern Pacific Railway to Seattle. It was billed in carload lots and was given a through carload rate at point of origin, which was paid.
When the cars reached Portland the Northern Pacific Company refused to accept them, claiming that it could not lawfully carry intoxicating liquors in carload lots into the State of Washington, under the laws of the United States and of that State. Thereupon the liquor *152 was re-billed, each package or case separately, and the railroad company carried it to Seattle and delivered it to the individual consignees.
This suit is by the steamship company to recover the difference between the carload and the less than carload rate for the shipment. The case was tried on stipulated facts and, a jury being waived, the District Court rendered judgment for the plaintiff which was affirmed by the Circuit Court of Appeals. The parties agree that only one question is presented for decision, viz: Could the railroad company have lawfully transported the beer to Seattle and have delivered it to the Transfer Company, the consignee named in the bill of lading, in carload lots?
To answer this question involves the construction and application of § 240 of the Federal Criminal Code, of the Webb-Kenyon Act (37 Stat. 699, c. 90), and of several sections of c. 1-A of Title XLVII of the Laws of Washington entitled "Prohibition and Regulation," (Remington's Codes and Statutes of Washington, 1915, vol. II, §§ 6262-1 to 6262-22, inclusive).
Section 240 of the Federal Criminal Code provides:
"Whoever shall knowingly ship . . . from one State . . . into any other State . . . any package of or package containing any .. . intoxicating liquor of any kind, unless such package be so labeled on the outside cover as to plainly show the name of the consignee, the nature of its contents, and the quantity contained therein, shall be fined not more than five thousand dollars . .."
The Webb-Kenyon Act prohibited the "shipment or transportation, in any manner or by any means whatsoever," of any intoxicating liquors of any kind from one State to another State to be received or in any manner used in violation of any law of any such latter State (37 Stat. 699, c. 90). With these laws in force at the time, the railroad company could carry the beer into Washington only when labeled as required by § 240, supra, and in *153 the manner allowed by the laws of that State (Clark Distilling Co. v. Western Maryland Ry. Co., 242 U.S. 311), which we shall briefly consider.
Section 6262-29 of the state law, cited supra, limited the amount of liquor which any person, other than a common carrier, could bring into the State at one time to not more than twelve quarts of beer or one-half gallon of other liquor and even this amount could lawfully be imported only under a permit issued by a county auditor. Only one such permit could be issued to any one person in any twenty-day period (§ 6262-16).
"Any person desiring to ship or transport any intoxicating liquor" in the State must secure a permit which could be obtained only by an application to the county auditor, in which must be given under oath the name and age of the applicant, the name of the person (or corporation) from whom and the places from and to which the shipment was to be made (§ 6262-15). "Such permit shall be printed upon some shade of red paper," read the law, and must be substantially in the following form:
"STATE OF WASHINGTON |
>SS.
COUNTY OF |
_______, residing at _________________, is hereby permitted
to ship or transport from _____________, in the state of _____,
to ________, in the county of __________, state of Washington,
intoxicating liquor, to wit: _____________ (insert kind
and quantity, not exceeding in quantity one-half gallon of
intoxicating liquor other than beer, or twelve quarts of
beer or twenty-four pints of beer). This permit can only
be used for one shipment and will be void after thirty days
from the date of issue.
Dated this _________ day of _________ 19__
_________________,
County Auditor."
The law further required that the permit should be conspicuously affixed to each package or parcel containing *154 liquor brought into the State, and when so affixed it authorized any railroad company to transport not to exceed in one package or parcel the limited amount specified. It was further declared to be unlawful for any railroad company to knowingly transport such liquor in the State without having the required permit conspicuously attached to each parcel containing it and the carrier was required to so cancel the permit that it could not be used again. It was made unlawful for any person to receive such liquor which did not have the required permit attached thereto and properly canceled. (§§ 6262-15 and 6262-18). Each package must be "clearly and plainly marked in large letters: `This Package Contains Intoxicating Liquor'." (§ 6262-20.)
This statement of the applicable law shows that the purpose of the legislation was to make the transportation of intoxicating liquors in the State of Washington as difficult, conspicuous and expensive as possible. Only an individual could qualify to ship or receive it and it was intended that it should move only in a single package of strictly limited quantity, with a permit attached, showing its origin, destination and the name of the shipper who must also be the ultimate consignee. A carrier could lawfully receive it for transportation only when the required permit was attached and it was made its legal duty to deface and cancel such permit before delivery so that it could not again be used. It is stipulated that all of the statutory requirements as to packing, permits and markings were complied with as to the packages here involved, but it is argued that when so prepared for shipment the statute permitted the beer to be carried not only by a railroad company, but also by "any person, firm or corporation operating any . . . vehicle for the transportation of goods" and that, therefore, the railroad company could have discharged all of its obligations under the law by making bulk delivery of the carload lots to the Transfer Company for distribution and delivery to the permittees, *155 who were the ultimate and real consignees, trusting to that company to make only legal deliveries and to cancel all permits as required by the statute.
With this contention we cannot agree.
The line of the railroad company extended to Seattle, the destination of the beer, and the state statute rendered the permittee the ultimate and real consignee. Under the general law of carriers, it was the duty of the railroad company to make delivery to the consignees, either at its station or at their residences or places of business, conformably to local custom, and the requirement of the statute that the delivering carrier must deface and cancel the permit on each package, added to the imperative character of this obligation. Delivery under the terms of the original bill of lading would have been to the Transfer Company, not as a carrier authorized by law to transport the beer on its way to destination, but to it as a terminal consignee and as such it could not possibly have qualified under the state law. No further transportation was required, only delivery remained.
The markings of the packages, required by both the federal and state law, advised the railroad company of the character of their contents and as to the real consignees and that they resided in Seattle and we think, therefore, that it was clearly its duty to refuse to carry the beer in carload bulk shipments for delivery to the Transfer Company, and that it was within its legal rights in insisting that the traffic be billed in a form which would render convenient such inspection as was necessary to insure conformity to the law in the markings of packages, and such as would render it possible for the company to make delivery to consignees with the permits canceled as the statute required.
It results that the judgment of the Circuit Court of Appeals must be
Affirmed. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2286989/ | 105 Cal. Rptr. 2d 159 (2001)
87 Cal. App. 4th 1122
The PEOPLE, Petitioner,
v.
The SUPERIOR COURT of San Diego County, Respondent;
Antonio Olguin PRECIADO, Real Party in Interest.
No. D036024.
Court of Appeal, Fourth District, Division One.
March 19, 2001.
Review Denied June 27, 2001.
*160 Paul J. Pfingst, District Attorney, Thomas F. McArdle and D. Michael Ebert, Deputy District Attorneys, for Petitioner.
No appearance for Respondent.
Steven J. Carroll, Public Defender, and Matthew C. Braner, Deputy Public Defender, for Real Party in Interest.
BENKE, J.
In this case we find that although a petition alleging that a person is a sexually violent predator (SVP) within the meaning of the Sexually Violent Predators Act (SVPA or Act) (Welf & Inst.Code, § 6600 et seq.)[1] should not be filed until two psychotherapists have evaluated the alleged SVP and found that his condition meets the requirements of the Act, a failure to do so may be cured by the People after the petition is filed. Thus, in this case, where the People's petition was timely and the required evaluations were performed prior to the end of the alleged SVP's previous commitment, the trial court erred in dismissing the petition.
FACTS AND PROCEDURAL HISTORY
In 1980 real party in interest Antonio Olguin Preciado was convicted of three counts of forcible rape while using a deadly weapon, one count of attempted rape, and two counts of forcible oral copulation. He was sentenced to 33 years in prison.
In June 1997, prior to his release from prison, the People filed a petition to compel Preciado's involuntary commitment for treatment as an SVP. On January 12, 1998, a jury found Preciado was an SVP within the meaning of section 6600. Pursuant to the terms of section 6604, Preciado was committed to the Department of Mental Health for treatment for a period of two years. Preciado's original commitment under the SVPA was scheduled to expire on January 12, 2000.
On November 16, 1999, before the expiration of Preciado's commitment term, the People filed a petition to continue his commitment under the SVPA. Attached as an exhibit to the petition was an evaluation of Preciado prepared by Dawn Starr, Ph.D. Starr's evaluation concluded Preciado continued to suffer from a diagnosable mental disorder that made him likely to engage in sexually violent criminal behavior.
On December 17, 1999, Preciado was arraigned on the petition.
On January 5, 2000, a second evaluation was conducted by Jill Nelson, Ph.D. Nelson also concluded Preciado continued to meet the criteria of an SVP. Nelson's evaluation was transmitted to Preciado's counsel on January 12, 2000.
On April 20, 2000, the People filed an amended petition. Attached to the amended petition was the original evaluation conducted by Starr and the later evaluation conducted by Nelson. Preciado was arraigned *161 on the amended petition on April 28, 2000. At a probable cause hearing conducted on May 17 and May 23, 2000, Drs. Nelson and Starr testified for the People and were cross-examined by Preciado's counsel.
On May 23, 2000, Preciado moved to dismiss both the original petition and the amended petition. Preciado argued that a petition for continued commitment under section 6600 requires an evaluation by two psychologists or psychiatrists and that a petition must be filed before a commitment term expires. He argued the original petition was defective because at the time it was filed only one psychological evaluation had been performed. He argued the amended petition was untimely because it was filed after his term of commitment had expired. In asserting the evaluation of two psychologists is needed to sustain a petition, Preciado relied upon two cases rendered after the People's initial petition in this case was filed: Butler v. Superior Court (2000) 78 Cal. App. 4th 1171, 93 Cal. Rptr. 2d 468 (Butler), and Peters v. Superior Court (2000) 79 Cal. App. 4th 845, 94 Cal. Rptr. 2d 350 (Peters).
On July 7, 2000, the superior court granted Preciado's motion to dismiss both the initial petition and amended petition and ordered his release. The court stayed its release order to permit the People to file the instant petition.
We stayed the trial court's order and issued an order to show cause.
DISCUSSION
I
In Hubbart v. Superior Court (1999) 19 Cal. 4th 1138, 1144, 81 Cal. Rptr. 2d 492, 969 P.2d 584, the Supreme Court found that in enacting the SVPA the Legislature had "expressed concern over a select group of criminal offenders who are extremely dangerous as the result of mental impairment, and who are likely to continue committing acts of sexual violence even after they have been punished for such crimes. The Legislature indicated that to the extent such persons are currently incarcerated and readily identifiable, commitment under the SVPA is warranted immediately upon their release from prison. The Act provides treatment for mental disorders from which they currently suffer and reduces the threat of harm otherwise posed to the public. No punitive purpose was intended. [Citation.]" (Fn.omitted.)
Under the Act, prior to the end of any prison commitment an alleged SVP must be evaluated by either two practicing psychologists, two practicing psychiatrists or a practicing psychologist and a practicing psychiatrist chosen by the Director of Mental Health (DMH). (§ 6601, subd. (d).) If both professionals agree that the criteria set forth in section 6600 exists, the DMH is required to send the evaluations to the county which was responsible for the alleged SVP's incarceration and request that an SVPA petition be filed. (§ 6601, subd. (d).) If the professionals do not agree, the DMH must appoint two independent professionals, not employed by the state, to evaluate the alleged SVP. (§ 6601, subds.(e), (g).) If, but only if, the two independent evaluators find that the SVP criteria exists, the DMH must request that an SVPA petition be filed. (§ 6601, subd. (f).)
In Butler, supra, 78 Cal.App.4th at pages 1180-1181, 93 Cal. Rptr. 2d 468, and Peters, supra, 79 Cal.App.4th at page 850, 94 Cal. Rptr. 2d 350, the courts found that under this statutory scheme a petition to recommit someone who is under a current SVPA commitment cannot be filed unless two evaluators under section 6601, subdivisions (d) or (e), have found that the condition continues to meet the requirements of the Act. In both cases the People had argued that in the case of a petition for recommitment under the SVPA, as opposed to an initial petition for recommitment, only one evaluation should be required. The result in these cases was recently codified by the Legislature in urgency *162 legislation amending section 6604.1, subdivision (b). (Stats.2000, ch. 420, § 4 (S.B.2018) eff. Sept. 13, 2000.) By its terms section 6604.1, subdivision (b), now expressly requires that two evaluations be obtained before any recommitment petition is filed and provides for the appointment of independent evaluators in the event of disagreement by the evaluators appointed by the DMH.
A petition under the SVPA must not only be based upon two evaluations, it must also be filed before the end of any current commitment. (People v. Superior Court (Ramirez) (1999) 70 Cal. App. 4th 1384, 1389, 83 Cal. Rptr. 2d 402.) However, once a petition is filed, there is no additional limit on the time in which the allegations of the petition must be tried. (Ibid.)
The filing of a petition commences a new round of proceedings in the trial court. (Hubbart v. Superior Court, supra, 19 Cal.4th at p. 1144, 81 Cal. Rptr. 2d 492, 969 P.2d 584.) "The superior court first holds a hearing to determine whether there is `probable cause' to believe that the person named in the petition is likely to engage in sexually violent predatory criminal behavior upon release. (§ 6602, as amended by Stats.1966, ch. 4, § 4, and by Stats.1998, ch. 19, § 3.) The alleged predator is entitled to the assistance of counsel at this hearing. If no probable cause is found, the petition is dismissed. However, if the court finds probable cause within the meaning of this section, the court orders a trial to determine whether the person is an SVP under section 6600. The alleged predator must remain in a `secure facility' between the time probable cause is found and the time trial is complete. (§ 6602.)
"At trial, the alleged predator is entitled to `the assistance of counsel, the right to retain experts or professional persons to perform an examination on his or her behalf, and have access to all relevant medical and psychological records and reports.' (§ 6603, subd. (a).) Either party may demand and receive trial by jury. (Id., subds. (a) & (b); see id., subd. (c).)
"The trier of fact is charged with determining whether the requirements for classification as an SVP have been established 'beyond a reasonable doubt.' (§ 6604.) Any jury verdict on the issue must be 'unanimous.' (§ 6603, subd. (d).) If the state fails to carry this burden, the person is released from prison when his term expires. (§ 6604.)" (Hubbart v. Superior Court, supra, 19 Cal.4th at pp. 1146-1147, 81 Cal. Rptr. 2d 492, 969 P.2d 584, fns. omitted.)
II
Here, Preciado argues the failure to obtain two evaluations prior to filing the initial petition deprived the trial court of jurisdiction to proceed on the petition once his term of commitment expired. He contends the amended petition, which was filed after his commitment had expired, was untimely. We disagree with his analysis of the statute.
First, we note that proceedings under the Act are civil in nature. (Hubbart v. Superior Court, supra, 19 Cal.4th at p. 1171, 81 Cal. Rptr. 2d 492, 969 P.2d 584; In re Parker (1998) 60 Cal. App. 4th 1453, 1461, 71 Cal. Rptr. 2d 167.) Accordingly, unless otherwise indicated on the face of the statute, rules of civil procedure will operate. (See e.g. People v. Superior Court (Myers) (1996) 50 Cal. App. 4th 826, 834, 58 Cal. Rptr. 2d 32; People, v. Superior Court (Johannes) (1999) 70 Cal. App. 4th 558, 561, 82 Cal. Rptr. 2d 852.)
Contrary to Preciado's assumption, there is no requirement in the Act that the face of a petition allege the existence of two professional evaluations. The only substantive requirements for a petition are set forth in section 6600, subdivision (a), which describes an SVP as "a person who has been convicted of a sexually violent offense against two or more victims and who has a diagnosed mental disorder that makes the person a danger to the health and safety of others in that it is *163 likely that he or she will engage in sexually violent criminal behavior." Although the DMH is required to send the two psychological evaluations to the county's designated counsel, and the designated counsel is given discretion to file a petition if he agrees with the DMH's recommendation (§ 6601, subds.(h), (i)), the statute does not by its terms require that the evaluations be alleged or appended to a petition. Here, the original petition alleged Preciado had committed the predicate sexual offenses and was still suffering from a mental disorder which made it likely he would engage in sexually violent behavior. Thus, on its face the county's petition was valid at the time it was filed and because it was filed before Preciado's commitment had expired, it was timely. (Ramirez, supra, 70 Cal.App.4th at p. 1389, 83 Cal. Rptr. 2d 402.)
Admittedly, at the time it was filed it was subject to attack because the DMH had not yet obtained the two evaluations required by section 6601, subdivision (d). (See Butler, supra, 78 Cal.App.4th at pp. 1180-1181, 93 Cal. Rptr. 2d 468; Peters, supra, 79 Cal.App.4th at p. 850, 94 Cal. Rptr. 2d 350.) Plainly, under Butler and Peters the People did not yet have the right to bring an SVPA petition against Preciado. However, this defect was not one going to the substantive validity of the complaint, but rather was merely in the nature of a plea in abatement, by which a defendant may argue that for collateral reasons a complaint should not proceed. (See generally, 5 Witkin, Cal.Procedure, Pleading, §§ 1055-1058, pp. 505-508.) In general, where a defect impairing a litigant's right to proceed existed at the time a complaint was filed but has been cured by the time the defense is raised, the defect will be ignored. (Witkin, supra, Pleading, § 1058, p. 508.)
The principles governing pleas in abatement have been applied where, as is essentially the case here, a complaint has been brought prematurely. The leading case permitting premature pleadings to be cured is Radar v. Rogers (1957) 49 Cal. 2d 243, 250, 317 P.2d 17, where a complaint was filed before a claim had been presented and rejected by an estate. By the time the estate brought the defect in the original pleading to the attention of the trial court by way of a demurrer, a claim had in fact been presented and rejected and the complaint had been amended. In reversing a trial court order sustaining the estate's demurrer, the court stated: "The defense that suit was commenced before the presentation and rejection of claim `is simply [a] matter of abatementa defense which is not favored, and must be made by plea, and in proper time, or it is waived.' [Citations.] Here there is no occasion to consider whether the unfavored defense was waived, for it had ceased to exist at the time defendant sought to raise it. `A consequence of the disfavor with which such pleas are viewed is that matter in abatement must exist at the time of filing of the pleading urging it' [citation] and if the stated ground does not exist at the time of trial it may be disregarded. [Citation.]" (Ibid.)
More recently in Virgin v. State Farm Fire & Casualty Co. (1990) 218 Cal. App. 3d 1372, 1374-1377, 267 Cal. Rptr. 704, we applied this principle in a case where a group of plaintiffs had filed a complaint against their insurers before they had submitted claims to the insurers. By the time the insurers brought a motion for summary judgment raising the defect, the claims had been made and rejected. In reversing the summary judgment entered in favor of the insurers we relied upon Radar v. Rogers and stated: "[T]he `defect' in the homeowners' pleading which existed at the time the complaints were filed should be disregarded since it no longer existed at the time the insurance companies made their motion for summary judgment." (Virgin, supra, at p. 1376, 267 Cal. Rptr. 704, fn. omitted.) We also noted the rule set forth in Radar v. Rogers had been applied in a variety of contexts where the *164 prematurity of a complaint was related to substantive as well as procedural defects. (Ibid).
As we have indicated, the defect Preciado relies upon is entirely a contention the original petition was filed prematurely. The most Butler, Peters and the terms of SVPA require is that two psychological evaluations be completed before a petition is filed. Once those evaluations have occurred, the People still must show probable cause to retain the person subject to the petition and at a jury trial prove the person's continuing threat to the community beyond a reasonable doubt. (§§ 6602, 6603, 6604.) Thus had the petition been brought when the second psychological evaluation was complete on January 5, 2000, it would have been free of the defect found in Butler and Peters. At that point, seven days before the initial commitment terminated, the petition would have been timely. (Ramirez, supra, 70 Cal. App.4th at p. 1389, 83 Cal. Rptr. 2d 402.) Given these circumstances, under which Preciado cannot show that his rights under the SVPA were in any manner impaired, the principles set forth in Radar v. Rogers and Virgin v. State Farm Fire & Casualty Co. require us to ignore the premature nature of the petition.
Our characterization of the requirements of section 6600, subdivision (d), as a matter of abatement, rather than as a matter depriving the trial court of jurisdiction to act, is not only mandated by the principles set forth in Radar v. Rogers and Virgin v. State Farm Fire & Casualty Co., it is also consistent with the language, structure and purposes of the SVPA. As we have noted, nothing on the face of the statute requires a petition to allege the existence of two psychological evaluations, and the statute does not require the People to prove the existence of such evaluations at either the probable cause hearing or at trial.[2] As the court in Hubbart v. Superior Court noted, once the petition is filed a new round of proceedings is triggered. (Hubbart, supra, 19 Cal.4th at p. 1146, 81 Cal. Rptr. 2d 492, 969 P.2d 584.) After the petition is filed, rather than demonstrating the existence of the two evaluations, the People are required to show the more essential fact that the alleged SVP is a person likely to engage in sexually violent predatory criminal behavior. (Ibid.) In short, like many other matters subject to the principles governing pleas in abatement, the requirement for evaluations is not one affecting disposition of the merits; rather, it is a collateral procedural condition plainly designed to ensure that SVP proceedings are initiated only when there is a substantial factual basis for doing so.
The discrete and preliminary role the evaluations play in the statutory scheme does not in any sense undermine their importance or suggest the People may ignore the protection they provide. (See Butler, supra, 78 Cal.App.4th at pp. 1180-1181, 93 Cal. Rptr. 2d 468; Peters, supra, at 79 Cal.App.4th at p. 850, 94 Cal. Rptr. 2d 350; People v. Superior Court (Gary) (2000) 85 Cal. App. 4th 207, 213, 218, 101 Cal. Rptr. 2d 874.) When the required evaluations have not been performed, an alleged SVP may bring that fact to the trial court's attention and obtain appropriate relief. (Butler, supra, 78 Cal.App.4th at pp. 1180-1181, 93 Cal. Rptr. 2d 468; Peters, supra, 79 Cal.App.4th at p. 850, 94 Cal. Rptr. 2d 350; People v. Superior Court (Gary), supra, 85 Cal.App.4th at pp. 218-219, 101 Cal. Rptr. 2d 874.) However, when as here the evaluations have been performed as required, it is important to recognize their conditional role in the overall statutory scheme and the People's corresponding ability to pursue their petition.
Importantly, our conclusion about the role the evaluations play under the SVPA is consistent with the overall purposes of the Act, which are to protect the public from a select group of offenders who are *165 extremely dangerous and to provide treatment for them. (Stats.1995, ch. 763, § 1.; Hubbart v. Superior Court, supra, 19 Cal.4th at p. 1138, 81 Cal. Rptr. 2d 492, 969 P.2d 584.) We cannot believe the Legislature intended an offender who has previously been adjudicated as an SVP, and who in the opinion of the requisite evaluators is still dangerous, must be released only because a petition was filed prematurely.
In sum then, because prior to expiration of Preciado's prior commitment a petition had been filed and the required evaluations performed, the trial court erred in granting Preciado's later motion to dismiss the petition.[3]
DISPOSITION
Accordingly, we grant the People's petition and direct that the trial court vacate its order dismissing the People's petition.
KREMER, P.J., and NARES, J., concur.
NOTES
[1] All further statutory references are to the Welfare and Institutions Code unless otherwise specified.
[2] We do note that subject to the right of the alleged SVP to cross-examine the evaluators, the evaluation may be used to establish probable cause. (In re Parker, supra, 60 Cal. App.4th at pp. 1469-1470, 71 Cal. Rptr. 2d 167.)
[3] We express no opinion with respect to whether evaluations performed after a prior commitment has expired may cure a petition filed before expiration of the earlier commitment. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2260042/ | 167 Cal. App. 4th 1174 (2008)
NOEL HINES, Plaintiff, Cross-defendant and Respondent,
v.
PAT LUKES, Defendant, Cross-complainant and Appellant.
No. B199971.
Court of Appeals of California, Second District, Division Three.
October 27, 2008.
*1176 Law Office of Anthony Roach and Anthony A. Roach for Defendant, Cross-complainant and Appellant.
Roxborough, Pomerance & Nye, Gary A. Nye and Michael L. Phillips for Plaintiff, Cross-defendant and Respondent.
OPINION
CROSKEY, J.
Pat Lukes appeals an order granting a motion for entry of judgment pursuant to a settlement (Code Civ. Proc., § 664.6).[1] The settlement was intended to resolve a dispute between two neighbors concerning the scope of an easement. Lukes contends the trial court refused to consider her arguments in opposition to the motion because it erroneously concluded that it had no jurisdiction to consider those arguments, that Noel Hines waived the right to enforce the settlement, and that he prevented her performance.
We conclude that the trial court properly considered the merits of the motion and opposition and that Lukes has shown no basis to relieve her of her settlement obligations. We conclude further, however, that the order erroneously fails to set forth all of the material settlement terms. We therefore reverse the judgment with directions to the trial court to enter a formal judgment setting forth all of the material terms that have yet to be fully performed or, if the court finds that the parties failed to agree to all material terms, enter an order denying the motion.
FACTUAL AND PROCEDURAL BACKGROUND
1. Complaint, Petition for an Injunction, and Cross-complaint
Hines and Lukes own and reside on contiguous lots in the City of Los Angeles. Lukes owns an easement over a triangular portion of the Hines property. The parties dispute the scope of the easement.
Hines filed a complaint against Lukes in December 2003, alleging that the easement is "solely for ingress, egress and drainage," as stated in an easement recorded on May 14, 1979, attached to the complaint. Hines alleges that Lukes has exceeded the scope of permissible uses of the easement by "permanently parking vehicles" in the easement area, and by placing trash *1177 bins, a dumpster, and waste in the easement area. Hines alleges counts for trespass, "interference with easement" (capitalization omitted), and declaratory relief.
Lukes filed a petition for an injunction against Hines in January 2004 (Lukes v. Hines (Super. Ct. L.A. County, 2004, No. LS012082)), alleging civil harassment. The trial court determined that the petition was related to the present action. Lukes voluntarily dismissed the petition in April 2004.
Lukes filed a cross-complaint against Hines and filed a first amended cross-complaint in July 2004. Lukes alleges that the easement is not only for ingress, egress, and drainage, but also for "`general driveway purposes,'" as stated in a recorded easement dated February 7, 1980, attached to the first amended cross-complaint. Lukes alleges counts to quiet title to the easement and to enjoin any interference with the permitted uses.
2. Settlement Agreement
The parties participated in a mandatory settlement conference on October 13, 2004. At the conclusion of the conference, the parties orally before the court agreed to a settlement on stated terms. The settlement provided that (1) Lukes would resurface the portion of the driveway in front of her garage, including the easement area; (2) Hines would resurface the portion of the driveway on his property, excluding the easement area; (3) Lukes's insurance carriers would pay one-half of the cost of the resurfacing to be done by Hines, not to exceed $4,000;[2] (4) both parties would "use concrete materials" for the resurfacing and would resurface the driveway in "a neutral color"; (5) the work would be done at the same time, but not necessarily by the same contractor; (6) the work would be completed within one year after the date of the oral settlement; (7) Lukes would keep her garbage cans on her own property and not in the easement area; and (8) Lukes would park no more than two vehicles in the driveway in front of her garage, including one of her own and one of a visitor, and neither she nor her visitors would park on the Hines property outside the easement area.
The settlement also provided for mutual dismissals with prejudice, and a mutual release. The parties agreed that the court would retain jurisdiction to enforce the terms of the settlement and that the parties would participate in a mediation before applying to the court to enforce the settlement.
*1178 After the parties had agreed to these terms, the court stated, "I understand that these terms will be put into writing. However, the settlement is enforceable as of now." The court scheduled an order to show cause hearing for November 19, 2004, and stated that no appearance would be necessary if the dismissals were filed by that date.
3. Dismissal
The court later continued the order to show cause hearing on four occasions, at the request of counsel. At the hearing on February 24, 2005, the court dismissed the action for failure to prosecute and nonappearance of counsel. The court filed a signed order of dismissal on that date.
4. Second Petition for an Injunction
Lukes filed a second petition for an injunction against Hines in May 2005 (Lukes v. Hines (Super. Ct. L.A. County, 2005, No. LS013454)), alleging civil harassment. Hines filed a notice of related cases, stating that the petition was related to both the present action and the prior injunction petition (No. LS012082). The court determined that the second petition was related to the present action. The court issued a restraining order in June 2005, prohibiting Hines from parking within a certain distance of Lukes's house.
5. Motion for Entry of Judgment Pursuant to the Settlement
Hines filed a motion for entry of judgment pursuant to the settlement in October 2006. He argued that Lukes had failed to resurface her portion of the driveway in neutral-colored concrete within one year after the settlement, as required by the settlement, and that she had threatened to resurface her portion of the driveway in black asphalt. Hines argued that he had resurfaced his portion of the driveway, and that Lukes had refused to participate in mediation. The only evidence filed in support of the motion was a declaration by Hines's attorney stating that Lukes had failed to resurface her portion of the driveway. The declaration also attached a copy of the reporter's transcript of the oral settlement and two photographs of a portion of the driveway, and stated that the photographs showed "the current condition of the driveway." He requested the entry of judgment pursuant to the settlement under Code of Civil Procedure section 664.6.
Lukes argued in opposition that the motion was premature because no mediation had taken place, as required by the terms of the settlement. She also argued that she needed Hines's written consent to obtain a building permit to resurface the easement area, that his failure to provide consent had prevented her performance, and that her nonperformance therefore was *1179 excused and did not constitute a breach. She argued further that Hines's failure to complete the resurfacing of his portion of the driveway within one year, as required under the settlement, constituted unclean hands and should preclude any relief. She filed her own declaration stating that she had not refused to participate in mediation, that the City of Los Angeles required her to obtain the owner's written consent to do the work and that Hines had refused her request for written consent, and that Hines had not completed resurfacing his portion of the driveway.
Hines argued in reply that the two photographs filed with his moving papers showed that he had completed resurfacing his portion of the driveway.[3] A second declaration by his attorney stated that counsel for Lukes had failed to respond to his request for mediation. Hines also objected to the Lukes declaration on various grounds.
After a hearing in December 2006, the court ordered the parties to mediation, requested supplemental briefs, and continued the hearing on the motion to February 2007. The parties filed supplemental briefs in January 2007, but presented no additional evidence. Hines argued in his supplemental brief that he had completed his resurfacing and that Lukes had failed to show that she needed his consent to do the work or that he had failed to provide his consent. Lukes argued in her supplemental brief that the mediation was scheduled for later that month and that any further briefing should be delayed until after the mediation.
The court granted a motion by Lukes's counsel to be relieved as counsel in February 2007. The motion for entry of judgment pursuant to the settlement was continued further to March 2007.
The motion came on for hearing in March 2007. The judge who had presided over the settlement had retired, so the hearing was before a different judge. Lukes appeared in propria persona. The court's tentative ruling was to order the parties to mediation, as required by the terms of the settlement. Counsel for Hines stated that the parties had already participated in a mediation. Lukes responded that the mediation was unsuccessful because Hines had walked out of the mediation. The court asked whether there was a viable settlement if the parties could not resolve their differences in mediation. Counsel for Hines stated that there was an enforceable settlement. Lukes stated that many statements in the complaint were false. The court stated that the court retained jurisdiction only to enforce the terms of the settlement, and that the allegations in the complaint did not control. The court continued the hearing to April 2007, and encouraged the parties to resolve their differences.
*1180 At the hearing in April 2007, the court's tentative ruling once again was to order the parties to mediation, as required by the terms of the settlement. Counsel for Hines stated once again that the parties had already participated in a mediation and had attempted to resolve the dispute after the prior hearing. Lukes stated that the mediation was unsuccessful because Hines had walked out of the mediation. Lukes stated that the resurfacing of Hines's portion of the driveway was incomplete and that Hines had failed to present any evidence that the work was complete. Counsel for Hines stated that the issues in dispute included the timing of the resurfacing and the materials to be used. Lukes stated that other statements in the moving papers were false. The court confirmed that Lukes had filed an opposition, stated that the court's jurisdiction was limited to enforcing the terms of the settlement, and stated, "I can't get into the substance of the driveway."
The court stated further: "In a way, I wish I could re-mediate this, but I can't. I don't have the jurisdiction to do it, and I'm not a mediator. I can't go into the substance of the dispute. I can't go into the timing issue. I can't go into the type of material to be used. All I can do is look at the transcript. That's all I can do at this point; look at your moving papers, look at your opposition papers, and go from there." The court continued the hearing to May 1, 2007.
6. Order Granting the Motion
The court granted the motion on May 1, 2007. The court stated at the beginning of the hearing, "the only jurisdiction that I have is to enforce the terms and conditions of the settlement," and again, "I was saying that the only jurisdiction that I have is to enforce the terms and conditions." The court referred the parties to its written tentative ruling.
The tentative ruling began by stating that the motion was granted and that Lukes must "com[p]ly with the settlement agreement within 14 court days." (Capitalization omitted.) The ruling quoted some, but not all, of the settlement terms from the reporter's transcript of the mandatory settlement conference. It then stated that Lukes had "failed to comply with the conditions set forth in the settlement." It stated that Code of Civil Procedure section 664.6 authorized the court to enter a judgment pursuant to the terms of the settlement, and that "[t]he judgment must `reflect and enforce' those terms. Skulnick v. Roberts Express, Inc. (1992) 2 Cal. App. 4th 884, 889 [3 Cal. Rptr. 2d 597]." The ruling concluded, "Accordingly, as Defendant orally agreed to the noted conditions while appearing before Judge Stephen Peterson on October 13, 2004, the Court enforces the terms of the settlement per CCP § 664.6." The ruling did not state that a judgment would be entered.
*1181 After the parties had reviewed the tentative ruling, the court stated: "There's nothing more I can say or do. This matter was settled. It was dismissed. The court retained jurisdiction only to enforce the terms and conditions of the settlement. My jurisdiction does not extend beyond that. That's it. I can't do any more. Under the Code, under section 664.6, once the case is dismissed, the only jurisdiction that I have is to enforce the terms and conditions of the settlement. Those terms and conditions were set forth in Exhibit A [the reporter's transcript]. I have recited some but not all of the conversation that went on before my colleague, now-retired Judge Petersen. I can't revisit it. That will be the order." The court stated further in response to counsel's question, "I don't know whether or not a judgment is needed. I wouldn't think so because the case was settled."
The court adopted the tentative ruling as its final order, but changed the date for Lukes to comply with the settlement to June 15, 2007. A minute order granting the motion attached the tentative ruling, as so modified. The court entered no formal judgment.
Hines filed and served a notice of entry of judgment. Lukes filed a notice of appeal from the order granting the motion. Lukes also petitioned this court for a writ of supersedeas, seeking to stay enforcement of the appealed order pending our resolution of the appeal. We granted the petition and stayed the trial court proceedings.
7. Quiet Title Action
Lukes filed a complaint against Hines in November 2007 (Lukes v. Hines (Super. Ct. L.A. County, No. LC079825)), alleging that Hines had interfered with her use of the easement and that the parties disputed the meaning of the settlement agreement in this action.[4] She alleged that her position was that the reference in the settlement to "concrete materials" included "asphaltic concrete," while Hines maintained that the term included only portland cement. She alleged counts for quiet title, interference with easement, and declaratory relief. The action is currently pending.
CONTENTIONS
Lukes contends (1) the court refused to consider her arguments in opposition to the motion because the court erroneously concluded that it had no jurisdiction to consider those arguments; (2) Hines waived the right to enforce the settlement by failing to perform his settlement obligations and by failing to invoke Code of Civil Procedure section 664.6 sooner; and (3) the *1182 nonperformance of her settlement obligations was excused by Hines's prevention of her performance.
DISCUSSION
1. Code of Civil Procedure Section 664.6
(1) Code of Civil Procedure section 664.6 provides a summary procedure to enforce a settlement agreement by entering judgment pursuant to the terms of the settlement. (Weddington Productions, Inc. v. Flick (1998) 60 Cal. App. 4th 793, 809 [71 Cal. Rptr. 2d 265].) Section 664.6 states that if the parties to pending litigation enter into a settlement either in a writing signed by the parties or orally before the court, the court, upon a motion, may enter judgment pursuant to the terms of the settlement.[5] The court retains jurisdiction to enforce a settlement under the statute even after a dismissal, but only if the parties requested such a retention of jurisdiction before the dismissal. (Ibid.) Such a request must be made either in a writing signed by the parties or orally before the court. (Wackeen v. Malis (2002) 97 Cal. App. 4th 429, 439-440 [118 Cal. Rptr. 2d 502].)
(2) A court ruling on a motion under Code of Civil Procedure section 664.6 must determine whether the parties entered into a valid and binding settlement. (Osumi v. Sutton (2007) 151 Cal. App. 4th 1355, 1360 [60 Cal. Rptr. 3d 693]; Casa de Valley View Owner's Assn. v. Stevenson (1985) 167 Cal. App. 3d 1182, 1189 [213 Cal. Rptr. 790]; see In re Marriage of Assemi (1994) 7 Cal. 4th 896, 905, 911 [30 Cal. Rptr. 2d 265, 872 P.2d 1190].) A settlement is enforceable under section 664.6 only if the parties agreed to all material settlement terms.[6] (Elyaoudayan v. Hoffman (2003) 104 Cal. App. 4th 1421, 1430-1432 [129 Cal. Rptr. 2d 41]; Weddington Productions, Inc. v. Flick, supra, 60 Cal.App.4th at pp. 811-813.) The court ruling on the motion may consider the parties' declarations and other evidence in deciding what terms the parties agreed to, and the court's factual findings in this regard are reviewed under the substantial evidence standard. (Marriage of Assemi, supra, at p. 911, Casa de Valley, supra, at pp. 1189-1190.) If the court determines that the parties entered into an enforceable settlement, it should grant the motion and enter a formal judgment pursuant to the terms of the settlement. *1183 (Corkland v. Boscoe (1984) 156 Cal. App. 3d 989, 995 [203 Cal. Rptr. 356].) The statute expressly provides for the court to "enter judgment pursuant to the terms of the settlement." (Code Civ. Proc., § 664.6.)
2. The Order, As Amended, Is Appealable As a Judgment
The court here granted the motion under Code of Civil Procedure section 664.6, but failed to enter a formal judgment. Absent a formal entry of judgment, an appellate court may amend an order to include a judgment if the effect of the order is to finally determine the rights of the parties in the action. (Griset v. Fair Political Practices Com. (2001) 25 Cal. 4th 688, 698-700 [107 Cal. Rptr. 2d 149, 23 P.3d 43].) We conclude that the effect of the order here was to finally determine the rights of the parties in this action by enforcing the settlement agreement. Accordingly, we will amend the order to include an appealable judgment so as to expedite appellate review.
3. Lukes Has Not Shown That the Court Refused to Consider the Merits of Her Opposition
An appealed judgment is presumed correct, and the appellant must affirmatively show error. (Denham v. Superior Court (1970) 2 Cal. 3d 557, 564 [86 Cal. Rptr. 65, 468 P.2d 193].) "`All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown.'" (Ibid.)
Lukes has not shown that the trial court refused to consider her arguments in opposition to the motion for entry of judgment pursuant to a settlement. The court's statements regarding its limited jurisdiction followed argument by Lukes concerning the merits of the complaint and the parties' discussion concerning the issues that they were unable to resolve in the mediation. We construe the court's statements regarding its limited jurisdiction to mean that the court understood that it had no authority to revisit the merits of the complaint or to remake the settlement. Although the court stated that its only jurisdiction was "to enforce the terms and conditions of the settlement," it also stated that it would consider the moving and opposing papers, "and go from there."[7] Absent an affirmative showing that the court concluded that it had no authority to deny the motion and refused to consider the merits of the opposition, we conclude that the court properly considered the merits and that Lukes has shown no error in this regard.
*1184 4. Lukes Has Shown No Basis to Relieve Her of Her Settlement Obligations
Lukes argues that Hines waived the right to enforce the settlement by failing to perform his settlement obligations. She cites the rule that a party who fails to perform a condition precedent generally cannot require another party to perform his or her contract obligations. (Civ. Code, § 1439; Code Civ. Proc., § 457.) She argues that Hines failed to (1) dismiss his complaint with prejudice, (2) complete his resurfacing within one year, or (3) allow her to park in the easement area, all as required by the terms of the settlement. She fails to explain, however, why any of those obligations was a condition precedent (see Civ. Code, § 1436) to the performance of any of her settlement obligations. The terms of the oral settlement as recorded in the reporter's transcript do not indicate that any of the items specified by Lukes was required to be performed before any part of her performance became due.
Lukes also argues that Hines waived the right to enforce the settlement under Code of Civil Procedure section 664.6 by failing to state in the second civil harassment proceeding, in response to the court's request, that she intended to move to enforce the settlement under the statute.[8] The court stated at the beginning of the trial in that proceeding: "Now, this is the time for trial of the civil harassment case. I'm waiting to hear if anyone is making a motion under 664.6. I think for me to take any action in that case, it requires a motion. Hearing none, I'll proceed with the civil harassment case." At the conclusion of trial, the court stated: "I asked at the outset whether anyone was interested in enforcing the settlement agreement, but no one was. So I'm left with the civil harassment action as a means to bring an end to this dispute." The court described the terms of a restraining order to be issued and stated that the order "could have been made to enforce the settlement in the LC case, but no one asked for it." Hines did not state that he waived the right to enforce the settlement under section 664.6, and we do not regard Hines's failure to state in the civil harassment trial that he intended to move to enforce the settlement in the present action as a waiver or relinquishment of his right to do so.
(3) Lukes argues further that Hines prevented her performance by refusing to provide his written consent, as the property owner, to resurface the driveway.[9] She cites the rule that a party's prevention of performance by *1185 another party excuses the nonperformance. (Civ. Code, § 1511, subd. 1.) The effect of this rule is that the nonperformance does not constitute a breach of contract and does not give rise to a remedy for breach of contract. (Ninety Nine Investments, Ltd. v. Overseas Courier Service (Singapore) Private, Ltd. (2003) 113 Cal. App. 4th 1118, 1135 [6 Cal. Rptr. 3d 891]; Taylor v. Sapritch (1940) 38 Cal. App. 2d 478, 481-482 [101 P.2d 539].) The statutory language makes it clear, however, that a party moving for the entry of judgment pursuant to a settlement under Code of Civil Procedure section 664.6 need not establish a breach of contract to support relief under the statute. Accordingly, the court was authorized to enter a judgment pursuant to the settlement regardless of whether Lukes's nonperformance of her settlement obligations was excused.
5. The Appealed Order Does Not Accurately Reflect the Parties' Agreement
(4) The order granting the motion for entry of judgment pursuant to a settlement states some of the settlement terms, but omits others. The order does not include the terms relating to resurfacing by Hines, the insurers' payment for that work, the placement of Lukes's garbage cans, the parking of Lukes's and her visitors' vehicles, or the mutual release.[10] Although Lukes does not argue in her appellant's opening brief that the order is incomplete, it seems apparent that the failure to enter a judgment reflecting all of the material terms of settlement that have yet to be fully performed could defeat the purposes of the settlement and spawn further litigation. We conclude that by omitting material terms of the settlement, the order fails to accurately reflect the parties' agreement and therefore fails to comply with Code of Civil Procedure section 664.6.
The trial court on remand must enter a new judgment pursuant to the terms of the settlement, setting forth all of the material terms that have yet to be fully performed. In the interest of clarity, the judgment should state those terms clearly and concisely, rather than quote an extended colloquy from the reporter's transcript. If the court finds that the parties failed to agree to all material terms, there is no enforceable settlement so the court must deny the motion for entry of judgment pursuant to a settlement.
*1186 DISPOSITION
The appealed order is modified to include an appealable judgment. That judgment is reversed with directions to the trial court to either enter a formal judgment setting forth all of the material settlement terms that have yet to be fully performed or, if the court finds that the parties failed to agree to all material terms, deny the motion for entry of judgment pursuant to a settlement. The stay of trial court proceedings will be lifted as of the date of the filing of the remittitur herein. Lukes is entitled to recover her costs on appeal.
Klein, P. J., and Kitching, J., concurred.
NOTES
[1] Although the court failed to enter a formal judgment, we exercise our discretion to amend the order to include an appealable judgment, as stated post.
[2] Counsel for Lukes stated that the parties had agreed, "in connection with Mr. Hines's resurfacing, that Ms. Lukes's insurance carriers will pay one-half of the cost of his resurfacing, not to exceed $4,000." The insurers did not appear before the court.
[3] The photographs appear to show only a small portion of the driveway.
[4] We take judicial notice of the complaint. (Evid. Code, § 452, subd. (d).)
[5] "If parties to pending litigation stipulate, in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement." (Code Civ. Proc., § 664.6.)
[6] A court receiving a settlement should help to ensure that the material terms of the settlement are explicitly defined and that the parties understand and agree to be bound by those terms. (See In re Marriage of Assemi, supra, 7 Cal.4th at p. 911.)
[7] The court stated at the hearing on April 19, 2007: "In a way, I wish I could re-mediate this, but I can't. I don't have the jurisdiction to do it, and I'm not a mediator. I can't go into the substance of the dispute. I can't go into the timing issue. I can't go into the type of material to be used. All I can do is look at the transcript. That's all I can do at this point; look at your moving papers, look at your opposition papers, and go from there."
[8] Lukes cites no legal authority in support of her perfunctory argument on this point. An issue presented in that fashion does not merit extensive discussion in an appellate opinion, so our discussion of the issue is brief.
[9] Lukes also argues that Hines prevented her performance by removing survey markers that delineated the easement area, and that he built a wall that encroaches on the easement area. Lukes neither argued nor presented evidence to the trial court on these issues. Because these issues were not presented to the court ruling on the motion, we will not consider them for the first time on appeal. (Mattco Forge, Inc. v. Arthur Young & Co. (1997) 52 Cal. App. 4th 820, 847 [60 Cal. Rptr. 2d 780].) Lukes argues for the first time in her reply brief that the settlement agreement is unenforceable because the parties failed to agree on how to obtain a building permit for her resurfacing. Lukes failed to raise this issue below or in her opening brief, so we will not consider it. (Ibid.; Reichardt v. Hoffman (1997) 52 Cal. App. 4th 754, 764 [60 Cal. Rptr. 2d 770].)
[10] The settlement provisions concerning mutual dismissals with prejudice and required mediation apparently are moot in light of the dismissal by the court and the completed mediation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2355427/ | 529 F. Supp. 2d 644 (2006)
In re ENRON CORPORATION SECURITIES Derivative & "ERISA" Litigation.
Mark Newby, et al., Plaintiffs
v.
Enron Corporation, et al., Defendants
The Regents of the University of California, et al. Individually and On Behalf of All Others Similarly Situated, Plaintiffs,
v.
Kenneth L. Lay, et al., Defendants.
No. MDL-1446, Civil Action No. H-01-3624.
United States District Court, S.D. Texas, Houston Division.
June 5, 2006.
*648 OPINION AND ORDER RE CLASS CERTIFICATION
MELINDA HARMON, District Judge.
ROAD MAP
I. Lead Plaintiffs Objectives............................................................... 650
II. Objections to Motion for Class Certification............................................. 652
A. Certain Defendants.................................................................... 653
B. Alliance Capital Management, LLP...................................................... 654
C. Outside Directors..................................................................... 656
D. Financial Institutions................................................................ 658
E. Putative Class Members................................................................ 665
F. Certain Individual Defendants......................................................... 667
G. Vinson & Elkins, LLP.................................................................. 668
H. Merrill Lynch......................................................................... 668
III. Prerequisites for Class Certification.................................................... 670
A. General Principles.................................................................... 670
B. Rule 23(a)'s Requirements............................................................. 672
1. Numerosity......................................................................... 672
2. Commonality........................................................................ 672
3. Typicality......................................................................... 673
4. Adequacy........................................................................... 674
C. Rule 23(b)'s Requirements............................................................. 676
1. Predominance of Common Issues...................................................... 677
a. Affiliate Ute and/or Fraud-on-the-Market Presumptions for
Section 10(b)/Rule 10b-5 Claims............................................... 678
b. Reliance and Section 11 Claims.................................................. 696
2. Superiority........................................................................ 697
IV. Rulings on Specific Issues............................................................... 699
A. Single Class.......................................................................... 699
B. Scheme Liability...................................................................... 701
C. Limitations and Tolling Regarding Section 12(a)(2) Claims............................. 707
D. Length of Class Period................................................................ 711
E. Scheme or Schemes/Individual Damages: Potential Conflicts of Interest
Among Class Members................................................................. 713
F. Damages and Causation................................................................. 716
1. Claims Under § 10(b).......................................................... 716
2. Claims Under §§ 11 and 12(a)(2).......................................... 721
3. PSLRA and Exchange Act "Inconsistency"............................................. 721
G. Standing and Foreign Debt Securities Claims Under §§ 12(a)(2) and 10(b)..... 723
*649
H. Adequacy of Challenged CLass Representatives.......................................... 724
I. Presumptions of Reliance.............................................................. 739
1. Affiliated Ute Presumption Applies................................................. 739
2. Fraud-on-the-Market Presumption................................................... 739
a. Analyst Reports................................................................. 740
b. Greenberg v. Crossroads Sys., Inc., 364 F.3d 657................................ 742
c. Market Efficiency and Fraud on The Market: Enron Securities..................... 745
J. Claims Against Deutsche Bank Entities................................................. 772
V. Court's Order............................................................................ 777
The above referenced putative class action alleges violations of sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), 78t(a), 78t-1(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.1013-5, and of sections 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77l(a), and 77o,[1] during a proposed Class Period commencing on October 19, 1998 and ending November 27, 2001.[2] Pending before the *650 Court is Lead Plaintiff The Regents of the University of California's amended motion for class certification (# 1445), pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3). A class certification hearing was held on March 7-8, 2006.
Because they are directly relevant to the motion for class certification, this Court also addresses the Deutsche Bank Entities' motion for partial reconsideration and dismissal, or motion to require a second amended complaint before a response by them (# 3791) and Lead Plaintiff's motion for leave to file an amended complaint as to Deutsche Bank and motion for entry of an order requiring Deutsche Bank to answer Lead Plaintiffs amended complaint (# 3903).
I. Lead Plaintiff's Objectives
Specifically Lead Plaintiff seeks certification of a single plaintiff class[3] defined as follows:
[A]ll persons, excluding defendants and members of their immediate families, any officer, director or partner of any defendant, any entity in which a defendant has a controlling interest and the heirs of any such excluded party, who purchased the publicly traded equity and debt securities of Enron Corporation between October 19, 1998 and November 27, 2001, including the publicly traded securities issued by Enron-related entities during the Class Period, the value or repayment of which was dependent upon the credit, financial condition or ability to pay of Enron, and (2) all states or political subdivisions thereof or state pension plans that purchased from defendants Enron's 6.40% Notes due 7/15/06 or 6.95% Notes due 7/15/28, and that authorize the prosecution of their claim pursuant to the Texas Securities Act.[4]*651 # 1445 at 1. Plaintiffs have alleged a common scheme to defraud throughout the Class Period and argue that arty of the multiple "separate schemes" raised in opposition by Defendants are part of this single scheme (including SPEs, off-the-book partnerships and transactions, swaps, etc.) to falsify Enron's financial results and defraud its investors. The federal securities laws "reach complex fraudulent schemes as well as lesser misrepresentations or omissions." Shores v. Sklar, 647 F.2d 462, 470 (5th Cir.1981), cert, denied, *652 459 U.S. 1102, 103 S. Ct. 722, 74 L. Ed. 2d 949 (1983).[5] Lead Plaintiff insists that the investors relied upon the integrity of the market price and on Enron's reputation as a well run company in determining whether to buy Enron securities: Had they known of the concealed actions of some of the currently objecting Defendants, such as the Financial Institutions, who or which purportedly contributed to the fraudulent scheme but claim Plaintiffs failed to demonstrate reliance, the putative class representatives have testified that they would not have been lured into investing in the company, thereby justifying a presumption of class-wide reliance based on the fraud-on-the-market theory. More recently Lead Plaintiff has alternatively claimed that the class is entitled to a presumption of reliance under Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 92 S. Ct. 1456, 31 L. Ed. 2d 741 (1972).
Lead Plaintiff proposes that the following plaintiffs, a mixture of individuals and entities, be designated as class representatives: (1) For purchasers of Enron Common Stock, Lead Plaintiff; Robert V. Flint; Amalgamated Bank, as Trustee for the Long View Collective Investment Fund, Long View Core Bond Index Fund and Certain Other Trust Accounts; Hawaii Laborers Pension Plan; George M. Placke; Michael J. Bessire; Dr. Richard Kimmerling; Michael B. Henning; John Zegarski; Joseph C. Speck; Ben L. Schuette; San Francisco City and County Employees' Retirement System; John J. and Charlotte E. Cassidy, as Trustees for the John & Charlotte Cassidy Family Trust; Dr. Fitzhugh Mayo; and (2) for purchasers of Enron Debt, Washington State Investment Board; Employer-Teamsters Local Nos. 175 & 505 Pension Trust Fund; Archdiocese of Milwaukee Supporting Fund, Inc.; Nathaniel Pulsifer, trustee of the Shooters Hill Revocable Trust; Staro Asset Management, L.L.C.; and the Greenville Plumbers Pension Plan; (3) for purchasers of Enron Preferred Stock, Mervin Schwartz, Jr.; and Stephen M. Smith.[6]
Lead Plaintiff also seeks approval of Lerach Coughlin Stoia Geller Rudman & Robbins LLP as Lead Class Counsel.
II. Objections to Motion for Class Certification
Because Lead Plaintiff has settled with Bank of America Corporation the Court does not address its individual brief in opposition, on behalf of itself and Banc of America Securities LLC (# 1778) and supplemental memorandum (# 2114).
Conseco Annuity Assurance Company, which initially opposed certification (# 1770) here of a class that would include purchasers of credit-linked notes issued by trusts created by Citigroup ("Citigroup CLNs"), not by Enron, for claims brought under § 12(a) (2) of the Securities Act of *653 1933 and § 10(b) of the Securities Exchange Act of 1934, has since decided to join the Newby class and participated in the settlement between Citigroup, and Lead Plaintiff, to which this Court recently gave final approval. Thus the Court also does not address its arguments.
A. Certain Defendants' Opposition (# 1780),[7] Joined by Stanley C. Horton (# 1796) and Ken L. Harrison (# 1798)
Certain Defendants argue that Lead Plaintiff has not met its burden on the predominance and superiority requirements of Rule 23(b) and has failed to provide a roadmap of how the § 10(b) and Rule 10b-5 claims would be tried (identifying the substantive, issues that will control the outcome, assessing which issues will predominate, and determining whether the issues are common to the class) in light of the variations in circumstances among putative class members, i.e. "manageability issues." Castano v. American Tobacco Co., 84 F.3d 734, 741 (5th Cir.1996) (reversible error if a class is certified without consideration of how the trial on the merits will be conducted); O'Sullivan v. Countrywide Home Loans, Inc., 319 F.3d 732, 738 (5th Cir.2003). ("Determining whether legal issues common to the class predominate over individual issues requires that the court inquire how the case will be tried").
Certain Defendants contend that the class, defined too broadly, relied on more than eighty-five nonuniform, allegedly material misrepresentations (more than forty of which were oral statements made in conference calls with analysts and investors, followup conversations with analysts, interviews with the press and analysts, and statements made at analyst meetings and conferences) on different subjects and transactions made by different subsets of Defendants, and which gave rise to disparate degrees of reliance by putative class members, over a three-and-a-half-year period. Such claims are unsuitable for single-class certification.[8]See Simon v. Merrill Lynch, Pierce, Fenner & Smith, 482 F.2d 880, 882 (5th Cir.1973) ("If there is any material variation in the representations made or in the degrees, of reliance thereupon, a fraud case may be unsuitable for treatment as a class action"[9]; an action based substantially on oral rather than written misrepresentations cannot be maintained as a class action); Castano, 84 *654 F.3d at 745. "Similarly, if the writings contain material variations, emanate from several sources, or do not actually reach the subject investors, they are not more valid a basis for a class action than dissimilar oral representations." Simon, 482 F.2d at 882. Certain Defendants argue that the complaint identifies many separate fraudulent schemes, in at least seven distinct time periods, involving different subsets of Defendants, with each scheme purportedly inflating the market price of the securities. Thus they maintain that different class members purchased, and sold Enron securities at different times and, presumptively relied on different alleged misrepresentations; such highly individualized issues are not subject to class-wide proof, insist Defendants. See, e.g., Richland v. Cheatham, 272 F. Supp. 148 (S.D.N.Y.1967). The class includes some investors who bought and sold during the first two years and were not damaged by the alleged fraud and indeed may even have made money. Others bought their securities after the alleged fraud was disclosed to the market. "Where the plaintiffs' damage claims focus almost entirely on facts and issues specific to individuals rather than the class as a whole, the potential . . . that the class action may degenerate in practice into multiple lawsuits separately tried renders class treatment inappropriate." Bell Atlantic Corp. v. AT&T Corp., 339 F.3d 294, 307 (5th Cir. 2003) (antitrust case), quoting Countrywide Home Loans, 319 F.3d at 744.
Additionally, Certain Defendants contend that unlike § 11 claims, whose damages could be determined by a mathematical or formulaic calculation, damages for § 10(b) claims would depend on date(s) of trading, profit or loss incurred, the extent to which the price paid and received reflected the "true" value versus inflated value of the stock, i.e., individual issues that would predominate over questions common to the class.
Finally Certain Defendants insist that current and former Enron employees should not be included in the class because they claim that they based their decisions to buy and sell Enron stock on various misrepresentations made to them as employees that were not made to the public, and therefore did not impact the public market price for the Enron stock. The employees, also, will have individual reliance issues and some may have had personal knowledge from working on the transactions involved.
B. Alliance Capital Management LLP's Objections (# 1781, 1782)
Alliance Capital Management LLP ("Alliance Capital") objects on the grounds of inadequacy to the appointment, as a class representative for all purchasers of Enron Debt Securities, of Staro Asset Management, LLC, which asserts only a § 11 claim based on a purportedly misleading Registration Statement for Enron Zero Coupon Notes. Alliance Capital explains that Staro is a general partner of a group of limited partnerships that focus on hedging and arbitrage and seek profits independent of the direction of the market. It is also an investment manager and advisor for client companies.
Alliance Capital charges generally, "Staro has demonstrated a lack of candor in its dealing with the Court; it is subject to unique defenses, including lack of standing because it never owned either the Zero Coupon' Notes or a derivative interest keyed to the value of the Notes; its interests are not typical of, and indeed are in direct conflict with, the interests of a majority of the class it seeks to represent; and Staro's management has demonstrated a fundamental ignorance of the litigation, completely abdicating responsibility for its control to Staro's lawyers." # 1781 at 1. Alliance Capital emphasizes, with supporting documents, that when Staro earlier *655 and unsuccessfully sought appointment as Lead Plaintiff for a class of debt investors in Newby, Staro claimed that it was a pure debt investor and that its losses amounted to $40 million. On deposition, its designated representative, investment analyst Donald Trent Bobbs, revealed that Staro's note and bond purchases were only "one leg" of its "unified debt/equity investment strategy" and that its actual loss was half that it previously claimed because it offset its loss through the purchase and exercise of puts on Enron equity, which Staro had failed to disclose to the Court. Thus its claims are not typical of the class members' either in its investment strategy, nor its "loss." Furthermore Alliance Capital asserts that based on the documents produced by Staro and the deposition testimony of its representative, there is no evidence that Staro or any of its limited partners purchased the Enron Zero Coupon Convertible Senior Notes Due 2021, on which Staro grounds its claim, but only that one of its limited partners had purchased an economic interest in a derivative.[10] In addition Bobbs testified that Staro had not notified the actual purchasers (its limited partners, to which Staro is a fiduciary) of the extent of its Enron losses and its decision to file this suit nor obtained their consent to filing it. Alliance Capital argues that Staro's arbitrage strategy[11] (purchasing Enron convertible debt while it sold Enron stock short) differentiates its economic interests from those of investors in Enron, both equity and debt. Moreover Staro continued to trade in Enron securities after Enron's negative disclosures in November 2001 and even after *656 it filed for bankruptcy on December 2, 2001, and it made a profit from doing so; thus its interests differ sharply from those of most class members. While it now seeks to represent both equity and debt investors, Staro primarily was a short seller of Enron stock, with interests directly opposite those of most Enron equity investors.
Finally they challenge, as an inadequate class representative, Staro's designated management witness, Donald Trent Bobbs. Bobbs admitted ignorance about fundamental developments in this litigation, including that he did not know of the court-ordered mediation, he had never seen Staro's application to be Lead Plaintiff, but could only guess that someone at Staro had read it, he had not authorized the filing of the motion, and he disagreed with some of the main contentions in Professor Stephen P. Feinstein's supporting declaration, which he had not reviewed before it was filed (Dep. At 202-04).
The Outside Directors, the remainder of whose opposition will be discussed next, also argue that Staro has no standing to pursue claims on behalf of the Zero Coupon Convertible Notes because it did not purchase them; instead the three funds managed by Staro (Stark Investments, Shepherd and Reliant) purchased them and are the record holders of the securities in question. # 1785 at 13; Ex. 141 to Bobbs Dep. and Ex. B to # 1785. Outside Directors state that they consider the three funds to be adequate class representatives and that the three funds should be substituted for Staro. Id. at 14 n. 20. The Outside Directors also argue that Amalgamated Bank is suing in a representative capacity on behalf of other entities that are the actual holders of record of the notes at issue and that the real parties should be substituted as class representatives.
C. Outside Directors' Opposition (# 1785), Joined by Rebecca Mark-Jusbasche (# 1792), and in part by Ken L Harrison[12] (# 1798)
The Outside Directors[13] oppose the motion for class certification for a single "behemoth" class as it relates to the claims under § 11 because (1) the class representatives lack, standing; (2) the class includes claims that have previously been dismissed by the Court; (3) the class is not limited to the time periods authorized by § 11 and prior order of the Court (i.e., the periods after the registration statement for the offer was Med and before a Form 10K was filed by Enron (# 1269 at 130-32)); and (4) unlike § 10(b), § 11 does not require proof of reliance. They ask the .Court to order Lead Plaintiff to amend and request "certification of tailored classes that conform to Fifth. Circuit law and the Court's previous orders," specifically a, "pure Section 11 class, with subclasses for each note offering."
Outside Directors challenge Lead Plaintiffs standing to bring Section 11 claims when it bought no debt because that provision limits suits to purchasers of "such security." 15 U.S.C. § 77k. See Krim v. pcOrder, 402 F.3d 489, 495, 498 (5th Cir. 2005) (Section 11's "standing provisions limit putative plaintiffs to the `narrow class of persons' consisting of `those who purchase securities that are the direct subject *657 of the prospectus and registration statement'"; "Section 11 is available for anyone who purchased directly in the offering' and any after market purchasers who can demonstrate that their shares are traceable to the registration statement in question"). A Section 11 class representative must have purchased the same security sold pursuant to the same registration statement and offering documents as the class it seeks to represent.[14]
Furthermore, Outside Directors insist the "mass class" motion does not provide a manageable trial plan for such a broad and amorphously described single classit covers different classes of securities (debt, equity, and preferred stock for both Enron-related securities and Enron securities) purchased at different times over a three-year period, under three different statutes of the two federal securities acts (§§ 10(b) and 20(a) of the 1934 Act and §§ 11, 12, and 15 of the 1933 Act), as well as state statutory claims, involving different elements and types of proof (some requiring reliance and scienter, others not), against different parties, and involving different defenses. Submitting jury instructions if there is a single class would be rife with problems. Outside Directors suggest that a separate § 11 class be certified with subclasses for each note offering with proposed class representative with standing to represent each subclass. They contend that proper subclassing would insure that common issues predominate, specifically the two issues in § 11 claims, Le., that financial statements in registration statements were misleading and the defendants' due diligence defense (15 U.S.C. § 77k(b)(3)), which they claim is a common and predominant element of every § 11 trial. By certifying a section 11 class, judicial efficiency will be served because the defense need be tried only once, and if defendants prevail, no § 11 claim will survive. Individual reliance is not an issue under these claims because the Court dismissed all reliance-based claims. # 1269 at 130-32. While calculation of damages under § 11 will require each purchaser's proof of purchase and sales prices, it is formulaic because it does not require calculation of the "true value" of Enron stock.
Moreover, for the Zero Coupon Convertible Notes, which originated as a Rule 144A private placement but were subsequently registered, the Court ruled (# 1269 at 132) that the § 11 claims were limited to persons who purchased in the registered offering filed on July 18, 2001; therefore claimants who bought in the 144A private placement lack standing to sue and should not be included in that subclass. Since the Court also dismissed § 11 claims brought on behalf of persons who purchased after the filing of a Form 10K because Lead Plaintiff failed to plead reliance by any of these parties, the subclass for claims for each note offering should be limited to persons who purchased after the registration statement and before the filing of a cumulative Form 10-K. # 1269 at 130; 15 U.S.C. § 77k(a) (requiring proof of reliance by persons who purchased after the issuer made available an earning statement covering a period of at least 12 months beginning after the effective date of the registration statement).[15]
*658 D. Financial Institutions[16] (# 1788) (Joined by Deutsche Bank Entities # 4128), Supplemental Submission (# 1793), Supplemental Memorandum in Further Opposition (# 2317), Supplemental Memorandum in Opposition (# 4491), Notice of Supplemental Authority (# 4596) and Reply (# 4629) to Response, Credit Suisse and Pershing LLC's Supplemental Memorandum in Opposition (4490), Barclay's Supplemental Memorandum (# 4492), and Deutsche Bank's Opposition (# 4489)
The Financial Institutions also object to the lumping together of so many distinct claims with different elements, against different defendants, arising at different times, into one undifferentiated class.
Because the § 10(b) claims against the Financial Institutions are not based on alleged material misrepresentations, but on their conduct in the alleged fraudulent scheme under Rule 10b-5(a) and (c), and because Lead Plaintiff relies on the fraud-on-the-market presumption to satisfy the reliance element, the Financial Institutions argue that since their conduct was not conveyed to investors and the market, it could not have been relied upon by the investors and the market; therefore the presumption of reliance does not apply. Basic, Inc., 485 U.S. at 247, 108 S. Ct. 978 (presumption of reliance applies to "any public material misrepresentations").[17] Thus each plaintiff must demonstrate that he relied on the specific conduct of each Financial Institution Defendantundermining class certification because the predominance requirement cannot be satisfied. Sandwich Chef of Tex., Inc. v. Reliance Nat'l Indemn. Ins. Co., 319 F.3d 205, 211 (5th Cir.2003) ("Fraud actions that require proof of individual reliance cannot be certified as Fed. R.Civ.P. 23(b)(3) class actions because individual, rather than common, issues will predominate."), cert. denied, 540 U.S. 819, 124 S. Ct. 101, 157 L. Ed. 2d 37 (2003).
Similarly, the Financial Institutions argue, it is also improper to presume that *659 Lead Plaintiff can satisfy the requirement that the fraud be "in connection with the purchase or sale of any security," Le, that there be a nexus between the alleged fraud and a securities transaction, with respect to them. The transactions through which each of them allegedly participated, in the alleged scheme took place at different times throughout the class period and affected different statements read by different plaintiffs in different ways; thus the Financial Defendants alleged transactions cannot be presumed to be "interdependent and coincidental" with all plaintiffs' purchases.
The Financial Institutions cite testimony from the proposed representatives' depositions that the Financial Institutions did not make any express representations to the representatives, but only "enabled," "assisted" or "helped to perpetuate" Enron's fraud, to demonstrate that it is inappropriate to presume that all putative class members relied upon the Financial Defendants' nonpublic conduct. At deposition most representatives stated that they had had no contact with the Financial Institutions and had not relied on anything the Financial Institution Defendants said or did in making their investment decisions. Each class member must individually establish that he relied on each Financial Defendant's conduct, they contend. In sum, they insist under Plaintiffs theory of liability, individual issues of reliance predominate over common questions.
Furthermore the Financial Institutions argue that Lead Plaintiffs class definition does not meet Rule 23(b)(3)'s superiority requirement because there are numerous different factual and legal issues relating to each defendant and because the huge putative class presents insurmountable manageability problems. If a class is certified for the § 10(b), § 11, and §, 12(a)(2) claims, the Financial Institutions insist that the proposed class period for claims against the Financial Institution Defendants must be modified to begin on April 8, 1999 instead of October 19, 1998. They maintain that any claims made before April 8, 1999 against them are time-barred under the Lampf three-year period of repose, as this Court has ruled,[18] and that the Class Period must end on October 16, 2001, when Lead Plaintiff has asserted that Enron "shocked the markets" by announcing it had overstated its financial condition by more that $1 billion, a disclosure that operated as a "correction" of earlier financial statements and other statements about Enron's financial condition. Basic, Inc., 485 U.S. at 248, 108 S. Ct. 978 (if the fraud-on-the-market presumption applied and if the information that Lead Plaintiff claims has been concealed or misrepresented "credibly entered the market and dissipated the effects of the misstatements," a plaintiff who "trades . . . after the corrective statements would have no direct or indirect connection with the fraud."); In re Enron Corp. Sec., Derivative & ERISA Litig., 235 F. Supp. 2d 549, 574 (S.D.Tex.2002) (a misrepresentation is "immaterial if the information is already known to the market because the misrepresentation therefore cannot defraud the market"). Thus investors who purchased Enron securities after October 16, 2001 could not have relied on the alleged fraud and their claims cannot be saved by certifying them together with those of purchasers before October 16, 2001.
Moreover, argue the Financial Institutions, class members who purchased after that date cannot prevail as a matter of law because (1) for their § 10(b) claims relying on the fraud-on-the-market presumption, *660 "[a]ny showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price [such as this corrective information], will be sufficient to rebut the presumption of reliance," Basic, Inc., 485 U.S. at 248, 108 S. Ct. 978; (2) their §§ 11 and 12(a)(2) claims are subject to an absolute loss causation defense (because of Enron's statement that "shocked the markets" their losses could not have been caused by the alleged fraud); and (3) three of their § 11 claims (based on the May 19, 1999 offering of Enron Corp. 7.375% Notes due 5/15/2019, the August 10, 1999 offering of Enron Corp. 7% Exchangeable Notes due 7/31/2002, and a June 1, 2000 offering of Enron Corp. 7.875% Notes due 6/15/2003) require establishment of reliance because Enron filed a Form 10-K for the 12-month period after the registration statements became effective before their purchases, and thus the purchasers could not have relied upon the alleged fraud. 15 U.S.C. § 77k(a).
Regardless, argue the Financial Institutions, the Class Period alternatively must end at the latest by November 8, 2001 when Enron publicly announced that it was restating its financial statements for 1997-2000 to eliminate $600 million in profits and approximately $1.2 billion in shareholder equity and expressly warned that its financial statements and audit reports for that period "should not be relied upon." Such an announcement precluded any reasonable reliance on Enron's financial statements.
Lead Plaintiff's § 11 claims against the Financial Institution Defendants are based on four public securities offerings, three[19] of which were underwritten by different subsets of these Defendants. Not only do the claims present manageability problems because the offerings were conducted at different times, incorporated different Enron financial statements, and were underwritten by different combinations of them, argue the Financial Institutions, but some class members must prove reliance because they purchased them after Enron Med its Form 10-Ks for 1999 and 2000; these factors work against certifying this action as a single class. At minimum, different subclasses would have to be created under Rule 23(c)(4) for each of the three offerings for purchasers who must prove reliance and those who do not need to prove reliance.
Financial Institution Defendants additionally assert that the claims under § 12(a)(2) fail because not a single proposed class representative bought the securities at issue and thus no one has standing to pursue claims based on any of the nine offerings, which were issued from September 1999 through July 2001. See this Court's orders, # 1999[20] and 2043. The Financial Institutions' Supplemental Submission points out that intervenor the Imperial County Employees Retirement System ("ICERS") has withdrawn. Alternatively, if the Court does certify a class, a *661 separate subclass should be established for each of the nine offerings.
Moreover, Financial Institution Defendants argue, since § 12(a) (2) claims must be brought within three years of the sale of the securities, the claims are barred by the applicable § 13's statute of limitations/repose, 15 U.S.C. § 77m.[21] Since equitable tolling principles do not apply to the statute of repose (# 1999 at 58 & n. 44, 59), they maintain that any belated intervenor will not relate back to Lead Plaintiffs filing of the Amended Consolidated Complaint on May 15, 2003, which this Court has deemed filed as of January 14, 2003 .(# 2044 at 6-7). That complaint asserted the § 12(a)(2) claims for the first time based On the Foreign Debt Securities, all the offerings of which occurred on or before July 12, 2001. Thus the statute of repose for the § 12(a)(2) claims expired at the latest on July 12, 2004, since the last of the offerings occurred "on July 12, 2001, and no class member with standing has come forward. (ICERS settled its claims and withdrew.)
Financial Institutions further argue that the American Pipe rule tolling statutes of limitations and of repose when a class action is commenced does not apply when no named plaintiff has standing to assert the claims. In re Colonial Ltd. P'ship Litig., 854 F. Supp. 64, 82 (D.Conn.1994).
In their most recent memorandum (# 4491), the Financial Institutions contend that to be primarily liable under § 10(b) in the wake of Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 114 S. Ct. 1439, 128 L. Ed. 2d 119 (1994) and progeny a defendant must have made a material misstatement or omission on which the market could rely. They insist Lead Plaintiff has not established any misrepresentation made by any Financial. Institution Defendant with the requisite scienter of the individual corporate official making the statement to hold the Financial Institution liable under Southland Sec. Corp. v. INSpire Ins. Solutions Inc., 365 F.3d 353, 366-67 (5th Cir. 2004) Lead Plaintiff has also failed to demonstrate that any Financial Institution made an actionable misstatement through an analyst that had a material and measurable impact on the price of Enron securities. Greenberg v. Crossroads Sys., Inc., 364 F.3d 657, 663-66 (5th Cir.2004). They insist that Lead Plaintiffs allegation that claims against the Financial Institutions based on statements made by Enron, on which class members relied, about transactions funded or structured by the Financial Institution Defendants, are not actionable under Central Bank and In re Dynegy, Inc. Sec. Litig., 339 F. Supp. 2d 804, 913, 916 (S.D.Tex.2004) (holding that Citigroup, alleged to have "structured, funded and executed two major series of transactions to hide off Dynegy's balance sheet hundreds of millions of dollars in debt" and to have issued misleading analyst reports about Dynegy, was not liable for misstatements made by Dynegy in Dynegy's financial statements because such claims are barred by "Central Bank's limitations on liability for a secondaiy actor's involvement in the preparation of false and misleading statements.").
Furthermore the Financial Institutions assert that Lead Plaintiff has failed to demonstrate an efficient market for the Foreign Debt Securities, Enron Registered Bonds, Enron Preferred Securities, and Stock Options.
The Foreign Debt. Securities were issued pursuant to unregistered private placements under 17 C.F.R. §§ 230.901-230.905 *662 in private offerings limited to Qualified Institutional Buyers ("QIBs," i.e., entities owning and investing in the aggregate at least $100 million in securities that are exempted from registration for private resales of securities, under 17 C.F.R. § 230.144A).[22] Regulation S, under which the foreign portions of the Foreign Debt Securities were issued, exempts such securities from registration requirements under § 5 of the Securities Act of 1933. The offering Memoranda state they are confidential and prepared solely for the QIBs permitted to purchase them, are not offers to any other persons of the public generally, and that there is no existing market for the notes offered nor any assurance that there would be the development or liquidity of a market for them. They point out that Lead Plaintiff's expert, Dr. Blaine Nye, does not try to demonstrate that the primary offerings of the Foreign Debt Securities traded in efficient markets.
Moreover, argue the Financial Defendants, the market for the Foreign. Debt Securities was inefficient. Dr. Nye's data reflect that the Foreign Debt Securities were thinly traded in the secondary market, while Dr. Suresh M. Sundaresan, Deutsche Bank's expert on market efficiency, shows they had small weekly turnover rates and low trading frequencies. Dr. Nye merely points out that the number of days during the Class Period when these securities even traded varied from 6.1% to 31.6%, with an average trading frequency of 20.6% and a median trading frequency of 21.0%; there was no trading of these securities on the majority of trading days. Dr. Nye provides data on institutional holdings, but fails to explain how that data compare with data for securities in inefficient markets. Dr. Nye states that analysts at only seven institutions covered Osprey and Marlin securities, at only five financial institutions covered Yosemite securities, and at only four financial institutions covered. Enron credit-linked notes, far fewer than the 29-31 analysts covering Enron common stock. Moreover some of those analysts were affiliated with the underwriters of the Rule 144A offerings, In addition these debt securities were traded over the counter by calling around an informal net of investors and brokers rather than having a centralized trading platform with publicly quoted bids, asks and transactions. See In re Livent, Inc. Sec. Litig., 211 F.R.D. 219, 222 (S.D.N.Y.2002) (holding that notes not purchased on a public exchange but "bought and sold through an informal net of contacts among institutional investors and brokers who would exchange bids and negotiate prices privately" and where there "was no centralized source of price and trading information" was "inconsistent with the central tenet of `fraud on the Market' theory, which presupposes that `an efficient securities market rapidly incorporates all publicly available information about a company's business and financial situation.'"); Camden Asset Management, L.P. v. Sunbeam Corp., No. 99-CV-8275, 2001 WL 34556527, *10 (S.D.Fla. July 3, 2001) ("debentures were not priced efficiently" where "the only way to obtain pricing information . . . was by `calling around,' rather than relying on a market where bids, asks, and transactions are quoted publicly and accurate transaction data and information is [sic] available"); Greenberg v. Boettcher & Co., 755 F. Supp. 776, 782 (N.D.Ill.1991) (an efficient market for bonds is "`a developed marketa secondary market with a relatively high level of trading activity and for which trading *663 information such as price and volume were readily available'").
In addition to joining in the Financial Institution Defendants' briefs, Barclays, in a separate Memorandum (# 4492),[23] points out that Barclays did not make any misrepresentations upon which class member or the market could have relied It argues that the fraud-on-the-market doctrine is unavailable against Barclays because the doctrine applies only to Rule 1013-5(b) claims; thus there are no common questions, including questions of reliance, that will predominate in claims against Barclays. It is also unavailable because Lead Plaintiff failed to show that any statement by Barclays had any effect on Enron's stock price or was anything other than confirmatory under Greenberg v. Crossroads Sys., Inc., 364 F.3d 657 (5th Cir. 2004).
Deutsche Bank entities filed additional Opposition (# 4489) to the motion for class certification. They identify as the § 10(b) allegations against them that Deutsche Bank entities made misrepresentations in Osprey, Yosemite and/or Marlin offering memoranda[24] and in debt and equity analyst reports. With respect to the fraud-on-the-market presumption of reliance, pointing to Dr. Sundaresan's expert report, they argue that Lead Plaintiff cannot satisfy the touchstones for class certification established in recent Fifth Circuit eases[25] for application of the fraud-on-the-market presumption of classwide reliance because Lead Plaintiff cannot show that (1) the primary (new issue) or secondary markets for the Foreign Debt Securities, the Enron Registered Bonds, and the Preferred Securities were efficient, and (2) any of the alleged public misrepresentations is actionable, since the statements are either confirmatory[26] or they cannot be shown to have affected the price of the security (materiality). Furthermore, since many of the alleged misrepresentations occurred long after the start of the proposed class period and thus after many class members' purchases, the proposed dates for the Class Period are not applicable against Deutsche Bank entities.
Nor, Deutsche Bank entities maintain, has Lead Plaintiff alleged that Deutsche Rank performed any timely fraudulent act that could independently constitute a primary violation upon which plaintiffs relied, since this Court previously ruled that structured tax transactions involving Enron *664 and Deutsche Bank were time-barred. In re Enron Corp., 310 F. Supp. 2d 819, 859 (S.D.Tex.2004).[27]
Because the allegations against the Deutsche Bank entities are in the nature of misrepresentation and affirmative deceit, not of silence and omission, the Deutsche Bank entities insist the Affiliated Ute presumption of reliance is not applicable to the claims against them; it also does not apply because the proposed class had no special relationship with Deutsche Bank that could give rise to a duty to disclose.
Since there is not classwide presumption of reliance available to Lead Plaintiff `according to Deutsche Bank, Lead Plaintiff must show reliance upon each Financial Institution's statements or actions to avoid imposing liability on an entity that did not commit a primary violation but merely aided others; thus individual proof of reliance is required and bars class certification.
Deutsche Bank entities further argue that the market for each security must be considered separately in determining market efficiency and that primary markets by definition are not efficient. Moreover, they maintain that Dr. Nye's Declaration ignores the primary market for the Enron debt securities and thus Lead Plaintiff has not met its burden of proof to trigger the fraud-on-the-market presumption.
*665 E. Putative Class Members' Pattial Objection (# 1789)
Putative Class Members ("Objectors"), as QIBs, purchased notes issued by the Osprey Trust. These Osprey Notes were not registered under the 1933 Securities Act and, as stated in the Offering Memorandum, were offered and sold only to QIBs ,in reliance on Rule 144A and in offshore transactions in reliance on Regulation S. The Objectors purchased only the Rule 144A Notes, but note that Lead Plaintiff asserts that both kinds of Osprey Notes fall inside the Newby class definition. The Objectors are opposed to certification of a single class of purchasers of Enron Corp. securities and purchasers of Osprey Notes.
They explain that the original Newby class action complaint, filed in April 2002, reached only investor losses in Enron Corp. securities, not losses in securities that were not issued by Enron, which include Osprey Notes. Thus these Objectors filed a separate non-class action in October 2002 in the California Superior Court against the banks and affiliated controlled entities that sold them the. Osprey Notes; based solely on their losses from those Notes. Then on May 14, 2003 the Newby plaintiffs filed a first amended consolidated complaint that expanded the class to include losses for securities issued by Enron-related entities,[28] which includes Osprey Notes. The two Newby claims based on the Osprey Notes are grounded in (1) § 10(b) and Rule 10b-5, and (2) § 12(a)(2).
The Objectors point out that none of the proposed class representatives, purchased Osprey Notes, received any of the Osprey offering materials, discussed the offering with the selling syndicate member, nor read or relied on particularized, material, false and misleading statements in those offering materials. Objectors argue that because no proposed class representative purchased the Osprey Notes, none has standing to bring claims on behalf of Osprey purchasers because none has a stake in the Osprey Notes nor interests aligned with those of the Osprey Note purchasers, and none can adequately prosecute claims. They contend that for claims under § 10(b) and § 12(a)(2), a plaintiff only has standing if it purchased or sold the relevant securities.[29] They further argue that even if a class representative had purchased Osprey *666 Notes, the typicality and predominant elements for class certification cannot be satisfied.
The Objectors point out that Newby Lead Plaintiff has failed to name key Osprey Note sellers as defendants, including Bear Stearns for Osprey I and UBS Warburg for Osprey II, has failed to assert key facts and legal theories relating to the Osprey claims, and has characterized and attacked the Osprey structure as an artifice for Enron shareholders. They also object that the Newby plaintiffs have failed to consider the relative strengths and weaknesses of the Enron securities claims and the Foreign Debt Securities claims, but instead have insisted that all recovery be distributed pro-rata among class members.
The Objectors argue that they have different elements of proof to satisfy and different remedies available under California state law, which they contend they should not be deprived of the opportunity of pursuing, and that the Osprey Notes were not "covered securities" under SLSA.
While the Objectors could opt-out of Newby, they would risk their claims relating to their purchase of other Enron securities, which might be time-barred outside of Newby and which they did not include in their California lawsuit because they were being pursued in Newby. They ask the Court either to certify a class that excludes Osprey Notes purchasers from the Newby class or to allow them to opt out of the Newby class with respect to their Osprey Note purchases only, while still participating in the class with respect to any Enron-issued securities.
The Objectors emphasize the differences in situation, claims, and defenses of Osprey Noteholders from those of the Proposed Representative and other putative class members. The private offering to QIBs is different from public trading of securities on, an United States securities exchange or in the NASDAQ system, which was the case with publicly traded Enron Corporation securities purchased by Lead Plaintiff and other proposed class representatives. The latter are not exempted from registration under Rule 144A. 17 C.F.R. § 230.144A(d)(3)(I). In contrast investment banks purchase the Rule 144A securities and resell them to QIBs by means of printed private offering memoranda and direct sales presentations, and the QIBs buy directly from these investment banks. For example, the Osprey I syndicate directly solicited PIMCO and gave it the Osprey I Memorandum' and DLJ Summary Sheet. In contrast the Newby plaintiffs did not receive those offering materials and thus were not affected by the alleged misleading statements made by the investment banks in those offering materials regarding the use of the offering proceeds, an absence of conflicts of interest, the Whitewing asset transactions and value of Whitewing assets, and the Osprey Noteholders' ability to force liquidation of those assets upon default. The Objectors characterize Newby as a fraud-on-the-market case charging an overarching scheme and artifice to defraud against all scheme participants who are allegedly responsible for materially inflating Enron's financial statements and caused the losses of investors who relied on the integrity of the market; they insist none of the six claims[30] in Newby adequately covers the *667 Osprey Note purchasers.
F. Certain Individual Defendants' Opposition to Class Certification of § 20A claims[31] (# 1795), Joined by Andrew Fastow (# 1796), and in part by Ken L Harrison (# 1798)
To prevail in a § 20A claim, a plaintiff must show that a defendant (1) used material, nonpublic information, (2) knew, or recklessly disregarded that the information was material and nonpublic, and (8) traded contemporaneously with, the plain tiff in the same class of security. Insisting that the adequacy, typicality, commonality, predominance, superiority, and manageability requirements of Rule 23 cannot be met, and that classwide proof is not possible, Certain Individual Defendants[32] argue that trying the § 20A claims as a single class "ignores the practical realities of what will be required for claimants to establish liability with respect to nearly 450 separate transactions, completed on more than 200 days, by 16 defendants, over a 3-year period." Determining standing to sue requires a claimant-by-claimant inquiry as to when the individual plaintiff investor purchased and sold which stock, whether and to what extent the price of that stock was inflated at the time of that purchase and sale as a result of particular undisclosed material information used by which defendant, and whether that plaintiff suffered a loss[33] and if so, how much. They insist that proof would vary with individual defendants, trading days, and transactions. The Court would have to examine the particular circumstances of each transaction (e.g., material nonpublic information allegedly available to the trading defendant at the time of the transaction) to determine standing, liability and damages for that transaction. They cite conflicts of interest among putative class members in competition with each other to demonstrate that Enron stock was the most inflated on the day each traded.
Certain Individual Defendants further object that Lead Plaintiff has provided no trial plan to show how these individualized determinations could proceed as a class proceeding; indeed the motion for class certification does not mention the § 20A claims. Not only do they assert that individual questions would make a trial unmanageable, but they question how the enormous number of issues could be submitted to a jury, how a jury could keep track of the different issues for different plaintiffs against different defendants over a three-year period, and how standing could be established on a classwide basis without bringing each class member before the Court. They insist there are too many *668 transactions with individual issues to make subclassing of any help.
In the event that the Court does certify a § 20A class, Certain Individual Defendants ask that the Court limit membership in that class or in subclasses to those who purchased stock within one day after a defendant sold his stock to satisfy the contemporaneity requirement, in light of recent case law.[34]
Certain Individual Defendants argue that the proposed § 20A class representatives are not adequate to represent the class because they are not familiar with the legal and factual theories of the case, have relied entirely on Lead Counsel for factual investigation, and cannot distinguish among the defendants in this action. Many have never even read an opinion or order issued by the Court in this litigation and have not spent more than a few hours on this suit since its commencenient. They cite examples from the deposition testimony of Dr. Richard Kimmerling, Michael Henning, Dr. Fitzhugh Mayo, Joseph Speck, Ben Schuette, and John Cassidy.
G. Vinson & Elkins, LLP (# 1799)
Vinson & Elkins LLP ("V & E") also argues that class treatment is not appropriate as applied to claims against it because the fraud-on-the-market theory of presumed reliance applies only where a defendant communicated a misrepresentation to the relevant market, thus distorting the market price for the security at issue. V & E insists there is no evidence that it communicated any misrepresentation to the markets for Enron securities.[35] Therefore each plaintiff would have to prove reliance on the alleged fraud claims against it, precluding class certification. Moreover it argues that Lead Plaintiff has not shown that it was the creator of any misleading statements that did reach the market, although the Court found that Lead Plaintiff has alleged that it was. Lead Plaintiff has not provided any support for its unsubstantiated claim that V & E "drafted and/or approved the adequacy of Enron's press releases, shareholder reports and SEC filings." Nor has Lead Plaintiff identified specific statements that V & E allegedly was involved in creating or the specific securities to which such statements relate. V & E urges the Court to follow the majority rule of those courts that apply a "bright line rule" prohibiting a finding of primary liability under § 10(b) unless the secondary actor is identified as the author of a statement that reached the market; otherwise, it argues, application of the creator standard to support invocation of the fraud-on-the-market theory would allow plaintiffs to circumvent the reliance requirement.[36]
H. Merrill Lynch's Supplemental Opposition (# 2286), Reply to Lead Plaintiffs Opposition (# 2318), and Supplemental Memorandum (# 4486)
With respect to the claims against it, Merrill Lynch argues that the class is not *669 certifiable under Greenberg v. Crossroads Systems, 364 F.3d 657, 663 (5th Cir.2004) (holding that plaintiffs are not entitled to the fraud-on-the-market presumption of reliance for confirmatory statements, i.e., statements embodying information already known to the market, and therefore already reflected in a stock's price), and that Greenberg disposes of the entire case against Merrill Lynch. The Greenbelt panel opined that "[a] causal relationship between the statement and actual movement of the stock price" is essential to demonstrate reliance. Id. at, 665. The Fifth Circuit concluded that even for non-confirmatory, i.e., "actionable," statements, there is no presumption of reliance where the price of the company's stock "did not decline significantly after a revelation that the earlier positive statements were misleading." Id. at 665. Furthermore, merely offering evidence that the price decreased after negative "truthful" information was released does not trigger the presumption of reliance; plaintiffs must also show that the earlier false statement that affected the stock's price and that was not confirmatory is related to the later "truthful" statement with negative information that caused the decrease in value, i.e., "that it is more probable than not that it was this negative statement, and not other unrelated negative statements, that caused a significant amount of decline." Id. at 665-66.
Merrill Lynch labels as "confirmatory" the fraudulent conduct claims asserted against it, specifically the allegations that it engaged in power swaps, the Nigerian barge transaction, and the LJM2 transactions in the fourth quarter of 1999 that "falsely inflated Enron's profits to meet Wall Street's and Enron's internal targets," and that "in response to Enron meeting analysts' estimates," Enron's stock price increased. The alleged purpose and the resulting effect of Enron's wrongful conduct was for Enron to meet Wall Street's and analysts' estimates. Merrill Lynch argues that Enron's January 18, 2000 announcement, that Enron's earnings for the fourth quarter of 1999 of $.31 per share ($1.18 for the year) were in line with the consensus estimates, is a "classic example of confirmatory information," (Greenberg, 364 F.3d at 668 n. 16, and Amended Complaint at ¶ ¶ 742.5, 742.16, 742.18, and 742.22).[37] Moreover, Merrill Lynch insists that the press statement "embodied virtually all of Merrill Lynch's allegedly wrongful conduct" and emphasizes that despite the alleged fraud, Enron's stock price did not go up, but down.
Lead Plaintiff also alleges that Merrill Lynch issued misleading analyst reports, but Merrill Lynch claims that those alleged misrepresentations were also confirmatory, based on information previously announced by Enron. See #2286 at 5 n. 6, listing the reports' and their derivations from Enron announcements; Amended Complaint at ¶ ¶ 130, 142, 147, 149, 162, 181, 201, 208-09, 226, 250, 266, 321, and 362 (the bulk of which Merrill Lynch argues are repetitions of Enron information). Merrill Lynch further contends that Plaintiffs have not provided any evidence that the alleged, false statements by Merrill Lynch's analysts materially affected the price of Enron's stock.
In addition to alleged conduct that was merely confirmatory and thus had no impact on stock price, not only did the price of Enron stock decline, not rise, after Merrill Lynch's alleged participation in illicit transactions followed by Enron's positive earnings announcement on January 18, 2000, but after the ultimate revelation of *670 ("the truth") in the Nigerian barge transaction and the power swaps transaction on April 9, 2002 and August 8, 2002, respectively, after Enron had filed for bankruptcy in December 2001, Enron stock actually rose three cents in value. Thus even for non-confirmatory statements Lead Plaintiff failed to show a significant decline following revelation of the truth, much less that any drop in price was attributable to these revelations as opposed to other news about Enron.
Therefore because Lead Plaintiff has not shown that Merrill Lynch's conduct actually moved Enron's stock price, the presumption of reliance is not triggered and a class cannot be certified on the claims against Merrill Lynch. Ex. C to # 2286, Enron Press Release, Jan. 18, 2000; Ex. D, Houston Chronicle, Jan. 19, 2000; Ex. E, Stock Price Chart.
In addition, under the Fifth Circuit's holding in Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 364, 366 (5th Cir.2004) (because group pleading did not survive passage of the PSLRA, to determine whether a statement was made by a corporation with scienter one must examine the state of mind of the individual corporate official making or issuing the statement), the firm insists the § 10(b) claims against Merrill Lynch based on the analysts' reports must be dismissed.
III. Prerequisites for Class Certification Under Rule 23
A. General Principles
Under Federal Rule of Civil Procedure 23(c)(1)(A) and (B), as amended in 2003, the court "mustat an early practicable time[38]determine by order whether to Certify the action as a class action" and, if it determines that it should do so, "define the class and the class claims, issues,' or defenses" in the order certifying the class. The court has wide discretion in determining whether to certify a class, but that discretion must be exercised within the bounds of Rule 23. Henry v. Cash Today, Inc., 199 F.R.D. 566, 570 (S.D.Tex.2000), citing Castano v. American Tobacco Co., 84 F.3d 734, 740 (5th Cir.1996). "Rule 23 is a remedial rule which should be construed liberally to permit class actions, especially in the context of securities fraud suits, where the class action device can prove effective in deterring illegal activity." Longden v. Sunderman, 123 F.R.D. 547, 551 (N.D.Tex.1988), citing inter alia Simon v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 482 F.2d 880 (5th Cir.1973), and 5 Newberg on Class Actions § 8800 (1977). The district court's decision to certify a class will only be reversed for abuse of discretion or application of incorrect *671 legal standards. Mullen v. Treasure Chest Casino, LLC, 186 F.3d 620, 624 (5th Cir. 1999), cert. denied, 528 U.S. 1159, 120 S. Ct. 1169, 145 L. Ed. 2d 1078 (2000).
In the process of determining whether a class should be certified, the court is required to conduct a rigorous analysis of Federal Rule of Civil Procedure 23's pre= requisites. General Telephone Co. v. Fatcon, 457 U.S. 147, 161, 102 S. Ct. 2364, 72 L. Ed. 2d 740 (1982); Castano, 84 F.3d at 740. "Class certification hearings should not be mini-trials on the merits of the class or individual claims," but nevertheless the court must go beyond the pleadings and examine the evidence to understand the claims, defenses and relevant facts and applicable substantive law to make a meaningful certification decision. Unger v. Amedisys Inc., 401 F.3d 316, 321 (5th Cir.2005) ("The plain text of Rule 23 requires the court to `find,' not merely assume, the facts favoring class certification."), citing Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, 94 S. Ct. 2140, 40 L. Ed. 2d 732 (1974). The Fifth Circuit has stated that Eisen does not support "the view that a district court must accept, on nothing more than pleadings, allegations of elements central to the propriety of class certification under rule 23." Bell v. Ascendant Solutions, Inc., 422 F.3d 307, 311-12 (5th Cir.2005) (holding that a review of the merits of a claim: is proper to the degree necessary to determine whether the requirements of Rule 23 have been satisfied). Where the facts that must be considered for a Rule 23 determination overlap with the facts relating to the merits, they may be reviewed even where the resulting court, findings might also coincidentally overlap. Id. at 312 (but warning that "`[t]he findings made for resolving a class action certification motion serve the court only in its determination of whether the requirements of Rule 23 have been demonstrated"'), citing and quoting Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366 (4th Cir.2004).[39] In addition, the court, though not reaching the merits, must consider how plaintiffs' claims will be tried, individually or on a class basis. Castano, 84 F.3d at 744. While the Court has reached the motion to certify rather late in the litigation, with fact discovery in large Part completed, the evidence gleaned by the parties in that pursuit makes easier a rigorous analysis of the elements of Rule 23.
"District courts are permitted to limit or modify class definitions to provide the necessary precision." In re Monumental Life Ins. Co., 365 F.3d 408, 414 & n. 7 (5th Cir.2004) (citing and quoting Robidoux v. Celani, 987 F.2d 931, 937 (2d Cir.1993) ("A court is not bound by the class definition proposed in the complaint and should not dismiss the action simply because the complaint seeks to define the class too broadly.")), cert. denied sub nom. Am. Nat'l Ins. Co. v. Bratcher, 543 U.S. 870, 125 S. Ct. 277, 160 L. Ed. 2d 117 (2004); Harris v. Gen. Dev. Corp., 127 F.R.D. 655, 659 (N.D.Ill.1989) ("[I]t is certainly within the court's discretion to limit or redefine the scope of the class."); Meyer v. Citizens & *672 S. Nat'l Bank, 106 F.R.D. 356, 360 (M.D.Ga.1985) ("The Court has discretion in ruling on a motion to certify a class. This discretion extends to defining the scope of the class."), cert. denied sub nom. American Nat'l Ins. Co. v. Bratcher, 543 U.S. 870, 125 S. Ct. 277, 160 L. Ed. 2d 117 (2004); Turner v. Murphy Oil USA, Inc., No. CIV. A. 05-4206, 234 F.R.D. 597, 2006 WL 267333 (E.D.La. Jan.30, 2006) (citing Monumental Life for that proposition).
As the movant for class certification here, Lead Plaintiff bears the burden of demonstrating that a class action is appropriate and that all requirements of Rule 23 are satisfied. Berger v. Compaq Computer Corp., 257 F.3d 475, 479 (5th Cir.2001), clarified and reh'g en banc denied, 279 F.3d 313 (5th Cir.2002).
B. Rule 23(a)'s Requirements
Rule 23(a), setting forth part of the "Prerequisites to a Class Action,"[40] provides,
One or more members of a class may sue or be sued as class representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
1. Numerosity
Plaintiffs need not prove the precise number of members in a class, but "must ordinarily demonstrate some evidence or a reasonable estimate of the number of purported class members." Zeidman v. J. Ray McDermott & Co., Inc., 651 F.2d 1030, 1038 (5th Cir.1981) ("the proper focus is not on numbers alone but on whether joinder of all members is practicable."). Furthermore, as is the case here, "the prerequisite expressed in Rule 23(a)(1) is generally assumed to have been met in class action suits involving nationally traded securities." Id. at 1039 (finding it reasonable to assume that "any class composed of the sellers of a nationally traded security during a period in which hundreds of thousands or even millions of shares of the security were traded must necessarily be `so numerous that joinder of all members is impracticable.'"); In re Dynegy, Inc. Sec. Litig., 226 F.R.D. 263, 268-69 (S.D.Tex.2005) (quoting Zeidman). The Court finds that, for all Counts, the numerosity requirement, which has not been seriously challenged, has been easily satisfied by Plaintiffs' reasonable estimate, where Enron security investors are clearly so numerous that joinder of all members is impracticable, i.e., extremely difficult or inconvenient. Henry v. Cash Today, Inc., 199 F.R.D. 566, 569 (S.D.Tex.2000).
2. Commonality
Commonality's undemanding test is satisfied by Lead Plaintiffs showing that there are questions of law or fact common to the class and that resolution of at least one issue will affect all or a significant number of class members. Henry, 199 F.R.D. at 569, citing Forbush v. J.C. Penney Co., 994 F.2d 1101, 1106 (5th Cir.1993); In re Electronic Data Systems Corp. Sec. *673 Litig., 226 F.R.D. 559, 564 (E.D.Tex.2005), aff'd, 429 F.3d 125 (5th Cir.2005).
The claims in Newby arise from the same set of facts and are brought under shared legal theories. Lead Plaintiff asserts that Defendants participated in an umbrella Ponzi scheme, a practice or course of business involving material misrepresentations which operated as a pervasive fraud to deceive the market and purchasers of Enron's and Enron-related entities' publicly traded securities, both stocks and bonds.[41] Here shared issues of law and fact satisfying the commonality requirement include whether Defendants violated the federal securities' statutes; whether Defendants employed the alleged manipulative devices or engaged in the alleged wrongful Ponzi scheme to defraud investors; whether Defendants made misstatements and/or whether Defendants' statements omitted material facts necessary to make those statements, under the circumstances in which they were made, not misleading; whether Defendants misrepresented material facts; whether Defendants knew or recklessly disregarded that the statements made by them were false and misleading; whether the value of the publicly traded Enron securities was artificially inflated; what damages were sustained by the putative class members; and what is the appropriate measure of damages. The facts satisfying the elements of §§ 10(b), 11, and 12(a)(2), and the derivative claims under §§ 20A, 20(a) and 15 (since they require proof of an underlying violation of the primary statutes), overlap, as does the proof of the alleged scheme of patterns of fraud. While the § 11 claimants focus on proving material misrepresentations in the Registration Statements of the securities they purchased, those statements incorporate the SEC filings targeted as part of the scheme by the § 10(b)/Rule 10b-5 claimants, who or which also seek to show the misrepresentations in the Registration Statements as part of the overall fraudulent course of business perpetrated by Defendants to conceal Enron's actual financial status. The same is true of the offering documents for the section 12(a)(2) claimants. Thus commonality is satisfied.
3. Typicality
Similarly not demanding, the test for typicality is satisfied if the class representatives' claims or defenses are typical of, but not necessarily identical to, those of the class; clue representatives should have the same interests and have suffered the same injuries as others in the class, and the representatives' and class members' claims need only share the same essential characteristics, i.e., arise from a similar course of conduct and share the same legal theories. Henry, 199 F.R.D. at 569; Electronic Data, 226 F.R.D. at 565. See also Koch, v. Dwyer, No. 98 Civ. 5519 (RPP), 2001 WL 289972, *3 (S.D.N.Y. Mar.23, 2001) ("Rule 23(a)(3) is satisfied when each class member's claim arises from the same course of events and each class member makes similar arguments to prove the defendant's liability"); In re Ikon Office. Solutions, Inc., 191 F.R.D. 457, 463 (E.D.Pa.2000) ("Usually a plaintiffs claim is typical of a class if it challenges the same conduct as would the putative class. . . . Even quite significant factual differences will not defeat typicality so *674 long as the legal theory upon which plaintiffs seek redress is the same as those they seek to represent."); White v. Sundstrand Corp., No. 98 C 50070, 1999 WL 787455, *3 Sept. 30, 1999) ("A claim is typical if `it arises from the same event or practice or course of conduct that gives rise to the claims of other class members and his or her claims are based on the same legal theory."').
The Court agrees with Lead Plaintiff that the claims of the proposed class representatives are typical because they arise from the same alleged Ponzi scheme, material misrepresentations, and course of conduct to defraud investors and artificially inflate the price of Enron's and Enronrelated entities' publicly traded securities while concealing Enron's debt, all of which purportedly induced them and the putative class to invest in these securities; and they are grounded in the same legal theory, federal securities law. The interest of the proposed class representatives, like that of the other putative class members, is to achieve the maximum possible recovery for the class. See Lehocky v. Tidel Technologies, Inc., 220 F.R.D. 491, 502-03 (S.D.Tex. 2004) ("`[A]s long as all dais members are united in asserting a common right, such as achieving the maximum possible recovery for the class, the class interests are not antagonistic for representation purposes.'").
The major concern under Rule 23(a)(3) is if unique defenses against a named plaintiff "threaten to become the focus of the litigation," and the "key inquiry is whether a class representative would be required to devote considerable time to rebut the Defendants' claims." Lehocky, 220 F.R.D. at 501. The Fifth Circuit has recently rejected an argument that "the presence of a unique defense necessarily destroys typicality." Feder v. Electronic Data Systems Corp., 429 F.3d 125, 137 (5th Cir.2005).
4. Adequacy
The court examines the zeal and competence of the class representatives' counsel and the class representatives' willingness, experience, and ability to handle class actions, to take an active role in and control of the litigation, and to protect the interests of the absent members, to determine if there is fair and adequate representation of the interests of the class. Henry, 199 F.R.D. at 569; Electronic Data, 226 F.R.D. at 566, citing Berger, 257 F.3d at 479-82. Even in the absence of proof that the class representatives and/or their counsel are inadequate, the court may not presume that they are adequate; the party seeking certification must demonstrate that they are adequate. Berger, 257 F.3d at 481. The court must also determine if there are any conflicts of interest between the named plaintiffs and the class they seek to represent, which would make the class representation inadequate. Berger, 257 F.3d at 480. "[Mecause absent class members are conclusively bound by the judgment in any class action brought on their behalf, the court must be especially vigilant to ensure that the due process rights of all class members are safeguarded through adequate representation at all times." Id. at 480.
Pursuant to Rule 23(g) regarding the appointment of class counsel with the ability to fairly and adequately represent the interests of the class, the court must examine (1) "the work counsel has done in identifying or investigation potential claims in the action"; (2) "counsel's experience in handling class actions, other complex litigation, and claims of the type asserted in the action"; (3) "counsel's knowledge of the applicable law"; and (4) "the resources counsel will commit to representing the class." Rule 23(g)(1)(C)(i).
In appointing Bill Lerach's law firm, then Milberg Weiss Bershad Hynes & *675 Lerach LLP, now Lerach Coughlin Stoia Geller Rudman & Robbins LLP, as Lead Counsel under the PSLRA, the Court found counsel to be highly qualified, widely experienced in securities class actions, and competent to conduct litigation in the Newby class action. The firm is comprised of probably the most prominent securities class action attorneys in the country. It is not surprising that Defendants have not argued that counsel is not adequate. Counsel's conduct in zealously and efficiently, prosecuting this litigation with commitment of substantial resources to that goal evidences those qualities is evident throughout this suit. Since the beginning they have propelled the Newby litigation forward. They have established the website by which attorneys serve and communicate with each other, established the central depository for discovery materials, negotiated an agreed, organized, nonduplicative, and pared-down discovery schedule, and negotiated complex settlements with a number of defendants. Similarly, Liaison Counsel, Schwartz, Junell, Campbell & Oathout LLP is qualified and experienced in prosecution of securities class actions and has assisted Lead Plaintiff's counsel throughout the litigation to vigorously and effectively prosecute this suit over the past several years.
Although common interests and monetary loss shared by the class representatives and class members, even though both groups are a mixture of small individual investors and large institutional investors, have been demonstrated in the satisfaction of the commonality and typicality tests, at issue here is the adequacy of some of the designated class representatives.
In securities fraud suits under the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4, Lead Plaintiffs must be highly knowledgeable because of "Congress's emphatic command that competent plaintiffs, rather than lawyers, direct the cases." Berger, 257 F.3d at 481-83. The PSLRA, 15 U.S.C. § 78u-4(a)(3)(B), requires that the Lead Plaintiff must be "the most sophisticated investor available and willing to serve in a putative securities class action" and "an investor capable of understanding and controlling the litigation."
Noting that the Supreme Court[42] left the defining of the contours of Rule 23(a)'s adequacy requirement to lower courts, with a resulting lack of uniformity in standards among them, and calling "for rule 23 to be interpreted to accommodate the substantive policies of the governing statute," the Fifth Circuit in Berger, 257 F.3d at 479 n. 7, 483, opined that the PSLRA clarified the adequacy standard for class representatives in securities class actions.[43] It found the clarification was in accord with its long established standard in mandating "an inquiry into . . . the willingness and ability of the representatives to take an active role in and control the litigation and to protect the interests of the absentees." Berger, 257 F.3d at 479, 482 (citing Horton v. Goose Creek Indep. Sch. Dist., 690 F.2d *676 470, 484 (5th Cir.1982), cert. denied, 463 U.S. 1207, 103 S. Ct. 3536, 77 L. Ed. 2d 1387 (1983)), clarified, 279 F.3d at 313-14. A class representative, like the Lead Plaintiff, must have a "sufficient level of knowledge and understanding to be capable of `controlling' or `prosecuting' the litigation"; class representatives do not have to "be legal scholars and are entitled to rely on counsel," but they "need to know more than that they were `involved in a bad business deal." Berger, 257 F.3d at 482-83. "Plaintiffs should understand the actions in which they are involved, and that understanding should not be limited to derivative knowledge acquired solely from counsel." Id. at 483 n. 18. In sum, "cornpetent plaintiffs, rather than lawyers, [must] direct such cases." Id. at 484.
Lead Plaintiff, which this Court found fully capable in appointing it as such, is one of the designated representatives and has satisfied the requirements for adequacy for all claims except those under § 12(a)(2). Following the class action hearing, at which the Court raised the question of adequacy because of its concerns about other designated class representatives, counsel for the Regents has submitted a Declaration of Christopher M. Patti (# 4551) that reaffirms their adequacy to serve as class representative. The other proposed class representatives will be scrutinized subsequently.
The Court will address the adequacy of some of the designated class representatives below under "IV. Specific Issues."
C. Rule 23(b)(3)'s Requirements
Aside from the deferred issue of the adequacy of these proposed class representatives, because the Court finds that Rule 23(a) requirements are satisfied, the Court examines whether the proposed class is maintainable under Rule 23(b)(3). Rule 23(b) authorizes certification of a class action
if the prerequisites of subdivision (a) are satisfied, and in addition
(1) the prosecution of separate actions by or against individual members of the class would create a risk of
(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct of the party opposing the class, or
(B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of other members not parties to the adjudications or substantially impair or impede their ability to protect their interests . .
(2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (c) the desirability or undesirability of concentrating the litigation of the claims in the particular forum;. (D) the difficulties likely to be encountered in the management of a class action.
In Allison v. Citgo Petroleum Corp., 151 F.3d 402, 412 (5th Cir.1998), the Fifth Circuit observed, "Under Rule 23, the different categories of class actions, with *677 their different requirements, represent a balance struck in each case between the need and efficiency of a class action and the interests of class members to pursue their claims separately or not at The panel summarized,
The (b)(1) class action encompasses cases in which the.defendant is obliged to treat class members alike or where class members are making claims against a fund insufficient to satisfy all of the claims. . . . The (b)(2) class action, on the other hand, was intended to focus on cases where broad, class-wide injunctive or declaratory relief is necessary. . . . Finally, the (b)(3) class action was intended to dispose of all other classes in which a class action would be "convenient and desirable," including those involving' large-scale, complex litigation for money damages.
Id. The procedural safeguards provided under (b)(3), i.e, the absolute right to notice and right to opt out of the class, are not available to class members of a(b)(1) or (b)(2) class action, because these two classes are more cohesive and homogenous, while the monetary remedies sought by a(b)(3) class are often related to disparate merits of individual' claims of members with divergent interests. Id. at 413. Rule 23(b)(3) applies where "a class action would achieve economies of time, effort, and expense, and promote Uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about Other undesirable results." Amchem Products, Inc. v. Windsor, 521 U.S. 591, 615, 117 S. Ct. 2231, 138 L. Ed. 2d 689:(1997).
Lead Plaintiff seeks certification under the last provision, (b) (3). A class may be certified under Rule 23(b)(3) when "common questions predominate over any questions affecting only individual members (predominance requirement)" and "class resolution is superior to other available methods for fair and efficient adjudication of the controversy (superiority requirement)." Henry, 199 F.R.D. at 570.
1. Predominance of Common Issues
Although in part similar to the commonality requirement,[44] the predominance element is "`far more demanding' because it `tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.'" Unger, 401 F.3d at 320, quoting Amchem Prods., Inc. u Windsor, 521 U.S. 591, 623-24, 117 S. Ct. 2231, 138 L. Ed. 2d 689 (1997). "In order to predominate common issues must constitute a significant part of the individual cases." Jenkins v. Raymark Indus., 782 F.2d 468, 472 (5th Cir.1986). In examining the predominance requirement of this Rule, the court should "inquire into the substance and structure of the underlying claims without passing judgment on their merits. Although the strength of a plaintiffs claim should not affect the certification decision,' the district court must look beyond the pleadings, to `understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues.'" Robinson v. Texas Automobile Dealers Assoc., 387 F.3d 416, 421 (5th Cir.2004), cert. denied, 544 U.S. 949, 125 S. Ct. 1710, 161 .L.Ed.2d 526 (2005). *678 Where a "common nucleus of operative fact" exists, the predominance factor is met. Henry v. Cash Today, 199 F.R.D. at 572. See also Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 176 (3d Cir.2001) ("Presuming reliance class-wide is proper when the material nondisclosure is part of a common course of conduct."); Schwartz v. TXU Corp., No. 3:02-CV-2243-K, et al., 2005 WL 3148350, *15 (N.D.Tex. Nov.8, 2005) (and cases cited therein). Moreover, the Supreme Court has observed, "Predominance is a test readily met in certain cases alleging . . . securities fraud . . ." Amchem, 521 U.S. at 624, 117 S. Ct. 2231.
Nevertheless, as discussed supra, in recent years several federal Courts of Appeals, including the Fifth Circuit, have required at the class certification stage particularized analysis of the issue of an efficient market, a requirement to trigger a fraud-on-the-market presumption of reliance for claims under section 10(b) and Rule 10b-5. See generally Brian E. Pastuszenki, Inez H. Friedman-Boyce, and Goodwin Procter, Back to BasicChallenging the Application of the Efficient Market Hypothesis in Federal Securities Lawsuits, SK080 ALI-ABA 907, 911, 925-32 (Apr. 28-29, 2005).
a. Affiliated Ute and/or Fraud-on-the-Market Presumptions for Section 10(b)/Rule 10b-5 Claims
To establish a claim under § 10(b) and Rule 10b-5(b),[45] a plaintiff must ultimately prove (1) a material misrepresentation or omission; (2) scienter; (3) a connection between the purchase or sale of the security and the material misrepresentation or omission; (4) reliance [or "transaction causation" in fraud-on-the-market cases]; (5) economic loss; and (6) loss causation,[46] i.e., causal connection between the material misrepresentation or omission and the plaintiff's actual loss. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 125 S. Ct. 1627, 1631, 161 L. Ed. 2d 577 (2005). Transaction causation requires a pleading facts showing that "but for" the fraudulent statement or omission the plaintiff would not have entered in the securities transaction at issue, while loss causation requires pleading facts showing that the content of the `fraudulent statement or omission was the cause of the plaintiffs actual loss.[47]See, e.g., Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 943 (9th Cir.2005); Leykin v. AT&T Corporation, 423 F. Supp. 2d 229, 238-39 (S.D.N.Y.2006); In re Enron Corp. Sec., Derivative and "ERISA" Litig., 310 F. Supp. 2d 819, 830-31 (S.D.Tex.2004) (and cases cited therein).
"`Transaction causation' and `reliance' are virtually synonymous." In re Mutual Funds Investment Litig., 384 F. Supp. 2d 845, 864 (D.Md.2005). The reliance element for claims for compensatory damages under § 10(b) and Rule 10b-5 serves as the causal connection between the defendant's action and the plaintiffs loss. Basic, Inc. v. Levinson, 485 U.S. 224, 243, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988); Finkel v. Docutel/Olivetti Corp., 817 F.2d 356, 359 *679 (5th Cir.1987) ("Proof of reliance establishes that the damaged party was induced act by the defendant's conduct; it defines the causal link between defendant's conduct and the plaintiff's decision to buy or sell securities. . . . It is the generally applied bond between bad conduct and damages."), cert. denied, 485 U.S. 959, 108 S. Ct. 1220, 99 L. Ed. 2d 421 (1988).
A district court may not certify a fraud class where individualized proof of reliance of predominance of common issues is defeated. Castano, 84 F.3d at 745. The Supreme Court has relaxed the requirement of demonstrating individual reliance on material misrepresentations and omissions by providing a presumption of reliance under certain circumstances.[48] Such presumptions, where applicable, circumvent the need for individualized proof of reliance and make class certification more available. The two major doctrines that have evolved to provide' such a presumption of classwide reliance are the Affiliated Ute presumption and the "fraud on the market" theory. The Fifth Circuit has also adopted a "fraud created the market" must be shown and thus the requirement presumption in an undeveloped market.
In Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153, 92 S. Ct. 1456, 31 L. Ed. 2d 741 (1972),[49] the Supreme *680 Court examined the language of Rule 10b-5 and observed that it did not expressly require proof of reliance in actions alleging primarily a failure to disclose. Thus it held that in § 10(b) cases based primarily on material omissions, i.e., failure to disclose, reliance on the omitted information may be presumed where such information is material, i.e., where a reasonable investor might have considered it important in his decision to buy or sell securities. Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54, 92 S. Ct. 1456, 31 L. Ed. 2d 741 (1972) (the "obligation to disclose and this withholding of a material fact establish the requisite element of causation in fact"); Akin v. Q-L Investments, Inc., 959 F.2d 521, 529 (5th Cir.1992); Smith v. Ayres, 845 F.2d 1360, 1363 (5th Cir.1988) (where fraud allegations are based on a failure to disclose, as opposed to a fraudulent misrepresentation, a plaintiff is entitled to a rebuttable presumption of reliance), cert. denied, 508 U.S. 910, 113 S. Ct. 2342, 124 L. Ed. 2d 252 (1993). "The presumption is a judicial creature. It responds to the reality that a person cannot rely upon what he is not told." Ayres, 845 F.2d at 1363.
A defendant may rebut the Affiliated Ute presumption on of reliance by showing that a plaintiffs investment decision would not have been affected even if the defendant had revealed the omitted facts. Akin, 959 F.2d at 530, citing Rifkin v. Crow, 574 F.2d 256, 262 (5th Cir.1978).
Second, under Basic, Inc.'s fraud-on-the-market theory, drawing on the Ninth Circuit's earlier opinion in Blackie v. Barrack,[50] where plaintiff alleges there has been a material misrepresentation, reliance is presumed where investors trade in securities in well developed markets because in efficient markets, the market price of securities purportedly reflects all material, public information and thus the investor may be presumed to rely upon the integrity of the market price. 485 U.S. at 241-49, 108 S. Ct. 978. In Basic, Inc., the Supreme Court explained,
"The fraud on the market theory is based on the hypothesis that, in an open and developed securities market,[51] the price of a company's stock is determined by the available material information regarding the company and its business. . . . Misleading statements will therefore defraud purchasers of stock even if the purchasers do not directly rely on the misstatements. . . . The causal connection between the defendants' fraud and the plaintiffs' purchase of stock in such a case is no less significant *681 than in a case of direct reliance on mistrepresentations."
Basic, Inc., 485 U.S. at 241-42, 108 S. Ct. 978, quoting Peil v. Speiser, 806 F.2d 1154, 1160-61 (3d Cir.1986). Thus the investor may rely on the price of the stock, which reflects all publicly available information. Where reliance is presumed under the fraud-on-the-market theory, reliance can be treated as a common, instead of an individual, issue with regard to proof. The Supreme Court found that the presumption was consistent with congressional policy underlying the Securities Exchange Act of 1934 and was supported by common sense and probability. Id at 246, 108 Sgt. 978. The United States Supreme Court further stated, "Any showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance." Id For example the defendant may show that the plaintiff would have made the same investment decision even if he had known about the misstatement or nondisclosure, or that the plaintiff knew of the misstatement or nondisclosure before he traded, or that the material information was incorporated into the market price before the plaintiff bought or sold his securities. Id. at 248-49, 108 S. Ct. 978.[52] Another way to rebut the fraud-on-the-market presumption of reliance is to demonstrate that the market for the security was not efficient, an approach that has recently had some success. See, e.g., Brian E. Pastuszenki, Inez H. Friedman-Boyce, and Goodwin Procter, Back to BaskChallenging the Application of the Efficient Market Hypothesis' in Federal Securities Lawsuits, SK080 ALI-ABA 907 (Apr. 28-29, 2005).
To determine whether an action is "primarily a nondisclosure case or a positive *682 misrepresentation case" for the applicability of the Ute presumption or the fraud-on-the-market theory, the Fifth Circuit focuses on under which subsection of Rule 10b-5 the misconduct alleged in the pleadings falls. Finkel v. Docutel/Olivetti Corp., 817 F.2d 356, 359-60 (5th Cir.1987), cert. denied, 485 U.S. 959, 108 S. Ct. 1220, 99 L. Ed. 2d 421 (1988). A plaintiffs claim may give rise to the Ute presumption of reliance based on material omission if it arises under Rule 10b-5(a) ("to employ any device, scheme, or artifice to defraud") and/or (c) ("to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security"). Ayres, 845 F.2d at 1363; Finkel, 817 F.2d at 360 ("Cases involving primarily a failure to disclose implicate the first and third subsections of Rule 10b-5; cases involving primarily a misstatement or a failure to state a fact necessary to make the statements made not misleading implicate the second subsection. . . ."); Shores v. Sklar, 647 F.2d 462, 471 (5th Cir.1981) (en banc) (12-10), cert. denied, 459 U.S. 1102, 103 S. Ct. 722, 74 L. Ed. 2d 949 (1983); Heller v. Am. Industrial Properties Reit, No. CivA-SA97CA1315EP, 1998 WL 1782550, *3 (W.D.Tex. Sept.28, 1998).
In contrast, Rule 10b-5(b) covers cases involving primarily a misstatement or failure to state a fact necessary to make statements made not misleading. Finkel, 817 F.2d at 360. The Fifth Circuit has repeatedly limited the Ute presumption to cases with claims based primarily on alleged omissions under subsections (a) and (c). See, e.g., Finkel, 817 F.2d at 359 ("A court must, therefore, analytically characterize a 10b-5 action as either primarily a nondisclosure case (which would make the presumption applicable), or a positive misrepresentation case."); Abell v. Potomac Ins. Co., 858 F.2d at 1119 ("[T]he Ute presumption is limited to cases, like Ute itself, in which the plaintiffs have based their complaint primarily upon alleged omissions." Such non-disclosure suits are those in which the complaint is grounded primarily in allegations that the defendant has failed to disclose any information whatsoever relating to material facts about which the defendant has a duty to the plaintiff to disclose. Ute, however, does not require the burden of persuasion to shift in cases where the plaintiffs allege either that the defendant has made false statements or has distorted the truth by making true, but misleading, incomplete statements. Thus we apply the Ute presumption in non-disclosure cases, but not in "falsehood or distortion cases"); Joseph v. Wiles, 223 F.3d 1155, 1163 (10th Cir. 2000) ("Any fraudulent scheme requires some degree of concealment, both of the truth and of the scheme itself. We cannot allow the mere fact of this concealment to transform the alleged malfeasance into an omission rather than an affirmative act. To do otherwise would permit the Affiliated Ute presumption to swallow the reliance requirement almost completely."); in accord Binder v. Gillespie, 184 F.3d 1059, 1064 (9th Cir.1999) ("the Affiliated Ute presumption should not be applied to cases that allege both misstatements and omissions unless the case can be characterized as one that primarily alleges omissions."), cert. denied sub nom. Binder v. Wilson, 528 U.S. 1154, 120 S. Ct. 1158, 145 L. Ed. 2d 1070 (2000). Some cases have required that there be no mixture of the two types of claims. See Lehocky, 220 F.R.D. at 509-10 (holding that "Plaintiffs may not rely on the Affiliated Ute presumption in this mixed context"), citing Kirkpatrick v. J.C. Bradford & Co., 827 Rid 718, 722 (11th Cir.1987) ("[T]he. Affiliated Ute presumption of reliance is not warranted in a Rule 10b-5 case when the plaintiff alleges both nondisclosures and positive misrepresentations instead of only nondisclosures as in Affiliated Ute."); Steiner v. Southmark *683 Corp., 734 F. Supp. 269, 276 (the Ute presumption applies to cases "grounded primarily upon allegations that the defendant failed to disclose any information whatsoever" relating to material facts about which the defendant had a "duty to disclose"), clarified on other grounds, 739 F. Supp. 1087 (N.D.Tex.1990); Griffin v. GK Intelligent Systems, Inc., 196 F.R.D. 298, 305 (S.D.Tex.2000) ("The Affiliated Ute presumption applies only to allegations that the defendant company failed to disclose any information whatsoever relating to material facts about which [it] had a duty to disclose"), quoting Steiner v. Southmark Corp., 734 F.Supp. at 275-76. This Court follows the literal meaning of "primarily" in Ute, 406 U.S. at 153, 92 S. Ct. 1456 ("primarily a duty to disclose"), Finkel, 817 F.2d at 359, and progeny and concludes a mixed Context does not per se preclude the application of the Ute presumption, but does require the court to fmd the allegations are primarily of omissions.[53]
Financial Defendants have argued that Affiliated Ute is inapplicable here because one of its requirements is that the defendant have a duty to disclose to the plaintiff, and they maintain they do not owe such a duty to the Newby plaintiffs under the circumstances alleged. The Court agrees that the Financial Institutions did not owe a duty to disclose to plaintiffs. If one assumes for the moment that Newby is primarily an omission case, the Fifth Circuit has ruled that for a presumption of reliance, a duty to disclose is relevant only to Rule 10b-5(b) claims of statements that are either false or misleading; in a scheme case brought under Rule 10b-5(a) and (c) ("employ any device, scheme or artifice to defraud" or "engage, in any act, practice or course of business that operates or would operate as a fraud"), the Fifth Circuit has indicated that the requisite duty is not a duty to disclose, but a "the duty not to engage in a fraudulent `scheme' or `course of conduct' [that] could be based primarily on an omission." Ayres, 845 F.2d at 1363 & n. 8; in accord Heller v. American Properties Reit, No. Civ. A. SA97CA1315EP, 1998 WL 1782550 *3 (W.D.Tex. Sept. 28, 1998) (the first and third subsections of Rule 1013-5 create a duty not to engage in a fraudulent scheme or course of conduct a case alleging failure to disclose, in contrast to fraudulent misrepresentation). It appears to this Court that logically and as a matter of law that duty not to engage in a Rule 10b-5 scheme, practice or course of conduct to defraud would bek owed to the investing public generally.
At the Class Certification hearing the Financial Institution Defendants complained and demonstrated that Lead Plaintiff did not plead the Affiliated Ute presumption of reliance and contended that it therefore could not assert that theory now. Reliance, i.e., the causal link between the defendant's misconduct and the plaintiffs decision to buy or sell the securities at issue, is an element of a Rule 10b-5 claim that must be pleaded; the Ute presumption, like the fraud-on-the-market theory, is a method of proving it. Heller, 1998 WL 1782550 at *3 (finding that a presumption of reliance is a presumption of proof, not a presumption of pleading). Lead Plaintiff has pleaded the factual underpinnings to trigger the presumption by alleging deception by nondisclosure, i.e., that Plaintiffs relied upon the false picture of financial health of Enron created by the Defendants' concealed, material conduct in a scheme to defraud. The rebuttable Ute presumption may be, established at trial or *684 on summary judgment by proof that the alleged concealed misconduct was material and that the plaintiffs allegations are primarily ones of omission, not of false and/or misleading statements. Thus the Court rejects Defendants' failure-to-plead argument.
Defendants have argued that the theory of fraud on the market, which serves to provide a presumption of class-wide reliance without having to prove individualized reliance for a § 10(b) claim, only applies to misrepresentations and omissions that make a defendant's statement misleading, in other words a claim under Rule 10b-5(b). The Fifth Circuit has not limited the theory[54] to statements by a defendant containing misrepresentations and omissions but, at times, intermingled the two presumptions of class-wide reliance under Ute and Basic for allegations of schemes to defraud or course of business that acts as a fraud. Finkel, 817 F.2d at 359 ("the Affiliated Ute presumption and the fraud on the market' theory . . . interact.").
The Fifth Circuit's approach to the fraud-on-the-market theory has evolved over the years. In Shores v. Sklar, 647 F.2d 462, 471 (5th Cir.1981) (en bans) (12-10), cert. denied, 459 U.S. 1102, 103 S. Ct. 722, 74 L. Ed. 2d 949 (1983), the twelvejudge majority partially reversed the district court's summary judgment in a putative class action securities suit against participants in the issuance of revenue bonds purportedly to finance construction of a mobile home manufacturing plant in Alabama. The suit was brought by Charles E. Bishop, Jr., alleging that he was the victim of a pervasive scheme to defraud members of the investing public by means of the fraudulently marketed[55] industrial *685 development bonds for which a misleading Offering Circular was issued. The bonds were to be repaid from sales proceeds.) of the mobile homes, but the lessee of the industrial business premises defaulted after two payments and the bonds became worthless. The district court had entered summary judgment for the defendants because Bishop's answers to interrogatories demonstrated that he had not seen nor even been aware of the Offering Circular, but had purchased the bonds based on his broker's oral representation that the bonds were a good investment.
In Shores, on appeal the majority of the Fifth Circuit, sitting en banc, focused on the text of the three separate subsections of Rule 10b-5. It affirmed the lower court's summary judgment for the defendants to the extent that Bishop had unsuccessfully asserted a misrepresentation or omission claim under Rule 10b-5(b) in light of Bishop's admission that he did not rely on the Offering Circular, noting that even if the Ute presumption applied to the nondisclosures in the Offering Circular, Bishop's admission that he did not know about the document rebutted the presumption. But the majority, emphasizing that the policy behind the federal securities acts and Rule 10b-5 was to protect investors from fraud, found the Rule's provisions also authorized a cause of action beyond misrepresentations and omissions in statements and "reach[edi complex fraudulent schemes" such as the alleged "elaborate scheme to create a bond issue that would appear genuine, but was so lacking in basic requirements that the Bonds would never have been approved by the Board nor presented by the underwriters had any one of the participants in the scheme not acted with intent to defraud or in reckless disregard of whether the other defendants were perpetrating a fraud." 647 F.2d at 470, 468. The majority observed that Bishop's complaint tracked the language df all three subsections of Rule 10b-5, including (a) and (c), in alleging "a course of business" or Mevice, scheme or artifice that operated as a fraud" upon Bishop, in connection with the sale of bonds. Id. at 469, 471-72. (The same, is true of the Newby pleadings.) The Fifth Circuit concluded that even in an undeveloped market Bishop could satisfy the causation element of his claim by proving that the alleged scheme was intended to and did bring the bonds onto the market fraudulently and that he had relied on the integrity of the offerings of the securities market, rather than the statements in the Offering Circular. Id at 469. Thus Bishop bore the burden of proving that (1) the defendants, with the intent to defraud pur chasers, knowingly conspired to bring securities "which were not entitled to be marketed" onto the market; (2) that Bishop "reasonably relied on the Bonds' availability on the market as an indication of their apparent genuineness"; and (3) that Bishop suffered a loss, as a result of the scheme. Id. at 469-70.[56] Furthermore, *686 the majority emphasized,
Whenever the rule 10b-5 issue shifts from misrepresentation or omission "in a document to fraud on a broader scale, the search for causation must shift also. The "reliance" that produces causation in the latter type of case cannot come from reading a document. It may arise from the duty to speak as in Ute, a scheme to manipulate the market at a time when a merger had forced a sales as in Schtick,[57] a scheme to inflate common stock prices by misleading statements as in Rifkin,[58] or a claim by a bond buyer that he relied on the market to provide securities that were not fraudulently created as we have here. The most significant common thread in all these precedents is that rule 10b-5 is not limited to a narrow right to recover for knowing fraudulent misrepresentations or omissions in disclosure documents which mislead a securities buyer. The rule is recognized also to provide the basis for a federal cause of action for more elaborate, intentional schemes which deceive or defraud purchasers of securities.
Id. at 472. See also Abell v. Potomac Ins. Co., 858 F.2d 1104, 1120 (5th Cir.1988) ("A fraud on the market is any deceit that successfully disseminates false or misleading information into the securities market or withholds vital information from that market. The theory holds that' such a deceit defrauds investors even when they are unaware of misrepresentations or omissions that skew the market price, because investors depend upon the integrity of the market price."), vacated on, other grounds, 492 U.S. 914, 109 S. Ct. 3236, 106 L. Ed. 2d 584 (1989).
Subsequently in Finkel v. Docutel/Olivetti Corp., 817 F.2d 356, 359 (5th Cir. 1987), cert. denied, 485 U.S. 959, 108 S. Ct. 1220, 99 L. Ed. 2d 421 (1988), observing that the Ute presumption and the fraud on the market theory "interact," the panel noted there was disagreement over "what Shores means." Id. at 361. Without highlighting the fact that Bishop expressly stated that he had not read the Offering Circular, the panel held, "Shores permits a plaintiff to assert a fraud on the market theory under 10b-5(a) and (c) but not under 10b-5(b)." 817 F.2d at 362. While noting that "[o]ther Circuits have gone even farther and recognize the fraud on the market theory under 10b-5(b)," they stated, "We do not because Shores does not" Id. at 362-63. Based on' Ute, the appellate panel opined that the language of Rule 10b-5 requires that the court must, as a threshold matter, "analytically characterize a 10b-5 action as either primarily a nondisclosure case (which would make the [Ute] presumption [of reliance] applicable, or a positive misrepresentation case. . . . Cases involving primarily a failure to disclose implicate the first and third subsections of Rule 10b-5; eases involving primarily a misstatement or failure to state a fact necessary to make statements made not misleading implicate the second subsection (which is the only subsection of the Rule that specifically mentions the active misrepresentation concept of prohibited conduct))." Id. at 359-60. The case need only be primarily one *687 of nondisclosure, not a case of pure"nondisclosure, for the Ute presumption of reliance to apply for scheme or course of business liability under Rule 1013-5(a) and (c). Id at 363. Further, the panel noted part of the holding in Shores was "tailored to the facts of the case": because it was unclear whether Bishop bought in the primary or the secondary market, and, more important, because the market for bonds in Shores was not "the active efficient market for which the fraud on the market theory was initially conceived," Shores' "limitation of Bishop's claim to proof that the bonds were unmarketable is simply a rule formulated for newly issued securities." Id. at 364. Thus the "majority in Shores simply recognized that a Rule 10b-5 action based on the fraud on the market theory could embrace a claim for a fraud that resulted in the issuance of worthless securities as well as a fraud that inflated the price of a security." Id. at 364.[59] The Finkel panel followed its interpretation of Shores as not allowing the theory of fraud on the market for claims of misrepresentation under Rule 10b-5(b) where the plaintiff failed to allege that she read or relied on any of the documents containing the alleged misrepresentation or omission, but allowing the theory for scheme and course of business fraud claims under 10-5(a) and (c). The majority reversed the district court's dismissal of those claims and remanded the case for further proceedings, including the opportunity for defendants to rebut the Ute presumption of reliance established by proof of materiality of the alleged misconduct "1) by showing, upon the shifting of the burden to the defendant, that the nondisclosures did not affect the market price; or 2) that plaintiff would have purchased the stock at the same price even if she had known the information that was not disclosed, or that she, actually knew the information that was not disclosed to the market." Id. at 364-65.,
Shortly thereafter, in 1988 the Supreme Court issued Basic, Inc., in which the Supreme Court "announced its support for a new, largely undefined version of this presumption of reliance," and implicitly "vitiated part of [the Fifth Circuit's] fraud-on-the-market jurisprudence." Abell, 858 F.2d at 1120. In Abell, the Fifth Circuit explained that until Basic, it had allowed "the fraud-on-the-market presumption, like the Ute, [to be] available only to plaintiffs who based their rule lob-5 claims primarily upon non-disclosure." Id. Basic held that plaintiffs "alleging active misrepresentation (i.e., making false statements and failing to correct distorted statements) may also assert a fraud-on-the market theory of reliance." Id. (emphasis added by this Court).[60]See Basic, Inc. 485 U.S. at 247, 108 S. Ct. 978 ("An investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price. Because most publicly available information is reflected in the market price, an investor's reliance on any public material misrepresentations, therefore, may be presumed for purposes of a Rule *688 10b-5 action."). See also Steiner v. Southmark Corp., 734 F. Supp. 269, 277 ("The effect of [Basic, Inc.] was to vitiate the prior distinction cabining fraud-on-themarket to nondisclosure cases and to give the presumption potential applicability to any Rule 10b-5 action involving openly traded securities."), clarified on other grounds, 739 F. Supp. 1087 (N.D.Tex.1990). In Basic, Inc., furthermore, the Supreme Court left "each of the circuits room to develop its own fraud-on-the-market rules." Abell, 858 F.2d at 1120. Thus ironically, while Defendants in Newby object that the fraud-on-the-market theory applies only to misrepresentations in statements and documents under Rule 10b-5(b), which they claim not to have made, until Basic, Inc. overruled the Fifth Circuit, the Fifth Circuit in Sklar refused to apply the fraud-on-the-market theory only to that second subsection of Rule 10b-5, but did apply it to allegations of a generalized scheme to defraud investors under Rule 10b-5(a) and (c).
Addressing Finkel, post-Basic, Inc., the panel in Abell summarized the Fifth Circuit's approach, in stating that fraud on the market can be established by a plaintiff in two ways: (1) by showing that the securities at issue were "traded on an active secondary market, such as a public exchange," and proving that the defendant's nondisclosures materially affected the market price of the security; and (2) where there is no active, efficient secondary market, by proving that the defendants conspired to bring securities that were not entitled to be marketed, were fraudulently marketed[61] (would never have been issued or marketed were it not for defendants' fraudulent scheme). Abell, 858 F.2d at 1120. As noted earlier, the latter theory is generally known as the fraud-created-the-market theory and does not apply under the facts here[62]See also T.J. Raney & Sons, Inc. v. Fort Cobb, Oklahoma Irrigation Fuel Authority, 717 F.2d 1330, 1333 (10th Cir.1983) (defining "unmarketability" of the Fifth Circuit's standard for "fraud-created-the market" as ."unlawfully issued," and allowing reliance on existence of securities on the market as evidence that they were lawfully issued), *689 cert. denied, 465 U.S. 1026, 104 S. Ct. 1285, 79 L. Ed. 2d 687 (1984).
Important for the Newby class action, there appears to have been no modification nor implied overruling to Shores' holding that the fraud-on-the-market and the Ute presumptions of reliance may apply to claims of a scheme or course of business to defraud in connection with the sale of securities under Rule 10b-5(a) and (c).
Moreover, the district court in Lincoln Savings, 140 F.R.D. at 432-33, upon which Lead Plaintiff heavily relies, followed the reasoning in Shores to support a fraud-onthe-market theory of reliance. It concluded,
[T]he justification for this authority [Shores] is consistent with the materiality and reliance principles endorsed by Basic. If an enterprise is so laden with fraud that its entire public image is distorted, it is sensible to presume that reasonable investors relied on many material misrepresentations which, in aggregate, created a false image. In this situation, the offending misrepresentations are not merely presumed to compete successfully for the investor's attention amidst a mix of material, undistorted facts. Rather, the entire pieture of the company's economic health and lawful character is skewed. . . . [T]here is virtually nothing more material to a decision to invest in the subordinated debt of a company than a reliable, undistorted picture of its financial integrity.
Id. at 432-33.
Nevertheless part of the rationale of Lincoln Savings is based on a presumption not recognized by this Circuit.[63] The Lincoln Savings district court also relied on a Ninth Circuit doctrine for a presumption of reliance based "on the integrity of the regulatory process and the truth of any representations made to the appropriate agencies and the investors at the time of the original issue" of securities "to ensure that at a fundamental level the securities were entitled to be marketed." Lincoln Savings, 140 F.R.D. at 433-34, citing Arthur Young & Co. v. U.S. District Court, 549 F.2d 686, 695 (9th Cir.), cert. denied, 434 U.S. 829, 98 S. Ct. 109, 54 L. Ed. 2d 88 (1977).[64] The Lincoln Savings court found, "Plaintiffs here are entitled to a presumption of reliance if a network of misrepresentations or omissions to the Federal Home Loan Bank Board or other federal and state regulators enabled the *690 bond sales to go forward." 140 F.R.D. at 434.
The Fifth Circuit has heightened the requirements for applying fraud on the market for a presumption of reliance in a misrepresentation case under Rule 10b-5(b) at the summary judgment stage. Greenberg v. Crossroads Systems, Inc., 364 F.3d 657 (5th Cir.2004). In light of the Fifth Circuit's recent requirement of a rigorous analysis for class certification and the fact that discovery in Newby is largely complete, this Court concludes that Greenberg has relevance at class certification time also. For class claims seeking money damages under § 10(b) for material misrepresentations,[65] where private plaintiffs seek to satisfy the statutory element of reliance with a rebuttable presumption of class-wide reliance under the fraud-on-the-market theory of Basic, Inc.,[66] the plaintiff must show that "(1) the defendant made public material misrepresentations, (2) the defendant's shares were traded in an efficient market, and (3) the plaintiffs traded shares between the time the misrepresentations were made and the time the truth was revealed." Greenberg v. Crossroads Systems, Inc., 364 F.3d 657, 661 (5th Cir. 2004), citing Basic, Inc., 485 U.S. at 247 n. 47, 108 S. Ct. 978. Furthermore to satisfy Rule 23(b)(3)'s predominance requirement, the Fifth Circuit mandates that plaintiffs do more than conclusorily plead market efficiency for purposes of class certification; they must demonstrate by a rigorous, though preliminary, standard of proof[67] that the market for a company's stock was efficient. Bell v. Ascendant Solutions, *691 Inc., 422 F.3d 307, 311 & n. 7 (5th Cir.2005).[68]
At the class certification hearing and in the record we have the proverbial battle Of experts regarding the efficiency of the market(s) for Enron securities. The Court notes that The Manual for Complex Litigation Fourth § 21.21 at 267-68, states,
Expert witnesses play a limited role in class certification hearings; some courts admit testimony on whether Rule 23 standards, such as predominance and superiority, have been met. The judge need not decide at the certification stage whether such expert testimony satisfies standards for admissibility at trial . A judge should not be drawn prematurely into a battle of competing experts.
The Manual, id. at 268 n. 817, cites In re Visa Check/MasterMoney Antitrust Litigation, 280 F.3d 124, 135 (2d Cir.2001), cert. denied sub nom. Visa U.S.A., Inc. v. Wal-Mart Stores, Inc., 536 U.S. 917, 122 S. Ct. 2382, 153 L. Ed. 2d 201 (2002), for the propositions that a district court "must ensure that the basis of the expert opinion is not so flawed that it would be inadmissible as a matter of law"; that it "may not weigh conflicting expert evidence or engage in a `statistical dueling' of experts"; and that its role is to decide "whether plaintiffs expert evidence is sufficient to demonstrate common questions of fact warranting certification of the proposed class, not whether the evidence will ultimately be persuasive."
In a case focusing on the fraud-on-the-market presumption of reliance in a class certification context, the First Circuit, relying on the Fifth Circuit's opinions in Castano and Unger, with which the majority of courts agree, recently rejected the Second Circuit's approach. In re Polyk edica Corp. Securities Litig., 432 F.3d at 5 ("[T]he majority of courts of appeals that have addressed this issue . . . [have ruled that] a district court is not limited to the allegations raised in the complaint and should instead make whatever legal and factual inquiries are necessary to an informed determination of the certification issues.") (citing' also Cooper v. Southern Co., 390 F.3d 695, 712 (11th Cir.2004); Gariety v. Grant Thornton LLP, 368 F.3d 356, 365 (4th Cir.2004); West v. Prudential Sec., Inc., 282 F.3d 935, 938 (7th Cir.2002); Johnston v. HBO Film Mgmt., Inc., 265 F.3d 1.78, 189 (3d Cir.2001); and Wagner v. Taylor, 836 F.2d 578, 587 (D.C.Cir.1987)). This Court will follow the more demanding rule of the Fifth Circuit.
The Fifth Circuit has stated that "although `[t]here is no requirement for expert testimony on the issue of market efficiency . . . many courts have considered it when addressing this [predominance] determination, which may often benefit from statistical, economic, and mathematical analysis.'" Bell v. Ascendant Solutions, Inc., 422 F.3d 307, 314 n. 13 (5th Cir.2005) (approving consideration of "at least the reliability of expert testimony on market efficiency at the, class certification stage") (quoting Unger, 401 F.3d at 323 n. 6).
In Basic, Inc., the Supreme Court failed to address how to apply fraud on the market, but left the lower courts to decide what constitutes an "open and developed" market, in other words an "efficient" market, a prerequisite to triggering the theory's presumption of reliance. The result has been a lack of a uniform standard foe determining efficiency. See, e.g., Pastuszenki, et al., Back to BasicChallenging the Application of the Efficient Market Hypothesis in Federal Securities Lawsuits, *692 SK080 ALI-ABA at 921. The Supreme Court in Basic, Inc. stated, "By accepting this rebuttable [fraud-on-themarket] presumption, we do not intend conclusively to adopt any particular theory of how quickly and completely publicly available information is reflected in market price." 485 U.S. at 248 n. 28, 108 S. Ct. 978.
Adopting and supplementing the most widely accepted multi-factor test first developed in Cammer v. Bloom, 711 F. Supp. 1264, 1276-77 (D.N.J.1989), appeal dismissed, 993 F.2d 875 (3d Cir.1993), the Fifth Circuit has identified, in a non-exhaustive list, a variety of factors also used by other courts to determine whether the stock at issue traded in an efficient market, although it ruled that not every one must be addressed:
(1) the average weekly trading volume expressed as a percentage of total outstanding shares [69]; (2) the number of securities analysts following and reporting on the stock[70]; (3) the extent to which market makers[71] and arbitrageurs *693 trade in the stock; (4) the earlipany's eligibility to file SEC registration Form S-3 (as opposed to Form S-1 or S-2)[72]; (5) the existence of empirical facts "showing a cause and effect relationship between unexpected corporate events or financial releases and an immediate response in the stock price"[73]; (6) the company's market capitalization[74]; (7) the bid-ask spread for stock sales[75]; and (8) float, the stock's trading. *694 volume without counting insider-owned stock.[76]
Bell, 422 F.3d at 313 n. 10, citing Unger, 401 F.3d at 323, and Cammer, 711 F.Supp. at 1286-87. See also Krogman v. Sterritt, 202 F.R.D. at 476-78 (discussing and applying all eight factors and concluding that the plaintiffs in Krogman had failed to establish that the market was efficient). In Linger, the Fifth Circuit made clear that these factors "must be weighed analytically, not merely counted, as each of them represents a distinct facet of market efficiency." 401 F.3d at 323. These factors were referenced in Dr. Blaine Nye's expert report (# 4390)[77] and by counsel during the class certification hearing as the "Cammer/Unger/Bell Factors," a term this Court will adopt in its analysis of the evidence relating to market efficiency.
Although in Basic, Inc. the Supreme Court presumed that the securities at issue traded in an efficient market because they were traded on the New York Stock Exchange, 485 U.S. at 227-28, 108 S. Ct. 978, the Fifth Circuit has stated that "the mere fact that a stock trades on a national exchange does not necessarily indicate that the market for that particular security is efficient": "[w]hile the location of where a stock trades might be relevant, it is not dispositive of whether the current price reflects all available information,' . . . the hallmark of an efficient capital market." Bell, 422 F.3d at 313-14. See also Unger, 401 F.3d at 322 ("In many cases, where heavily traded or well known stocks are the target of suits, market efficiency will not even be an issue."). As for trading volume, it is not the average trading volume that is key, but the turnover measured as a percentage of outstanding shares. Bell, 422 F.3d at 316. Expert testimony may be considered but is not required. Id. at 314 n. 13, discussing Unger, 401 F.3d at 323 n. 6. "Absent an efficient marliet, individual reliance by each plaintiff must be proven, and the proposed class will fail the predominance requirement." Unger, 401 F.3d at 322. Nevertheless, "[i]n many cases, where heavily-traded or well known stocks are the target of suits, market efficiency will not even be an issue." Unger, 401 F.3d at 322.
It should be noted that under the case law in which they were developed, these factors expressly relate to stock. Dr. Nye found that some are relevant to evaluating the efficiency of the market for Enron bonds, preferred securities, and Foreign Debt Securities and discussed them accordingly. # 4390 at 15.[78]
*695 The Fifth Circuit has held that the presumption of reliance under tile fraud-on-the-market theory "may be rebutted by la]ny showing that severs the link between the alleged misrepresentation and . . . the price received (or paid) by the plaintiff." Nathenson v. Zonagen, 267 F.3d 400, 414 (5th Cir.2001), quoting Basic, 485 U.S. at 248, 108 S. Ct. 978. The Fifth Circuit opined that the link may be severed by "a showing that the market price would not have been affected by' the alleged `misrepresentations,' as in such a case the basis for finding that the fraud had been transmitted through market price would be gone.'". Id. Thus the panel concluded "that a fraud-on-the-market theory may not be the basis for recovery in respect to an alleged misrepresentation which does not affect the market price of the security in question." Id. (emphasis in original).
In Greenberg v. Crossroads System, Inc., 364 F.3d 657 (5th Cir.2004), emphasizing that "lilt is the actual movement of stock price which must be shown by fraudon-the-market plaintiffs," the Fifth Circuit raised its proof requirements for application of the fraud-on-the-market presumption. Id. at 663. Requiring not only that plaintiffs "show that the, price of . . . [the relevant] stock was actually affected by the allegedly false statements, either by showing an increase in price following the allegedly false positive statements or a corresponding decrease in price following the revelation of the misleading nature of these statements," the panel rejected the argument that the fraud-on-the-market presumption could be triggered "simply by offering evidence of any decrease in price following the release of negative information." Id. at 662, 665. "To raise an inference through a decline in stock price that an earlier false positive statement actually affected a stock's price, the plaintiffs must show that the false statement causing the increase was related to the statement causing the decrease." Id. at 665. It opined, "[T]o trigger the presumption plaintiffs must demonstrate that there is a reasonable likelihood that the cause of the decline in price is due to the revelation of the truth and not the release of the unrelated negative information. In the absence of such a showing the invocation of the presumption of reliance would be based solely on speculation." Id. Furthermore, the panel recognized as "a market reality that a stock's price will not change upon the release of confirmatory information, i.e., information already known to the market." Id. at 663. It noted, "The fact that a market will not double-count the same information does not establish a nexus between misrepresentation and injury, especially in the context of fraud on the market where we allow this relationship to be proved indirectly. A causal relationship between the statement and actual *696 movement of the stock price is still required." Id. The panel concluded,
In sum, in order for plaintiffs to show that a stock's price was actually affected through evidence of a significant price decrease following the revelation of the alleged `truth" of earlier false statements, plaintiffs must demonstrate: (1) that the negative "truthful" information causing the decrease in price is related to an allegedly false, non-confirmatory positive statement made earlier and (2) that it is more probable than not that it was this negative statement and not other unrelated negative statements, that caused a significant amount of the decline.[79]
Id. at 666.
The issue of market efficiency for the securities at issue in Newby will be addressed subsequently under "IV. Rulings on Specific Issues."
b. Reliance and Section 11 Claims
The Court has noted many times that generally reliance is not an element of a section 11 claim. Pointing to the statutory exception, 15 U.S.C. § 77k(a)(5),[80] Financial Institutions argue that for the § 11 claims some class members must prove reliance because they purchased the securities after Enron filed its Form 10Ks for 1999 and 2000.
Lead Plaintiff objects that Defendants have the facts wrong and have misread the statute. Demonstrating that the Amended Complaint (¶ 1006) identifies when the class representatives purchased their notes and the effective date of each of the four Registration Statements still at issue, Lead Plaintiff has alleged that each of the proposed class representatives purchased on the first day of the offering or, under 15 U.S.C. § 77k(a), before issuance of an earning statement covering twelve months after the effective date of the Registration Statement occurs (¶ 1008). Furthermore the twelve month-period commences after the effective date of the Registration Statement; defendants incorrectly look simply to the next twelve-month financial statement, not to the first statement after a twelve-month period. # 1854 at 89, 98-100. All purchases were timely and thus there is no issue of reliance about the § 11 claims, insists Lead Plaintiff. The Court agrees as regards class representatives.
Even in the event that putative class members did purchase after the first statement following the twelve-month period, 15 U.S.C. § 77k(a)(5) triggers the requirement of demonstrating individualized reliance. As Judge Denise Cote reasoned in In re WorldCom, Inc. Sec. Litig., 219 F.R.D. 267, 288-89, 293-94 (S.D.N.Y2003), appeal granted in part on other grounds sub nom. Hevesi v. Citigroup, 366 F.3d 70 (2d Cir.2003), the Form 10K earning statement for purposes of § 77k(5) must satisfy the rules and regulations of the SEC, which set out what information must be included, require that the statement be prepared in accordance with generally accepted accounting principles, and mandate that the form filings not contain material omissions. 17 C.F.R. §§ 249.310 and 210.4-01(a).
As noted above, on November 8, 2001, Enron publicly announced that it was restating its financial statements for 1997-2000 to eliminate $600 million in profits and approximately $1.2 billion in shareholder equity, and Enron expressly *697 warned that its financial statements and audit reports for that period "should not be relied upon." In an analogous ,situation, Judge Cote pointed out in In re WorldCom, that
WorldCom has admitted that its financial statements from 1999 through the first quarter of 2002 overstated earnings by over $9 billion. WorldCom's admissions leave no doubt that the earning statements filed with the SEC from 1999 through the first quarter of 2002 were misleading and omitted material information required by the SEC to be disclosed.
An earning statement that violates the SEC filing requirements should not be considered an "earning statement" for purposes of Section 11, and should not function in a Section 11 claim to shift to the plaintiff the burden of proving reliance. It would be illogical indeed if any filingno matter how inaccurate or misleading, and despite its perpetuation of the very misrepresentations at stake in the Section 11 claimwere sufficient to shift the burden to the plaintiffs to establish reliance on the Registration Statement. Whether a filing is sufficient to shift the burden must depend on whether it meets the requirements for earning statements imposed by the SEC rules and regulations, Here, because the earning statement requirements were not met, the burden does not shift to plaintiffs to prove reliance.
219 F.R.D. at 293. This Court fully concurs with Judge Cote's reasonings[81] Furthermore, under the facts alleged in Newby, this Court finds that any argument from the Financial Institutions about possible individualized reliance based on 15 U.S.C. § 77k(a)(5) and Enron's Form 10-K's is too hypothetical to preclude class certification.
2. Superiority
In addition to predominance of common issues over individual issues, Rule 23(b)(3) mandates that a class action must be "superior to other available methods for the fair and efficient adjudication of the controversy." According to the Advisory Committee Note to 1966 Amendment of Rule 23(b)(3),
[A] fraud perpetrated on numerous persons by use of similar misrepresentations may be an appealing situation for a class action, and it may remain so despite the need, if liability is found, for separate determination of damages suffered by individuals within the class. On the other hand, although having a common core, a fraud case may be unsuited for treatment as a class action if there was material variation in the representations made or in the kinds or *698 degrees of reliance by the persons to whom they were addressed.
Rule 23(b)(3)(A)-(D) identify four factors for the court to weigh in addressing the issue of superiority: "(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action."
Multiple Enron cases have arisen out of the same facts in state and federal courts around this country, while the Enron bankruptcy proceedings have also drawn numerous similar proceedings. A large number of these cases have been transferred to this Court as part of MDL 1446. Aided by the commitment of counsel and the establishment of a document depository and a website for inexpensive and swift service of all documents on and notice to all parties that have registered, the coordinated discovery has generally been smooth and efficient, avoiding substantial replication and expense, and has demonstrated a remarkable manageability despite the size of this enormous litigation. That efficiency would be further enhanced and sustained by class certification. Many Enron securities investors, who are geographically disbursed, as evidenced by the MDL, have claims too small and their finances are too limited to pursue individual suits against the alleged wrongdoers. The Supreme Court has stated that for Rule 23(b)(3) the Advisory Committee "had dominantly in mind vindication of the rights of groups of people who individually would be without effective strength to bring their opponents into court at all.'" Amchem Prods. v. Windsor, 521 U.S. 591, 617, 117 S. Ct. 2231, 138 L. Ed. 2d 689 (1997). Efficiency is clearly served here because Defendants' alleged course of conduct and fraudulent scheme to misrepresent Enron's financial status affected the investing public's perception in evaluating the purchase of Enron securities, regardless of what type of Enron investments they ultimately chose. Furthermore, because a class action avoids multiple individual actions and trials on the same liability issues, it is judicially efficient for Enron securities investors to bring all the claims in one action in one forum, and a class action will minimize the number of inconsistent rulings. Clearly, as a threshold step, the Judicial Panel on Multidistrict Litigation made such a predicate determination in establishing MDL 1446 and assigning it to this Court. Moreover, since Enron's principal place of business was in Houston, much of the alleged wrongdoing occurred here, and most of the witnesses and much of the documentary evidence are here. The coordination in this forum has allowed proceedings to go forward expeditiously, with an efficient, nonduplicative discovery and other pretrial proceedings at minimized cost of time and money for all parties and the Court. Moreover, procedurally multidistrict litigation and class certification make the plaintiffs' claims far more manageable, as evidenced by the coordinated and restricted discovery schedule, without which extraordinarily redundant discovery, including interrogatories and depositions, would result. As Lead Plaintiff noted in quoting In re First Republic Bank Sec. Litig., Nos. 3-88-0641-H and 3-88-1251-H, 1989 WL 108795, *16 (N.D.Tex. Aug.1, 1989), "[A]ny administrative difficulties in handling this class action are preferable to duplicating judicial resources in several individual lawsuits and denying access to the courts for class members. # 1445 at 26-27. In this instance there would be substantially more than "several."
*699 IV. Rulings on Specific Issues
A. Single Class
Most of the elements required to establish liability for the putative class claims under Section 10(b) and Rule 101)-5 of the 1934 Act and under Sections 11 and 12(a)(2) of the 1933 Act, as well as the derivative claims, are common to the entire proposed class. All these claims arise from a common nucleus of facts and an alleged common course of conduct and scheme to defraud.
Defendants have claimed that the class definition is too broad because it includes investors who bought and sold within the class period and were not injured, indeed those who may have profited from the transactions. The Court finds that this problem, discussed further infra, can be easily cured by modifying the class definition with the addition of a phrase such as "and were injured thereby." See, e.g., In re Cendant Corp. Litigation, 264 F.3d 201, 225 (3d Cir.2001), cert. denied sub nom. Mark v. Cal. Public Employees' Retirement System, 535 U.S. 929, 122 S. Ct. 1300, 152 L. Ed. 2d 212 (2002); In re WorldCom, Inc. Sec. Litig., 219 F.R.D. at 274-75. It accordingly instructs Lead Plaintiff to alter the definition appropriately.
Plaintiffs need not prove scienter and generally not reliance for the §§ 11 and 12(a)(2) claims, nor for derivative control person claims under § 15.
Lead Plaintiffs section 11 claims are expressly part of the scheme to defraud and shared issues of fact and law predominate. Section 11 in essence imposes strict liability where plaintiff shows that the registration statement contains material misrepresentations and that he acquired the securities without knowledge of the misrepresentations; any decline in the value of the securities is presumed to be caused by the misrepresentation. In re Dynegy, Inc. Sec. Litig., 226 F.R.D. 263, 283 (S.D.Tex.2005). The exception is that discussed under 15 U.S.C. § 77k(a)(5), which Lead Plaintiff has shown does not apply here.
Regarding the § 20A claims against Defendants for selling stock at an inflated price based on inside information,[82] the alleged common course of conduct and scheme to defraud creates a common question supporting certification of a single class that embraces these plaintiffs. The Court finds that elements of the § 10(b)/Rule 10b-5 claims here clearly overlap with elements of the § 20A claims since a claim under § 20A again requires proof of an underlying violation of § 10(b)/Rule 10b-5. The § 20A claims are factually based on the same alleged patterns of fraud: e.g., misrepresentations and/or omissions regarding Enron's financial condition, deceitful accounting practices, disguised transactions, and inaccurate SEC filings. See, e.g., In re Tyco International, Ltd. Sec. Litig., Nos. 00-MD-1335-B, 2000 DNH 182, 2000 WL 1513772 (D.N.H. Aug.17, 2000). Many § 20A claimants are the same as the § 10(b) claimants here, although the number of § 20A claimants necessarily is fewer than those bringing §§ 10(b) and 20(a) claims. Lehocky, 220 F.R.D. at 499.
The numerosity test is satisfied here. Lead Plaintiff reasonably estimates that many thousands of persons have § 20A claims. Defendants do not challenge the fact that the average national trading volume *700 of Enron stock on a national stock exchange during the class period was 4,967,622 shares per day and that Defendants traded on 244 of those days. See Lehocky, 220 F.R.D. at 499 ("While Plaintiffs have not provided evidence concerning how many contemporaneous traders exist, the Court relies on the sheer number of shareholders alone, which indicates joinder of all class members is impracticable.") (certifying a single class of persons bringing §§ 10(b), 20(a) and 20A claims).
Common legal and factual issues for § 20A claimants include whether Defendants violated § 10(b) and whether Defendants traded contemporaneously with Plaintiffs.
Section 20A class representatives' claims are typical because they, like putative class members, invested in Enron stock contemporaneously with the sale of Enron stock by Defendants with alleged inside information; their claims arise from the same course of events, part of the same scheme and course of business, and make the same legal arguments.
Certain Individual Defendants contend that individual issues undermine typicality and predominance here: determining standing to sue requires a claimant-by-claimant inquiry as to when the individual plaintiff investor purchased and sold which stock, material nonpublic information allegedly available to the trading defendant at the time of the transaction, whether and to what extent the price of that stock was inflated at the time of that purchase and sale as a result of particular undisclosed material information used by which defendant, and whether that plaintiff suffered a loss[83] and if so, how much. They insist that proof would vary with individual defendants, trading days, and transactions. They argue there would be conflicts of interest among putative class members, In competition to demonstrate that Enron stock was the most inflated on the day they traded.
The Court has already addressed the same arguments with respect to the § 10(b) claims and rejects them for the same reason. To satisfy typicality, as stated by Judge Cote in the WorldCom litigation,
The factual background of each named plaintiff's claim need not be identical to that of all the class members as long as "the disputed issue of law or fact occup[ies] essentially the same degree of centrality to the named plaintiffs claim as to that of other members of the proposed class." . . . "When it is alleged that the same unlawful conduct was directed at or affected both the same plaintiff and the class sought to be represented, the typicality requirement is usually met irrespective of minor variations in the fact patterns underlying individual claims." . . . For example, the possibility that proof of injury might require separate evaluations of the artificiality of a commodities price at moments affecting each of the class members need not defeat class certification. [citations omitted]
WorldCom, 219 F.R.D. at 280.
Moreover, damages for § 20A claims are limited to "the profit gained or loss avoided *701 in the transaction or transactions that are the subject of the violation." 15 U.S.C. § 78t-1(b). As noted by Lead Plaintiff, determining whether Plaintiffs' trades are contemporaneous (within two or three days or at maximum one week after Defendants' trades) is a mechanical task that can be performed by the claims administrator using a formula. Their trading information is a matter of public record and judicially noticeable, and may be demonstrated by their SEC filed Forms 4 and 5. "The prevailing view is that differences in individual questions of reliance and amount of damages are not grounds for refusing to permit an action to proceed as a class action." 7 Alba Conte and Herbert B. Newberg, Newberg on Class Actions § 22:64 (4th ed.2005); 7B Charles A. Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice and Procedure: Civil 2d § 1781 at 8 (2d ed. 1986) ("[I]t uniformly has been held that differences among the members [of a class] as to the amount of damages incurred does not mean that a class action would be inappropriate."). Thus the Court finds that the § 20A class representatives have standing to assert the § 20A claims on behalf of the class.
B. Scheme Liability
In Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S. Ct. 1439, 128 L. Ed. 2d 119 (1994), the Supreme Court held that claims for aiding and abetting are not cognizable under § 10(b). It also cursorily indicated that a secondary actor, e.g., business partner, bank, law firm, and/or accounting firm, may be liable as a primary violator when "all of the requirements for primary liability under Rule 10b-5 are met." Id. at 191, 114 S. Ct. 1439. The Supreme Court did not develop that issue in Central Bank. This Court and others have continued to struggle to define parameters for such liability. As discussed in # 1194, in Rule 10b-5(b) misrepresentation cases courts have disagreed about whether a defendant is primarily liable only if he made the false statement or omission, or if he reviewed and approved it, or if he substantially participated in the making of it.
Determining when secondary actors are liable as primary violators of § 10(b) is especially difficult where the allegations are of scheme liability based on concealed conduct under Rule 101)-5(a) and (c).[84] Defendants have argued that pleading scheme liability under Rule 10b-5(a) and (c), when a scheme participant that has engaged in a sham transaction or fraudulent conduct that allows a securities issuer to submit false and misleading financial statements but makes no statement itself, is no longer viable in the wake of Central Bank, but is merely an attempt to circumvent its holding that aiding and abetting is not actionable under the statute.
Section 10(b) makes it "unlawful for any person, directly or indirectly," to "use or employ in connection with the purchase or sale of any security . . ., any manipulative or deceptive device or contrivance [emphasis added by the Court]." 15 U.S.C. § 78j(b). Rule 10b-5(a) makes it unlawful for "any person," "directly or indirectly," to "employ any device, scheme, or artifice to defraud." Rule 101)-5(c) makes it unlawful for "any person," "directly or indirectly" *702 to "engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person." This Court has accepted the pleading of scheme liability based on nonrepresentational conduct in this litigation, but recognizes that the controversy about its viability persists. Case law has slowly developed regarding claims under Rule 10b-5(a) and/or (c) and in some cases highlighted, if not clarified, key issues regarding such claims.
Defendants have pointed out that the question is on appeal in the following cases before the First and Ninth Circuits, respectively: (a) Quaak v. Dexia, SA, 357 F. Supp. 2d 330, 337, 341-42 (D.Mass.2005), quoting its earlier opinion in In re Lernout & Hauspie Sec. Litig., 236 F. Supp. 2d 161, 173-74 (D.Mass.2003) (holding that Section 10(b) and Rule 10b-5 "impose primary liability on any person who substantially participates in a manipulative or deceptive scheme by directly or indirectly employing a manipulative or deceptive device (like the creation or financing of a sham entity) intended to mislead investors, even if a material misstatement by another person creates the nexus between the scheme and the securities market"; reliance on a manipulative or deceptive scheme may be satisfied "by alleging facts sufficient to show (1) that the defendants substantially participated in a fraudulent scheme; and (2) when the scheme is viewed as a whole, the plaintiffs relied on it")[85]; and (b) In re Hontestomcom Sec. Litig., 252 F. Supp. 2d 1018 (C.D.Cal.2003) *703 (holding that plaintiffs relied on material misleading financial statements and omissions made by the issuer of the securities, and not on the underlying actions of its business partners in sham transactions that permit the issuer to artificially inflate its financial results, but who did not make statements and omissions and thus were not primarily liable under § 10(b)). Moreover, as pointed out by the Financial Institution Defendants in their final Notice of Supplemental Authority and then a Reply (# 4596 and # 4629),[86] the Eighth Circuit has just affirmed a district court holding in In re Charter Communications, Inc. Sec. Litig., MDL Docket No. 1506, No. 02 Civ. 1186(CAS), Memorandum and Order, Doc. No. 252, 2004 WL 3826761 (E.D.Mo. Oct. 12, 2004) (affirming dismissal, as mere aiding and abetting under Central Bank, plaintiffs' § 10(b) claims against vendors in an alleged scheme involving sham purchases from as cable company by the vendors of boxes to affix to televisions for delivery of cable so as to allow the cable company to artificially inflate its financial results by fraudulent accounting). In re Charter Communications Sec. Litig., 443 F.3d 987 (8th Cir.2006).
The appellate panel in Charter stated that plaintiffs had alleged that the vendors' contracts to buy the equipment were "sham or wash transactions with no economic substance," that the vendors "entered into these sham transactions knowing that Charter intended to account for them improperly and that analysts would rely on the inflated revenues and operating cash flow in making stock recommendations," " although the venders were not alleged to have "played any role in preparing or disseminating the fraudulent financial statements and press releases through which Charter published its deception to analysts and investors." 443 F.3d at 989-90.
The Eighth Circuit focused on Central Bank's pronouncement that private plaintiffs "may not bring a [Rule] 10b-5 suit against a defendant for acts not prohibited in the text of § 10(b).", Id. at 990, citing Central Bank, 511 U.S. at 173, 114 S. Ct. 1439. Section 10(b) prohibits only "manipulative or deceptive" devices or contrivances. Id. The panel opined that earlier Supreme Court cases had held that "`deceptive' conduct involves either a misstatement or a failure to disclose by one who has a duty to disclose," while "manipulative" is "`a term of art' and refers to illegal trading practices such as `wash sales, matched orders, or rigged prices, that are intended to mislead investors by artificially affecting market activity." Id. at 990, 992 (and cases cited therein). The Eighth Circuit concluded that claims under the statute and under Rule 10b-5(a) and (c) were limited by Central Bank to claims that the defendant made, or affirmatively caused to be made, a fraudulent misstatement or omission, or to claims of a misstatement or failure to disclose by a defendant who has a duty to disclose, or to claims of a defendant's direct engagement in manipulative securities trading practices; anything else is at most aiding and abetting and cannot support liability under the statute. Id. at 992. It stated, "To impose liability for securities fraud on one party to an arm's length business transaction in goods or services other than securities because, that party knew or should have known that the other party would use the transaction to mislead investors in its stock would introduce potentially far-reaching duties and uncertainties for those *704 engaged in day-to-day business dealings." Id. at 992.
In comparison, in a more expansive reading of the language of the statute and the Rule, in the Parmalat litigation Judge Kaplan noted that "the language of Section 10(b) and subsections (a) and (c) is broad and that the Supreme Court has emphasized repeatedly that Section 10(b) `should be `construed not technically and restrictively, but flexibly to effectuate its remedial purposes.''" Parmalat, 376 F.Supp.2d at 501, citing SEC v. Zandforcl, 535 U.S. 813, 819, 122 S. Ct. 1899, 153 L. Ed. 2d 1 (2002) (quoting Affiliated Ute, 406 U.S. at 151, 92 S. Ct. 1456). Judge Kaplan also turned to the text of the statute and found that the high court has defined the key terms much more liberally than the Eighth Circuit determined:
The Supreme Court has given instructions on the meaning of the relevant terms in Section 10(b). The key phrase for present purposes is "directly or indirectly . . . [t]o use or employ . . . any . . . deceptive device or contrivance." "Device," according to the Supreme Court, should be understood to mean "that which is devised, or formed by design; a contrivance; an invention; project; scheme, often, a scheme to deceive; a stratagem; an artifice." The same dictionary used by the Supreme Court defines "deceptive" as "[t]ending to deceive; having the power to mislead."
Id. at 502, citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199, n. 20, 96 S. Ct. 1375, 47 L. Ed. 2d 668 (1976), and Webster's New International Dictionary 580, 713, 679 (2d ed.1934).
The SEC has filed an amicus curiae brief in the Homestore.com appeal before the Ninth Circuit that urges a broad construction of the statute, a copy of which Lead Plaintiff has submitted. Ex. I to # 4528. Specifically with regard to the Newby litigation, the SEC addressed inter alia two of the reasons why the Homestore.cam district court dipnissed the plaintiffs' claims: (1) "the primary architects of the scheme were officers of Homestore"; and (2) "Homestore's shareholders were injured by their reliance on material statements and omissions made by Homestore about the revenues, not the transactions that created the revenues." Id. at 4, citing Homestore.com, 252 F.Supp.2d at 1037-42. Emphasizing that the statutory intent behind § 10(b) was to protect investors against fraud and ensure honest markets, United States v. O'Hagan, 521 U.S. 642, 658, 117 S. Ct. 2199, 138 L. Ed. 2d 724 (1997), the SEC argues,
Where a wrongdoer, intending to deceive investors, engages in a deceptive act as part of a scheme to defraud, he can cause the same injury to investors, and the same deleterious effects on the market regardless of whether he designed the scheme. Wrongdoers could studiously avoid, engaging in any design activity, and effectively immunize their conduct. . . . The district court's test would suggest that an unlimited number of schemers could simply mimic some prior, well-publicized scheme and escape liabilitynone having designed it. Liability should be available against any person who engages in a deceptive act within the meaning of Section 10(b) as part of a scheme to defraud, regardless of who designed the scheme.
[Second], deceptive acts under Section 10(b) include conduct beyond the making of false statements or misleading omissions, for facts effectively can be misrepresented by action as well as words. For example, if an investment bank falsely states that a client company has sound credit, there is no dispute that it can be primarily liable. If the bank creates an off-balance-sheet sham entity that has the purpose and effect of hiding *705 the company debt, it has achieved the same deception, and liability should be equally available.
Id. at 7-8.
Observing that "[i]t has long been accepted that Section 10(b), and Rule 10b-5(a) and (c) thereunder, cover conduct beyond the making of false statements and misleading omissions, which are covered by Rule 10b-5(b)," the SEC quotes the conclusion of the Supreme Court in Zandford, "`Indeed, each time respondent `exercised his power of disposition [of his. customers' securities] for his own benefit,' that conduct, `without more,' was a fraud.'" Id. at 13-14, quoting Zandford, 535 U.S. at 815, 122 S. Ct. 1899 (emphasis added by SEC); Affiliated Ute, 406 U.S. at. 152, 92 S. Ct. 1456 (noting, that while Rule 10b-5(b) targets false statements or omissions, paragraphs (a) and (c) "are not so restricted").
The SEC, emphasizing that Central Bank did not bar liability based on allegations that a group of defendants acted together to violate the securities laws as long as each defendant committed a manipulative or deceptive act in furtherance of the scheme, proposes the following test for liability under § 10(b) and Rule 10b-5(a):
Any person who directly or indirectly engages[87] in a manipulative or deceptive act as part of a scheme to defraud can be a primary violator . . .; any person who provides assistance to other participants in a scheme but does not himself engage in a manipulative or deceptive act can only be an aider and abettor.
# 4528, Ex. I at 16. Recognizing the need to distinguish between an aider and abettor and a primary violator in the wake of Central Bank, the SEC requires that a primary violator thus, directly or indirectly, engage in a manipulative or deceptive act, which is conduct expressly covered by the statute. In contrast to the Eighth Circuit's narrow reading of the term as limited to misleading statements or failure to disclose by one who has a duty to do so, the SEC urges that a "deceptive act" includes a "transaction whose principal purpose and effect is to create a false appearance of revenues," which can be accomplished by acts as well as by words. Id. at 18-19. Section 10(b) also covers market manipulation, which the SEC construes broadly as "typically involving] conduct that creates a false appearance of trading activity." Id. at 19, citing United States v. Russo, 74 F.3d 1383, 1391 (2d Cir.1996) (holding trading scheme which "create[d] a false impression" of demand for the subject stock constituted market manipulation under Section 10(b) and Rule 10b-5), cert. denied, 519 U.S. 927, 117 S. Ct. 293, 136 L. Ed. 2d 213 (1996). Id. at 19.
A major difficulty in the, wake of Central Bank is defining clearly what conduct constitutes aiding and abetting and what would qualify as a primary violation of § 10(b). The SEC's brief provides some illuminating examples to distinguish the two. The SEC maintains that a bank that makes a loan, even if it knows that the borrower will use the proceeds to commit securities fraud, may be liable only an aider and abettor because the bank, itself, has not engaged in any manipulative or deceptive act; similarly a bank that provides services arranging for financing for a client that it knows will use then use the funds for securities fraud is only aiding and abetting. Id. at 20. In the same vein, if a third party enters into a legitimate *706 transaction with a corporation where it knows that the corporation will overstate revenue generated by that transaction, the third party is merely aiding and abetting; in contrast, if the third party and the corporation engage in a transaction whose principal purpose and effect is to create a false appearance of revenues, intended to deceive investors in that corporation's stock, the third party may be a primary violator. Id. at 20. As a final example, if a third party enters into a transaction to purchase goods from the corporation where terms include a legitimate option to return the goods for a full refund, knowing that the corporation will misrepresent the transaction as a final sale, the third party at most is an aider and abettor; but if the parties to that transaction have a side oral agreement that no goods will be delivered and no money paid and the corporation falsely states that it received revenue from the transaction, the third party may be liable as a primary violator. Id. at 20-21. The SEC departs from Lernout, 236 F.Supp.2d at 173 (holding that primary liability exists for "any person who substantially participates in a manipulative or deceptive scheme by directly or indirectly employing a manipulative or deceptive device (like the creation or financing of a sham entity) intended to mislead investors, even if a material misstatement by another person creates the nexus between the scheme and the securities market."), concluding that the "substantial participation" is not appropriate in the context of a scheme to defraud under Rule 10b-5(a), but aptly applies to the making of a misleading statement under Rule 10b-5(b). Ex. I at 16-17, n. 3.
Applying these examples, this Court finds, for instance, that in Newby the allegations against JP Morgan based on the Mahonia commodity trades, where no gas was ever transferred, the allegations against Merrill Lynch relating to the Nigerian barge "sales," the specific details of the prepaid swaps through Delta by Citigroup, or specific allegations regarding Credit Suisse First Boston ("CSFB") and Laurence Nath's repeated involvement in structuring SPEs for Enron, or allegations regarding CIBC's partnership in project Braveheart satisfy the requirements for pleading primary violations of the statutes.
Regarding reliance, the SEC notes that "deception created by fraudulent activity frequently will be disseminated into the marketplace through some [other] person's making a false statement. If prior fraudulent activity, from which the making of that false statement flowed as a natural consequence is not covered [by the statute], large swaths of fraudulent activity could go unremedied" and the earlier "schemers would be insulated from liability as a matter of law." Id. at 8; id. at 21 ("Nothing in the rules of causation suggests that only the final act in a scheme to defraud meets the causation requirement.") (citing Lernout, 236 F.Supp.2d at 173 (holding that a person who employs a deceptive device as part of a fraudulent scheme may be primarily liable "even if a material misstatement by another person creates the nexus between the scheme and the securities market")). The SEC argues, "The reliance element should be viewed as satisfied whenever a plaintiff relies on a material deception flowing from a deceptive act, even though the conduct of other participants in the scheme may have been a subsequent link in the causal chain leading to the plaintiff's securities transaction." Id. at 8; 22 ("a prior deceptive act, from which the making of false statements follows as a natural consequence, can constitute a sufficient step in the causal chain to support a finding of reliance"). The SEC also rejected the Homestore.com district court's conclusion that the primary violators are the architects of a scheme, i.e., those who designed it. Id. at 11. The SEC insists that the "use or employ" statutory *707 language does not require "masterminding" and could lead to the absurd result that a group of defendants that joined in a scheme with a mastermind who designed it but who then implemented the scheme without further involvement of the mastermind would not be primarily liable because they had no part in designing it. Id. at 11, citing SEC v. U.S. Environmental, 155 F.3d 107, 108, 112 (2d Cir.1998) (holding stock broker primarily liable under § 10(b) "for following a stock promoter's directions to execute stock trades that [the stock broker] knew, or was reckless in not knowing, were manipulative, even if [the stock broker] did not share the promoter's specific overall purpose to manipulate the market for that stock"; stock broker "`participated in the fraudulent scheme,' . . . i.e., the manipulation of USE's stock, by effecting the very buy and sell orders that artificially manipulated USE's stock price upward"), cert. denied sub nom. Romano v. SEC, 526 U.S. 1111, 119 S. Ct. 1755, 143 L. Ed. 2d 787 (1999). Furthermore, the SEC contends that in concluding that the plaintiffs relied on Homestore's misrepresentations about its revenue and not on the business partners' conduct, the district court erred in assuming that the scheme did not include the making of false statements about Homestore.com's financial condition; the scheme did not end before the alleged false statements were made. Id. at 12; at 22 ("where the making of the false statements by one participant in the scheme is an objective of the scheme, the making of tile statements should not be viewed as breaking the chain of causation"), quoting Warshaw v. Xoma Corp., 74 F.3d 955, 959 (9th Cir.1996) (if "Xoma intentionally used these third parties to disseminate false information to the investing public," it "cannot escape liability simply because it carried out is alleged fraud through the public statements of third parties.").
It is obvious that courts are divided over the scheme liability issue. The Eighth Circuit's decision in Charter is not final or even binding on this court. An appeal to the United States Supreme Court is available. Meanwhile, this Court continues to agree with the SEC because its interpretation appears not only reasonable, but consistent with the purposes behind the federal securities laws. The Court finds the SEC's clarification of the distinctions between aiding and abetting and a primary violation under § 10(b), and the application of reliance where the alleged wrongful conduct is nonrepresentational under Rule 10b-5(a) and (c), illuminating and helpful and hereby adopts its approach.
C. Limitations and Tolling regarding § 12(a)(2) Claims
The Financial Institutions have blurred the distinction between legal tolling under the class action tolling doctrine and equitable tolling or the fraudulent concealment doctrine; they refer to both as equitable tolling. They are not the same. See, e.g., Joseph v. Wiles, 223 F.3d 1155, 1166-68 (10th Cir.2000); Ballard v. Tyco Ina Ltd., No. MDL 02-MD-1335-PB, Civ. 04-CV-1336-PB, 2005 WL 1683598, *7 (D.N.H. July 11, 2005); In re Discovery Zone Sec. Litig., 181 F.R.D. 582, 600 (N.D.Ill.1998); Salkind v. Wang, No. Civ. A. 93-10912-WGY, 1995 WL 170122, *2-3 (D.Mass. Mar.30, 1995); Mott v. R.G. Dickinson and. Co., No. 92-1450-PFK, 1993 WL 63445, *5 (D.Kan. Feb.24, 1993); In re Activision Sec. Litig., No. C-83-4639(A)MHP, 1986 WL 15339, *2-5 (N.D.Cal. Oct.20, 1986). Equitable tolling may be applied where a plaintiff timely files a defective pleading or has been tricked by his opponent's misconduct into not filing before the deadline. Joseph, 223 F.3d a 1166.
*708 In Lampf Pleva, Lipkin, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 364, 111 S. Ct. 2773, 115 L. Ed. 2d 321 (1991), the Supreme Court held that "litigation . . . must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation" of § 10(b). The three-year period is a statute of repose. The high court further held that equitable tolling does not apply to statutes of repose. Id. at 363, 111 S. Ct. 2773.
Under the class action tolling doctrine established in American Pipe and Construction Co. v. Utah, 414 U.S. 538, 554, 94 S. Ct. 756, 38 L. Ed. 2d 713 (1974) ("the commencement of a class action suspends the. applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action"), and Crown, Cork & Seal Co. v. Parker, 462. U.S. 345, 350, 352-55, 103 S. Ct. 2392, 76 L. Ed. 2d 628 (1983), the filing of a class action under Fed.R.Civ.P. 23 legally tolls any applicable statute of limitations or statute of repose for all putative members of the potential class when an action is commenced and a motion for class certification is pending, up to the point that the court denies class certification, at which juncture the tolling ends and the plaintiffs, to protect their interests, may file individual suits. See also Calderon v. Presidio Valley Farmers Ass'n, 863 F.2d 384 (5th Cir.1989) (statute of limitations begins to run from the date the district court denied class certification, notwithstanding subsequently filed class actions, motions to intervene or appeals of the class certification ruling), cert. denied, 493 U.S. 821, 110 S. Ct. 79, 107 L. Ed. 2d 45 (1989). The rationale for allowing legal tolling is to dissuade every potential class member from filing a separate action, resulting in a multiplicity of suits and judicial inefficiency and lack of litigation economy, which would defeat the goals of Rule 23; moreover, "the notice and opt-out provision of Rule 23(c)(2) would be irrelevant without tolling because the limitations period for absent class members would most likely expire, `making the right to pursue individual claims meaningless.'" Joseph, 223 F.3d at 1167. Statutes of limitation and repose serve to keep plaintiffs from sleeping on their rights and to protect defendants from being surprised by assertion of old claims. Crown, Cork & Seal, 462 U.S. at 352, 103 S. Ct. 2392; Joseph, 223 F.3d at 1167. The filing of a class action complaint, however, puts defendants on notice of the claims and the number and identities of the plaintiff's. Joseph, 223 F.3d at 1168. Thus legally tolling the repose period while a class action is pending does not undermine the purpose of the time-bars.
The Foreign Debt Securities at issue[88] were offered on the following dates:
11/15/99 Yosemite Securities Trust I
02/15/00 Yosemite Securities Co., Ltd.
08/17/00 Enron Credit Linked Notes Trust
09/28/00 Osprey Trust Osprey I, Inc.
05/17/01 Enron Sterling Credit Linked Notes Trust
05/17/01 Enron Sterling Credit Linked Notes Trust II
07/12/01 Marlin Water Trust II Marlin Water Capital
Corp. II
The Court has deemed the First Amended Consolidated Complaint, which first included them, as filed on January 14, 2003. Under § 13, the applicable statute of limitations for § 12(a)(2) claims, suit must be brought "within one year after the discovery of the untrue statement or the omission. . . . In no event shall such action be brought to enforce a liability created . . . under section [12(a)(2)] of this title more than three years after the sale [or the security]." The three year period thus reaches back to offerings on or after January 15, 2000. Therefore claims based on *709 the first offering on 11/15/99 of Yosemite Securities Trust I were time-barred befere the First Amended Consolidated Complaint was filed. The statute of repose for all the remaining claims was legally, tolled, and thus they have not expired, as of the filing date of the First Amended Consolidated Complaint, as this Court only now rules on the class certification motion.
The Financial Institutions claim that because no named Plaintiff has standing to assert the § 12(a)(2) claims, the tolling rule of American Pipe does not apply.[89]In re Colonial Ltd. P'ship Litig., 854 F. Supp. 64, 82 (D.Conn.1994) ("[I]f the original plaintiffs lack standing to bring their claims in the first place, the filing of a class action complaint does not toll the statute of limitations for other members of the purported class."), citing Korwek v. Hunt, 827 F.2d 874, 879 (2d Cir.1987); In re Elscint, Ltd. Sec. Litig., 674 F. Supp. 374, 378 (D.Mass.1987).
First, the Court notes that the district court in Colonial has been criticized for misinterpreting Korwek. In In re Flag Telecom Holdings, Ltd. Sec. Litig., 352 F. Supp. 2d 429, 455 (S.D.N.Y.2005), amended and superseded on other grounds, 411 F. Supp. 2d 377 (S.D.N.Y.2006), for example, the district court opined, and this Court agrees,
[T]he failure to apply the American Pipe rule to cases where a class action was dismissed for lack of standing undermines the policies underlying Rule 23 and is inconsistent with the Court's reasoning in American Pipe. Second, the court in Colonial cited Korwek to support its assertion that American Pipe is inapplicable to cases where the original plaintiff lacked standing to file a class action. However, Korwek is silent on this subject and stands only for the proposition that once class certification is denied, putative class members may not rely on the American Pipe rule to commence a new, substantially identical class action because this would allow the putative class members to "argue and reargue the question of class certification by filing new but repetitive complaints." Korwek, 827 F.2d at 879. . . .
Id. at 454 n. 20. In Korwek the Second Circuit concluded that after class certification was denied because the claims were inappropriate for class treatment, the American Pipe rule did not apply to "permit the filing by putative class members of a subsequent class action nearly identical in scope to the, original class action which was denied certification," because doing so would open the door to "piggy-back[ing] one class action onto another and thus toll[ing] the statute of limitations indefinitely.' Korwek, 827 F.2d at 876, 878, following Salazar-Calderon v. Presidio Valley Farmers Ass'n, 765 F.2d 1334, 1351 (5th Cir.1985) (concluding there is "no authority for [the] contention that putative class members may piggyback one class action onto another, and thus toll the statute of limitations indefinitely"), cert. denied, 475 U.S. 1035, 106 S. Ct. 1245, 89 L. Ed. 2d 353 (1986). In accord Basch v. Ground Round, Inc., 139 F.3d 6, 8 n. 4 (1st Cir.1998), cert. denied, 525 U.S. 870, 119 S. Ct. 165, 142 L. Ed. 2d 135 (1998); Andrews v. Orr, 851 F.2d 146, 149 (6th Cir. 1988).
Justice Powell, in his concurrence in American, Pipe, commented, "The tolling rule of American Pipe is a generous one, inviting abuse." 462 U.S. at 354, 103 S. Ct. 2392. In In re Elscint, Ltd. Sec. Litig., *710 674 F. Supp. 374, 378 (D.Mass.1987), the district court, although stating that "lack of standing may not per se mandate an exemption from the application of the tolling rule," was "troubled by the potential abuse of a rule extending class action tolling of, all cases in which certification is denied for lack of standing" and potentially "encourag[ing] attempts to circumvent the statute of limitation by filing a lawsuit without an appropriate plaintiff and then searching for one who can later intervene with the benefit of a tolling rule"; it concluded that "it would be improper to allow the filing of a class action by nominal plaintiffs who are wholly inadequate to represent the asserted class to have the effect of tolling limitation to permit the otherwise untimely intervention of proper class representatives." See also Hess v. I.R.E. Real Estate Income Fund, Ltd., 255 Ill.App.3d 790, 810, 629 N.E.2d 520, 534, 195 Ill. Dec. 935, 949 (Ct.App.1993) ("we hold that the American Pipe class tolling rule does not apply where the representative lacks standing"), appeal denied, 152 Ill. 2d 559, 622 N.E.2d 1206, 190 Ill. Dec. 889 (1993).
Other courts disagree. For example, in Haas v. Pittsburgh Nat'l Bank, 526 F.2d 1083 (3d Cir.1975), a plaintiff filed a class action against three banks relating to their. methods of computing interest on their credit cards. The district certified a class, but subsequently found that the plaintiff lacked standing to sue one bank, Equibank, because she did not hold a credit card from it. The court permitted her to file an amended complaint to join as a named plaintiff a credit card holder from Equibank. Before the amended complaint was filed, however, the district court granted partial summary judgment in favor of Equibank, which had stopped using the contested method of calculating the service charge on its cards before the amended complaint was filed to substitute the new class representative, on the grounds that the claims against it were time-barred. On appeal, inter alia, the Third Circuit reversed and remanded the dismissal of the class claim, holding that "commencement of the original class action by Haas tolled the statute of limitations as to all members of the class who would have been parties to the suit had it been permitted to continue as a class action. The amendment of the complaint by the addition of Equibank cardholder Mitchell therefore relates back to the initial filing of the complaint." The panel found that the original complaint had provided Equibank with notice of "the claims against which [it] would be required to defend and also the number and generic identities of the potential plaintiffs.'" Id. at 1097. See also Rose v. Arkansas Valley Environmental & Utility Authority, 562 F. Supp. 1180, 1193 (W.D.Mo.1983) ("the' fact that a class action is disallowed because the class representative lacks `standing' does not, per se, prevent application of the American Pipe tolling rule."); McKowan Lowe & Co. v. Jasmine, Ltd., 295 F.3d 380, 384-85 (3d Cir.2002) (tolling claims and permitting intervention of a class representative with standing against one defendant where the original class representative lacked such because tolling diminishes the filing of repetitious suits and is "consistent with the twin functions of statutes of limitations providing defendants with timely notice and avoiding stale claimsbecause the action is tolled only by timely service of the class complaint on the defendants by the named plaintiffs") (vacating portion of district court's order denying class certification and remanding), cert. denied sub nom. Arthur Andersen, LLP v. Berger, 537 U.S. 1088, 123 S. Ct. 691, 154 L. Ed. 2d 631 (2002).
As noted earlier, the Financial Institution Defendants argue that any belated intervenor in Newby will not relate back to Lead Plaintiffs filing of the Amended Consolidated *711 Complaint on May 15, 2003; which this Court has deemed filed as of January 14, 2003 (# 2044 at 6-7). Under McKowan, the Financial Institutions' argument that the doctrine of relation back cannot save claims of a newly added party fails. If Lead Plaintiff had found class representatives with standing to pursue the 12(a)(2) claims, the class might have proceeded on these claims since the class action has been tolled since the filing of the First Amended Consolidated complaint under American Pipe. See, e.g., Goodman v. Lukens Steel Co., 777 F.2d 113, 124 (3d Cir.1985). This is not a case where class certification was previously denied and where the propriety of a class action is being relitigated, which the Second Circuit in Korwek and the Fifth Circuit in Presidio Valley Farmers, and others, have barred. Basch, 139 F.3d at 11-12; Andrews v. Orr, 851. F2d 146, 148-49 (6th Cir.1988); Robbin v. Fluor Corp., 835 F.2d 213, 214 (9th Cir.1987); McKowan, 295 F.3d at 386.
D. Length of Class Period
In opposition to Lead Plaintiffs proposed Class Period from October 19, 1998 to November 27, 2001, the Financial Institutions argue that the Class Period for claims against them must not bekin before April 8, 1999 (the farthest extent to which the statute of repose allows claims in the First Consolidated Complaint (# 441), filed on April 8, 2002, to be asserted, as this Court has previously ruled) and must end by October 16, 2001, when Enron announced it would record a $1 billion charge-off. They insist the latter announcement precluded spy reasonable reliance on Enron's financial 1 statements.
At the class certification hearing Mr. Lerach conceded that he recognized the Court's ruling that the three-year period of repose barred recovery for purchasers before April 8, 1999. Nevertheless he urged the Court to leave the definition as it was "for proof purchases" as the Court held in "that prior ruling." TR at 25. The Court presumes he is referring to its Ming that for purposes of establishing scienter, Lead Plaintiff may rely on facts happening before the time bar. That proof issue is a separate matter and should not be the reason for defining a class period beyond the reach of the statute of limitations.
Nevertheless, the claims against other Defendants were filed earlier and are not restricted by the same statute of repose.
Regarding the commencement of the Class Period, the claims against the four Financial Defendants were added in the First Amended Consolidated Complaint (# 1388), deemed by the Court to have been filed on January 14, 2003, later than those against other Defendants, and are subject to different statutes of limitations/repose than others. The reach of the statute of limitations is a fact issue that should not be resolved at class certification.[90] Other courts have viewed variation in time bars for different class claimants in a predominance analysis, as a consideration, but not necessarily a controlling one. Waste Management Holdings, Inc. v. Mowbray, 208 F.3d 288, 295-96 (1st Cir. 2000) ("Although a necessity for an individualized statute-of-limitations determinations invariably weighs against class certification under Rule 23(b)(3), we reject any per se rule that treats the presence of stall issues as an automatic disqualifier. In other words, the mere fact that such concerns may arise and may affect different class members differently does not compel a *712 finding that individual issues predominate over common ones. As long as a sufficient constellation of common issues binds class members together, variations in the sources and application of statutes of limitations will not automatically foreclose class certification under Rule 23(b)(3)."). The Mowbray panel ruled that a court "must formulate some prediction as to how specific issues will play out in order to determine whether common or individual issues will predominate" and thus, in part, whether class certification is appropriate. Id. at 298. See also In re WorldCom, Inc. Sec. Litig., 219 F.R.D. at 303 ("Although affirmative defenses such as the statute of limitations defense may be considered as one factor in the class certification calculus, the existence of even a meritorious statute of limitations defense does not necessarily defeat certification.") (citing Mowbray); George Lussier Enterprises, Inc. v. Subaru of New England, Inc., No. Civ. 99-109-B, 2001 WL 920060, *3, 6, 11 (D.N.H. Aug.3, 2001) ("No precise, mechanical test exists to determine whether common issues predominate in a proposed class . . . Instead courts look for `a sufficient constellation of common issues [that] binds class members together.") (citing Mowbray); CV Reit, Inc. v. Levy, 144 F.R.D. 690, 699 (S.D.Fla.1992); Gruber v. Price Waterhouse, 117 F.R.D. 75, 78-80 (E.D.Pa. 1987); 7 Alba Conte and Herbert B. Newberg, Newberg On Class Actions § 22:55 (4th ed. updated Nov. 2005) ("Possible differences in the application of a statute of limitations to individual class members, including named plaintiffs, relate to the merits of individual claims and do not preclude certification of a Rule 23(b)(3) class action when the necessary commonality and predominance are otherwise present."). But see Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 342 (4th Cir.1998) ("when the defendant's affirmative defenses (such as . . . the statute of limitations) may depend on facts peculiar to each plaintiffs case, class certification is erroneous").
The Fifth Circuit has cited Mowbray for the proposition that a court should not adopt a per se rule against certification where a limitations defense is raised by some defendants because the "result would foreclose use of the class action device for a broad subset of claims, a result inconsistent with the efficiency aims of rule 23. Though class members whose claims are shown to fall outside the relevant statute of limitations are barred from recovery, this does not establish that individual issues predominate, particularly in the face of defendants' common scheme of fraudulent concealment." In re Monumental Life Ins. Co., 365 F.3d 408, 420-21 (5th Cir.2004), cert. denied sub nom. Am. Nat. Ins. Co. v. Bratcher, 543 U.S. 870, 125 S. Ct. 277, 160 L. Ed. 2d 117 (2004). Here plaintiffs allege a common scheme to defraud throughout the class period. The Court concludes that variations in time bars for some claimants are not sufficient to preclude class certification here.
"In a securities class action based on material misrepresentations and omissions to the investing public, the class period should end when curative information is publicly announced or otherwise effectively disseminated to the market." In re Ribozyme Pharmaceuticals, Inc. Sec. Litig., 205 F.R.D. 572, 579 (D.Colo.2001) (and cases cited therein). Nevertheless, "a class period should not be cut off if questions of fact remain as to whether the disclosures completely cured the market." In re WorldCom, Inc. Sec. Litig., 219 F.R.D. at 307 (citing inter alia Sirota v. Solitron Devices, Inc., 673 F.2d 566, 572 (2d Cir.1982), cert. denied, 459 U.S. 838, 103 S. Ct. 86, 74 L. Ed. 2d 80 (1982), and Friedlander v. Barnes, 104 F.R.D. 417, 421 (S.D.N.Y.1984)), appeal granted, in part on other grounds sub nom. Hevesi v. Citi-group, *713 366 F.3d 70 (2d Cir.2003); In re Ribozyme, 205 F.R.D. at 579 (When there is "`a substantial question of fact'" whether a "release had cured the market or was itself misleading, . . . then the broader time period will be certified. In essence, the test is a preliminary merits determination whether the facts which underlie the gravamen of the plaintiffs complaint continue to represent a reasonable basis on which an individual purchaser or the market would rely."), citing In re Data Access Sys. Secs. Litig., 103 F.R.D. 130, 143 (D.N.J.1984), and Friedlander v. Barnes, 104 F.R.D. at 421; Bovee v. Coopers & Lybrand, 216 F.R.D. 596, 614-15 (S.D.Ohio 2003) (finding a substantial question of fact as to when the market was cured because even though a great deal of negative information had come out before class representatives purchased their stock, which had dropped below $1 in price, in, the midst of these negative disclosures defendants had filed a Form 10-K with numerous misrepresentations and omissions).
There were a number of key disclosures of different content during the fall of 2001, and issues of fact exist whether adequate curative disclosures about the complicated relationship between Enron and the Financial Institutions, as well as other defendants, and the intricate scheme as a whole were made and when. The record evidences disagreement whether even the November 8, 2001 announcement cured the market from the effect of earlier misrepresentations and omissions. Moreover, as brought out by the expert witnesses, there are key differences in what information would lead a stock purchaser or seller to act in comparison to what would cause a bond purchaser or seller to act. Lead Plaintiff maintains that the bond market did not collapse until after October 16, 2001 and the equity market suffered further significant declines after that date also. These are issues of fact that should be determined at trial.
E. Scheme or Schemes/Individual Damages: Potential Conflicts of Interest Among Class Members
Certain Defendants argue that the complaint identifies many separate fraudulent schemes under § 10(b), in at least seven distinct time periods, involving different subsets of Defendants, with each scheme purportedly inflating the market price of the securities. Thus different class members purchased and sold Enron securities at different times and presumptively relied on different alleged misrepresentations; 'such highly individualized issues are not subject to class-wide proof, insist Defendants. See, e.g., Richland v. Cheatham, 272 F. Supp. 148 (S.D.N.Y. 1967). Moreover, the class includes some investors who bought and sold during the first two years and were not damaged by the alleged fraud and indeed may even have made money. Others bought their securities after the alleged fraud was disclosed to the market "Where the plaintiffs' damage claims focus almost entirely on facts and issues specific to individuals rather than the class as a whole, the potential . . that the class action may degenerate in practice into multiple lawsuits separately tried renders class treatment inappropriate." Bell. Atlantic Corp. v. AT&T Corp., 339 F.3d 294, 307 (5th Cir. 2003), quoting Countrywide Home Loans, 319 F.3d at 744. Defendants maintain that unlike § 11 claims, whose damages could be determined by a mathematical or formulaic calculation, damages for § 10(b) claims would depend on date(s) of trading, profit or loss incurred, the extent to which the price paid and received reflected the "true" value, vs. inflated value of the stock, i.e., individual issues that would predominate over questions common to the class. Furthermore there would be inevitable conflicts of interest among class members and class representatives who purchased at different dates to maximize the inflation *714 on the dates favoring larger damages for them.
The Court disagrees. Any potential conflict is substantially outweighed by the common interests of the proposed class in establishing the alleged scheme or course of business to defraud and the material misrepresentations and omissions, and in maximizing the overall inflation of Enron securities throughout the Class Period to prove liability and to obtain the largest recovery for the class. As noted by then District Court Judge Patrick E. Higgenbotham in In re LTV Sec. Litig., 88 F.R.D. 134, 152 (N.D.Tex.1980), "It is doubtful that in any open market fraud case extending beyond a matter of months whether the fit between the class representative's claim, and the class claim is ever perfect. . . . [I]f defendants' argument be well taken, there could be few, if any at all, classes certified in the market fraud context." Id. "The prevailing view is that differences in individual questions of reliance and amount of damages are not grounds for refusing to permit an action to proceed as a class action." 7 Alba Conte and Herbert B. Newberg, Newberg on Class Actions § 22:64 (4th ed.2005); 7B Charles A. Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice and Procedure: Civil 2d § 1781 at 8 (2d ed. 1986) ("[I]t uniformly has been held that differences among the members [of a class] as to the amount of damages incurred does not mean that a class action would be inappropriate."). See also Blackie v. Barrack, 524 F.2d at 905, 909 ("The amount of damages is invariably an individual question and does not defeat class action treatment . . [W]e are confident that should the class prevail on the amount of price inflation during the period can be charted and the process of computing individual damages-will be virtually a mechanical task"; "courts have generally declined to consider conflicts, particularly as they regard damages, sufficient to defeat class action status at the outset unless the conflict is apparent, imminent, and on an issue at the very heart of the suit"); Allapattah Servs. v. Exxon Corp., 333 F.3d 1248, 1261 (11th Cir.2003) ("[N]umerous courts have recognized that the presence of individualized damages issues does not prevent a finding that common issues in the case predominate."); Kalodner v. Michaels Stores, Inc., 172 F.R.D. 200, 208 (N.D.Tex. 1997) ("A conflict on damages does not preclude class certification unless it is imminent and `at the very heart of the suit.' . . . Here, any conflict is substantially outweighed by the common interests of the class members."; "The hypothetical conflict between early and late purchasers does not destroy typicality"), citing Hawk Industries, Inc. v. Bausch & Lomb, Inc., 59 F.R.D. 619, 624-25 (S.D.N.Y.1973) ("certifying class despite potential conflict on damages"); LTV, 88 F.R.D. at 149 (addressing potential conflict between those who bought and those who sold during the class period) ("[S]ubclassing has the potential to cure any such problems. It follows that a definition of the class should include persons who have both bought and sold during the class period. We do not find such a potential conflict to be sufficient to deny class certification. Significantly available techniques of proof such as econometric modeling are sufficiently demanding of internal consistency as to reduce the opportunity for . . . manipulation of data."); Winkler v. DTE, Inc., 205 F.R.D. 235, 242 (D.Az.2001); In re Sumitomo Copper Litig., 182 F.R.D. 85, 92 (S.D.N.Y.1998) ("Mt is settled in this Circuit that factual differences in the amount of damages, date, size or manner of purchase, the type of purchaser, the presence of both purchasers and sellers, and other such concerns will not defeat class action certification when plaintiffs allege the same unlawful course of conduct affected all members of the proposed class"), citing *715 Green v. Wog 406 F.2d 291, 299-301 (20 Cir.1968) (where common course of con duct alleged to manipulate the market price of the subject stock, class action treatment is appropriate, especially where separate trials on issues such as individual damages can be ordered if necessary), cert. denied sub nom. Troster, Singer & Co, v. Green, 395 U.S. 977, 89 S. Ct. 2131, 23 L. Ed. 2d 766 (1969); Bovee v. Coopers & Lybrand, 216 F.R.D. 596, 610-11 (S.D.Ohio 2003) ("[T]he traditional rule' is that `a plaintiff class should be certified despite conflicts over damages issues between early and late sellers of the stock'") (and cases cited therein); In re Intelcom Group Sec. Litig., 169 F.R.D. 142, 148 (D.Colo. 1996) ("Although the plaintiffs may have purchased their stock at different times, and relied upon different sources of public information in making their investment decisions, those variations are insufficient to defeat the class on typicality grounds."). Whether different plaintiffs relied upon different documents is not determinative. "It is now settled . . . that the claims of such a plaintiff are typical of the claims of the class if all the documents relied upon are part of a common course of conduct or common scheme to defraud." 7 Newberg on Class Actions, § 22:26; see also 4 Herbert B. Newberg, Newberg on Class Actions § 22.13 at 34 (2d ed.1985) (same).
As then District Court Judge Patrick Higgenbotham in LTV noted, should a conflict develop, there are available "sophisticated techniques of market analysis. This method of proof reduces to one of remoteness the opportunity for any class representative to feather their own next." LTV, 88 F.R.D. at 152. See also Kalodner, 172 F.R.D. at 208; Klay v. Humana, Inc., 382 F.3d 1241, 1259-60 (11th Cir.2004) ("`[I]n assessing whether to certify a class, the Court's inquiry is limited to whether or not the proposed methods [for computing damages] are so insubstantial as to amount to no method at all . . . [Plaintiffs] need only come forward with plausible statistical or economic methodologies to demonstrate impact on a class-wide basis.' . . . Particularly where damages can be computed according to some formula, statistical analysis, or other easy or essentially mechanical methods, the fact that damages must be calculated on an individual basis is not impediment to class certification."), cert. denied sub nom. UnitedHealth Group, Inc. v. Klay, 543 U.S. 1081, 125 S. Ct. 877, 160 L. Ed. 2d 825 (2005); Newberg on Class Actions § 10.8 (4th ed. 2002) ("The determination of damages sustained by individual class members in securities class action suits is often a mechanical task involving administration of a formula determined on a common basis for the class"; "these necessary mechanics do not bar certification").[91]
Certain Defendants contend that currertt and former Enron employees should not be included in the class because some based their decisions to buy and sell Enron stock on various misrepresentations made to them as employees that were not made to the public, and therefore did not impact the public market price for the Enron stock, because they have individual reliance issues, and because some may have had personal knowledge from working on the transactions involved. Once again in view of the allegations of a course of misconduct to defraud, such occasional individual questions should not preclude defining *716 the class to include Enron employees and certifying it. Lead Plaintiffs response is appropriate: "To say that all present and former Enron employees should be excluded from the class because some might have known about the alleged fraud disadvantages thousands of potential class members who lost their life savings in Enron." # 1854 at 64. Those Enron employees who have been named as defendants have been excluded from the class definition.
F. Damages and Causation
1. Claims Under. 10(b)
Regarding calculation of damages and causation, traditionally damages have been determined in § 10(b) claims by the out-ofpocket measure, arising out of common law fraud, which allows "a purchaser to recover the difference between the purchase price and the true value of the securities absent the alleged fraud as measured by the correction in the market price following curative disclosure," i.e., the difference between what the plaintiff paid for the security and what the plaintiff would have paid "but for the fraud." See, e.g., Sowell v. Butcher & Singer, Inc., 926 F.2d 289, 297 (3d Cir.1991). See also Randall v. Loftsgaarden, 478 U.S. 647, 661-62, 106 S. Ct. 3143, 92 L. Ed. 2d 525 (1986)[92]Foster v. Financial Technology, Inc., 517 F.2d 1068, 1071 (9th Cir.1975); Janigan v. Taylor, 344 F.2d 781, 786 (1st Cir.1965); Estate Counseling Service, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 303 F.2d 527, 533 (10th Cir.1962); In re LTV Sec. Litig., 88 F.R.D. 134, 148 (N.D.Tex. 1980) ("a defrauded buyer can recover the value of the consideration he paid for the security less the actual value of the security he received, all measured at the time of the transaction"), citing Bridgen v. Scott, 456 F. Supp. 1048, 1060 (S.D.Tex.1978); Kalodner, 172 F.R.D. at 207-08, citing Smoky Greenhaw Cotton Co., Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 785 F.2d 1274, 1278 (5th Cir.1986); Restatement (Second) of Torts § 549. The Supreme Court approved of the out-of-pocket measure of damages for Rule 10b-5 claims in Affiliated Ute, 406 U.S. at 155, 92 S. Ct. 1456 (Section 28(a) of the 1934 Act, 15 U.S.C. § 78bb(a) established as the proper measure of damages the limiting of the claimant's recovery to a sum not "in excess of his actual damages on account of the act complained of'), but since Affiliated Ute was not a "fraud on the market" case, it did not explain how the rule should be applied and damages calculated in such cases. See Bradford Cornell and R. Gregory Morgan, Using Finance Theory to Measure Damages in Fraud on the Market Cases, 37 U.C.L.A. 883, 884 (June 1990); Daniel P. Lefler and Allan W. Kleidon, Just How Much Damage Did Those Misrepresentations Actually Cause and To whom? Damages Measurement in "Fraud on the Market" Securities Class Actions, 1505 PLI/Corp 285, 289-90 (Sept. 2005).
In an influential concurrence in Green v. Occidental Petroleum Corp., 541 F.2d 1335, 1344 (9th Cir.1976), Judge Sneed noted that the out-of-pocket measure of damages "fixes recovery at the difference between the purchase price and the value of the stock at the date of purchase," a difference that "is proximately caused by the misrepresentations of the defendant." *717 He suggested using data for the period between the date of the misrepresentation and the date of disclosure of the falsity of that misrepresentation to create a chart with a "price line," which would "reflect, among other things, the effect of the corporate defendant's wrongful conduct," and a "value line." Id. at 1344. Theoretically in an efficient market without misrepresentation, the two lines would coincide. Where material misrepresentation has occurred, an investor who has not sold his stock before the corrective disclosure of the misrepresentations can calculate his damages merely "by subtracting the true value of his stock on the date of his purchase from the price he paid therefor." Judge Sneed recognized that "[f]ixing the value line for the entire period involved in this case is a more difficult and complex task that would be the establishing the price at the date of disclosure of the misrepresentations and the price at all relevant dates prior to disclosure," but that "establishing the required value line is practicable" and the effort is "necessary if class certification in this case is to survive." Id. Judge Sneed also pointed out that "the spread [between the price and value lines], or value of the misrepresentations, may increase or decrease as a result of market forces, operation on the misrepresentations." Id. The concept of transaction causation in fraud on the market cases corresponds to the "but for" value line in Judge Sneed's approach to measuring damages in Green. Lefler, Just How Much Damage, 1505 PLI/Corp. at 291.
As for loss causation, the United States Supreme Court's recent opinion in a fraudon-the-market case, Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 125 S. Ct. 1627, 161 L. Ed. 2d 577 (2005), heightened the pleading requirements and has significant implications for proving damages in a § 10(b) case. Lefler, Just How Much Damage, 1505 PLI/Corp. at 292-94. In Dura Pharmaceuticals, purchasers of stock in the pharmaceutical company that had submitted a new asthmatic spray de vice far approval from the Food and Drug Administration, alleged in a securities fraud class action suit that some of the company's managers and directors misrepresented that the company expected its drug sales to be profitable and that it expected FDA approval of the spray device shortly. On the final day of the purchase period, the defendants disclosed that the earnings would be less than anticipated largely because of slow sales; eight months later they announced that the FDA would not approve the device. The complaint asserted only, "`In reliance on the integrity of the market, [the plaintiffs] . . . paid artificially inflated prices for Dura securities' and the plaintiffs suffered damage[s] thereby." 125 S.Ct. at 1630 (emphasis in the original).
Justice Stephen Breyer, writing for a unanimous Supreme Court, reversed a Ninth Circuit ruling that a plaintiff pleading securities fraud under § 10(b) and Rule 10b-5 need only establish that the price of a security was artificially inflated on the date he purchased it to plead economic loss and loss causation under the 1934 Act. The Supreme Court opined that in a fraud-on-the-market case, where a plaintiff alleges that he suffered losses because he paid an artificially inflated price for a security, generally "as a matter of pure logic, at the moment that a transaction takes place, the plaintiff [who has purchased securities at an inflated price] has suffered no loss; the inflated purchase payment is offset by ownership of a share that at the instant possesses equivalent value." 125 S. Ct. at 1631. In other words, at the time the purchase of a security occurs, the alleged inflated price, alone, logically cannot constitute "economic loss" because the plaintiff acquires a security of "equivalent value" and the "misrepresentation will not have led to any loss" if *718 the plaintiff sells the shares "quickly before the truth begins to leak out." Id. Furthermore, the. Supreme. Court pointed out that an implied private securities fraud action under the Securities and Exchange Act is similar in many ways to common-law causes of action for deceit and fraudulent misrepresentation, which require a plaintiff to show (1) that if he had known the truth he would not have acted as he did; (2) that he suffered actual, substantial damage; and (3) that the defendant's deception was the proximate cause, of the plaintiffs injuries.[93]Id.
Even when the purchaser later sells his shares at a lower price, the Supreme Court questioned any automatic assumption of a link between an inflated price and a subsequent economic loss after news of the deception is leaked:
If the purchaser sells later after the truth makes its way into the market place, an initially inflated purchase price might mean a later loss. But that is far from inevitably so. When the, purchaser subsequently resells such shares, even at a lower price, that lower price may reflect, not the earlier misrepresentation, but changed circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions, or other related events which, taken separately or together, account for all of that lower price. . . . Other things being equal, the longer the time between purchase and sale, the more likely that this is so, i.e., the more likely that other factors caused the loss.
Id. at 1631-32. Thus the high court addressed a narrow issue: it held that in a fraud-on-the-market case a plaintiff must plead, and ultimately prove, more than simply that the defendant's misrepresentation caused the stock price to be inflated; an artificial high purchase price "is not itself a relevant economic loss," but merely "touches upon" the subsequent loss of value and does not necessarily cause the plaintiff economic loss, especially in light of the "tangle of factors affecting price." Id. at 1634, 1632.[94]
Focusing on threshold pleading requirements rather than the ultimate burden of proof, but with clear implications for that ultimate burden, the high court did not indicate what must be pled to establish loss causation other than requiring more than a simple allegation, of inflated stock price: "We need not, and do not, consider other proximate cause or loss related questions." Id. at 1633-34. The Supreme Court did not affirmatively adopt Dura Pharmaceuticals' argument that a plaintiff must allege and ultimately prove that the defendant made a corrective disclosure of the fraud that was followed by a related price drop, nor did it specify what must be pled to establish that "the truth became known"; instead, the Supreme Court stated vaguely that a complaint must "provide defendants with notice of what the relevant *719 economic loss might be, or what the causal connections might be between that loss and the misrepresentation" (i.e., "some indication of the loss and the causal connection that the plaintiff has in mind," a subjective standard), the pleading of which "should not prove burdensome" for a plaintiff.[95]Id. at 1634. Thus besides a formal corrective disclosure by a defendant followed by a steep drop in the price of stock, the market may learn of possible fraud through a number of sources: e.g., from whistleblowers, analysts' questioning financial results, resignations of CFOs or auditors, announcements by the company of changes in accounting treatment going forward, newspapers and journals, etc. See Alan Schulman and Nieki Mendoza, Dura Pharm., Inc. v. BroudoThe Least of All Evils, 1505 PLI/Corp. 272, 274 (Sept.2005). Plaintiffs economic loss may occur as "relevant truth begins to leak out" or "after the truth makes its way into the market place," and the plaintiff need only give "some indication" of the causal link between that leaked truth and his economic loss. 125 S.Ct" at 1631, 1632, 1634. The pleading of a single formal corrective measure is not necessary.
Moreover, the plaintiffs loss need not be caused exclusively by the defendant's fraud. Id. at 1632-32, citing Sosa v. Alvarez-Machain, 542 U.S. 692, 124 S. Ct. 2739, 2750, 159 L. Ed. 2d 718 (2004) ("Proximate case is causation substantial enough and close enough to the harm to be recognized by the law, but a given proximate cause need not be, and frequently is not, the exclusive proximate cause of harm."); Caremark Inc. v. Coram Healthcare Corp., 113. F.3d 645, 649 (7th Cir.1997) (Loss causation "does not require . . . that the plaintiff plead that all of its loss can be attributed to the false statement of the defendant.").
Judge Sneed's concurrence in Green v. Occidental Petroleum and the Supreme Court's opinion in Dura Pharmaceuticals make clear that investors who purchased during the Class Period and then sell before the corrective disclosure(s) ("in-and-out traders") do not suffer loss because of defendants' alleged fraud. Green, 541 F.2d at 1345 (Where the spread between the price and value lines remains constant, permitting a class member purchaser who sold before the disclosure to recover the same cost from the defendant corporation would not only provide him with a double recovery, but any market price decline after the purchase would not be attributable to the defendant's misrepresentations but to market forces unrelated to the misrepresentations); Dura Pharmaceuticals, 125 S.Ct. at 1632 (aware of the impact of other forces, including "changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions or other events" that can cause stock prices to decline independently of any wrong doing by defendants, the high court emphasized that the 1934 Act "expressly imposes on plaintiffs the burden of proving' that defendant's misrepresentations `caused the loss for which the plaintiff seeks to recover," and that private lawsuits are "available not to provide investors with broad insurance against market losses, but to protect them against *720 those economic losses that misrepresentations actually cause."). The Dura Pharmaceuticals ruling further supports the Court's decision to require Lead Plaintiff to restrict the class definition to those who actually lost money and suffered damages attributable to Defendants' misconduct and instructions to Lead Plaintiff to modify the class definition.
Damages experts and financial economists have been trying to construct more reliable methodologies for measuring damages in § 10(b)/Rule 10b-5 cases; Judge Sneed's concurrence prefaced a significant trend of courts' requiring more sophisticated damages calculations with analysis of how factors that impact stock price, including ones unrelated to the fraud, and of how to exclude general factors such as overall stock price decline, or factors that impact the particular industry or company that are not fraud related, in an effort to base damages only on those factors that actually relate to the alleged fraudulent activity. Jay W. Eisenhoffer, Geoffrey C. Jarvis, and James R. Banko, Securities Fraud, Stock Price Valuation, and Loss Causation: Toward A Corporate Finance-Based Theory of Loss Causation, 59 Bus. Law. 1419, 1419, 1427 (August 2004); Daniel P. Lefler and Allan W. Kleidon, Just How Much Damage Did Those Misrepresentations Actually Cause and To whom? Damages Measurement in "Fraud on the Market" Securities Class Actions, 1505 PLI/Corp 285 (Sept.2005); Bradford Cornell and R. Gregory Morgan, Using Finance Theory to Measure Damages in Fraud on the Market Oases, 37 U.C.L.A. 883 (June 1990).
One method increasingly recognized by courts and mandated by some of them[96] is an event study, a statistical method of measuring the effect of a particular event such as a press release, a Form 10-K, or a prospectus, on the price of a company's stock:
An event study is a statistical regression analysis that examines the effect of an event on a dependent variable, such as a corporation's stock price. This approach assumes that the price and value of the security move together except during days when disclosures of company-specific information influence the price of the stock. The analyst then looks at the days when the stock moves differently than anticipated solely based upon market and industry factorssocalled days of "abnormal returns." The analyst then determines whether those abnormal, returns are due to fraud or non-fraud related factors. . . . [E]vent study methodology has been used by financial economists as a tool to measure the effect on market prices from all types of new information relevant to a company's equity valuation.
Eisenhoffer, 59 Bus. Law at 1425-26.
Thus far no court in the Fifth Circuit has required such a study, no less expert testimony, at the class certification stage, *721 although such expert statistical information has been found helpful. Unger, 401 F.3d at 323 n. 6 ("There is no requirement for expert testimony on the issue of market efficiency, but many courts have considered it when addressing this determination, which may often benefit from statistical, economical, and mathematical analysis.") (citing Bell v. Ascendant Solutions, Inc., No. CIV. A. 301CV0166N, 2004 WL 1490009, *2 (N.D. Tex. July 1, 2005), aff'd and remanded, 422 F.3d 307 (2005), aff'd and remanded, 422 F.3d at 314 n. 6 (quoting Unger for same proposition) ("[T]hough Unger admonishes district courts `not to insist' upon `a battle of experts' at the class certification stage.' . . . we quoted with approval a statement from the district court's opinion in this case in defense of considering at least the reliability of expert testimony on market efficiency at the class certification stage."); Lehocky, 220 F.R.D. at 491; and Krogman, 202 F.R.D. at 467). Thus, it is not clear, beyond demonstrating that the opinion of a damages expert is reliable, how much Lead Plaintiff must establish at class certification under Fifth Circuit law.
2. Claims under §§ 11 and 12(a)(2)
For claims under § 11 of the 1933 Act, damages generally are calculated as the difference between the amount paid for the security, not to exceed the price at which the security was offered to the public, and the price of the security at the time the lawsuit was filed or the security was disposed of in the market. Section 11(e), 15 U.S.C. § 77k(e); Rosenzweig v. Azurix Corp., 332 F.3d 854, 873 (5th Cir.2003). Such calculations are more mechanical in nature than those for § 10(b) and should not preclude class certification.
Section 12(a)(2) imposes liability on any person who offers or sells a security by means of a prospectus or oral communication which either contains an untrue statement of fact or omits a material fact necessary to make the other statements not misleading, without requiring "proof of either fraud or reliance." Gustafson v. Alloyd Co., 513 U.S. 561, 582, 115 S. Ct. 1061, 131 L. Ed. 2d 1 (1995). The remedy for violations of § 12(a)(2) by the statutory "seller" is rescission "except where the plaintiff no longer owns the security," under which circumstance damages may be recovered. Randall v. Loftsgaarden, 478 U.S. 647, 655, 106 S. Ct. 3143, 92 L. Ed. 2d 525 (1986); Gustafson v. Alloyd Co., 513 U.S. 561, 567, 115 S. Ct. 1061, 131 L.Ed.2d. 1 (1995).
The Court agrees with Lead Plaintiff that common class-wide damages issues also predominate in the 1933 Act claims.[97]
3. PSLRA and Exchange Act "Inconsistency"
Observing that Lead Plaintiff has alleged that" Defendants are liable for all damages arising out of the alleged scheme or course of business to defraud, Defendants have argued that Lead Plaintiffs § 10(b) claims for damages under the Exchange Act are inconsistent with the PSLRA's provisions for damages, which Defendants contend have made the damages issue an individual one, thus defeating class certification.
Before the passage of the PSLRA in 1995, liability in federal securities cases was joint and several. The PSLRA, 15 U.S.C. § 78u-4(f)(2)(A), states that defendants are "liable for damages jointly and *722 severally only if the trier of fact specifically determines that such covered person knowingly committed a violation of the securities laws."[98] Control person liability under § 20(a) of the 1934 Act for both the controlling and the controlled persons is joint and several. 15 U.S.C. § 78t(a). For a detailed discussion of liability under both the 1933 and 1934 Acts, see In re World-Com, Inc. Sec. Litig., No. 02 CIV. 3288(DLC), 2005 WL 334201 (S.D.N.Y. Feb. 14, 2005), reconsideration granted on other grounds, 2005 WL 681455 (S.D.N.Y. March 24, 2005).
Relevant here is the unresolved question of the scope of damages for which defendants may be liable under a scheme liability theory under Rule 10b-5(a) and (c): is a defendant liable only for the loss suffered by plaintiff that was caused by that defendant's own primary violation or is a defendant liable for the loss caused by all primary violators participating in the scheme as a whole? Defendants, as expected, object to the expansive liability concept. There is almost no case law even asking this question.
The Court finds that a reasonable argument can be made that where a defendant knowingly engaged in a primary violation of the federal securities law that was in furtherance of a larger scheme, it should be jointly and severally liable for the loss caused by the entire overarching scheme, including conduct of other scheme participants about which it knew nothing. Indeed, express joint and several liability in the statute is a meaningless concept if it is limited to a defendant's own wrongdoing. This Court acknowledges that it has previously questioned whether liability for conduct caused by all the scheme participants is compatible with the "knowing" requirement under § 78u-4(f)(2)(A). In re Enron Corp. Sec., Derivative & ERISA Litig., 235 F. Supp. 2d 549, 593 (S.D.Tex.2002). Nevertheless, the Court observes that the PSLRA not only replaced joint and several liability with proportionate liability except when the conduct was "knowing", but established a right to contribution under § 78u-4(f)(8) to provide a remedy for unfairness, and, with a similar result, the judgment reduction formula embodied in § 78u-4(f)(2)(A). Accordingly this Court concludes that Lead Plaintiff may pursue *723 its claims for joint and several liability against those Defendants found to be primary violators in the scheme, as a whole.
Lead Plaintiff has alleged each Defendant acted with scienter, which in the Fifth Circuit can be "knowingly" or "with severe recklessness." The question of whether a Defendant acted knowingly will have to be presented to the factfinder. If a defendant is found not to have acted knowingly, the defendant is "liable solely for the portion of the judgment that corresponds to the percentage of [its] responsibility," in other words proportionate liability. 15 U.S.C. § 78u-4(f)(3)(1); In re Cendant Corp. Litig., 264 F.3d 201, 237 & n. 19 (3d Cir.2001), cert. denied sub nom. Mark v. Cal. Public Employees' Retirement Sys., 535 U.S. 929, 122 S. Ct. 1300, 152 L. Ed. 2d 212 (2002); Greebel v. FTP Software, Inc., 194 F.3d 185, 200 (1st Cir.1999). Should the trier of fact in this action determine that a defendant is liable but did not act knowingly, and should the determination of proportionate liability among all wrongdoers so necessitate, the calculation, though it would necessitate extending the trial, should not defeat the class certification. As noted in In re WorldCom, Inc. Sec. Litig., No. 02 CIV. 3288(DLC), 2005 WL 334201 at *7,
Under Section 21D(f),[99] so that responsibility may be allocated among the various defendants, the court must. Instruct the jury to answer special interrogatories . . . in regard to each Covered Person and "each of the other persons claimed by any of the parties to have caused or contributed to the loss incurred by the plaintiff," id. § 78u-4(f)(3)(A), a category that includes co-defendants and parties that have settled. The interrogatories are to concern "whether each person violated the securities laws," "the percentage of responsibility of such person measured as a percentage of the total fault of all persons who caused or contributed to the loss incurred by the plaintiff," and whether "such person knowingly committed a violation" of the securities laws." Id. § 78u-4(f)(3)(A) (i-iii) (emphasis supplied).
G. Standing and Foreign Debt Securities Claims Under § 12(a) (2) and § 10(b)
As noted, under Fifth Circuit law, if a proposed class representative lacks standing, "he or she may not seek relief on behalf of himself or herself or any other member of the class." . James v. City of Dallas, Texas, 254 F.3d 551, 563 (5th Cir. 2001), cert. denied, 534 U.S. 1113, 122 S. Ct. 919, 151 L. Ed. 2d 884 (2002). Standing, like class certification, must be determined as to each claim. Id.
This Court has held several times during this litigation that because § 12(a)(2) requires privity between the seller and the investor, an investor only has standing to sue his immediate seller. Thus a class representative only has standing to sue his immediate seller for a security he purchased and can only represent those class members that purchased the same security from the same seller. In contrast where the complaint alleges a course of conduct or illegal scheme under § 10(b), which does not have a privity requirement, the class representative may have purchased *724 the same type of security as those purchased by other members of the class, but from different sellers. # 1999 in Newby at 89, 90-96; # 2050 in Newby at 4; # 4336 in Newby at 2; # 27 in H-03-2240 at 11-12.
The record makes clear that the Foreign Debt Securities were distinctly different than the other Enron securities at issue here. As noted, they were issued not by Enron, but by different Enron-related entities, although their value was directly or indirectly related to Enron's financial condition. They were issued pursuant to unregistered private placements under 17 C.F.R. §§ 230.901-230.905 in private offerings limited to QIBs under Rule 144A for the United States market and in foreign markets under Regulation S, exempting such securities from registration requirements under § 5 of the Securities Act of 1933. Because of their distinct nature, the Court concludes that some investor that purchased at least one of the nine types must be available as a class representative for § 10(b) claims by purchasers of the Foreign Debt Securities.
Lead Plaintiff did not purchase any of the Foreign Debt Securities and has not named a viable class representative who did who thus would have standing to represent class members who purchased any of the Foreign Debt Securities even for claims under § 10(b). Following the withdrawal of ICERS, Lead Plaintiff's two most recently proposed foreign securities class representatives, the Evangelical Lutheran Church Pension Fund and the Illinois State Board of Investment, purchased such securities, but only from Citigroup, which has settled with Lead Plaintiff. Moreover the Pension Fund only purchased Yosemite I securities, and this Court previously ruled claims based on this offering are time-barred. Thus the proposed Intervenors' claims are all moot. TR (# 4559) at 357-59. Lead Plaintiff has had three years to find someone with standing to represent this proposed subset of securities, but has failed to do so. The Court accordingly finds that without a class representative with standing to sue based on any of the foreign debt securities, such claims under § 10(b), as well as under § 12(a)(2), cannot be certified for class prosecution and must be dismissed without prejudice.[100]
H. Adequacy of Challenged Class Representatives
At the class certification hearing, Bill Lerach explained that Lead Counsel had' attempted to designate a cross section of investors, from ordinary individuals to sophisticated and experienced institutional investors, to serve as class representatives. Nevertheless, each must meet the standard for the role.
Under Federal Rule, of Civil Procedure 23(a)(4), the court examines the zeal and competence of the class representatives' counsel and the class representatives' willingness, experience, and ability to handle class actions, to take an active role in and control of the litigation, and to protect the interests of the absent members, to determine if there is fair and adequate representation of the interests of the class. Henry v. Cash Today, Inc., 199 F.R.D. 566, 569 (S.D.Tex.2000); In re Electronic Data Systems Corp. Sec. Litig., 226 F.R.D. 559, 566 (E.D.Tex.2005) (citing Berger v. Compaq. Computer Corp., 257 F.3d 475, 479-82 (5th Cir.2001), clarified and reh'g en banc denied, 279 F.3d 313 (5th Cir. 2002)), aff'd, 429 F.3d 125 (5th Cir.2005). Even in the absence of proof that the class representatives and/or their counsel are inadequate, the court may not presume *725 that they are adequate; the party seeking certification must demonstrate that they are adequate. Berger, 257 F.3d at 481. The provision also requires the court to determine if there are any conflicts of interest between the named plaintiffs and the class they seek to represent, which would make the class representation inadequate. Berger, 257 F.3d at 480. "[B]ecause absent class members are conclusively bound by the judgment in any class action brought on their behalf, the court must be especially vigilant to ensure that the due process rights of all class members are safeguarded through adequate representation at all times." Id.
The PSLRA, 15 U.S.C. § 78u-4, 15 U.S.C. § 78u-4(a)(3)(B), requires that the Lead Plaintiff must be "the most sophisticated investor available and willing to serve in a putative securities class action" and "an investor capable of understanding and controlling the litigation." While the standard for Lead Plaintiff is more demanding than that for a class representative, under Fifth Circuit law a number of requirements overlap. Noting that the Supreme Court[101] left the defining of the contours of Rule 23(a)(4)'s adequacy requirement to lower courts with a resulting lack of uniformity in standards, and calling "for rule 23 to be interpreted to accommodate the substantive policies of the governing statute," in Berger, 257 F.3d at 479 n. 7, 483, the Fifth Circuit opined that the. PSLRA clarified the adequacy standard for class representatives in securities class actions.[102] It found the clarification was in accord with its long established standard in mandating "an inquiry into . . . the willingness and ability of the representatives to take an active role in and control the litigation and to protect the interests of the absentees." Berger, 257 F.3d at 479, 482; clarified, 279 F.3d at 313-14, citing Horton v. Goose Creek Indep. Sch. Dist., 690 F.2d 470, 484 (5th Cir.1982), cert. denied, 463 U.S. 1207, 103 S. Ct. 3536, 77 L. Ed. 2d 1387 (1983). An adequate class representative should have "`commendable familiarity with the complaint and the concept of a class action.'" Krim v. pcOrder.com, Inc., 210 F.R.D. 581, 587 (W.D.Tex.2002) (citing Horton, 690 F.2d at 484).
The Fifth Circuit's "generic standard" for determining adequacy of a class representative, in addition to uncovering any conflicts of interest with the class, is demanding: " the class representatives [must] possess a sufficient level of knowledge and understanding to be capable of `controlling' or `prosecuting' the litigation.'" Feder v. Electronic Data Systems Corp., 429 F.3d 125, 129 (5th Cir.2005), quoting Berger, 257 F.3d at 482-83. The Fifth Circuit has concluded that the PSLRA raises the standard adequacy threshold' with its `requirement that the securities class actions be managed by active, able class representatives who are informed and can demonstrate they are directing the litigation.'" Id. at 130, quoting Berger, 257 F.3d at 483. It did not "create[ ] an additional requirement under rule 23(a)(4) that . . . the putative class *726 representative possess[ ] a certain level of experience, expertise, wealth or intellect, or a level of knowledge and understanding of the issues beyond that required by our long-established standards for rule 23 adequacy of class representatives," i.e., "an inquiry into [1] the zeal and competence of the representative[si counsel and . . . [2] the willingness and ability of the representative[s] to take an active role in and control the litigation and to protect the interests of absentees[.]'" Id. at 130, quoting Berger, 257 F.3d at 479. The panel further stated that although "class representatives need not be legal scholars and are entitled to rely on counsel," they should `know more than that they were `involved in a bad business deal." Id. at 131, 132 n. 4, quoting Berger, 257 F.3d at 483. "While [plaintiff] cannot be expected to know all of the legal minutia involved in litigating [its] case, [it] should at least have an understanding of why all of the individuals or companies are defendants other than [its] general knowledge that a bad business deal occurred." Ogden v. Ameri-Credit Corp., 225 F.R.D. 529, 534-35 (N.D.Tex.2005), citing Berger, 257 F.3d at 482-83. Moreover, "it is not enough that plaintiffs counsel are competent if the plaintiffs themselves almost totally lack familiarity with the facts of the case . Plaintiffs should understand the actions in which they are involved, and that understanding should not be limited to derivative knowledge acquired solely from counsel." Berger, 257 F.3d at 483 n. 18. In sum, "competent plaintiffs, rather than lawyers, [must] direct such cases." Id. at 484.
This Court would highlight the fact that this litigation is extraordinarily complex, both legally and factually, as well as vast in scope, and involves a myriad of parties. The defendants and Enron's business deals span the globe. Experts are still attempting to understand Enron's intricate operations and allegedly manipulated accounting. As evidenced by this Court's opinions, much of the applicable law is unsettled and many issues raised have been novel. To expect a person, especially an individual investor, to investigate, unravel, and understand the particularities of the alleged scheme and the legal documents Med in this litigation, not to mention to be capable of controlling, if not actually controlling, the proceedings, requires some relaxation under the circumstances. Certification of a class should not be rigidly denied because defendants may have created an extraordinarily complex scheme to defraud. With an effort to satisfy the Fifth Circuit's high standard for a layman class representative under the circumstances alleged here, the Court examines each of these individuals' knowledge about and understanding of the litigation, including from sources other than counsel, and their ability and willingness to take an active role in the ongoing preparation of the case, to monitor the proceedings and the lawyers, and that they understand their obligations as class representatives to protect the putative class' interests.
Based on the deposition testimony taken in August or September of 2003, Certain Individual Defendants have challenged as inadequate six putative class representatives for § 20A claimants who allegedly purchased Enron stock contemporaneously with certain Defendants' sales of theirs: Dr. Richard Kimmerling, Michael Henning, Dr. Fitzhugh Mayo, Joseph Speck, Ben Schuette, and John Cassidy.
Dr. Richard Kimmerling (deposition is Ex. 17 to # 1855), identified by Lead Plaintiff as a practicing surgeon in an Atlanta suburb, testified that initially he had read newspaper articles and observed television coverage about the Enron collapse, congressional investigations, the alleged fraud and deceit, and the tremendous losses suffered by many other people. He *727 believes he learned on the Internet About the proposed class action suit. Stating that he does not know the specifies of the fraud and could not name the defendants, but thinks that there were quite a few people involved and a number of enablers who helped, them perpetuate it, "[s]o I think they're all guilty," the only defendants he could name were Ken Lay and Jeff Skilling. Lay was one of those stating that "the company was just doing great, and . . . couldn't be doing any better, and they were going into new fields and great promise for the future," but because "he was selling off his own stock during that time, I would think he was lying." # 17 at 24,11: 12-20. Enron's subsequent filing for bankruptcy demonstrated to Kimmerling that Lay's claims were inaccurate. The deponent also thought there was "a lot of manipulating" of the books to make things look better than they were, obtaining loans from the banks and counting them as assets. He complains that Skilling gave "a high rating for his company too, while he was there," but believed Skilling knew his statements were false and "bailed out, took his money and ran, didn't publicize what was going on". Id. at 28, 11. 1-9. He though both Lay and Skilling, given their positions at Enron, would have known what was going on.
Hearing about a potential class action against Enron, Dr. Kimmerling used the Internet to discover Milberg, Weiss, with which he was previously unfamiliar. Dr. Kimmerling stated that the complaint was provided to him by his attorney, that he read a good bit of it, "enough for me to know thatthat I wantedwanted to be a part of the, lawsuit. Id. at 42, 11. 16-19. He received a lot of other materials from the law firm, which showed what the attorneys were doing on the case; he stated he could not read all of it, but "perused it." He also talked on the telephone with his attorneys two or three times, met face-toface with them, and generally had spent about twenty-five hours, "probably more," up to his deposition in the case. He spent an hour or an hour and a half skimming the Consolidated Complaint and about the same on the Amended Consolidated Complaint. Asked what he was doing to monitor the litigation, he replied that he had not called or sought additional information and was pleased with the law firm's efforts. When asked about future plans to insure that Milberg, Weiss was putting forth truthful allegations, he replied, "I'm depending on them." He stated that as a class representative he had a duty "to perhaps be a little more informative [sic] than I am concerning the ongoing investigating and the court proceedings in the future." When asked if he understood the nature of the fiduciary duty he owed to the class members, he answered, "as an example, to be here, going through this interrogation and answering as best I can." Id. at 57, 11. 2-8, 11-19. He could identify the three-year Class Period for actionable claims permitted by the law, though he did not use the legal term "statute of limitations," and that as a class representative he would represent all shareholders who purchased Enron stock during that period unless they opt out of the class. Asked what the nature of the claims are in this suit, he responded, "[T]he stock was falsely elevated in its evaluation and that, through attorneys, accountants and banks, they enabled it to appear real." Id. at 61, 11. 12-15. He further stated, "[T]he basis of the claim is fraud, and there's a lot of people that enabled the fraud to occur. And, rightfully, all those people are named." Id. at 62, 11. 9-11. He continued to read articles about Enron and also a book (Pipe Dreams) sent to him by his attorneys. He skimmed a couple of rulings made by Judge Harmon, but had only the vaguest idea of their effect on the *728 suit.[103]
Michael Henning (Ex. 18 to # 1855), an Indiana insurance executive who retired in Florida, also used the Internet to contact Milberg Weiss after reading about Enron, trying to find out as much as he could about the collapse, and deciding on his own to become a named plaintiff in this class action. He had read the complaints, but not Judge Harmon's opinions, and relied on the attorneys to inform him about which parties were dismissed from the litigation. At the time he was deposed, he stated that he had spent about ten hours on the case, two or three of them on the Consolidated Complaint. He demonstrated only a vague idea of the alleged fraudulent scheme to keep the stock price up and "make themselves wealthy along the line," involving Enron officials, auditors, attorneys, and banks, and of the roles of Skilling, Fastow and Lay. He stated that the trading arrangements with the bank were actually loans, but the debt was not shown on Enron's balance sheets. He insisted that Skilling must have known about it because of his position with the company and his brilliance, but was unable to articulate any specifics about these Defendants or transactions alleged in the complaint. He had no source of information other than the complaint. He recognized a few names of Enron officers or directors, but did not know what they did. ("[They're all listed there. II guess I could go through and find out, but I'm notI'm notI don't know if all those guys are directors or officers. I assume they are."). He understood that as a class representative he would represent shareholders of common and preferred stock and stock options as well as purchasers of Enron debt who purchased during the three-year Class Period from October 1998 to November 2001, including those with insider trading claims, but did not know why it was not a five-year period, in light of Enron's restatement of five years' of financial reports. He was willing to give as much time as required and would participate wherever needed, including attending meetings and testifying. He thought it was the attorney's job, not his, to investigate. Asked how he would monitor and control Milberg, Weiss's actions, he replied, "I don't know that I can control all of them. Certainly the lead plaintiff, I'd look to them to be the lead on that, and I wouldI'd participate in any kind of meetings or anything that they wanted me to participate in." Id. at 97, 11. 1-5. Asked if he intended to conduct his own independent investigation of the facts or of his attorney's work in the future, he responded, "Only if it would be raised by maybe one of the other plaintiffs or whatever. II can't image that I would be investI think that's the attorneys' job." If any differences of opinion or regarding the direction of the litigation arose, he stated that he "would take the lead of thelead plaintiff, I think, and participate to the degree that they wanted me to."
Dr. Fitzhugh Mayo (Ex. 24 to # 1855), a family doctor, founding director of the Medical College of Virginia and Richmond, and a seemingly savvy investor who subscribed to and read securities newsletters, followed financial shows on television, attended investment seminars, monitored stock prices on the internet, and investigated Enron stock for a year before purchasing it, also monitored stock prices over the Internet. He learned of the class action on the Internet and filled out a form online. He could not remember if he then called the Milberg Weiss law firm or *729 it called him to ask if he would be interested in being a class representative. He stated that the law firm regularly furnished him with information about the proceedings in the litigation. He testified that he spent about three hours a week reading the information and read parts of the amended complaint in about five or six hours. He remembered allegations in the complaint that "Fastow concocted some off-the-books transactions that distorted thethe true financial status of Enron," that accountants and banks enabled these transactions by giving a false impression of the worth of Enron stock, and the time and duration of the Class Period. Before the complaints were drafted he did not call his attorney and ask to review or have input into the drafts. He kept a file of the Enron documents sent to him by his attorneys, tried to read at least 30% of it (skimming and then focusing on sections he thinks are particularly important), discussed the case with his lawyer both face-to-face and on the telephone, and participated in a couple of conference calls among people who might become class representatives. He stated that his responsibility as a class representative with respect to class counsel is to expect an explanation from them of all the strategic planning going into the handling of the case and that he would expect them to listen to the class representatives' opinions, communicating perhaps once a month. He further testified that he was not aware that mediation was ongoing, that he was not asked for his views about the settlement strategy in the case, nor had his lawyers communicated with him about settlement, although he would ask for an explanation if he learned settlement discussions were going on.
Joseph Speck (Ex. 20 to # 1855), a retired certified public accountant from Peoria, Illinois now living in Florida, listened to stock discussions on CNBC and bought Enron stock after hearing of its entry into the broadband market. He stated emphatically that the fact that Enron had to write off a billion dollars in assets "[p]roves that they were guilty. [T]his was too gross because it had accumulated over a period of time." He described the amended consolidated complaint as charging Enron officers with making false statements and authorizing reports which they knew were not correct, Lay with okaying bonuses on contracts that had no chance of success, attorneys with approving things they should have known were wrong, Arthur Andersen and the banks with going along, the banks with making disguised loans to Enron and the SPEs, and the auditing committee with negligent oversight. He did not recognize the names of many individual Enron officer defendants (e.g., he did not recognize Rick Causey, Mark Frevert, Stan Horton, Ken Rice, Jeff McMahon, Cindy Olson, Joe Sutton, Kevin Hannon, Mark Koenig)[104] and stated that he was "relying , entirely on our attorneyson these facts" and admitted that he had no means other than information from Milberg Weiss to monitor developments the class action. When asked, he said he was unaware that, any banks other than J.P. Morgan Chase and Citigroup and their subsidiaries were defendants in the litigation. The major source of his information about his claims was the two complaints; his only other source was what he read in the newspaper or saw on the television. He conceded that the sum total of his knowledge of the facts relating to the claims was from the complaint, which he *730 assumed was true. Other than the consolidated and the amended consolidated complaints, he said he had not read any documents filed in the litigation and had only heard about the undersigned judge's opinions from his counsel. He knew he was seeking to represent people who bought Enron securities during the three-year class period, which was determined by the statute of limitations. When questioned about his uncertainty and hesitancy about being a class representative, he explained he was not enthusiastic about having to travel to Houston and that being a class representative involves "quite a bit of work potentially . . . but as I say, somebody's got to do it." He further stated that "it wasn't a job you go out and ask for [b]ecause it involved a great deal of reading, of work . . . [and] potentially having to travel . . . yet I felt at least that my background was better than a lot of other people, a lot of other stockholders would have been, and I felt that I should. And, of course, I'm retired so I did have the time. . . ." As a class representative, he stated that he could and would contact Milberg Weiss if he found something that was contrary to the allegations in the complaint and that his goal was to obtain the maximum recovery for the class.
Ben Schuette (Ex. 21 to # 1855), a retired electrical, contractor from Corpus Christi, Texas, testified that he chose to be a class representative to try to get back the $140,000 he lost and the money lost by the other class members, as well as to right the wrong done to them. He stated that to fulfill his obligations as a class representative he goes through the information sent to him by Milberg, Weiss ("I don't read it every line, but I go through it. If something catches my eye about particular names that I see that I know of, I read it and try to inform myself about what's going on."). He does not otherwise keep his eye on the litigation because that is the attorneys' job and "[t]hat's what we pay them for." He testified that he had no responsibility for the truth or accuracy of the allegations in the complaint even though they are made on his behalf and he is a proposed class representative. Other than reading the communications from the law firm, he stated that he did nothing to investigate the allegations in the case. He did not recognize the names of many of the individual defendants (e.g., John Wakeham, Charles Walker, Bruce Willison, Lawrence Greg Whalley, Herbert S. Winokur, John Zegarski), he did identify one bank defendant (Citicorp), he stated that Vinson & Elkins served as Enron's lead counsel and "approved legal documents for Enron to enable them to do what they wanted to do," and he had a vague idea of who was in the plaintiff class. Only with prodding on cross examination by his attorney did he identify the Class Period as the three years ending November 2001. When asked what the bank defendants allegedly did, he responded that they "enabled Enron to do their shady trading, shady deals. Without the money, they wouldn't have been able to do it. . . . They provided the money, and they signed off on deals to make it work." He stated that thus far he had spent between five and eight hours on the litigation. He spent several hours twice with his attorney, the rest examining documents sent to him by the firm.
John Cassidy (Ex. 23 to # 1855), retired after working at Pacific Telephone for over thirty years and living in San Diego, California, testified that he wanted to be a class representative "to see justice done for all the . . . fraudulent actions that were taken by Enron et al.," which he explained as follows:
[T]he officers and the board . . . created an, impression on the financial statements that the company was solvent when it wasn't. They put that information *731 over to Andersen, the accountant. They concurred when it wasn't true.
It went from there to the banks, The banks not only concurred, they financed it, and they brought intothey created more straw companies. I'm using that straw company as an expression of SPEs. They created all these straw companies, and then they financed those, and then they implemented those and put them intointointo the action. And finally, we get to Vinson & Elking, andandand they did nothing tobut concur in theinin the proceedings, which means, to me, they condone it. If they didn'tif they didn't stop Enron, then that was the final fire wall. There was nothing else. It burned to the ground.
Ex. 23 at 40, ll. 10-41: l. 3.
Cassidy testified that he and his wife had done computer research on investing and had relied on "glowing reports" about Enron in Utility Forecaster, Money Line and other periodicals in deciding to buy his Enron securities directly through Enron's direct service and reinvestment program. Moreover, he subsequently learned from information in the newspaper and later from checking public SEC records that he invested the same day that Ken Lay sold stock.
Cassidy testified that he read everything his attorneys sent him, including the complaints (although "not through"), and the correspondence between them; "Further than that, I just do my homework with the attorneys." He did not read the undersigned judge's opinions, but only a report about them from his attorneys. He knew the litigation was in the discovery phase, was going to mediation shortly, and if that failed, would go to court (trial). He testified that he believed that the price he paid for Enron stock was inflated because of the enormous debt accumulated in the SPEs, transferred and resold from one to the other, thereby creating an asset on Enron's balance sheet when there was no real profit.
Cassidy testified that, as a class representative, he would represent all the investors in securities of any kind that were purchased between October 1998 and November 2001, that he "would have to keep the interest of my class people equal to mine so I don't take any personal re[muneration] or whatever else, benefits, over them." Cassidy further stated that he "must keep informed, which my attorneys have done, kept me informed," and that he would "testify at trial, if necessary." Ex. 23 at 51, 11. 4-21. Nevertheless, he also remarked that he did not think he was qualified to supervise his attorneys, but would give them any information they requested. In the event of a settlement, he understood that he was responsible for getting the best settlement possible "for my class and for myself, equal." He guessed that he had spent about 36 hours to date on the case, participating in conference calls, visiting with his attorney, and reviewing voluminous documents ("but I didn't thoroughly go through them"), and he hoped the time required after this day would be minimal, but he would spend substantial time on the case if it were needed. Cassidy represented that he did not do any independent investigation and did not gather any evidence other than "what he supplied to the counsel," although he reviewed the media and watched television reports on the Enron matter. He knew that he would not be compensated for serving as a class representative; that his attorneys were."on consignment" and would get paid if there was a settlement; that if the plaintiffs won, the defendants would pay the attorneys' fees, but if the plaintiffs lost, the plaintiffs would absorb the expenses.
When asked about the individual defendants, he said he did not know the names *732 of Norman Blake, Jr., Ronnie Chan, James Derrick, John Duncan, Kevin Hannon, Ken Harrison, Stan Horton, Robert Jaedicke, Mark Frevert, Joe Foy, Steven Kean, Charles LeMaistre, Rebecca Mark-Jusbasche, John Mendelsohn, Jerome Meyer, Cindy Olson, John Urquhart, Bruce Willison, John Wakeham, Lawrence Greg Whalley, Herbert Winokur, Jr., and Paulo Feraz Pereira. He recognized the names of, but knew nothing about, Robert Belfer, Richard Causey, Jeffrey McMahon, Frank Savage, and Charles Walker. He knew the names of and stated something about Richard Buy ("I don't know where he fit in the puzzle. . . . . Perpetrating the fraud that we see all up and down the line. He kept condoning it because he was in the organization. . . . I don't [k]now what he did in the organization, but he was employed."); Wendy Gramm ("She's the wife of the senator . . . she was a director, and she didn't do anything to stop theto put out the fire. So she was as involved as the rest of the board. She didn't continueshe didn't fulfill her fiduciary capacity."); Joseph Hirko ("He is associated, I think, with the Portland, Oregon, West Coast CEO or something of thatafter Enron purchased it"); Mark Koenig ("I remember as being on the defendant's list, but I don't know where he fit."); Ken Lay ("[H]e ended up aschairman of the board . . . [P]rior to that, he was chiefchief financial officer, and hehe made his way up the chairs. He was CEO and then chairman of the board. . . . [Hie did wrong by doing nothing toto stop the obvious fraud that could have beenthat should have been discerned by Andersen, and before it ever got toto his desk, he should havebut when he signed off that everything waswasin the annual report that everything was stated as all of these people said it was, then he was wrong. Whether he knew about it or not, he was still wrong."); Joseph Sutton ("I don't know too much about him, but I know he was up in the chain of command a little bit higher than some you've mentioned that I suspect."); Jeff Skilling (started the SPEs in the 90's and, as they helped the company, was promoted "up the chain of command, from CE00 to CEEO"; regarding Skilling's resignation he thought Congress "uncovered enough evidence of fraud thatI think he was trying to bail out while he could."); Lou Pal (does not know his function in the organization but "he's prominent in the filings"). Cassidy knew that the bank defendants included Citigroup, Barclays, Merrill Lynch, CIBC, Deutsche, Bank of America and Lehman; he asserted that the banks were "in competition to get Enron's business, offered to finance all these straw companies" and, to enrich the themselves, lent money at very high interest rates to Enron and its false companies that did not exist.
A common, crucial deficiency in all six proposed representatives is nearly total if not complete reliance on class counsel, Milberg, Weiss,[105] for investigation and prosecution of the case and on the complaints, prepared by counsel apparently without input from the class representatives, for all information about the facts of the case. The deposition questioning evidenced in all six a substantial lack of knowledge about who the named parties are, about the roles played by many defendants, beyond conclusory allegations of fraud. They were unable to articulate specific facts supporting their vague allegations. Most did not *733 understand that their attorneys were paid on a contingency basis. Generally these designated class representatives knew they had lost money in their Enron securities investment and assumed that the defendants, because of their positions at Enron or business involvement with Enron, were responsible, the essence of knowing only that they were "involved in a bad business deal." Feder v. Electronic Data. Systems Corp., 429 F.3d at 132, quoting Berger, 257 F.3d at 483 "While [plaintiff] cannot be expected to know all of the legal minutia involved in litigating [its] case, [it] should at least have an understanding of why all of the individuals or companies are defendants other than [its] general knowledge that a bad business deal occurred." Ogden v. AmeriCredit Corp., 225 F.R.D. 529, 534-35 (N.D.Tex.2005).
As reflected in their depositions, these six designated class representatives have little or no knowledge of the litigation beyond that provided by counsel, have not read the majority of documents given to them by their attorneys, nor even read the complaints carefully. The Consolidated Complaint was about 500 pages, the Amended Consolidated Complaint about 650. The amount of time these six individuals have stated they spent on these key documents, concededly skimming, not reading them, is nowhere near the time a meaningful review would require, and putative representatives' lack of input into the substance of these complaints further suggests their inadequacy as class representatives. They were unable to name, or even recognize the names of, a large number of the parties, despite the substantial publicity about Enron's collapse and the documents sent to them by counsel; thus it is no surprise that they could not articulate specific facts about the defendants' involvement that would support their vague allegations of fraud. None researched Milberg Weiss' suitability as class counsel, no less demonstrated that he took an active role in monitoring the attorneys and directing or even having input into the litigation. Many showed a lack of zeal. Other than Cassidy, they lacked knowledge of the mediation in the case. They did not know why certain parties were dismissed and others added. They did not know the names of other putative class representatives. Several indicated that because they lost money, they assumed the defendants at Enron, especially those in high positions, were responsible.[106]*734 In sum, the Court finds that these six designated class representatives are not adequate.
Certificates signed by some of the named class representatives[107] and deposition testimony demonstrate that they have discussed the case with counsel, are knowledgeable about claims and defendants in, and the general status of, the litigation, recognize as their fiduciary duty that the class claims come before their own individual ones, have as their goal the maximization of the recovery for the class, are able and willing to play an active role throughout, including testifying at trial if needed, and will accept no payment for serving as class representatives other than recouping reasonable costs and expenses incurred in that role that are approved by the Court.
Alliance and the Outside Directors have challenged the standing and adequacy of Staro Assets Management to represent purchasers of Enron's Zero Coupon Convertible Senior Notes due 2021 for claims under § 11. The Court has reviewed its designated representative Donald T. Bobbs' Deposition (whole document available as Ex. A to # 1785), the certification signed by its General Counsel Colin Lancaster (Ex. 40 to # 1855), and the Declaration of Lancaster in support of Staro's Motion for Appointment as Lead Plaintiff *735 and Approval of its Selection of Lead Counsel in Newby (Ex. 40 to # 1855).
Staro Assets Management, an institutional investor, served as investment manager of a group of private investment partnerships ("Staro Group") for which it purchased the Zero Coupon Notes and as appointed investment manager or general partner for each of the funds it manages, with complete discretionary authority over the investment decisions of all the funds. It brings suit on behalf of the Staro Group and all of the funds. Declaration of Colin Lancaster, Staro's general counsel. Section 11 of the 1933 Securities Act permits "any person acquiring such security" to sue. There is a split in the courts over whether an asset manager to which its clients have delegated complete authority and discretion to make investment decisions for them, is a "purchaser" under § 11. The clear trend, with some variation in requirements, is not only to find standing to sue, but also the ability to serve as Lead Plaintiff or class representative where the investment manager, although not purchasing the securities at issue for its own account, is authorized as the client's (clients') attorney-in-fact; with unrestricted decision-making authority about purchasing securities on behalf of its client(s) and authority to sue on the client's (clients') behalf. See, e.g., EZRA Charitable Trust v. RentWay, Inc. ("RentWay I"), 136 F. Supp. 2d 435, 441, 443, 444 (W.D.Pa.2001) (observing that the 1933 Act does not require a plaintiff to be an owner, but only a purchaser, and appointing Asset Manager as Lead Plaintiff because (1) its "financial interest is so aligned with its clients' financial interest that the two are synonomous," since the Asset Manager had a significant financial interest as incentive to recover the full amount lost by its clients "in order to maintain their goodwill and future business," (2) its supporting declaration stated it was "an attorney-in-fact for its clients and authorized to bring suit on their behalf," and (3) because it had unrestricted decision-making authority regarding the" purchase and sale of stocks for its clients); EZRA Charitable Trust v. RentWay, Inc. ("RentWay 218 F.R.D. 101, 107-09 (W.D.Pa.2003) (finding standing because the investment advisory agreements between the asset manager and its clients giving the Asset Manager full authority in its discretion to purchase and sell stocks, bonds and other securities and manage the daily affairs of the accounts; "we do not view the `power-of-attorney'/`attorney in fact' language (or lack thereof) as a controlling factor," but rather the "level of discretion exercised . . . in the day-to-day purchase of securities for its clients"); Smith v. Suprema Specialties, Int., 206 F. Supp. 2d 627 (D.N.J.2002) (requiring not only evidence that the asset manager has the authority to invest on the client's behalf, but also to initiate suit on its behalf)[108]; In re DaimlerChrysler AG Sec. Litig., 216 F.R.D. 291, 298-99 (D.Del. 2003); Weinberg v. Atlas Air Worldwide Holdings, Inc., 216 F.R.D. 248, 255 (S.D.N.Y.2003) ("Generally a client's grant of authority to an investment manager to purchase stock on his or her behalf does not also confer authority to commence suit on his or her behalf. However, when the investment authority is also attorney-in-fact for its clients with unrestricted decision *736 making authority, the investment adviser is considered the `purchaser' under the federal securities laws with standing to sue in its own named."); Roth v. Knight Trading Group, Inc., 228 F. Supp. 2d 524, 529 (D.N.J.2002) (same); In re Goodyear Tire & Rubber Co. Sec. Litig., No. 5:03 CV 2166, 2004 WL 3314943, *5 (N.D.Ohio May 12, 2004) (same); Olsen v. New York Community Bancorp, Inc., 233 F.R.D. 101, 107 (E.D.N.Y.2005) (same); In re Able Laboratories Sec. Litig., 425 F. Supp. 2d 562 (D.N.J.2006) (concluding that investment advisor with complete authority over its trades and acting as agent and attorney-in-fact with full power and authority to act in connection with its investments had standing to sue). But see In re Turkcell Iletisim Hizmetler, A.S. Sec. Litig., 209 F.R.D. 353, 358 (S.D.N.Y.2002) (Finding that the fact that the investment manager "was not the legal purchaser of Turkcell stock prevents them from suiting on behalf of its investors"); In re Bank One Shareholders Class Actions, 96 F. Supp. 2d 780, 784 (N.D.Ill.2000) (refusing to appoint investment manager Lead Plaintiff because inter alia it was "not a buyer for its own account, standing instead in the place of whatever number of investors are participants in the managed fund."). See generally Brian P. Murray, Does an Asset Manager have Standing under the Federal Securities Laws, 79 St. John's L.Rev. 405 (Spring 2005).[109]
Here the Declaration of Colin Lancaster, filed in support of the Staro Group's motion for appointment as Lead Plaintiff of a debt securities class in Newby, Ex. 40 to # 1855, states that "Staro is either general partner[110] or the appointed investment manager for each of the funds that it manages"; that it "has complete discretionary authority over the investment decisions of all the funds that it manages"; that it "has authority to bring suit on behalf of all its affiliates and the funds it manages." Thus the Court finds there is evidence demonstrating that Staro does have standing to sue on behalf of § 11 claimants here. The Court therefore rejects Alliance's charge that Staro lacked candor in not revealing its lack of standing because it never purchased the zero coupon bonds for its own account.[111]
The Court acknowledges that Staro might well be subject to unique defenses. *737 According to Bobbs' testimony, Staro' did purchase the zero coupon notes along With bonds, stocks, puts and at times options as part of a unified arbitrage investment strategy, and, as part of that strategy, it also purchased additional Enron, securities even after the November 8, 2001 an, nouncement that Enron was restating its' financials for December 1997 through 2000 and admonishment not to rely on prior financials, suggesting fraud. Bobbs testified that although Staro lost about $40 million in the bonds, it was able to offset that by short selling equity[112] and buying puts. Dep. At 172. Nevertheless, as Judge Lasker ruled in Sepracor, 233 F.R.D. at 54,
Convertible arbitrage is not inconsistent with reliance on the integrity of the market. Accordingly, the argument that Staro is subject to unique defenses that might rebut the presumption of reliance to the detriment of the class members' case does not make the grade. Moreover, courts are traditionally reluctant to deny, class action status under Rule 23(b)(3) simply because affirmative defenses may be available against individual members. As the Court of Appeals for this circuit has stated: "where common issues otherwise predominated, courts have usually certified Rule 23(b)(3) classes even though individual issues were present in one or more affirmative defenses. After all, Rule 23(b)(3) requires merely that common issues predominate, not that all issues be common to the class." Smilow v. Southwestern Bell Mobile Systems, Inc., 323 F.3d 32, 39 (1st Cir., 2003) (internal citations omitted).
Nevertheless, as this Court has found was the case with the six other challenged class representatives, the deposition of investment analyst[113] and designated representative *738 Bobbs who worked on the Enron purchases or investment strategy for various Stark-managed funds, reveals his inadequacies as Staro's designated class representative because he fails to demonstrate knowledge about the case and an interest in, no less the ability for, controlling or monitoring the lawyers prosecuting the litigation. Bobbs lacked knowledge about basic aspects of the relationships between Staro and the mutual funds and limited partners and about the Newby litigation, and he relied on his attorneys for practically all information. With regard to the initial class action complaint filed by Staro[114] against Arthur Andersen LLP, Kenneth Lay, Jeffrey Skilling and Andrew Fastow, before joining Newby, Bobbs testified that he did not participate in discussions as to who specifically should be sued and did not read the complaint before it was filed, but relied on his attorneys (Dep. At 60); he was not aware that the fraud claim (under § 10(b) against the Outside Directors had been dismissed or why) (Dep. at 66); he had not read any of the undersigned judge's orders in Newby, but relied on his in-house counsel to do so (Dep. At 67); and even though Staro had transactions in Enron securities after the end of the proposed class period, he left determination of the class period to the lawyers (Dep. At 162). Although he was aware that Staro served as a class representative in the Sepracor, Global Crossing, and Iowa Beef Processors/Tyson, he did not know the details of any of them (Dep. At 23-23, 76-80); he did not know if Staro had informed its limited partners, to which Staro has a fiduciary duty, about the Enron lawsuit or that Staro sought to serve as a class representative, but assumed counsel made all such decisions (Dep. At 90-93); he did not know which attorneys filed the amended Newby complaint, which he did not "recall looking at. . . . It was something our lawyers handled for the most part." (Dep. At 95); although he did provide facts, he did not receive a copy of the amended complaint before it was filed but assumed "our general counsel or one of our other attorneys" did (Dep. At 96); he never talked to anyone from Milberg Weiss, but only his in-house counsel (Dep. At 97); the in-house attorneys decided to add defendants to the § 11 claims (Dep. At 97, 228); contrary to his lawyers' argument in the motion to be appointed Lead Plaintiff, he stated clearly that he did not think that the equity and debt classes in this litigation have conflicting interests (Dep. at 140-43); he testified that the litigation did not "require a substantial amount of my time at all. . [I]t requires certainly more time on the part of our in-house counsel [Dan McNally and Colin Lancaster]," and he did not know whether they attended any hearing in the case or how often they spoke with Milberg, Weiss or the Regents (Dep. At 187); he did not know that mediation had been ordered or whether any representatives from Staro attended it (Dep. at 188); when asked who was keeping up with the zero coupon note holders, mediations, and strategy, he responded, "I'm sure there's folks that are responsible that are on the team, but I'm not sure exactly who that would be, in-house counsel or outside counsel or anybody else" (Dep. at 189); he professed ignorance about expenses' born by Staro, how damages would be calculated for the zero coupon noteholders, or what legal fees had been paid to anyone, but left these matters to counsel (Dep. at 190-91); he *739 could provide no more specific discussion of the alleged role of the bank defendants than that "they were involved in a major way in assisting the company to pull these fraudulent transactions off and hid significant amounts of debt off of the company's financial statements" (Dep. at 211) and "That was something for my attorneys to discuss, specifically what our claims are against the banks" (Dep. at 212); and, he stated about the most current complaint, "I have seen it and scanned it. To be able to tell you that I read it word for word would be an overstatement. I rely upon our attorneys toto do that." (Dep. at 214-15).
For these reasons the Court does not approve an appointment of Staro; as represented by Bobbs, as a class representative.
I. Presumptions of Reliance
1. Affiliated Ute Presumption Applies
Under Fifth Circuit law, to trigger the Ute presumption of reliance, the Court must first determine whether. Lead Plaintiffs allegations in the First Amended Consolidated Complaint "primarily" address conduct in a scheme to defraud and/or focus on material misrepresentations. Synonyms for "primary" used in this context would include "principal," 'main" "chief," or "first in importance." As earlier in this litigation, the Court finds that Lead Plaintiff's suit targets an overarching, concealed scheme to defraud, which involves a large number of alleged material misrepresentations or omissions, but primarily aims at wrongful conduct by key participants that allegedly employed a device, scheme or artifice to defraud or engaged in an act, practice or course of business that operated as a fraud, under Rule 10b-5(a) and (c). Moreover, as discussed below, because a number of the alleged misrepresentations are not actionable under Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353 (5th Cir.2004), the number of viable, misleading statements alleged is greatly reduced.
Financial Institution Defendants have argued that the Affiliated Ute presumption does not apply because they had no duty to disclose their conduct to Plaintiffs. Courts in this Circuit have recognized "the duty not to engage in a fraudulent `scheme' or `course of conduct' [that] could be based primarily on an omission." Ayres, 845 F2d at 1363 & n. 8; in accord Heller v. American Properties Reit, No, Civ. A. SA97CA1315EP, 1998 WL 1782550. *3 (W.D.Tex. Sept. 28, 1998)., See also In re Initial Pub. Offering Sec. Litig., 241 F. Supp. 2d 281, 381-82 (S.D.N.Y.2003) ("Where a defendant has engaged in conduct that amounts to `market manipulation' under Rule 10b-5(a) or (c), that conduct creates an independent duty to disclose. . . . [P]articipants in the securities market are entitled to presume that all of the actors are behaving legally; silence that conceals illegal activity is therefore intrinsically misleading and (presuming the illegality is also material) is always violative of Rule 10b-5(b)."); U.S. SEC v. Santos, 355 F. Supp. 2d 917, 920 (N.D.Ill. 2003) (relying on Initial Public Offering and holding that its rule that violations of subsections (a) and (c) of Rule 10b-5 create an independent duty to, disclose is not limited to market manipulation).
Thus the Court concludes that the Affiliated Ute presumption of reliance is available to Lead Plaintiff who has pled the necessary underlying facts.
2. Fraud-On-the-Market Presumption
The Court has indicated supra that now under Fifth Circuit law the fraud-on-the-market presumption of reliance is applicable to claims under Rule 10b-5(a),(b), and (c). It thus addresses specific issues here with regard to that application under the facts alleged or not alleged in Newby.
*740 a. Analyst Reports
As a threshold matter, a novel issue exists as to whether the fraud-on-the-market presumption of reliance under Basic, Inc. extends to non-issuer defendants, here specifically analysts employed by underwriters who are alleged to have issued misleading reports in order to artificially inflate the issuing company's stock prices. A few district courts in the Second Circuit in particular have raised the issue and either have not resolved the question or are divided over the answer.
In the WorldCom securities litigation, Judge Cote certified a class over objections from Citigroup defendants that the fraud-on-the-market doctrine does not apply to analysts' opinions in contrast to an issuer's statements. In re WorldCom, Inc. Sec. Litig., 219 F.R.D. 267, 299-300 & n. 42 (S.D.N.Y.2003) (allegations that Jack Grubman's statements of opinion affected the price of WorldCom securities during the Class Period and in light of his annual $20 million salary and positive research reports "it comports with both common sense and probability to apply the presumption here"), interlocutory appeal granted in part, Hevesi v. Citigroup Inc., 366 F.3d 70 (2d Cir.2004) (because "application of the fraud-on-the-market doctrine to opinions expressed by research analysts would extend the potentially coercive effect of securities class actions to a new group of corporate and individual defendantsnamely research analysts and their employers" and because "Citigroup Defendants have presented an issue that is `of fundamental importance to the development of the law of class actions'"). Judge Cote had declined to "wade into th[e] battle of experts" over the causal link between Grubman's analyst reports and the movement of WorldCom stocks price. WorldCom, 219 F.R.D. at 299. In granting an interlocutory appeal under Rule 23(f) by Citigroup, which argued that the fraud-on-the-market presumption of reliance cannot apply to analysts' research reports absent a finding by the court that the analysts' alleged misrepresentations actually affected the price of securities traded in an open and efficient market, the Second Circuit recognized "that substantial issues exist as to the applicability of the Basic presumption to analyst reports," but did not "decide what evidentiary showing, if any, the plaintiffs must make at the class certification stage in order to benefit from the Basic presumption in an action against research analysts and their employers." Hevesi, 366 F.3d at 77. Moreover, the case settled before the Second Circuit decided the substantive issue.
Since then, a few lower courts in the Second Circuit have applied the doctrine to analysts' opinions, but have reached different conclusions about what the plaintiffs must show to give rise to the presumption of class-wide reliance. See, e.g., DeMarco v. Lehman Brothers, Inc., 222 F.R.D. 243, 246-47 (S.D.N.Y.2004) (holding that "the `fraud-on-the-market' doctrine applies in a case premised on a securities analyst's false and fraudulent opinions or recommendations only where the, plaintiff can make a showing[115] that the analyst's statematerially *741 impacted the market price in a reasonable quantifiable respect"; at the class certification stage "the plaintiff must adduce admissible evidence that makes a prima facie showing that the analyst's statements alleged to be false or fraudulent materially and measurably impacted the market price of the security to which the statements, relate.")[116]; DeMarco v. Robertson Stephens, 228 F.R.D. 468, 474-75 (S.D.N.Y.2005) (following the relaxed Caridad standard "whether plaintiffs' evidence is `sufficient to demonstrate common questions of fact . . ., not whether the evidence will ultimately be persuasive,'" opining that "[w]hile a court may consider expert evidence at the class certification stage, the purpose of that consideration is not to evaluate the strength of the plaintiffs' case on the merits of their claims, but to determine whether the requirements of Rule 23 have been met," and finding predominance for class certification was satisfied even though "plaintiffs' showing on reliance is so weak relative to defendants' showing.")[117]; Fogarazzo, 232 F.R.D. at 185 (in securities class action against three investment banks that allegedly issued materially misleading analyst reports, Judge Scheindlin rejected the argument "that plaintiffs must first prove that a `material misrepresentation actually distort[ed] the market price,' and only then are they entitled to use the fraud on the market presumption to establish that they relied on that price" and concluded that "[w]hether alleged misrepresentations in fact altered securities prices is a question of fact, not a Rule 23 inquiry," permitting plaintiffs to proceed to "employ the fraud on the market presumption to prove transaction causation on a common basis"). Meanwhile the Second Circuit has granted review in another case raising the issue of "[w]hether the presumption of reliance established in Basic was properly extended to plaintiffs' claims against [] non-issuer defendants," Miles v. Merrill Lynch & Co., *742 No. 04-8026 (2d Cir. June 30, 2005); Fogarazzo, 232 F.R.D. at 184 n. 66. See also Swack v. Credit Suisse First Boston, 230 F.R.D. 250, 268 (D.Mass.2005) ("The matter is what, if any, showing a plaintiff seeking to benefit from the Basic presumption of reliance in a case based upon statements by research analysts rather than those by securities issuers must make at the class certification stage is an open question and one on which no circuit court of appeal has yet spoken.") (following Robertson Stephens).
This Court finds that there is precedent for application of the fraud-on-the-market doctrine to analysts' reports, provided that plaintiff makes an adequate showing of market efficiency and meets the other requirements of section 10(b)/Rule 10b-5. Basic, Inc. v. Levinson dealt with an issuer that allegedly misled the public by denying that it was engaged in merger talks. 485 U.S. 224, 108 S. Ct. 978, 99 L. Ed. 2d 194. Nevertheless, as noted by Judge Lynch, "Nothing in the language of Basic limit its holding to issuer statements alone." This Court agrees, but will apply the Fifth Circuit's more demanding evidentiary standard at class certification to the issue here. DeMarco v. Robertson Stephens, Inc., 228 F.R.D. 468, 474 (S.D.N.Y.2005) (citing and quoting Basic, 485 U.S. at 247, 108 S. Ct. 978) ("Because most publicly available information is reflected in market price, an investor's reliance on any public material misrepresentations, therefore, may be presumed for purposes of a Rule 10b-5 action.").
Nevertheless, because the Fifth Circuit has recently concluded that because the group pleading doctrine did not survive passage of the PSLRA, to hold a corporate defendant liable based on its analysts' statements under § 10(b)/Rule 10b-5, at this stage Lead Plaintiff must make an evidentiary showing that the analyst in issue had scienter (intent to deceive, manipulate, or defraud or severe recklessness). Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 364, 366 (5th Cir.2004) ("For purposes of determining whether a statement made by the corporation was made by it with the requisite Rule 10(b) [sic] scienter, we believe it appropriate to look to the state of mind of the individual corporate official or officials who make or issue the statement (or order or approve it or its making or issuance, or who furnish information of language for inclusion therein, or the like) rather than generally to the collective knowledge of all the corporation's officers and employees acquired in the course of their employment.").[118] Discovery in Newby is largely over and those analysts sought by Defendants for deposition have been deposed. Plaintiffs have not identified nor provided the necessary facts to make such a showing about specific analysts. Therefore claims against Merrill Lynch entities and Credit Suisse entities based on their analysts' statements cannot be certified for class prosecution and must be dismissed. Because there are intertwined issues involving Deutsche Bank entities and their pending motions that complicate the matter, the Court addresses the claims against them subsequently and separately.
b. Greenberg v. Crossroads Sys., Inc., 364 F.3d 657 (5th Cir.2004).
With respect to Greenberg's requirement of actual movement of stock price relating to misrepresentations or disclosures to trigger the fraud-on-the-market presumption of reliance, 364 F.3d at 663, 666, Lead Plaintiff argues that Greenberg, *743 which relates to statements, does not apply to its claims against Merrill Lynch for two reasons. First, Merrill Lynch's purported role as a primary violator in the Ponzi scheme is based principally not on misrepresentations, but on its manipulative, fraudulent actions as a major participant in furtherance of that scheme, all of which contributed to the artificial inflation of the price of Enron and Enron-related securities. Second, Lead Plaintiff argues that Merrill Lynch's analysts' reports were not based on information previously announced by Enron and thus merely confirmatory, but on Merrill Lynch's own conduct and knowledge that there was no reasonable basis for their published forecasts. Cooper v. Pickett, 137 F.3d 616, 629 (9th Cir.1998) ("Even the analysts' optimistic statements can be actionable if not genuinely and reasonably believed, of if the speaker is aware of undisclosed facts that tend seriously to undermine the statement's accuracy.").
Lead Plaintiff insists that the key "truthful" revelation was not the post-bankruptcy disclosure of Merrill Lynch's specific role nor the identification of each perpetrator, but the revelation of pervasive fraud, especially in Enron's announcement of its multi-year restatement in the fall of 2001. `Because the' market did not know of Merrill Lynch's involvement (e.g., in power swaps, LJM, and the Nigerian barge transactions) before that partial, but unexpected disclosure of the company's actual financial condition in the fall of 2001, the stock price could not reflect that particular deception. For the same reason, argues Lead, Plaintiff, Merrill Lynch's analysts' statements are not "classically confirmatory"; Merrill Lynch's allegedly false and misleading analyst reports were issued as an integral part of the much larger fraudulent scheme to maintain the inflated securities prices and to lull the investing public into a false sense of security and to conceal the underlying fraud in which Merrill Lynch was a knowledgeable participant. Merrill Lynch knew its analysts' forecasts were false because of the deals it had done with Enron. The analysts' reports went beyond merely reporting previously announced information and embellished Enron's business prospects and future success and operations, recommended Enron securities, and touted Enron's ability to succeed in its projects. Lead Plaintiff contends that "Greenberg does not hold inactionable an analyst statement that is one part confirmatory and 99 parts fraud." #2318 at 7. See Lincoln Savings, 140 F.R.D. at 432 ("If an enterprise is so laden with fraud that its entire public image is distorted, it is sensible to presume that reasonable investors relied on many material misrepresentations which, in aggregate, created a false image.").[119] Thus Lead Plaintiff argues that application of the rebuttable fraud-on-the-market presumption of reliance is warranted here.
First, as with the Financial Institution Defendants, Lead Plaintiff has failed to allege facts and to show evidence demonstrating that any Merrill Lynch's analyst issued his report(s) with scienter. Thus any § 10(b)/Rule 10b-5 claims against Merrill Lynch based on those analysts' reports are not certifiable for a class action prosecution and must be dismissed.
*744 Greenberg, of course, addresses loss causation and requires the plaintiff to prove that a significant part of the stock price decline was more likely than not caused by the alleged misrepresentation.[120] This Court agrees with Lead Plaintiff that Greenberg's language expressly refers to alleged misrepresentations and misleading statements, which must meet Greenberg's requirements to be actionable under Rule 10b-5(b), and not to conduct in an alleged course of business or scheme to defraud, actionable under Rule 10b-5(a) and (c).
As is the rationale behind the Ute presumption of reliance, since the alleged wrongdoing here is concealed conduct ("A person cannot rely upon what he is not told"), logically there is no way to objectively and discretely measure its impact on the price of securities until disclosure of that fraud. As yet there is no case law on point determining whether Greenberg applies in scheme liability cases, but logically and in terms of its express language it does not appear to do so. The Supreme Court has not limited § 10(b)/Rule 10b-5 violations to misrepresentations, but has recognized scheme and course-of-business liability under the Rule's subsections (a) and (c). SEC v. Zandford, 535 U.S. 813, 81S-19, 122 S. Ct. 1899, 1903, 153 L. Ed. 2d 1 (2002) (finding broker's alleged fraudulent scheme to sell his client's securities and use the proceeds for the broker's own benefit without the customer's knowledge or consent constituted "fraudulent conduct in connection with the purchase or sale of any security" within the meaning of § 10(b) and Rule 10b-5) ("neither the SEC nor this Court has ever held that there must be a misrepresentation about the value of a particular security to run afoul of the Act"). See also In re Parmalat Sec. Litig., 376 F. Supp. 2d 472, 509-10 (S.D.N.Y. 2005) ("where, as alleged here, a financial institution enters into deceptive transactions as part of a scheme in violation of Rule 10b-5(a) and (c) that causes foreseeable losses in the securities markets, that institution is subject to private liability under Section 10(b) and Rule 10b-5"; "The loss causation requirement applies as well where the claims are based on deceptive or manipulative conduct in violation of Rule 10b-5(a) and (c). . . . [T]he loss causation requirement will be satisfied if such conduct had the effect of concealing the circumstances that bore on the ultimate loss. The schemes involving worthless invoices and the CSFB transactions created the appearance of assets or revenue where there was none and therefore concealed, among other things, the risks that Parmalat would be unable to service its debt and consequently suffer financial collapse. . . . [T]hat risk materialized when Parmalat suffered a liquidity crisis in December 2003.")[121]Quaak, 357 F.Supp.2d at 341-42 (plaintiff may "demonstrate [reliance on the manipulative or deceptive device by `alleging facts sufficient to show (1) that defendants substantially participated in a fraudulent scheme; and (2) when the *745 scheme is viewed as a whole, the plaintiffs relied on it.'"), citing Lernemt, 236 F.Supp.2d at 174. Thus the Court finds that the allegations against Merrill Lynch, inter alia, based on concealed conduct, i.e., employment of a device, scheme or artifice to defraud or engaging-in an act, practice or course of business that operated as a fraud under § 10(b) and Rule 10b-5(a) and (c), are certifiable.
c. Market Efficiency and Fraud On The Market: Enron Securities
Lead Plaintiffs evidence of market efficiency was presented through its expert Dr. Nye, and Defendants opposed that evidence with the report and testimony of Deutsche Bank's expert Dr. Sundaresan. This Court is required to apply Federal Rule of Evidence 702 and the gatekeeping standards under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993), and Kumho Tire Co., Ltd v. Carmichael, 526 U.S. 137, 119 S. Ct. 1167, 143 L. Ed. 2d 238 (1999), to experts' testimony to determine if it is admissible. Rule 702 provides,
If scientific, technical, or other specialized knowledge, will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training or education, may testify thereto in the form of an opinion or otherwise.
Daubert requires the court to determine if the expert's testimony is reliable and if his "reasoning or methodology properly can be applied to the facts in issue," i.e., whether it is relevant and will help the trier-of-fact decide the ultimate issues in the case. 509 U.S. at 590, 593, 113 S. Ct. 2786. The Supreme Court provided four non-exclusive factors to measure reliability, but emphasized that `the test must be flexible: whether the theory has been tested; whether it has been subjected to peer review and publication; whether there is a high known or potential rate of error in applying it and whether there are standards controlling its operation; and (4) whether the theory has been generally accepted by the relevant community. Id. at 593-94, 113 S. Ct. 2786.
Nevertheless, for purposes of the class certification hearing in Newby, the parties agreed that with court approval the expert witnesses would be qualified as experts on the subjects of their report. Transcript of Class Certification Hearing (hereafter, "TR") (#4558 and 4559), at 55. The Court notes that no motion to exclude Dr. Nye as an expert has been filed by Defendants Dr. Nye has a Bachelor of Arts in physics from Stanford University, and master's degree and Ph.D. in finance from Stanford University, has served as a consultant or expert witness in the areas of market efficiency, materiality, causation and damages in a number of securities wits, and is President of Stanford Consulting Group, Inc., which provides research and consulting services in financial economics and related areas. #4390 at 1 and Ex. 1. He has testified in a number of trials.
Dr. Nye's analysis is based on the "semi-strong" efficient capital market hypothesis ("ECMH"), established in Basic, Inc., which theorizes that securities markets incorporate into stock prices all current, publicly available information and which Dr. Nye states has received growing acceptance in recent decades. See generally #4390 at 10-11; Jonathan R. Macey and Geoffrey P. Miller, Good Finance, Bad Economics: An Analysis of the Fraudon-the-Market-Theory, 42 Stanford L.Rev. 1059, 1077-1083 (April 1990) (discussing the weak, semi-strong, and strong forms of ECMH and use of the semi-strong version by the courts for application of the fraud-on-the market theory). Dr., Nye states that ECMH has been empirically *746 validated in numerous studies. See generally #4390 at 10-11. See also Macey, et al., 42 Stanford L.Rev. at 1082 ("[T]he evidence . . . is sufficiently persuasive that the semi-strong form of `market efficiency is now an accepted working assumption in financial economics research.'") (quoting J. Lorie, P. Dodd & M. Kimpton, The Stock Market: Theories and Evidence at 73 (2d ed.1985)).
Dr. Sundaresan is Professor of Finance and Economics and the chairman of the Finance Department at the Graduate School of Business at Columbia University and is an expert in the area of corporate bonds, default risk, risk management and issues dealing with fixed income securities markets.
After review of the relevant materials in the record and the testimony of Dr. Nye and Dr. Sundaresan at the hearing, the Court approves the stipulation of expert qualifications for both.
There is no dispute among the parties that Enron common stock traded in an efficient market during the Class Period; the disagreement is over the markets for the debt securities.
With regard to demonstrating an efficient market, at the class certification hearing Mr. Lerach argued that the markets for all Enron securities, including the debt markets, were related and tied together, and thus should not be examined in isolation from one another. He further contended that because Enron was one of the largest and most prominent companies in the world, with securities traded on the major exchanges around the world, followed by at least a hundred securities analysts on a constant basis, was rated by Moody's, Fitch, and Standard & Poor's, and was a seasoned public issuer entitled to use the shortcut S-3 Form because of all the information available to the public about it, it is "preposterous" to argue that the markets were not efficient. Class Certification Hearing TR (#4558) at 29, 32, 34, 11-13. He maintained that although the Foreign Debt Securities were not issued by Enron, nevertheless their value was dependent upon the financial condition of Enron and was accordingly affected by the scheme to misrepresent and conceal that financial condition.
Lead Plaintiff's market efficiency expert, Dr. Nye, however, emphasized the distinction between stock investor response and bond investor response and the factors for that difference, to be discussed in greater detail infra, to explain why events that might affect the price of Enron stock might not affect the prices of the bonds. Noting that the likelihood of a default by a company is dependent on that company's financial health, which therefore is central to valuation of all of its debt securities, Dr. Nye took a bird's eye approach and argued that "if one of the Enron registered bonds is known to have traded in an efficient market, then one can infer that similar Enron bonds would have also traded in efficient markets because the bases for valuation, such as interest rate environment and default risk, are similar." #4390 at 58; TR (#4558) at 79 ("[A] bond is priced on two things, interest rate levels[122]*747 and default risk.[123] Things that have the same default risk at the same point, in time, in other words, have the same interest rate environment, are priced the same."). He therefore selected a representative "exemplar" registered bond (the 6.625% Enron Bonds due Nov. 14, 2005), Foreign Debt Security, and preferred security as a proxy for the others, in the three categories and demonstrated their response, to selected events during the Class Period, although he also provided some data about other individual securities, including price and trading volume, where available. Dr. Nye concluded that during the Class Period the markets for all Enron securities, equity and debt, were informationally efficient. In his Rebuttal Declaration, he also asserts that his collective approach is appropriate "because information on one security can inform investors about the value of others." #4527 at 2.
Deutsche Bank's expert on market efficiency, Dr. Suresh M. Sundaresan, concluded the following during the Class Period: (1) the primary markets for all offerings of Enron debt securities were inefficient; (2) the secondary markets for five' of the six Enron Preferred Securities (Numbers 1-5) were inefficient; (3) the secondary markets for all of the eleven Foreign Debt Securities (Numbers 30-40) were inefficient; (4) the secondary markets for eleven of the Enron Registered Bonds (Security Numbers 7-10, 19, 21-22, 25-27, and 20) were inefficient; and (5) Dr. Nye has not established and has insufficient information to determine whether the twelve other Registered Bonds (Numbers 11-18, 20, 23-24, and 28)[124] were sold in efficient markets. #4481 at 3-4.
Dr. Sundaresan disagreed with any collective or group approach, stating that "[t]he efficiency or lack of efficiency of a security has to be established in each of its cases. In other words, in order to declare that a particular security traded in an efficient market, we have to establish that the security price of that particular security reacted rapidly to relevant information." TR of Class Certification hearing (#4558) at 240-41; see also #4481 at 4. Taking a microscopic approach, he pointed out that corporate bonds are highly fragmented, with variations in maturity, coupon, security seniority, issue sizes, etc., that would cause different price reactions to information because one might be more senior with greater security than a unsecured or junior bond; "If the security is not homogenous, then one should not try to infer efficiency about, one based on the other." Id. at 240-42.
Thus while one expert focused' on the large picture and the other on dose-up distinctions; the crucial difference in their disagreement relates to what "news events" were material to the Enron debt securities investors, as will be discussed. There seems to be little, if any, dispute that the nature of news that would affect the markets for stock can be quite different and what would affect the markets for bonds, but the experts disagreed about which news events should have and/or did affect the market for the debt securities.
While commentators and courts have recognized that the Cammer/Unger/Bell *748 factors were developed to measure the efficiency of stock markets and do not fit the bond markets well, they, like Dr. Nye, have tried applying them where possible to bond markets to determine efficiency. This Court observes that the Cammer/Unger/Bell factor approach, endorsed by the Fifth Circuit, is to a substantial degree a group analysis, as the factors would largely yield the same result no matter to what securities offering of a particular company they are applied, which lends legitimacy to Dr. Nye's collective analysis approach.
The Court notes that the Cammer court found that "the more persuasive reasoning indicates the proper inquiry involves the market for the specific security at issue." Cammer, 711 F.Supp. at 1282. Yet this Court has been unable to find other cases that establish this proposition as a hard and fast rule. The Deutsche Bank entities (#4489 at 10) cite the Fifth Circuit in Bell, 422 F.3d at 313 ("the market for that particular security is efficient"), but they quote the clause out of context and distort its meaning: the whole clause states that "the mere fact that a stock trades on a national exchange does not necessarily indicate that the market for that particular security is efficient." Id., quoting Cammer, 711 F.Supp. at 1281 ("some companies listed on the national stock exchanges are relatively unknown and trade there only because they met the eligibility requirements."). Thus this Court does not agree that the only acceptable analysis is one focusing on the market for every security, separately.
Finance theory has been used to support multiple approaches to weighing market efficiency; nevertheless, as is evident from even a cursory review of the literature, it is far from an exact science, but, in its varied forms, provides hypotheses that financial experts test empirically, but with results are typically subjected to criticism for inaccuracies and weaknesses. Not only has a uniform standard for measuring market efficiency even for stocks not been established, but no standard at all appears to have been established for measuring market efficiency for debt securities. Adding to that difficulty, thus far there is little scholarly literature about, and only a few courts have addressed, market efficiency for bonds.[125] The Fifth Circuit is not among the latter. Bonds are usually traded in the over-the-counter market. The Cammer court commented, "[w]hile research has not revealed an empirical academic study of the over-the-counter-market[126] (focusing particularly on whether there exists the requisite efficiency for the fraud on the market theory), the absence of such a study is not conclusive on the issue of whether the over-the-counter market is efficient." Cammer, 711 F.Supp. at 1281.
The Court finds that both experts' reports here inevitably exhibit vulnerabilities. Each focuses on a different portion of the Class Period and data that will *749 support his client's stance in this litigation, and neither study excludes other factors in the market that might have caused price movement. Nevertheless the information events that each focuses on are company-specific and patently material. Because Lead Plaintiff bears the burden of proof, the Court examines the basis of Dr. Nye's opinion and the disagreements, voiced by Dr. Sundaresan to decide if Lead' Plaintiffs expert has presented reliable and admissible evidence and rational argument to establish at least, a prima facie case of market efficiency so as to trigger the fraud-on-the-market presumption of reliance here; at this stage, the Court's job is not to determine which expert is more persuasive.
Under Dr. Sundaresan's analysis it appears highly unlikely that any corporate bonds trade in an efficient market and thus cannot trigger a fraud-on-the-market presumption in a case under section 10(b).[127] Given the policy behind the federal securities laws of protecting securities investors from fraud, the Court finds it unreasonable that merely because bonds are not marketed in the same manner or as efficiently as stocks on national exchanges, one must conclude that the bond market is inefficient and thus defrauded bond investors should not have a right use the fraud-on-the-market theory to permit them to pursue class action litigation. In line with Fifth Circuit comments about applying the Cammer factors to stock, the Court concludes that factors affecting debt securities must also be examined analytically, not cursorily or superficially, with a view to their distinctive nature and to the kinds of news that would move their market price in contrast to the kind of information that might affect the more volatile stock market, as well as the manner in which that movement would occur. See, e.g., Jonathan R. Macey and Geoffrey P. Miller, Good Finance, Bad Economics: An Analysis of the Fraud on the Market Theory, 42 Stanford L.Rev. 1059, 1085 (April 1990) ("[I]t seems clear that not all corporate information will affect all securities of a given issuer in the same way. "Debt securities will be more insulated from the shocks associated with, bad news than will equity securities.").
The fraud on the market presumption of reliance established in Basic, Inc., which addressed the stock market, did not require informational efficiency to reflect all available information, but rather a sufficient degree of information to justify an investor's reliance on the price of the security. Basic, Inc. 485 U.S. at 247, 108 S. Ct. 978 ("An investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price. Because most publicly available information is reflected in the market price, an investor's reliance on any public material misrepresentations, therefore, may be presumed for purposes of a Rule 10b-5 action. [emphasis added by the Court]").[128]
*750 Efficiency is a relative concept, a matter of degree. As noted, the plaintiff need not satisfy all the Cammer/Unger/Bell factors to establish an efficient market even for stocks, and there is no absolute or established level of evidence to demonstrate any of the factors, such as average weekly trading volume, the number of analysts following the security, active market makers. See, e.g., Cammer, 711 F.Supp. at 1293, cites inter alia Bromberg & Lowenfels, 4 Securities Fraud and Commodities § 8.6 (Aug.1988). ("Turnover measured by average weekly trading of two percent or more of the outstanding shares would justify a strong presumption that the market for the security is an efficient one; one percent would justify a substantial presumption."); see also Unger, 401 F.3d at 323 (concluding that the list of Cammer factors is not exhaustive, "in some cases one of the above factors may be unnecessary," the court must weigh the factors analytically, and the panel rejects the view that "there is not an efficient market as a matter of law for stocks trading in the over-the-counter market."). Moreover, the emphasis on rapid, i.e., almost immediate, price response to all publicly available information may be misguided. In determining that the presumption of reliance would be rebuttable, the high court in Basic, Inc. wrote, "By accepting this rebuttable presumption, we do not intend conclusively to adopt any particular theory of how quickly and completely publicly available information is reflected in market price." Id. at 248 n. 28, 108 S. Ct. 978 (emphasis added by the Court). The Cammer court, on summary judgment, examined the entitlement to a presumption of reliance for shareholders of common stock bought over the counter and rejected both the argument that all common stock sold over the counter was traded in an inefficient market and the application of inflexible tests for determining efficiency. Id. at 1281-82. The court stated, "The issue here is whether market makers in the over-the-counter market, specifically the market for Coated Sales stock, provided a sufficiently fluid and informed trading environment so that when material information about Coated Sales was disseminated, investors had available to them an opportunity to trade at informed, and therefore appropriate, bid and asked prices." Id. at 1282-83. It turned to the Bromberg treatise ("ultimately, one must decide what degree of responsiveness suffices for an efficient market") for guidance on the quantity of evidence required to support efficiency and attempted to provide approximate ranges that might suggest efficiency: weekly turnover of one % of a security's float would justify a substantial presumption, two % a strong presumption; for over the counter markets, the number of market makers is probably the best single criterion, with ten justifying a substantial presumption that the market is efficient and five making a more modest case. Id. at 1292-93. Thus there is an implied acceptable range even within each factor.
Dr. Blaine Nye's Declaration (#4390) in support of Lead Plaintiffs amended motion for class certification, his Rebuttal Declaration (#4527), and his testimony at the class action hearing (TR #4558 and 4559) were based on the data thus far *751 provided by the underwriters. The Declaration (#4481, Supplemented #4520) of Dr. Suresh M. Sundaresan, Deutsche Bank's expert, was based on the same data. Both experts emphasized at the class certification hearing that they had received only limited data from the underwriters[129] and that there were outstanding subpoenas for more; thus the absence of key data was not their fault. Nevertheless that lack of data, particularly with respect to bond trading, hampered their analyses and limited the specificity of their studies. Dr. Nye attempted to draw as much information as he could from the limited actual trading data, but supplemented it with theoretical pricing models (matrix pricing) to construct a value line for the debt securities. Dr. Sundaresan, who relied on the limited actual data regarding trade frequency and weekly turnover, admitted that there might be a number of dealers and institutional investors who bought and sold during the Class Period but whose data they did not yet have. Class Certification Hearing TR at 244.
Defendants challenged the definition of an efficient market provided by Lead Plaintiffs financial economist Dr. Nye, and Dr. Sundaresan testified that he had not seen that definition in the literature he had reviewed. TR at 240. Regardless of Dr. Nye's choice of language for his definition/test,[130] it is evident from his testimony on direct and on cross and from his reports that he aimed to demonstrate an informationally efficient market as traditionally defined and he applied the factors identified in case law and by financial economists in his field and examined the response of the price of those securities to public statements about Enron's financial *752 status to weigh the informational efficiency of the equity and the debt markets for Enron securities. TR at 196. This Court, of course, follows the definition adopted by the Fifth Circuit, which is in accord with Dr. Eugene Fama's traditional definition. Greenberg, 364 F.3d at 662 n. 6 ("where securities are traded in an efficient market, it is assumed that all public information concerning a company is known to the market and reflected in the market price of the company's stock").
A review of the two experts' declarations demonstrates each focused on a different part of the Class Period and identified different news events as the most material to the debt securities investors to make their cases.
In reaching his conclusion that all types of Enron securities traded efficiently during the Class Period, Dr. Nye reviewed inter alia SEC filings, analyst reports and press releases, conference call transcripts, pricing data, closing price data, trading volume, daily returns, institutional holdings. Through selected debt securities as examples, Dr. Nye tracked matrix pricing and actual pricing that he obtained regarding the response of a number of Enron registered bonds to news events in the last quarter of 2001, which he found largely identical with only occasional anomalies. Declaration (#4390) (Exhibits 5D2-5D8).
Dr. Nye performed an event study (formal regression analysis, a formal model to isolate company-specific returns) on Enron common stock to determine whether it was traded on efficient market, although he did not use the term "event study" in his report. TR of Class Certification hearing at 193, 195. He did not do an event study on the debt securities, but did examine events, including announcements that would risk default, and the expected response in the bond market. Id. at 193-94. He noted, "In a sense, default risk is company-specific. So an increase in that risk you can just match straight to the information. So I'd almost say, yeah, then we did do an event study in the debt because you wouldn't regress out the market in the industry like you do on the stock." Id. at 194.
As stated, there is no dispute among the parties that Enron common stock traded in an efficient market during the Class Period, and Dr. Nye's expert report demonstrates such using the Cammer/Unger/Bell Factors. Regarding weekly trading volume, Enron common stock traded on the New York Stock Exchange ("NYSE"), with a reported trading volume during the Class Period of 3,539,312 shares. There were 659 million outstanding shares at the beginning of the Class Period, 750 million at the end, and the average weekly reported trading volume during the Class Period was 21,009,253 shares, or 2.9% of the shares outstanding, sufficient to justify a strong presumption that the market was efficient. Its annualized turnover ratio was 151.9%, greater than the average for all stocks listed on the NYSE during each year of the Class Period. #4390 at 16-17. For the second factor, Nye reported there were at least 400 analysts' reports published on Enron during the Class Period. Id. at 17-18 and Ex. 7. Instead of market makers, used by Nasdaq to facilitate market efficiency, Dr. Nye explained that the New York Stock Exchange assigns one dealer (an independent corporation or partnership), known as a specialist, to each security traded on that exchange to maintain a fair, competitive, and efficient market for the securities assigned to it. Enron's specialist at the end of the Class Period was Fleet Specialist. Dr. Nye explained that "[t]he level of short interest in Enron's common stock relative to the public float indicates that short-selling of Enron's common stock was not constrained during the Class Period and that arbitrage opportunities could be exploited, which is evidence of market efficiency." *753 Id. at 23. He further found, "Trading in Enron stock on the NYSE prior to and during the Class Period, where the market in the stock was facilitated by a specialist, indicates that the market for Enron common stock was efficient during the Class Period, as does the possibility of arbitrage activity via short sales." Id. He also reported, "The average short interest in Enron's common stock represented approximately 1 % of total shares outstanding until October 2001 when it started to increase. Short interest represented 2.4% of shares outstanding at October 15, 2001; 4.1% of shares outstanding at November 15, 2001; and, 11.8% of shares outstanding at December 15, 2001, after the Class Period." Id. at 21-22. Relating to the fifth factor, Enron was eligible to file SEC Form S-3 and did so many times before and during the Class Period. Dr. Nye identified twelve dates when it did so during the Class Period. Id. at 23. To examine the cause-and-effect relationship between unexpected corporate events or financial releases and the immediate stock price reaction, Dr. Nye performed an event study. Id., at 24-27 and Ex. 5 and 11. He provided a number of examples of information releases and stock price reactions to demonstrate that the market for Enron common stock was efficient. Enron's common stock also had substantial capitalization (calculated by multiplying the number of shares by the prevailing market share price) throughout the class period, suggesting an efficient market: in 1998, it ranged from $17 billion to $19 billion; in 1999 from $22 billion to $31 billion; in 2000, from $47 billion to $64 billion; and in 2001, from $20 billion to $43 billion. Id. at 27 & Ex. 14. The average market capitalization of a NYSE stock was $5 billion in 1998, $5.6 billion in 1999, $6.0 billion in 2000, and $5.7 billion in 2001. Id. at 27. Dr. Nye described the bid/ask spreads of Enron as "comparable to its competitors during the Class Period"; he observes that the fact that they were not large reflects that arbitrage opportunities could be exploited, supporting the finding o@f an efficient market for the stock. Id. at 28 and Ex. 16. During the Class Period, there were between 659-750 million shares of Enron common stock outstanding, with approximate 92% held by the public; thus the float strongly supports a finding of an efficient market. Id. at 28. Finally Dr. Nye described extensive news coverage of Enron during the Class Period, another factor favoring a finding of an efficient market. Id. at 31-34. Dr. Sundaresan stated that he did not analyze this part of Dr. Nye's report, and Defendants have not argued that Dr. Nye's evidence is insufficient to trigger the fraud on the market presumption. The Court finds that Dr. Nye has presented sufficient evidence of an efficient market for Enron common stock to trigger the fraud-on-the-market presumption of reliance for the § 10(b) claims.
The Financial Institution Defendants objected in their briefs and at the class certification hearing to the inclusion of Enron call and put options[131] in Lead *754 Plaintiffs class definition on the grounds that their inclusion was not fairly revealed to Defendants before they received Dr. Nye's damages report, especially since all previous definitions spoke of "purchasers," but now Lead Plaintiff wants to include sellers of the put options. Lead Plaintiff submits they fall under the term "securities."
This Court agrees that options are "securities" within section 10(b) of the Securities Exchange Act, 15 U.S.C. section 78j(b), and Rule 10b-5. Section 3(a)(10) of that Act, 15 U.S.C. section 77b(a)(1), provides, "The term `security' means [any of a number of designated securities, such as notes, stock, and investment contracts], any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein based on the, value thereof) or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, . . . or any warrant or right to subscribe to or purchase any of the foregoing." Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 751, 95 S. Ct. 1917, 44 L. Ed. 2d 539 (1975) ("the holders of puts, calls, options, and other contractual rights or duties to purchase or sell securities have been recognized as `purchasers' or `sellers' for purposes of Rule 10b-5."). Moreover, options holders have standing to sue for damages under section 10(b) for affirmative misrepresentations in a corporate statement and for fraudulent omissions. Deutschman v. Beneficial Corp., 841 F.2d 502 (3d Cir.1988), cert. denied, 490 U.S. 1114, 109 S. Ct. 3176, 104 L. Ed. 2d 1037 (1989); Fry v. UAL Corp., 84 F.3d 936 (7th Cir.1996), cert. denied, 519 U.S. 987, 117 S. Ct. 447, 136 L. Ed. 2d 343 (1996). They do not have standing to sue for insider trading under section 20A because the corporate officials owe no fiduciary duty to options holders as it does to its shareholders. Laventhall v. General Dynamics Corp., 704 F.2d 407, 412-14 (8th Cir.1983), cert. denied, 464 U.S. 846; 104 S. Ct. 150, 78 L. Ed. 2d 140 (1983).
Dr. Nye addressed the efficiency of the market for these options, which he points out were traded on the Chicago Board Options Exchange ("CBOE") beginning in December 1999 and concluded that the market was efficient. The value of these derivative securities depended upon the value of Enron common stock, and all the information about the stock was readily available to investors and factors affecting the price of the stock were incorporated into the determination of the value of the call and put options. Id. at 34-35. See, e.g., Deutschman, 841 F.2d at 504 ("The market price for options is directly responsive . . . to changes in the market price of the underlying stock, and to information affecting that stock."). The Court finds that Dr. Nye's evidence applying the Cammer/Unger/Bell factors to the stock, is sufficient to trigger the fraud-on-the-market presumption for Plaintiffs' § 10(b) claims based on the options.
The real dispute among the parties is over Dr. Nye's finding that the market was efficient for Enron Registered Bonds and Preferred Stock.
*755 Even though Dr. Nye observed that the Cammer/Unger/Bell factors are more applicable to stocks than bonds,[132] he did attempt to apply and provide supporting analysis for the eleven factors he identified, listed in footnote 78, with respect to the Enron registered bonds, foreign debt securities, and preferred securities, all contained within his Declaration. The Court will not repeat all of these, but refers the parties to his indicia of efficiency with supporting exhibits.[133] The Court would again emphasize that no standard has been identified to determine what level each factor should reach before a debenture market can be designated efficient, and that a comparison between equity and bond markets is a comparison between the proverbial apple and orange. As a top Fortune 500 company, Enron's bond trading was substantial, as evidenced by the data.
Dr. Nye also identified dates of release of significant company-specific information and the impact on security prices to demonstrate a cause and effect relationship. #4390 at 24-27 and Ex. 10, 11 and 5.[134] Dr. Nye pointed out regarding the Enron Registered Bonds that bond investors focus on the terms of a company's debt securities and the creditworthiness of the issuer, which are reflected in the bond's yield to maturity and its price. #4390 at 35. In turn, the price depends upon the current interest rate environment, on, the timing of expected payments from the security, and on the likelihood of default, the most critical factor. A company demonstrating strong financial performance and condition will have a low likelihood of default, *756 a low yield to maturity, and a high bond price. Id.
In support for his conclusion that the debt securities traded efficiently, Dr. Nye noted that extensive and continuous information about Enron's financial state for purposes of bond market efficiency came from the same multiple sources pointed out in discussing the efficiency of the market for Enron stocks, as well as from analysts and media that follow fixed-income securities. Ex. 7 to Dr. Nye's report lists Enron's numerous analysts of its fixed-income securities during the Class Period. Fixed-income analysts from a number of prominent investment firms during the Class Period followed and reported regularly/on Enron's long-term debt. Id. at 37 and Ex. 7 from Nelson's Directory of Investment Research (listing them) and Ex. 8B (partial list of analysts' reports issued during the Class Period about Enron's fixed-income securities). Major news media followed Enron's long-term debt, with over 180 articles published during the Class Period with the words "Enron" and "bonds" or "senior notes" in the headlines or lead paragraph, not to mention the coverage regarding Enron generally, Enron's industry, and Enron's competitors. #4390 at 37-38. As noted above, Enron was eligible to file SEC Form S-3.
Dr. Nye also provided data on trading volume for Enron bonds during the Class Period, which he described as, "considerable" and "supports my conclusion that the market for the Enron Registered Bonds was efficient," including transaction data from the underwriters (EL 18) and data about quarterly institutional holdings during the Class Period (provided by reporting United States insurance companies, mutual funds, and government pension funds and state government pension funds, Ex. 19) from Lipper, Inc. #4390 at 38, 39. The underwriter data reflect over 15,800 trades for Enron Registered Bonds during the Class Period. The number of transactions per issue during the Class Period ranged from 24 to 3,684 per issue, an average of 69, a median of 282. #4390 at 38. The percentage of days on which the trades occurred and the issue was outstanding falls between 1% (11 days) to 36% (132 days), with an average of 12.2% and a median of 9.71%. Id. at 38-39, Ex. 18. Lipper's data on institutional holdings demonstrates that from 20 to 115 institutions held Enron bonds during any quarter end during the Class Period (65 on average, a median of 65). Total holdings for all reporting institutions at a quarter-end during the Class Period ranged from 2.7% of face value to 93% of face value per issue (45% on average, a median of 49%). The total reported increases in holdings for quarters in the Class Period (Q4-98 through Q4-01) as a percentage of issue amount ranged from 12% to 137% per issue (77% on average, a median of 69%). Thus there was active trading in Enron Registered Bonds during the Class Period, there were a substantial number of institutional investors, and Nye concluded that the data demonstrate the market for these bonds was efficient.
He also provided data for the total market value of Enron bonds (analogous to market capitalization for stocks) during the Class Period, calculated by multiplying the current price of the bond by the principal amount outstanding (the total face value). He reported that at year-end 1998 the Enron Registered Bonds had a total market value of $3.416 billion (nineteen Enron Registered bonds outstanding with a total of $3.300 billion face value), with market values ranging from $51.6 million to $307.7 million per issue; in year-end 1999, a total market value of $3.627 billion (twenty bonds with a total face value of $3.8 billion) with market values ranging from $48.4 million to $470 million per issue; *757 at year-end 2000 these; bonds had a total value of $4.321 billion (twenty-two bonds with a total of $4.3000, billion ace value), and market values ranging from; $50.4 million to $4983 million per issue; and at the end of the Class Period after disclosure of Enron's true financial condition, the bonds had a total value of $3.059[135] billion (twenty-two bonds outstanding with a total of $5.900 billion face amount), with market values ranging from $27.6 million to $636.5 million per issue. #4390 at 44-45 and Ex. 15. Dr. Nye stated that he did not yet have data of the bid/ask spreads for these bonds.
As for public float, Dr. Nye testified that he was unaware of significant bond holdings by Enron insiders. He also pointed to the institutional holdings data provided by Lipper and NAIC to support his conclusion that the market for Enron Registered Bonds was efficient during the Class Period. He additionally highlighted the fact that the bonds were rated throughout the Class Period by Moody's, Standard & Poor's and Fitch (Ex. 22). The ratings remained constant for the most of that time, until the debt ratings began to be cut beginning with negative news reported on October 16, 2001 when Enron announced significant write-downs, and continued downward with respect to all three credit-rating agencies as the bad news accumulated. Id. at 46-50.
Dr. Nye applied the same factors to the Preferred Securities[136] (#4390 at 7648).[137] Dr. Nye explained that two of the preferred securities at issue (1) Enron Corp. $10.50 Convertible preferred Securities with ticker EONOQ and (2) Enron Corp. 7% Exchangeable Preferred Securities with ticker EONPQ were "stock-like," and were exchangeable into common shares of Enron Corporation and Enron Oil and Gas Reserves ("EOG"), while the other four (tickers ECSPQ, ENRPQ, EONNQ, and ECTPQ) were "bond-like" and nonconvertible. Of the stock-like preferred securities, the $10.50 Convertible Preferred was exchangeable into 27.304 post-split shares of Enron at the option of the holder at any time he chose, and thus the security's value was dependent on the value of the Enron common stock, the value of which could be obtained by any holder at any time. The 7% security was mandatorily exchangeable in July 2002, and not before, into shares of EOG, which were held by Enron. Thus the value of that preferred security depended upon the value of EOG and the creditworthiness of Enron, specifically on whether Enron would perform' on its obligation to deliver the shares in July 2002 or keep the asset if it became insolvent before the exchange date; therefore it also related to efficiency for the Enron Registered Bonds. The "bond-like" securities were issued by limited partnerships which existed solely to sell each class of securities, invest the proceeds in Enron and Enron-related entities, and make interest and principal payments to the holders of the preferred securities. Enron, as the beneficiary of the proceeds, guaranteed the interest payments and return of the principal (called the liquidation preference, which was only $25 per security in contrast to the usual $1000 in a typical bond) to the investors. Thus, as *758 with a bond, the investors looked to Enron's ability to make these payments.
Dr. Nye reasonably argued that extensive information on Enron's financial condition from the multiple sources relating to the value of its common stock also was available to the Enron Preferred Securities investors (stock and debt analysts covering Enron, SEC filings, media, and credit rating agencies). Moreover, he identified news agencies that wrote specifically about the Preferred Securities during the Class Period. He did not receive data from Lipper on trading volume, but did from the underwriters and from Fact-Set regarding the trading volume on the NYSE for each Preferred Security. According to the data the underwriters have provided thus far, the underwriters reported 28,300 trades for four of the six[138] securities. For these four, with the limited data he has received, the number of transactions per security during the Class Period ranged from 4,366 to 10,452 (7,076 on average, a median of 6,744). The number of trading days ranged from 53% to 98% of total trading days during the Class Period for which the security was issued and outstanding (78% on average, a median of 81%). He summarized from the available data the average daily trading volume during the Class Period on the NYSE for each of the six Preferred Securities: (1) $75 million Enron Capital Resources LP 9% Series A Preferred Securities due August 31, 2024: 6,075; (2) $150 million Enron Capital Trust II 8.125% Preferred Securities: 8,568; (3) $200 million Enron Capital Trust II 8.125% Preferred Securities: 11,624; (4) $200 million Enron Capital LLC 8% MIPS: 16,2000; (5) Enron Corp. $10.50 convertible Preferred Securities: 55; and (6) $255 million Enron 7% exchangeable Preferred Securities due July 31, 2002, issued August 1999: 131,363. He stated that he had not received comprehensive trading data for the $10.50 convertible Preferred Securities, but that he had concluded there was "considerable trading" for all the others during the Class Period. #4390 at 80.
Dr. Nye explained that the underwriters typically make a market for the securities that they underwrite. Ex. 4 to #4390 lists the names of the underwriters for each of the Preferred Securities except for the $10.50 convertible securities, which first issued in 1983 and for which he has not yet discovered the first underwriter. The transaction data he has received from the underwriters demonstrates that the underwriters of the other five Preferred Securities did trade in them during the Class, Period.
As noted, Enron was eligible to file the SEC Form S-3. Each of the Preferred Securities, as reflected in SEC filings and for some on the face of their prospectuses that they were registered with the SEC and listed on the NYSE, and thus eligible to be publicly traded in this country. Enron was also subject to the SEC's stringent reporting requirements and continuous disclosure of material information to investors. These factors all support an efficient market for the Preferred Securities.
Data from Thomson Financial regarding institutional holdings on five of the six Preferred Securities evidences the following: (1) of the $200 million Enron Capital LLC 8% MIPS, between 1.2% of the *759 amount issued (at the end of the fourth quarter of 2000) and 8.1% of the amount issued (at the end of the fourth quarter of 2000) was held by institutions; (2) of the Enron $10.50 convertible Preferred Securities, institutions reported holding between 4.3% of the amount issued at the end of the second quarter of 2001 and 26.8% of the amount issued at the end of the first quarter of 2001; (3) of the $75 million Enron Capital Resources LP 9% Series A Preferred Securities due August 31, 2024, the $150 million Enron Capital Trust II 8.125% Preferred Securities, and the $200 million Enron Capital Trust I 8.3%[139] Preferred Securities, the institutions reported holding less than 1%. Dr. Nye had not received data for the $255 million Enron 7% exchangeable Preferred Securities due July 31, 2002. #4390 at 82.
NAIC data with reported holdings by U.S. insurance companies was available for all but the Enron Capital LLC 8% MIPS" Preferred Securities. Less than 1% of issue amount for Enron Capital Trust II 8.125% Preferred Securities, Enron Capital Trust II 8.125% Preferred Securities, and Enron Corp. $10.50% convertible Preferred Securities were held by U.S. insurance companies. U.S. insurance companies did report holding 2.1% of issue amount for year-end 1998, 1999,2000; no holdings were reported for year-end 2001. #4390 at 82-83.
Analogous to market capitalization for stocks, the total market value of the Preferred Securities calculated as the shares outstanding multiplied by the current price of the security, was substantial throughout the Class Period: (1) at year-ends 1998, 1999, 2000 and on November 27, 2001 the four non-convertible Preferred Securities had a total market value of $634.6 million, $563.4 million, $628.3 million, and $320.5 million, respectively; (2) at years end 1998, 1999 and 2000 and on November 27, 2001 the $10.50 convertible Preferred Securities had a market value of $1.016 billion, $1.555 billion, $2.916 billion, and $139.6 million, respectively; and (3) at years-end 1999, 2000, and on November 27, 2001 the 7% Exchangeable Preferred Securities had a market value of $215.6 million, $554.2 million, and 206.0 million, respectively. #4390 at 83 and Ex. 15.
As for bid/ask spreads, Dr. Nye obtained data for three of the six Preferred Securities which, reflected that the spreads during the period were comparable to the spreads of Enron common stock and the spreads of Enron's competitors' common stock (Ex. 16) and were not large, indicating that arbitrage opportunities could be exploited, and thus supported his finding of an efficient market. #4390 at 83-84.
Dr. Nye reported that he was not aware of any company insiders with significant holdings for five of the six Preferred Securities. The exception was for the Enron Corp. $10.50 Convertible Preferred Securities, ticker EONOQ, which Enron. Director Robert A. Belfer was listed in `Enron's Proxy Statements as holding. On February 15, 1999 Belfer held sole or shared voting investment power over 238,825 securities, approximately 18% of that class of security; on February 15, 2000, 219,207, or 17%; on February 15, 2001, 215,207, or 17%. Nye states that on each of these dates, Belfer's holdings were equal to the total amount held by all directors and executive officers as a group. During the Class Period the Enron Corp. Savings Plan also held 70,000 of the EONOQ securities, so approximately a total of 23% of EONOQ was held by Enron affiliates and 77% was available as public float.
*760 Each of the Preferred. Securities was rated by Standard and Poor's and Fitch throughout the Class Period, while Moody's rated each of the four non-convertible securities and the Enron Corp. 7% Exchangeable Preferred Securities for the same time, Dr. Nye was still searching for Moody's ratings for the Enron Corp. $10.50 Convertible Securities. He traces all the others, noting that downgrades again began on October 16, 2001. #4390 at 85. The prices of the two convertible securities were affected by the events and factors that affect the common stock, such as the news releases on March 12, 2001 (termination of Blockbuster VOD deal), August 15, 2001 (resignation of CEO Jeffrey Skilling), October 17, .2001 (Enron's third quarter 10Q press release), and November 28, 2001 (Moody's downgraded Enron debt to junk status). #4390 at 85-86, Exs. 5E1, 5E2, 5F1. The 7% Exchangeable Preferred Security was tied to the value of the shares of EOG that Enron held and that were to be mandatorily exchanged on the due date of July 31, 2002. Dr. Nye found that the price of the 7% Exchangeable Preferred security moved in similar fashion to the price of the EOG common stock during the Class Period. Ex. 5F1. Dr. Nye traced the price decline coinciding with the information flow' about. Enron's financial condition and the increasing likelihood that it would not fulfill its obligation to exchange the EOG stock for the Preferred Security, beginning in October 2001. #4390 at 86-87. The price of the nonconvertible Preferred Securities declined when news called into question Enron's ability to perform on its promise to pay interest and principal in full and on time. Id. at 87-88.
Thus based on the indicia of market efficiency for the Preferred Securities during the Class Period (publicly available Enron SEC filings and debt offering materials, equity and fixed-income analyst coverage for Enron and the energy industry, wide dissemination of news about Enron and the Preferred Securities, the sizeable trading volume, the making of the market by underwriters, Enron's eligibility to file Form S-3, SEC registration and eligibility to trade on the NYSE, large market values, substantial public float, ratings by major credit rating agencies, and prompt price responses to material new information), Dr. Nye concluded that all Enron Preferred Securities traded in efficient markets.
Defendants challenge Dr. Nye's use of matrix prices and New York Stock Exchange Closing Prices to estimate trading prices of Enron's debt securities.[140] Dr. Nye explained that matrix prices, which are published by such entities as Financial Times, Bloomberg, FactSet, Factiva, Reuters, and Interactive Data Corporation, are "theoretical prices based on credit rating and other important creditworthy events of a company." TR at 41. See also Nye's Rebuttal Declaration (#4527) at 21-22 (Reliability of Matrix Prices). They are "calculated prices based on a fixed-income security's credit risk, term to maturity, and when applicable, its redemption features," Nye Declaration (#4390) at 50. Given the relative infrequency of bond "trades compared with the frequency of stock trades, Nye explains that matrix prices are used by financial institutions that invest in bonds to be able to accurately price the securities in their portfolios periodically, even daily, for regulators, life insurance companies and others. See 4527 at 21-22 nn. 33-36 He also used New York Stock Exchange closing prices, which price a bond on days when it has not traded to allow bondholders to evaluate their portfolios. Given the failure of the underwriters thus far to provide much of the requested *761 actual trading data for Enron securities during the Class Period, he compared the matrix prices for those bonds for which he could obtain them with the actual trading prices he did receive from the underwriters and found the matrix prices were reasonable estimates of the value of Enron bonds throughout the Class period. Nye Declaration at 50. This established use of matrix prices and the current restriction on data from the underwriters lead the Court to find Dr. Nye's data to be admissible.
Dr. Sundaresan divided the Class Period into two parts: the "pre-distressed period" and the last forty days or "distressed period" (October 16, 2001-end). Because both experts used these terms during the Class Certification Hearing, the Court will also use them in discussing their opposed, conclusions.
With supporting exhibits (5C1 through 5C40 and 5D1 through 5D10) Dr. Nye reported that there was "minimal variation in pricing indicators" of the debt securities prior to the fourth quarter of 2001, compared to the precipitous decline in prices of the great majority of Enron registered Bonds that occurred in that final quarter or distressed period. Dr. Nye testified that during the first three years of the Class Period, there was little change in Enron's default risk, and any price movement in the securities largely reflected changes in the interest rates. He explained,
This is not surprising given that debt issues have claims superior to equity in bankruptcy, but do not benefit from improvement in a solvent firm's prospects as equity holders, do. During periods of relatively low credit risk, i.e., when the market perceived a high probability that Enron would pay its interest and principal payments in full and on time, the debt and debt-like securities traded near par and responded comparatively little to company-specific news. It is during "distressed period" that debt and debtlike securities will move sharply with company-specific news. Therefore, it is consistent with market efficiency that there were no large price reactions during the "pre-distressed period."
# 4527 at 5.
In evaluating the market efficiency of the debt securities, the Dr. Sundaresan identified the following as news event announcements in 2001 material Enron debt securities, although, as Dr. Nye points out, Dr. Sundaresan fails to explain why all these events should have affected the price of the debt securities (#4527 at 5):(1) February 12, 2001, when Skilling became CEO of Enron; (2) March 9, 2001, when the Blockbuster VOD deal terminated; (3) May 24, 2001, when Dabhol served its termination notice; (4) August 14, 2001, when Skilling resigned; (5) October 16, 2001, when Enron's third quarter 10Q press release took place; (6) October 22, 2001, when the SEC begins investigating Enron; (7) October 24, 2001, when Andrew Fastow was terminated; (8) October 29, 2001, when Moody's downgraded Enron notes to Baal; (9) November 8, 2001, when Enron admitted overstating its earnings and released its 8-K; (10) November 9, 2001, when Moody's downgraded Enron's senior unsecured notes to Baa3; (11) November 21, 2001, when discussions regarding restructuring Enron's debts took place; (12) November 28, 2001 when Moody's downgraded Enron debt to junk bond status; and (13) December 2, 2001, when Enron filed for Chapter 11 bankruptcy. See, e.g., # 4481 at 26.
Dr. Nye argued that events that affected pricing in the stock market in the first half of 2001, such as the first three events (Skilling's appointment as CEO of Enron in February 2001, the termination of the Blockbuster deal in March 2001, and the termination of the Dabhol deal in May *762 2001) did not affect the bond market because the stock price was still relatively high, Enron still had an ample equity buffer, the events would not be expected to have much impact on Enron bond prices, and the bondholders' expectations of repayment were therefore not threatened. TR at 91-92; # 4527 at 5-6. To demonstrate his point, Dr. Nye quoted several analysts' responses to bonds in the wake of these events. # 4520 at 7. He emphasized that even Skifling's abrupt resignation on August 14, 2001, was characterized to the public as for purely personal reasons, and Kenneth Lay, former CEO who had shepherded Enron through its remarkable growth, returned to replace Skilling and assured the market there was no reason to be concerned. # 4527 at 6. The resignation received extensive media and analyst coverage, and Dr. Nye pointed out that many analysts continued to recommend Enron stock, summarized that "market commentary found Skilling's resignation to either have small impact for bonds, or to be a non-event." Id. at 6. As an example, he quoted an analyst of Defendant Deutsche Bank stating that although the stock share price dropped 15% by the end of trading on August 16, "we do not see the Skilling resignation as a credit/ratings/spread event for ENE." Id. at 6.
Dr. Nye also pointed out that on October 16, 2001, the date identified by Dr. Sundaresan as commencing the distressed period, in a press release Enron presented its results for the third quarter of 2001 and reported a one-time charge of $1 billion, or $1.11/share, for a loss of $40.84/share. Chairman and CEO Kenneth Lay publicly represented that Enron was "very confident in our strong earnings outlook" and that the charges resulted from "a thorough review of our business" and "to clear away issues that have clouded the performance and earnings potential of our core energy businesses." # 4527 at 9. Enron "reaffirmed today it is on track to continue strong earnings growth and achieve its previously stated targets of recurring earnings per diluted share of $0.45 for the fourth quarter 2001, $1.80 for 2001, and $2.15 for 2002." Lay itemized some of the charges as related to some of the troubled aspects of its business (e.g., Azurix, Broadband). Nye noted that Kenneth Lay told the public that the credit rating agencies had informed Lay that there would be no change in Enron's rating as a result of the October 16th announcement, and Nye demonstrated with examples that generally analysts, including analysts from Merrill Lynch and Deutsche Bank, saw the charge as a positive sign that Enron was getting its house in order. Id. at 9-11.
By ten days after that, however, the bond prices did begin reacting to subsequent events, including the announcement of the SEC investigation and Fastow's termination, and they declined further when the credit rating agencies lowered Enron's rating.[141] He provides sample quotations *763 from analysts. Id. at 11-12. With increasing revelations of Enron's financial troubles and news events a significance to bond investors, the default risk rose), the prices of the bonds fell and, then, reflecting efficiency, rebounded when it appeared that Dynegy might bail Enron out, and then fell again when that merger fell apart. Focusing on the fourth quarter of 2001 (mid October through late November), Dr. Nye demonstrated that the matrix and underwriter data of actual trade prices of the Registered Bonds "cascaded downwards to the series of negative disclosures about Enron's creditworthiness." # 4390 at 52.[142] In particular Dr. Nye explained that he focused on changes in Enron's credit rating during the distressed period because the central concerns of investors in debt security are interest rate levels and default risk.
Observing that "[p]rice-reaction is the most important and direct test of market efficiency, Dr. Sundaresan examined (1) the response of the Enron debt securities to changes in market interest rates from October 19, 1998 to December 31, 2000; and (2) given firm-specific news releases in 2001, the probability of default, as measured by expected default frequency ("EDF") from Moody's KMV and by Credit Default Swaps on the debt securities, which incorporate both probability of default and the loss given default. Dr. Sundaresan concluded with regard to the first period that although market interest rates climbed from 6.8% in October 19, 1998 to 9.02% by May 2000, an increase of over 220 basis points that he insists necessarily had adverse effects on corporate bonds with fixed coupon rates even if the credit quality did not change, the prices of the Enron debt securities, with just a few exceptions, barely moved, an indicator according to him of an inefficient market." # 4481 at 22.
With regard to his analysis of price movement in 2001, Dr. Sundaresan employed information about EDFs and credit default swap spreads to evaluate price reaction of Enron debt securities to Enronspecific news during the Class Period.
Dr. Sundaresan defined EDF as an estimate of the probability of default within a given time period (Sundaresan used one year), "probably the most important factor that drives corporate bond prices." TR at 219-220; # 4481 at 22. He explained that EDF is computed by Moody's KMV using information about (1) enterprise value (present value of future cash flows), (2) level of leverage (the aggregate book value of the debt that has been issued by the *764 company), and (3) the operating risk of the firm (whether the company operates in a risky or less risky business). TR at 220. In turn, a credit default swap allows an investor to buy credit default swap, in essence an insurance policy, to protect him against the probability of default by requiring the seller of protection to pay the investor the par value if there is a default before the bond matures. Id. at 220-21. A credit default swap spread in the price the seller of protection charges, capturing "the spread between a risk-free "ond and . . . a risky bond." Id. at 221. Sundaresan testified that he wanted to see (1) to what extent the probability of default, as measured by the EDF, and the credit default swap spreads captured the probability of default and (2) how well they reacted to firm-specific information during the class period. TR at 221. In particular he wanted to understand the extent to which bond prices in predistressed period reacted to increases and probability of default. TR at 225.
Dr. Sundaresan testified that the one: year probability of default for Enron, as measured by EDFs, continuously increased from 0.35% in February 2001 to 2.34% by October 8, 2001, more than fivefold. # 4481 at 26. By November 20, 2001, the probability of default reached the maximum level of 20%. Id. at 27. Dr. Sundaresan argued that bond investors should have viewed the five-fold increase in the probability of default from February 12, 2001 and October 10, 2001 as adverse information about the value of Enron's debt securities, but they did not; therefore the fact that the prices with a few exceptions stayed close to par, with little volatility, demonstrates that the bond investors were trading in inefficient markets throughout the Class Period. # 4481 at 27-29. He claimed that examining price reactions to the news announcements in the second half of October, 2001, when default was imminent for Enron, is not an appropriate test of market efficiency because by then Enron was in major financial distressed and investors "had no choice but to sell out their positions" in active trading at distressed prices. Id. at 27. Thus, in contrast to Dr. Nye's emphasis on the distressed period, Dr. Sundaresan maintained that only the pre-distressed period was relevant and in essence he discounted the significance of steep decline in the last six weeks and eliminated nine of his selected 2001 thirteen news events to measure price responsiveness.[143] Dr. Sundaresan also used the KMV data to show that during the predistressed period, a twoand-a-half-year period, the credit default swap spreads, like the EDF, in 2001 increased five times. TR at 226; # 4481 at 31. Yet traded prices only slightly appreciated during the same time. TR at 226-27. Dr. Sundaresan concluded that price reactions for all the Enron debt securities during predistressed period were minimal, despite the fact that the credit default swaps spreads had increased five fold, implying an increase in the probability of default (and resulting increase in the loss to bond investors), and were not consistent with what one would expect to see in an efficient market. TR at 227-28; # 4481 at 32. During the distressed period, which consisted of only forty days, the "credit default swap spread dramatically increased," *765 but, according to Dr. Sundaresan, it "ballooned well before the prices of most of the Enron debt securities reacted." TR at 227; # 4481 at 31-32. Specifically the credit default swap spreads went from 50 basis points in middle of February 1999 to nearly 300 basis points on October 3, 2001, to nearly 700 by October 22, 2001 when the SEC announced its investigation, to over 1100 basis points by October 29, 2001 when Moody's announced its credit downgrade. # 4481 at 31.
Nevertheless Dr. Sundaresan admitted that the EDFs of KMV data were publicly available, although one had to pay for them; thus theoretically the market had that information and under the semistrong theory, it was incorporated into the price of Enron debt securities. TR at 265, 270-71. Furthermore he conceded that large institutional investors, which are generally considered knowledgeable and sophisticated investors and which were the primary purchasers of the Enron debt securities, would be able to purchase KMV data. Sundaresan also admitted that there is no exclusive way to analyze the KMV data, but that different analysts calculate the data in different ways. TR at 266. He agreed that it was possible that Enron bond investors, which were primarily QIBs, analyzed all publicly available information and came to a different conclusion from his conclusion. TR 274. When asked about a 2004 article, "Forecasting Defaults with the KMVMerton Model" by Barras and Shumway, which concluded that the model was only a marginally useful default forecaster but not a sufficient statistic for default, Sundaresan responded that he was not familiar with the article, but agreed that his and their divergence could also be characterized as a "disagreement among academics." TR at 266. Furthermore, on cross examination, Dr. Sundaresan did not appear to know, until Mr. Howse pointed the fact out to him, that the Newby Plaintiffs have claimed that. Enron's true financial situation was concealed, specifically that Defendants manipulated during the three-year Class Period the factors Sundaresan set out in his report as the three "key drivers of EDF," i.e., market value of Enron's assets, book value of its debt obligations, and risk of Enron's assets for pricing debt, (1) cash flow, probability of default; (2) debt to asset value (i.e., are Enron's assets worth enough to cover the loans?); and (3) Enron's business' ability to meet its payment or the operating risk of the company. TR at 279-81. Sundaresan responded, "I'm operating in the context of situations where concealment is not an issue." Id. at 281. He also admitted that when bond investors learned of Enron's actual financial condition with the disclosures in the distress period in late October and November 2001, the bond prices reacted immediately. TR at 279. Moreover, with regard to the ballooning of the credit default swaps in the distressed period, his contention that it occurred "well before the prices of most of the Enron debt securities reacted" appears to this Court to be an exaggeration in light of the few days and barrage of disclosures involved in the distressed period.
Dr. Sundaresan argued that the use of matrix pricing, for price reaction studies was criticized in two papers that he cited in his report[144] and that a table he included demonstrated such errors. TR at 242-43 43. The Court again notes that finance theory and economic models used to calculate value lines are not exact science. Moreover there has also been criticism of event studies, upon which a number of courts have relied. See, e.g., Bradford Cornell and R. Gregory Morgan, Using Finance Theory to Measure Damages in *766 Fraud on the Market Cases, 37 U.C.L.A. 883, 903 (June 1990) ("for a fraud which is revealed slowly over time, the event study approach is likely to significantly understate the true damages"). Reflecting a similar controversy among experts, on cross-examination, Dr. Sundaresan disagreed with the statement by Harvard's Mike Jensen in an article entitled "Some Anomalous Evidence Regarding Market Efficiency," published in the Journal of Financial Economics, stating that the New York Stock Exchange, NASDAQ, and the corporate and government bond markets are considered by some academics to be informationally efficient. TR at 249. Dr. Sundaresan conceded that his disagreement with Dr. Nye could simply be two experts disagreeing on efficiency. TR at 250. He also admitted he had trouble finding studies on bond market efficiency. Dr. Sundaresan admitted that for expected default frequency, different analysts could calculate differently the KMV data, which Dr. Sundaresan used for calculating his expected default frequency and which he also admitted are just one of the many. pieces of information that the market takes into account. Id. at 265-66, 274. Furthermore Dr. Nye testified that he reviewed 500-600 analyst reports and does not remember any analyst mentioning EDF data or KMV data from Moody's. TR at 93-94. He also pointed out in his Rebuttal Declaration that KMV's EDF is only one of many models available as tools to market participants and not the only factors that can measure market efficiency. #4527 at 16. The two experts also disagreed over whether transparency exists, or what degree of transparency must exist, in the over-the-counter bond market, especially with respect to Enron bond purchasers, which were mainly sophisticated QIBs with substantial research capabilities and traders constantly engaging in conversation with traders from other large institutions, which Sundaresan admitted could have analyzed the publicly available information and come to a different conclusion than he had. Id. at 251, 269, 274-75.
Dr. Nye described the over-the-counter bond market, in contrast to a central stock exchange with a board posting prices, as a multi-dealer market in which traders call and negotiate with and among themselves by telephone or electronic messaging system. TR at 69. He maintained it is an efficient, informationally up to the minute market and that bond dealers could obtain the most recent prices, whereas Bloomberg data was comparatively old.
Arguing that secondary corporate bond markets tend to be inefficient, Dr. Sundaresan focused on transparency, which he argued substantially supports efficiency. He testified that to demonstrate "transparency," which his Declaration defines as "the widespread availability of information relative to current opportunities to trade and recently completed trades" (# 4481 at 7), one must consider two aspects: (1) pretrade transparency (a potential buyer or seller in a transparent market would be able to evaluate the buy and sell interest in terms of an aggregation of bids and offers and the quantities that the market maker or market participants are willing to transact) and (2) post-trade transparency (where a buyer or seller who has completed a transaction could see how his transaction compared with that of others in price). TR at 214-15; # 4481 at 8. He identified as a "market condition" promoting efficiency, low or no costs" in trading securities and in obtaining information, which not available in the multi-dealer bond market, but admitted that condition is typical of an "idealized market." # 4481 at 6-7. He maintained that a market with a high degree of transparency is likely to be informationally efficient, with higher trading volume and frequency, and vice versa. Id. at 215; # 4481 at 7. He testified that he does not like the fact that corporate bond *767 traders talk to each other on the telephone and he would prefer to see live bids and live offers so he can trade without negotiations. Id. at 268 See also # 4481 at 15; at 8 ("The existence of effective consolidation mechanisms would serve to reduce the search costs to potential investor by providing them with a complete picture of trading opportunities with not just one dealer, but with multiple dealers. This in turn, would promote transparency and efficiency.").
Nevertheless he conceded the bond traders at large institutions do not trade on unreliable information or on less than all publicly available information, which is the test of informationally efficiency. Id. at 269. See also # 4481 at 14-20. When asked if fewer events cause market participants to revalue bonds than for stock holders to revalue their investments, Sundaresan admitted, "That's probably true." TR at 271-72.
The Court notes that no-cost efficiency, or for that matter transparency, has not been established as the standard for an informationally efficient, over-the-counter bond market. Obviously "transparency" is relative, involving consideration of numerous factors. No standard of requisite transparency has been established by the courts. Nor do Dr. Sundaresan's personal preferences for National Exchange trading set an absolute benchmark. In Cammer, the district court rejected arguments that stock traded over the counter was not traded in as efficient a market as stock on the National Exchanges, noting that "well-followed stocks, such as Apple Computer and MCI Telecommunications, have chosen to trade in the over-the-counter market rather than on a national exchange. On the other hand, some companies listed on national stock exchanges are relatively unknown and trade there only because they met the eligibility requirements." 711 F. Supp. at 1281. The district judge further discounted conclusory charges that the over-the-counter market is inefficient, thinly traded, with limited floats, where only a small portion, of investors are comfortable investing, where trading is infrequent, slow etc., while national exchanges are better equipped to provide investors with the ability to trade instantaneously, and the market is more liquid than the stagnant over-the-counter market. Id. at 1282. The court stated, "The central question under the fraud on the market theory is whether the stock price, at the time a plaintiff effected a trade, reflected the `misinformation' alleged to have been disseminated." Id. at 1282. It is not whether the market is the most efficient, but whether it is an adequately efficient market, that is required to trigger the fraud-on-the-market presumption. In other words, "The issue here is whether market makers in the over-the-counter market, specifically the market for [the particular issuer's] stock, provided a sufficiently fluid and informed trading environment so that when material information about [the issuer] was disseminated, investors had available to them an opportunity to trade at informed, and therefore appropriate, bid and asked prices." Cammer, 711 F.Supp. at 1282-83. As pointed out by Dr. Nye, Enron was among the largest publicly traded firms in this country and ranked 27, 18, 7, and 5 in the Fortune Five Hundred List for 1998, 1999, 2000, and 2001, respectively. # 4390 at 88. Moreover it was a cutting-edge, news-making leader in the energy industry, was followed and scrutinized constantly by analysts and the media.
Dr. Nye argued that the bond market is transparent if you wish to buy and follow the different, but still effective, procedure of the over-the-counter market, and the fact that the market is substantially composed of large QIBs, with trained staffs and substantial research capabilities that keep them well informed, ensures the market is informationally efficient. TR at 69-73. *768 Macey, et al. in Good Finance, 42 Stanford L.Rev. at 1089, quoting from Ronald J. Gilson & Reinier H. Kraakman. The Mechanisms of Market Efficiency, 70 Va. L.Rev. 549, 571-72 (1984), support Dr. Nye's point: "in today's securities markets, the dominant minority of informed traders is the community of market professionals, such as arbitrageurs, researchers, brokers and portfolio managers who devote their careers to acquiring information and honing evaluative skills . . . [P]rofessionally informed trading . . . explains why any information that is accessible to significant portions of the analyst community is properly called `public,' even though it manifestly is not. Such information is rapidly assimilated into price, with only minimal abnormal returns to its professional recipients." Macey, et al., conclude, "Thus, when courts declare that plaintiffs are entitled to a presumption of reliance in fraud-on-the-market theory cases, what they actually mean is that plaintiffs are entitled to rely on the price decoding and setting mechanisms of market professionals." Id. He also pointed out that during the Class Period Bloomberg provided information about security terms, descriptions and certain pricing. # 4527 at 22. Moreover the Securities Valuation Office of NAIC, an organization of insurance regulators, evaluated the riskiness of Enronrelated securities and provided valuations at which domestic insurance companies were required to carry these securities on their financial statements for regulatory capital purposes. These insurers had holdings in each of the Enron registered bonds during the years of the Class Period. # 4390 at 43-44 and Ex. 20.
The Court finds that Dr. Nye has made a prima facie showing that Enron Registered Bonds and Preferred Securities did trade in an efficient secondary market. His analysis of the applicable CammerlUnger/Bell factors support that showing. Without an established standard or test for bond market efficiency or transparency or significant precedent, the Court finds that Dr. Nye has presented data demonstrating and reasonable arguments explaining why the secondary markets for Enron debt securities were efficient, sufficient for a preliminary showing to trigger fraud on the market. The Court concludes that denying application of fraud on the market to the bond market because it does not operate in the same way as a national exchange or trade in the same volume, frequency, or manner as equity on those exchanges is throwing out oranges because they are not apples. The Court finds that the issue is not whether the market for equity is more efficient than the market for debt securities, but whether the market for debt securities is adequately informationally efficient (whether the price reflect all publicly available information) to trigger the fraudon-the-market presumption of reliance.
Financial Institution Defendants disagree with Dr. Nye's finding `that there was efficiency in the primary markets for bonds.[145] Clearly some of `the differences between stocks and bonds are evident in *769 the ways they are first sold on the market When addressing the Cammer factor of market makers, Nye distinguished bonds from stocks and explained that, when bonds are first offered, underwriters, as the intermediaries between sellers and buyers, bring them to market and typically state they intend to "make the market" in the issue they are underwriting. Dr. Nye stated that the data he received from the underwriters indicates that they did trade in the Enron Registered Bonds during the Class Period. Nevertheless an ex post facto look at what happened does not translate into a conclusion that at the time of the trade there was an efficient market for these securities.
In Basic, Inc." the Supreme Court adopted the fraud-on-the-market theory in the context of an open, actively traded, well developed stock market. There is a line of cases conclusorily holding that primary bond markets per se are not open and have not developed at all, and thus the theory should not apply. See, e.g., Freeman v. Laventhol & Horwath, 915 F.2d 193, 199 (6th Cir.1990) (`We hold . . . that a primary market for newly issued municipal bonds as a matter of law is not efficient"); Lipton v. Documation, Inc., 734 F.2d 740, 746 (11th Cir.1984), cert. denied, 469 U.S. 1132, 105 S. Ct. 814, 83 L. Ed. 2d 807 (1985); In re Bexar Sec. Litig., 130 F.R.D. 602, 607 (E.D.Pa.1990) (a primary market for newly issued bonds "is not efficient or developed under any definition of these terms."); Ockerman v. May Zima & Co., 27 F.3d 1151, 1158-59 (6th Cir. 1994); In re Safety-Kleen Corp. Bondholders Litigation, No. 3:XX-XXXX-XX, 2004 WL 3115870, *5 (D.S.C. Nov.1, 2004). But see AAL High Yield Bond Fund v. Ruttenberg, 229 F.R.D. 676, 684-85 & n. 9 .(N.D.Ala.2005) (concluding that the market in a private offering of high yield corporate debentures was informationally efficient even though on some days there was low or no trading because there was a rapid reaction of the price to the release of firm-specific information, the company was eligible to file an S-3 registration statement, and there was a market maker).
Nevertheless, as court have increasingly recognized regarding ministerial applications of the Cammer/Unger/Bell factors or market efficiency evidence under Greenberg, there is a growing trend toward objecting to methodical and superficial application of them by courts without, analysis of specific facts, as misleading.[146] The
*770 Fifth Circuit has noted that the Cammer factors are not exclusive and they are an analytic tool, not a checklist. Unger, 401 F.3d at 323, 325. There has been criticism of the assumption that the fraud-on-themarket presumption should not be extended to the initial public offering/primary market context. See, e.g., Robert G. Newkirk, Comment, Sufficient Efficiency: Fraud on the Market In the Initial Public Offering Context, 58 U. Chi. L.Rev. 1393, 1394 (Fall 1991) (in the context of ECMH's theory of informational efficiency, "plaintiffs' reliance on the market price is indeed reasonable in many IPO situations, and courts should consider the characteristics of the individual IPO market in applying the fraud on the market theory.").[147]
One factor that has been considered significant in such a determination is whether there is a "group of independent market professionals" involved in the IPO, "evidence that the market price is sufficiently information efficient" for reasons discussed supra with respect to QIBs. 58 U. Chi. L.Rev. at 1412. Newkirk proposes the following factors to evaluate whether such a group exists whose activities will generate a sufficiently information efficient market: "(1) the issuance of a significant volume of securities; (2) a large number of potential investors; (3) participation by professional investors outside of the IPO (such as pension fund managers or brokerage firms); and most critically, (4) the direct involvement of an impartial, reputable underwriter in the offering." Id. at 1414.
Dr. Nye testified that institutions (pension plans, mutual funds, etc.) were the major players in the Enron bond market. The underwriters were among the top financial institutions in the world. That they were also allegedly primary violators who secretly participated in the scheme to defraud was not publicly known information until the corrective disclosures occurred. (The issue of when the operative curative disclosure date occurred is one of fact, not properly resolved at class certification.)
Moreover, argued Nye, even in private placements, the debt securities are traded on publicly available information because the participants poll each other and exchange bids in setting prices.
Furthermore, Dr. Nye attempted to show that the setting of the price of a new debt security is not an arbitrary decision of the issuer or the underwriter. Dr. Nye points to the Declaration of R. Scott Flieger (# 4488), Managing Director in the Debt Capital Markets Department of Deutsche Bank Securities, Inc. and previous co-head of its U.S. investment grade syndicate desk, who explains how a primary market price for registered Rule 144A and Regulation S fixed income investment grade corporate bonds in the primary market is set in consultation with knowledgeable institutional buyers in consideration of information available at the time. # 4527 at 19-20. While Mr. Flieger described the process followed by Deutsche Bank, he stated, "My experience is that the process worked the same way as other institutions that served as lead Bookrunners during the Relevant Period [October 19, 1998 to November 27, 2001)." # 4488 at 2. *771 Issuances of Bonds during the Relevant Period were managed by either a sole bookrunning, "Lead" bank or multiple "Joint Bookrunners" (each a "Bookrunrker"). The New Issue Syndicate Desk (the "Syndicate Desk" of the Bookrunner(s)) worked with the issuing entity (the "Issuer") to set the pricing terms at which the Bonds would be offered.
. . . When Deutsche Bank acted as a Bookrunner during the Relevant Period, Deutsche Bank's Syndicate Desk indicated a "spread" range to the Issuer that the Syndicate Desk believed would be attractive to potential investors. The spread range referred to the number of basis points the interest rate yield of a bond was (with 100 basis points, equaling 1% above the then prevailing interest rate yield) on a comparable U.S. Treasury bond. By way of background, U.S. Treasury bonds were considered "riskfree" but non-U.S. Treasury Bonds were not. As a result, a particular Bond offered during the Relevant Period had to yield more than the yield on a comparable U.S. Treasury bond in order to generate interest among potential investors. Each Bond's comparable U.S. Treasury bond was known as its "benchmark" bond. The difference between the yield of a particular Bond and its benchmark bond was referred to as the "credit spread." . . .
. . . If the Issuer agreed with the credit spread indicated by Deutsche Bank's Syndicate Desk, the Syndicate Desk then shared the indicative credit spread range with the salesforce of Deutsche Bank's Institutional Client Group ("ICG"). The ICG's salesforce then communicated the indicative credit spread range to institutional investor clients. The Issuer and the Syndicate Desk, based on an analysis of market credit conditions, prices for comparable, bonds, interest rate levels and feedback ICG received from potential investors about the indicative spread range, settled on the final credit spread pricing terms that they believed would secure the most successful distribution of the Bonds to investors . . . Bonds offered during the relevant Period were marketed primarily to institutional investors, with occasional sales to "Accredited Investors" (sophisticated investors with a high net worth).
# 4488 at 1-2.
Nevertheless, Mr. Flieger's Declaration shows that the primary market was not an "open" one. Once the credit spread was determined as indicated supra, it was provided to the initial purchaser/underwriter's salesforce, which then selected, targeted and solicited particular institutional investors through such means as "preliminary offering documents, group investor conference calls, invitation-only group investor meetings, Bloomberg Roadshows, one-onone meetings and telephone conversations." # 4488 at 2. Dr. Nye does not address this aspect of the primary market.
Mr. Flieger describes the secondary market for buying and selling bonds during the Class Period as tending to involve the same institutional investors that bought, the bonds in the primary market and "street brokers" who facilitated bond trading between bond traders at various banks, with some expansion to include other institutional investors and dealers. # 4488 at 3. Nevertheless the secondary market was "open" in that anyone wishing to participate could, by phoning in or sending an e-mail via Bloomberg to the salespersons they knew at different banks, and the informal, informational flow of the over-the-counter market place described earlier would ensue.
The Court finds that the primary markets, with a single seller and with the private and targeted solicitation of investors by the initial purchasers/underwriters' *772 salesforces in the primary markets here, cannot qualify as open markets.[148] Nevertheless, because any statutorily qualified investor could enter the secondary market, participate in negotiating a buy based on real-time up-to-the-minute prices by calling the secondary market participants, the Court finds that a preliminary case has been made that these secondary over-thecounter markets for debt securities are efficient, albeit in a very different way than the national stock exchange markets.
J. Claims Against Deutsche Bank Entities
This Court has reviewed the following related pleadings: (1) the Deutsche Bank Entities' motion for partial reconsideration and dismissal, or motion to require a second amended complaint before a response by them (# 3791), memorandum in support (# 3794), and notice of supplemental authority (# 4626); (2) Lead Plaintiffs motion for leave to file an amended complaint as to Deutsche Bank, motion for entry of an order requiring Deutsche Bank to answer Lead Plaintiffs amended. complaint, and Lead Plaintiffs opposition to Deutsche Bank's motion for partial reconsideration and dismissal (# 3903); (3) Deutsche Bank Entities' reply memorandum in support of their motion for partial reconsideration and dismissal and memorandum in opposition to Lead Plaintiffs motions (# 3941); and (4) Deutsche Bank Entities' supplemental filing (# 4338).
After a careful review of these documents, the Court's order of July 26, 2005 (# 3727) granting Lead Plaintiffs motion for reconsideration (# 2101) of the Court's order of March 29, 2004 dismissing §§ 10(b) and 20(a) claims against Deutsche Bank Defendants, and recent and highly relevant Fifth Circuit law, the Court finds that Lead Plaintiffs past claims (First Amended Consolidated Complaint # 1388, ¶¶787-799 (which includes time-barred tax scheme allegations)) and proposed amended allegations (Ex. 1 to # 3904) against Deutsche Bank fail to assert a claim under the statutes.
The Court had previously ruled that claims based on Deutsche Bank's conduct in creating the structured tax transactions, which allegedly violated tax law by lacking a legitimate business purpose and serving only to artificially and substantially inflate Enron's pre- and post-tax income (and claims based on the substantial financial impact resulting from them), are time barred (# 2036), except perhaps for Valhalla. The Court also concluded that conduct might be used to demonstrate scienter for subsequent violative conduce[149]
*773 After dismissal in this Opinion and Order of the § 12(a)(2) claims for lack of a class representative, the crux of Lead Plaintiff's remaining § 10(b) claims against Deutsche Bank entities are based (1) on underwriter Deutsche Bank's offering memoranda ,for various Foreign Debt Security notes, which were allegedly ,false and misleading because they incorporated Enron's false and misleading financial statements and SEC filings; (2) on statements made by analysts, specifically Paul Tice, or by Deutsche Bank managing director Paul Cambridge, who allegedly helped draft the offering documents for Osprey I and II Notes Offerings and the Marlin II Note Offering, which he purportedly knew were false and misleading because he knew from extensive personal involvement about Deutsche Bank's structured tax transactions; and (3) Deutsche Bank's nonrepresentational conduct involving LJM2 and related SPEs in the alleged Ponzi scheme.
The first category and the second category's claim involving Cambridge[150] are based on alleged misrepresentations in the offering memoranda, not concealed conduct contributing to the scheme. Previously (# 3727), before the issuance of Greenberg, the Court found that Lead Plaintiffs allegations against Cambridge (# 2698) satisfied the scienter requirements in Southland to assert liability against Deutsche Bank for Cambridge's statements, specifically the offering memoranda for Osprey I, II, Marlin II, and Yosemite I Notes that Cambridge purportedly made or authorized to be made, and for which he had the primary responsibility to perform due diligence. Cambridge had been substantially and personally involved in the earlier tax transactions. # 3727 at 7-8. In their motion to reconsider, Deutsche Bank entities argue that Lead Plaintiff has failed to "allege facts raising a strong inference that Cambridge knew or was severely reckless in ignoring that the tax transactions were purportedly fraudulent, no less that the offering memoranda were.
Even if one assumes for this purpose that in its proposed amended allegations Lead Plaintiff has pled sufficient facts to raise a strong inference that Cambridge knew the written offering memoranda were false when he drafted or authorized them because the memoranda incorporated Enron's false and misleading financial statements, and, even if Cambridge and Deutsche Bank intended to defraud investors by these offering memoranda, a proposition *774 that Deutsche Bank vigorously challenges, claims based on these purportedly misleading offering memoranda cannot survive under Greenberg. First, as a matter of law, the alleged misrepresentations in the offering memoranda that incorporated Enron's financial statements and SEC filings are "confirmatory" and cannot be the basis for a fraud-on-themarket presumption of reliance.[151] Lead Plaintiff does not identify any alleged misleading statements other than Enron's incorporated financial statements in' the offering memoranda,[152] in particular any statements that were actually "created" by Deutsche Bank employees, nor has it shown that Deutsche Bank employees in any way participated in the preparation of the incorporated, allegedly misleading Enron financial statements. See generally Court's Opinion and Order, # 46 on H-04-0088 at 46-47[153] (dismissing claims against Milbank Tweed).
Second, Lead Plaintiff fails to allege and show loss causation, i.e., that the misleading offering memoranda of the Foreign Debt Securities had a significant effect on the market price of Enron securities. Since the offering memoranda of the Foreign Debt Securities expressly state that they were prepared by the issuers (not by Deutsche Bank), that the information about Enron was provided by Enron, and that they are confidential and intended for use exclusively in the restricted offering of these Notes to QIBs and for which there is no established market, Lead Plaintiff provides no satisfactory reason why Newby class member investors generally, i.e., purchasers of other Enron securities,[154] would be relying on the offering memoranda of the Foreign Debt Securities at issue to support a § 10(b) claim against Deutsche Bank entities.
As for the allegations relating to fixed-income research analyst Paul Tice, the proposed amended allegations fail to allege facts demonstrating that Tice knew, or was severely reckless in not knowing, that his report was false and misleading. Lead Plaintiff futilely attempts to circumvent Southland's requirement that plaintiff must allege facts demonstrating that the analyst had the requisite scienter by pleading that the "publication has been prepared by and reflects the current view of Deutsche Bank Securities, Inc." and its holding company. Proposed allegations at 19-20, Ex. 1 to # 3904. That Tice may, as alleged, have ignored the Chinese wall between securities analysts and the commercial and investment bank services at Deutsche Bank and discussed his reports with Deutsche Bank investment bankers *775 does not give rise to a strong inference of scienter nor demonstrate that rice knew. or was reckless about whether his reports were accurate. Thus under Southland Lead Plaintiff fails to state a claim against the Deutsche Bank entities based on Tice's report.
Lead Plaintiffs proposed amended allegations against Deutsche Bank Entities (attached as Ex. 1 to # 3904) assert that Deutsche Bank employees Calli Hayes and Markus Tarkington, in the Credit Risk Management Group, and Vice President Seth Rubin had the responsibility during due diligence to approve the statements that went into the offering memoranda for the note offerings as accurate, full, and fair. Regardless of whether they knew of any fraudulent statements or were reckless in approving the offering memoranda, their intent does not cure the problem that the only alleged misrepresentations in the offering memoranda are the incorporated Enron financial statements, which are confirmatory statements under Greenberg and thus cannot trigger the fraud-on-the-market presumption of reliance.
The proposed amended allegations assert that various employees worked on various Enron-related projects; but they are conclusory and fail to demonstrate by pleading specific facts how, when and where these particular employees learned that Enron was fraudulently employing these deals to manipulate its financial results. None of the statements Lead Plaintiff quotes demonstrates that the devices or transactions employed were inherently illegal, deceptive, or fraudulent as used in Enron's course of business. The proposed amended allegations that Deutsche Bank provided standard services, i.e., underwrote billions of dollars of Enron-related securities, lent money to Enron, provided commercial banking and investment banking services to Enron, and earned a lot of money in fees from Enron, or that its employees who performed due diligence on Enron projects had an obligation to ensure that statements in offering memoranda are full, fair and accurate, in an effort to plead scheme liability under § 10(b), are too general and clearly lack the kind of specific facts that would support a strong inference of scienter under the PSLRA. Moreover, under the SEC's examples these acts constitute aiding and abetting and thus are not actionable under § 10(b) in this, case pursuant to the holding of Central Bank. Lead Plaintiff also conclusorily asserts that Deutsche Bank, loaned $50 million to the Hawaii 125-0 Trust (characterized by Deutsche Bank as "participation in routine group loan syndicates for deals designed and led by others"), so that Enron could sell underperforming assets to the Trust to recognize earnings, without disclosing that the sale was guaranteed by a total return swap with Enron. It also asserts that even Deutsche Bank made a number of other loans but, unlike with regard to other Financial Institution Defendants, provides no details supporting the conclusion that they were "concealed." Again, application of the SEC's examples distinguishing aiding and abetting, inactionable in a private action after Central Bank, from primary violations under § 10(b), places such conduct in the former category. A bank making a loan to a borrower, even where it knows the borrower will use the proceeds to commit securities fraud, is aiding and abetting. # 4528, Ex. I at 20. Thus a loan by Deutsche Bank to an Enron-related entity merely provided the means for Enron to commit securities fraud. See Parnaalat, 376 F.Supp.2d at 503 (Financings and investments are not sham transactions if there is no suggestion that the transactions were something other than what they purported to be; "[a]ny deceptiveness resulted from the manner in which [the issuer] or its auditors described the transactions *776 on [the issuer's] balance sheet and elsewhere.").
The remaining allegations of liability under Rule 10b-5(a) and (c) present a closer question as Lead Plaintiff paints a picture of Deutsche Bank's involvement as "a robust participant" in the deceptive scheme or course of business that was something other than what it appeared to be and from which Deutsche Bank pocketed allegedly illicit gains. Lead Plaintiff has alleged that Deutsche Bank structured and financed LJM2 and thereafter served on LJM2's Advisory Committee, though no details are provided about its specific actions.[155] Lead Plaintiff highlights the fact that in spite of the obvious conflict of interest created by Fastow's dual roles at Enron and LJM2, "as a reward" for ongoing services to Enron in the scheme, Deutsche Bank was solicited and lured, along with other Enron-selected institutional investors and their executives via confidential offering memoranda containing blatant promises of extraordinary and rapid returns of 30% or more ("more" as it turned out) if they invested in LJM2. Deutsche Bank's top executives invested at least $10 million in LJM2.[156] Then they, along with the other banks investing in LJM2, "actually witnessed and benefitted from a series of extraordinary payouts from the Raptor SPEs which LJM2 controlled over the next two yearssecuring hundreds of millions of dollars in distributions from the Raptors to LJM2 and then to themselvescash generated by illicit and improper transactions Enron was engaging in with the Raptors to falsify its financial results." Id. at ¶¶ 461, 649.
The Court finds that Lead Plaintiff reasonably infers that the alleged facts surrounding the investment were sufficient at least to provide Deutsche Bank with knowledge that LJM2 did not satisfy the 3% rule for independent SPEs, that, in what was an obvious conflict of interest, the SPE was run by Enron's CFO Andrew Fastow, and thus was not independent of Enron, and that LJM2 should have been consolidated on Enron's financial statements, all violations of GAAP. The complaint (# 1388 at 444) states that the investors in LJM2 "knew, because LJM2 was going to be principally used to engage in transactions with Enron where Enron insiders (Fastow, Kopper, and Glisan) would be on both sides of the transactions, that the LJM2 partnership would be extremely lucrative." Thus according to these allegations, the institutions' investments aided and abetted the Enron insiders ("LJM2's day-to-day activities would be managed by Enron insiders Fastow, Kopper and Glisari," id.) to do transactions with Enron to create a deceptive picture of Enron's financial condition for the public. Lead Plaintiff in essence charges that LJM2 was a deceptive device or contrivance that was then used by Enron insiders, and therefore *777 Enron, to create a number of other SPEs, including the "infamous Raptors," "with which Enron engaged in illusory transactions to artificially inflate Enron's profits while concealing billions of dollars in debt that should have been on Enron's balance sheet."[157] First Amended Consolidated Complaint (# 1388 at ¶ 646). The allegations are sufficient to raise a inference that the LJM2 investors should have been suspicious that they were engaging in illicit or at least questionable conduct to get rich quick. Nevertheless no specific facts are alleged showing that they knew, or were severely reckless in not knowing, that the transactions involving LJM2 were being used to conceal debt and inflate earnings for Enron, but even if they did, their investment again would constitute aiding and abetting. The key fact is that Lead Plaintiff does not allege facts demonstrating that they were involved in the operation of LJM2 and in where and how its monies were being used by Enron and Fastow.
In the context of the purported scheme, Lead Plaintiff asserts that Deutsche Bank also structured two of what Lead Plaintiff calls LJM2's ongoing "manipulative transactions," Osprey Trust and Marlin Trust, to permit Enron and/or its auditors to conceal debt, but does not explain specifically what was inherently deceptive in these strueturings created by Deutsche Bank. Instead the complaint only pleads in conclusory fashion, that Osprey and Marlin were "designed to transfer billions of dollars of debt off Enron's balance sheet." Once again, without specific facts demonstrating that Deutsche Bank established an innately illicit deceptive entity or device, Deutsche Bank was at most merely aiding and abetting any subsequent deceptive use of these entities by Enron, the trustees,[158] and Enron's auditor. Id. at §§ 466, 497-98. Nor do allegations that Deutsche Bank provided its services as underwriter for Enron's Osprey I notes (9/99), Yosemite I notes (11/99), ECLN I notes (8/00), Osprey II notes (9/00), zero coupon convertible notes (2/01 with resale 7/01), and Marlin II notes (7/01) state a claim for a violation of § 10(b).
Given the extensive discovery that has occurred, under recent Fifth Circuit case law the Court finds that the current and proposed amended allegations against Deutsche Bank fail to state a primary violation of § 10(b), and derivatively a claim for control person liability under § 20(a)'. Thus the Court grants Deutsche Bank Entities' motion to reconsider and its motion for dismissal of the § 10(b) claim (# 3791) against them, and denies as moot Lead Plaintiffs motion for leave to amend and motion for entry of order requiring Deutsche Bank to answer (# 3903).
V. Court's Order:
Consistent with the findings and conclusions discussed above, the Court ORDERS the following:
Because no class representative with standing to sue under § 12(a)(2) has come forward, the § 12(a)(2) claims of the 1933 Act against all Defendants are dismissed without prejudice.
*778 Deutsche Bank Entities' motion to reconsider and motion for dismissal (# 3791) is GRANTED, and Lead Plaintiffs motion for leave to amend (# 3903) is DENIED as moot. Because all claims against Deutsche Bank have been dismissed, all its pending motions are MOOT. If, in the light of this Court's refinement of its primary violator standard, any other party wishes to challenge claims against it on the grounds that they are merely aiding and abetting allegations, it shall do so by summary judgment and not re-urge or move to reconsider motions to dismiss at this stage of the litigation. All have had the benefit of substantial discovery for preparation of such motions or opposition.
All § 10(b) claims against remaining Defendants based on offering memoranda of the Foreign Debt Securities are DIMISSED without prejudice for lack of standing.
Based on Southland, 365 F.3d 353, the Court dismisses with prejudice all § 10(b) claims against Defendant corporations based on analyst statements where there have been no facts pled giving rise to a strong inference that the analyst making the statement did so with scienter. If there is a question, it should be raised by motion for summary judgment.
Lead Plaintiff shall amend the class definition as indicated within one week of entry of this order in accordance with this opinion. The Court has previously ordered Plaintiff to file a trial plan, with an opportunity for Defendants to respond. After reviewing these submissions, if the Court finds them satisfactory, it will issue an order certifying the Newby class.
NOTES
[1] For elements of the various statutory causes of action and a summary of the factual allegations, see # 1194, which the Court hereby incorporates into this opinion.
Standing to sue under § 11 of the Securities Act of 1933, 15 U.S.C. § 77k, is limited to purchasers of shares issued and sold pursuant to an allegedly false registration statement and includes aftermarket purchasers who can trace their shares back to the statements at issue. Section 12(a)(2) of the same Act expressly limits recovery to a purchaser of the security at issue in a primary, public offering for misrepresentations in a prospectus or other selling materials against the purchaser's seller (term that includes the person who passed title to the purchaser or the person who successfully solicited the purchase for the solicitor's financial interest or that of the owner of the securities). 15 U.S.C. § 771(a)(2); Gustafson v. Alloyd Co., Inc., 513 U.S. 561, 582, 115 S. Ct. 1061, 131 L. Ed. 2d 1 (1995) (holding that § 12(a)(2) does not relate to private sales or sales of securities in secondary market, i.e. shares that have been sold previously). Private damages actions under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder are limited to purchasers or sellers of the securities at issue. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731, 95 S. Ct. 1917, 44 L. Ed. 2d 539 (1975); Kaplan v. Utilicorp United, Inc., 9 F.3d 405, 407 (5th Cir. 1993).
[2] Specifically, the First Amended Consolidated Complaint (# 1388), filed May 14, 2003, asserted six claims for relief. Lead Plaintiff's settlements with Lehman Brothers, Bank of America, CIBC, Citigroup, Conseco Annuity, and J.P. Morgan have mooted, the claims against them.
The first cause of action was for violation of §§ 10(b) and 20(a) of the 1934 Act against Defendants Buy, Causey, Fastow, Frevert, Hannon, Harrison, Hirko, Horton, Kean, Koenig, Lay, McMahon, Olson, Pai, Rice, Skilling, Sutton, Whalley, Arthur Andersen-U.S., Arthur Andersen-Worldwide, Berardino, Bauer, Bennett, David B. Duncan, Cash, Goddard, Goolsby, Lowther, Neuhausen, Odom, Petersen, Stewart, Swanson, Jones, Vinson & Elkins LLP, JP Morgan and related entities, CitiGroup and related entities, Credit Suisse First Boston and related entities, CIBC and related entities, Merrill Lynch, Barclays and related entities, Deutsche Bank entities, and Lehman Brothers entities.
The second claim for relief was for violations of § 20A under the 1934 Apt for insider trading against all defendants listed in Ex. A of Lead Plaintiff's Appendix (# 1389). Of these, this Court earlier dismissed the § 20A claims against the Outside Directors. In re Enron Corp. Sec., Derivative & ERISA Litig., 258 F. Supp. 2d 576 (S.D.Tex.2003).
The third claim was for violations of §§ 11 and 15 of the 1933 Act for false and misleading Registration Statements and Prospectuses against Lehman Brothers entities, Bank of America entities, CIBC entities, Citigroup entities, Andersen-U.S., and individual Defendants Lay, Causey, Fastow, Belfer, Blake, Chan, Duncan, Foy, Gramm, Harrison, Jaedicke, LeMaistre, Mark-Jusbasche, Mendelsohn, Meyer, Ferran Pereira, Savage/Alliance, Skilling, Urquhart, Wakeham, Walker, and Winokur. Lead Plaintiff has settled with the banks. The preliminarily approved settlement between Lead Plaintiff and the Former Outside Directors and Ken Harrison, if and when finalized, will winnow the remaining group of Defendants.
The fourth claim was for violations of §§ 12(a)(2) and 15 of the 1933 Act for false and misleading Offering Memoranda and control person liability against the Deutsche Bank entities, Credit Suisse entities, Barclays entities, Bank of America entities, CIBC entities, J.P. Morgan entities, Lehman Brothers entities, and CitiGroup entities. Lead Plaintiff has settled with all but the first three banks. Because Lead Plaintiff conceded at the Class Certification Hearing that no class representative with standing for claims under § 12(a)(2) (and derivatively, § 15) had come forward, the fourth claim must be dismissed. # 4336 at 2.
The fifth claim was for violations of the Texas Securities. Act, Article 581-33(A)(2), against JP Morgan and Lehman Brothers, both of which have settled with Lead Plaintiff, so this claim is moot.
The last claim was for violations of the Texas Securities Act, Article 581-33F(1), against individual Enron officers Buy, Causey, Fastow, Lay, and Skilling.
[3] The Enron securities at issue are composed of Enron common stock, call and put options on the common stock, six issues, of preferred securities registered with the Securities and Exchange Commission ("SEC"), twenty-three United-Statesissued Enron bonds registered with the SEC ("Registered Bonds"), and eleven Foreign Debt Securities, i.e. derivative securities issued by Enron-related entities, initially listed on the Luxembourg Stock Exchange (although Defendants maintain that none were actually traded on it), and traded in the over-the-counter market. For a specific list see Dr. Blaine Nye's Declaration (# 4390) at 3-4.
[4] As authority for one class, Lead Plaintiff points to the single, plaintiff class of investors ("all persons who purchased any and all types of securities of American Continental Corporation," the parent company of Lincoln Savings and Loan Association), certified under Rule 23(a) and (b)(3) in In re American Continental Corp./Lincoln Savings and Loan Securities Litig., 49 F.3d 541, 542 (9th Cir.1995).
That class action targeted a "practice, or course of business which operates as a fraud . . .," prohibited by Rule 10b-5(a) and (c), alleged that "a multifarious scheme to defraud was perpetrated by the directors and officers of ACC/Lincoln and assisted in numerous respects by accountants, lawyers, and others" "to inflate the apparent worth and prospects of ACC/Lincoln, while simultaneously concealing its latent but material weaknesses," and asserted various California state-law causes of action, in addition to federal law claims under § 10(b) and Rule 10b-5(a) and (c), § 11, § 12 and §§ 1962(c) and (d) of the Racketeer Influenced and Corrupt Organizations Act. In re American Continental Corp./Lincoln Savings and Loan Securities Litig. ("Lincoln Savings"), 140 F.R.D. 425, 427, 428 (D.Az.1992). Those purchasers, varying from institutions to employees of the defendant corporation, were allegedly defrauded over a period of time by similar, but not identical, oral misrepresentations, in aggregate, which distorted the entire public image of the company's health and lawful character. Id. at 432.
Defendants filed a motion to decertify the class, inter alia, for failure to satisfy the reliance element under § 10(b). The district court found that "[t]he fraud on the market theory is based on the hypothesis that, in an open and developed securities market, the price of a company's stock is determined by the available material information regarding the company and its business. . . . Misleading statements will therefore defraud purchasers of stock even if the purchasers do not directly rely on the misstatements. . . . The causal connection between the defendants' fraud and the plaintiffs' purchase of stock in such a case is no less significant than in a case of direct reliance on misrepresentations." Id. at 429, quoting Basic, Inc. v. Levinson, 485 U.S. 224, 249, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988). The court, finding flexibility essential to realize the purposes of the securities statutes, concluded that the principles of Basic, Inc. applied beyond transactions on the open securities market to the limited market and to facts in the case before it because "the proof problems associated with a fraudulent scheme to register and sell subordinated debentures out of the offices of a savings and loan institution are comparable to those facing purchasers of open market securities." Id. at 429. In Lincoln Savings the court found that the bond purchasers listened to oral sales pitches that, while not identical, were sufficiently uniform to justify class treatment. Id. at 430. Since not the exact wording of the misrepresentations, but the underlying, pervasive scheme, was the gravamen of the alleged fraud, the court applied the fraud-on-the-market presumption of reliance because it found that each plaintiff was similarly situated with respect to that fraudulent scheme, which was not limited to specific misrepresentations made to the bond purchasers ("a whole roster of deception designed to contrive a false image of ACC/Lincoln," including misrepresentations in prospectuses, registration statements, brochures, and sham accounting). Id. at 431. The court found that "it would be folly, to force each bond purchaser to prove the nucleus of alleged fraud again and again." Id.
For other courts certifying a single class for securities fraud violations based on a comprehensive scheme to defraud investors, see also In re Initial Public Offering Securities Litig., 227 F.R.D. 65 (S.D.N.Y.2004); In re LTV Sec. Litig., 88 F.R.D. 134, 144 (N.D.Tex. 1980) (Higgenbotham, J.) (certifying a single class of purchasers and sellers of nine types of the corporation's publicly traded securities during the class period in a complex securities fraud action alleging a scheme in violation of §§ 10(b), 11, and 12); In re World-Com Sec. Litig., 219 F.R.D. 267, 280 (S.D.N.Y.2003) (certifying a single class of §§ 10(b), 11, and 12(a)(2) claimants involving a "pervasive accounting fraud and the correspondingly pervasive failure of those charged with monitoring and evaluating WorldCom to review diligently the company's financial records and representations, and of those who spoke of WorldCom's financial condition to do so honestly and accurately."), appeal granted in part on other grounds sub nom. Hevesi v. Citigroup, 366 F.3d 70 (2d Cir.2003).
For a summary of the scheme alleged in Newby, see # 1194.
[5] At the time Shores v. Sklar and many subsequent Fifth Circuit cases issued, what is now Rule 10b-5(a)-(c) was designated Rule 10b-5(1)-(3). For clarity's sake, the Court employs the current designation throughout.
[6] Lead Plaintiff contends that "`plaintiffs need not name a representative of the class for each subgroup of securities, where common issues predominate as to all securities.'" # 1445 at 29, quoting Lincoln Savings, 794 F.Supp. at 1461. Here the class members, all investors, "were damaged by a massive fraudulent scheme, which allegedly violated state and federal securities laws and was perpetrated by a large group of diverse defendants that included accountants, bankers, and lawyers," as in Lincoln Savings. Id. Nevertheless, apparently erring on the side of caution, Lead Plaintiff "has designated Class representatives who purchased various types of securities covered by the Class, including common and preferred stock, and a wide selection of debt securities." Id. See # 1388 (First Amended Consolidated Complaint) at ¶¶ 79-81; # 1446 (Declaration of James J. Jaconnette and Exhibits 4-25); # 1855 (Lead Plaintiff's Appendix in Support of Replies).
[7] Certain Defendants are Kenneth L. Lay, Jeffrey Skilling, Lou L. Pai, Joseph W. Sutton, Richard B. Buy, Mark A. Frevert, Richard A. Causey, Steve J. Kean, Mark E. Koenig, Jeffrey McMahon, Kenneth D. Rice, and Cindy K. Olson.
[8] Lead Plaintiff relies on Lincoln Savings, 140 F.R.D. at 431, in which the court certified a class in which part of the alleged fraudulent scheme was effected through oral representations:
The allegation is of a whole roster of deception designed to contrive a false image of ACC/Lincoln. . . . Sham accounting allegedly enabled Defendants to mask ACC/Lincoln's weaknesses, while substantially skewing its worth. . . . The exact wording of the oral representations, therefore, is not the predominant issue. It is the underlying scheme which demands attention. Each plaintiff is similarly situated with respect to it, and it would be folly to force each bond purchaser to prove the nucleus of alleged fraud again and again.
[9] This Court notes that Simon was issued years before the Supreme Court recognized a rebuttable presumption of reliance under the fraud-on-the-market theory in 1988 in Basic Inc. v. Levinson.
That theory requires a showing of an efficient market. Certain Defendants argue that Lead Plaintiff has not provided any evidence to establish that there was an efficient market for Enron debt securities during the Class Period. Since they filed their response, Lead Plaintiff has submitted Dr. Blaine Nye's Declaration and Rebuttal Declaration. # 4390 and # 4527.
[10] Whether Staro purchased the Enron Zero Coupon Convertible Notes is actually a standing issue. Lead Plaintiff argues that Staro is an investment manager or general partner for several related affiliates for which it is authorized to make all investment decisions and purchase securities. Even if Staro, alone, were shown to have a unique defense, Lead Plaintiff maintains that there are other class representatives that can typically represent the § 11 claimants and any unique defense of Staro's would not become the focus of the litigation. Lead Plaintiff also contends that Plaintiffs' invocation of the presumption, that they relied on the market price for Enron securities, which reflects all publicly available information about Enron, further makes any need to address unique defenses less likely. See infra, discussion regarding predominance and reliance.
[11] See Camden Asset Management, L.P. v. Sunbeam Corp., No. 99-8275, 2001 WL 34556527, *13-14, 2001 U.S. Dist. LEXIS 11022, *46-51 (S.D.Fla. July 3, 2001) (discussing interests, motivations, and investment strategies of hedgers/arbitrageurs, which are different from the concern of an ordinary investor's about whether the value of a stock goes up or down):
Convertible arbitrage strategies typically involve "going long" on convertible securities while simultaneously "going short" on underlying equities of the same issuer that are determined to be overvalued. This approach is considered a relatively conservative market neutral strategy because it "works the spread" between the two types of securities. Investors may also use this approach as a way to hedge their convertible bond holdings by shorting enough of the common stock to match or offset the sensitivity of the convertible bond to common stock price changes. . . . Such strategies, however, do not attempt to predict the "direction of the common stock," but only attempt to take advantage of misvaluations in the relative price differential between the stock and debenture prices, and to profit from volatility. Alternatively, in classic hedge strategy, institutions purchase debentures with the expectation that they may actually earn more from the "short" side of the transactionby selling short Sunbeam common stockand undoubtedly, many members of the class presumably did not profit in this manner. In such cases, purchasers of the debentures were actually anticipating that the value of Sunbeam stock would decline, and were simply purchasing the debentures as a hedge against the short-sale of common stock.
Id. at *13, 2001 U.S. Dist. LEXIS 11022, at *46-47.
[12] Outside Directors and Ken Harrison have announced settlement with Lead Plaintiff, but the settlement has not been finally approved.
[13] The Outside Directors are Robert A. Belfer, Norman P. Blake, Jr., Ronnie C. Chan, John H, Duncan, Paulo V. Ferraz Pereira, Joe H. Foy, Wendy L. Gramm, Robert K. Jaedicke, Charles A. LeMaistre, John Mendelsohn, Jerome Meyer, Frank Savage, John A. Urquhart, Charles E. Walker, John Wakeham, and Herbert Winokur, Jr. Counsel for Richard A. Causey, Kenneth L. Lay, Rebecca Mark-Jusbasche, and Jeffrey K. Skilling have stated they adopt the arguments set forth by the Outside Directors.
[14] Outside Directors maintain that Lead Plaintiff's reliance on Lincoln Savings is misplaced because the Ninth Circuit does not follow the Fifth Circuit's rigorous requirement that standing be established at the class certification stage. In re Taxable Mun. Bond Sec. Litig., 51 F.3d 518, 521-22 (5th Cir. 1995); James v. City of Dallas, Texas, 254 F.3d 551, 563 (5th Cir.2001), cert. denied, 534 U.S. 1113, 122 S. Ct. 919, 151 L. Ed. 2d 884 (2002).
[15] Under 15 U.S.C. § 77k(a)(5), if an investor "acquired the security after the issuer has made generally available to its security holders an earning statement covering a period of at least twelve months beginning after the effective date of the registration statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the securities relying on such untrue statement in the registration statement or relying upon the registration statement and not knowing of such omission but such reliance may be established without proof of the reading of the registration statement by such person."
[16] The original Movant Financial Institutions are Defendants Bank of America Corporation, Banc of America Securities LLC, Barclays PLC, Barclays Bank PLC, Barclays Capital Inc., Canadian Imperial Bank of Commerce, CIBC World Markets Corp. (f/k/a CIBC Oppenheimer Corp.), CIBC World Markets plc, Citigroup, Inc., Citibank, N.A., Salomon Smith Barney, Inc. (now called Citigroup Global Markets, Inc.), Salomon Brothers International Limited, Credit Suisse First Boston LLC (f/k/a Credit Suisse First Boston Corporation), Credit Suisse First Boston (USA), Inc., Pershing LLC, J.P. Morgan Chase & Co., JPMorgan Chase Bank, JP Morgan Securities Inc., Lehman Brothers, Inc. Lehman Brothers Holdings, Inc., Merrill Lynch & Co., Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Bank of America and Lehman Brothers entities have settled, and their settlements received final approval from the Court. Preliminary approval of settlements between Lead Plaintiff and the J.P. Morgan, Citigroup, and CIBC entities has been granted. Because other Financial Institutions Movants (Barclays entities, Credit Suisse entities, and the Merrill Lynch entities, along with the Deutsche Bank entities following reconsideration of their dismissal) are still involved in this litigation, the Court addresses the group's objections.
[17] Lead Plaintiff replies that "[t]he Financial Institutions conveniently neglect that fact that analyst reports by the banks were, without question, `public statements to the market.'" # 1854 at 34.
[18] The first time Lead Plaintiff asserted claims against the Financial Institutions was when they filed the Consolidated Complaint (# 441) on April 8, 2002.
[19] These three offerings are (1) a May 19, 1999 offering of Enron Corp. 7.375% Notes due 5/15/2019, underwritten by Lehman Brothers, Inc., Banc of America Securities LLC and CIBC World Markets Corp.; (2) an August 10, 1999 offering of Enron Corp. 7% Exchangeable Notes due 7/13/2002, underwritten by Banc of America Securities LLC and Salomon Smith Barney, Inc.; and (3) a June 1, 2000 offering of Enron Corp. 7.875% Notes due 6/15/2003, underwritten by Lehman Brothers, Inc. Because all these Defendants have entered into settlements with Lead Plaintiff, either preliminarily or finally approved, the Court does not address pp. 33-38 of # 1788.
[20] In re Enron Corp. Sec., Derivative & "ERISA" Litig., No. MDL 1446, Civ. A. H-01-3624, 2004 WL 405886 (S.D.Tex. Feb.25, 2004).
[21] Section 13 requires a plaintiff to file suit within one year from the time that the violation of § 11 or § 12(a)(2) was or should have been discovered, but in no event more than three years after the offering to the public.
[22] In contrast, the purchases and sales of the Enron Registered Bonds were not restricted to QIBs.
[23] Barclays concedes that Lead Plaintiff alleged in its Amended Complaint that Barclays issued research analyst reports, but it maintains that it did not do so and that Plaintiffs have not established in discovery that it did so. Nor did Plaintiffs' expert Dr. Blaine Nye identify a single statement by Barclays.
[24] Deutsche Bank points out that the alleged misstatements in the offering memoranda of Osprey, Yosemite, and Marlin II were not made by the Deutsche Bank entities but by Enron and that the offering memoranda expressly state that Enron was responsible for the accuracy of its financial statements as the description of Enron in, the Offering Memoranda, as this Court noted in dismissing a similar claim against Milbank Tweed. Deutsche Bank had no role in preparing Enron's SEC filings or press releases before their initial release and Lead Plaintiff has not presented any proof that Deutsche Bank "approved" Enron's financial statements incorporated into the Offering Memoranda.
[25] Greenberg v. Crossroads Systems, Inc., 364 F.3d 657 (5th Cir.2004); Unger v. Amedisys, Ina, 401 F.3d 316 (5th Cir.2005); and Bell v. Ascendant Solutions, Inc., 422 F.3d 307 (5th Cir.2005).
[26] In dismissing the claims against Milbank Tweed, this Court noted that every alleged misrepresentation about Enron's financial condition in the Offering Memoranda :Came from previously released public statements and SEC filings by Enron.
[27] Lead Plaintiff argues that Deutsche Bank's liability does not rest on misleading statements alone, but instead on its actions as a "robust participant in the scheme." Not only was Deutsche Bank an underwriter/initial purchaser of Enron's Osprey I notes (9/99), Yosemite I' notes (11/99), ECLN I notes (8/00), Osprey II notes (9/00), zero coupon convertible notes (2/01 with resale 7/01), and Marlin II notes (7/01), but Lead Plaintiff asserts that Deutsche Bank "knowingly structured the fraudulent Osprey and Marlin financings to hide Enron's true debt levels and to falsify Enron's earnings." First Amended Consolidated Complaint at ¶ ¶ 497-505. Lead Plaintiff alleges that Osprey and Marlin were "designed to transfer billions of dollars of debt off Enron's balance sheet," that their offering memoranda failed to "disclose billions of dollars more in Enron liabilities," and that Deutsche Bank "structured Osprey to fund Whitewing knowing Enron sold assets to Whitewing at inflated values to falsify Enron's earnings." # 4528 at 5. The sale of the Foreign Debt securities (including Marlin and Osprey) was alleged to be "an essential part of that fraudulent scheme." Id. at 6. Yosemite I and Yosemite III (a/k/a ECLN 1) included a loan disguised as a prepaid commodity trade to hide Enron's debt and inflate its reported cash flow from operations. Moreover, charges Lead Plaintiff, Deutsche Bank entered into concealed loans with Enron during the Class Period, including a $50 million loan to the fraudulent Hawaii 125-0 Trust (characterized by Deutsche Bank as "participation in routine group loan syndicates for deals designed and led by others") so Enron could sell under performing assets to the Trust to recognize earnings without disclosing that the sale was guaranteed by a total return swap with Enron. Lead Plaintiff further claims that in addition to hidden loans to Enron throughout the Class Period, Deutsche Bank was also on the LJM2 advisory committee where it had an obligation to police the transactions that LJM2 entered into to make sure they were negotiated at fair-market rates, review transactions for potential conflicts of interest, including Fastow's self-dealing, and approve a number of LJM2's investments including the fraudulent Raptor transactions. Thus its offering memoranda for the various notes failed to disclose the fraudulent manipulations of these various partnerships, trusts and SPEs or that Enron was dangerously over-leveraged and at great risk of a liquidity crisis. Lead Plaintiff further points to the deposition testimony of Deutsche Bank's Rule 30(b)(6) representative on due diligence (the purpose of which is to assure the buyer that the offering documents are accurate), who testified that Deutsche rank's employees reviewed and approved inclusion of Enron's financial statements in the offering documents. Instead of objective reports, Deutsche Bank's analysts purportedly issued false, misleading, biased information about Enron for Deutsche Bank's own self interest in winning investment banking fees.
[28] The amended complaint expanded the class to include purchasers of the Foreign Debt Securities issued by entities other than Enron, including Osprey Trust, Osprey I, Inc., Yosemite Securities Trust I, Yosemite Securities Co. Ltd., Enron Credit Linked Notes Trust, Enron Euro Credit Linked Notes Trust, Enron Credit Linked Notes Trust II, Enron Sterling Credit Linked Notes Trust, Marlin Water Trust II, and Marlin Water Capital Corp. I. These Foreign Debt Securities have different issuers, different syndicate sellers, and different offering documents containing different misrepresentations and omissions. (Objectors maintain that Lead Plaintiff's reliance on the single class certification in Lincoln Savings is misplaced because that case involved purchasers of various stocks and debentures from a single issuer.) The Osprey Notes at issue here were jointly issued by Osprey Trust and Osprey I, Inc., two Enron sponsored off-balance-sheet SPEs, in two Rule 144A exempt offerings, a $1.5 billion 1999 offering ("Osprey I") and a $1 billion 2000 offering ("Osprey II"). For a detailed discussion of the alleged facts regarding these Notes, see # 1789.
[29] At the class certification hearing, Mr. Clary, on behalf of the four remaining Financial Institution Defendants pointed out the Court's December 20,' 2005 ruling clarifying the standing issue for the Foreign. Debt Securities claims under § 10(b), in contrast to the privity limitation under § 12(a)(2): "For claims brought pursuant to Section 10(b) of the Securities Exchange Act of 1934, Lead Plaintiff [or a class representative] may represent a class of various types of foreign debt securities, even if Lead Plaintiff [or the class representative] purchased only one type of foreign debt security." Mr. Clary emphasized that Lead Plaintiff never purchased any of the foreign debt securities and thus lacks standing to sue on behalf of foreign debt securities purchasers under both statutes.
[30] Claim One under §§ 10(b) and 20(a) alleges claims under all three subsections of Rule 10b-5 and calls on the theory of fraud on the market to satisfy the reliance element; Claim Two under § 20A alleges insider trading against selected defendants who sold Enron stock, not Osprey Notes, to selected plaintiffs; Claim Three, under §§ 11 and 15 is on behalf of selected plaintiffs who purchased Enron securities (not Osprey securities), pursuant to prospectuses as part of registered public of ferings; Claim Four on behalf of Foreign Debt securities offered in foreign exchanges; and Claims Five and Six, under the Texas Securities Act for governmental entities that purchased two series of Notes issued by Enron. They emphasize that even Newby's fourth claim under §§ 12(a)(2) and 15 on behalf of plaintiffs who purchased Foreign Debt Securities is directed to securities offered on foreign exchanges under Regulation S, not.on behalf of Rule 144A purchasers, who purchased Osprey Notes domestically.
[31] Section 20A addresses liability to contemporaneous traders for insider trading.
[32] These are Lay, Skilling, Causey, Frevert, Horton, Rice, Buy, Pai, Kean, McMahon, Olson, Sutton, and Koenig, who are all subjects of the § 20A claim.
[33] Certain Individual Defendants claim that the class definition encompasses persons with conflicting interests because it includes not only those who suffered losses as a result of defendants' actions, but also those who bought and sold at profitable times, benefitting from their stock investment. Furthermore, because the class representatives are intent on proving Defendants' conduct was wrongful, the interests of those who benefitted' will not be properly represented by the named plaintiffs.
[34] This Court previously determined that contemporaneous" for purposes of 20A should mean that the plaintiffs purchased their Enron stock within two to three days, certainly less than a week, of the Defendant's insider trading, while relevant, material, nonpublic information remained undisclosed. In re Enron Corp. Securities, Derivative & "ERISA" Litig., 258 F. Supp. 2d 576, 599-600 (S.D.Tex.2003). It will continue to apply that measure.
[35] Lead Plaintiff responds that in denying V & E's motion to dismiss, this Court found that the complaint did allege that the law firm made statements to the public about Enron's business and financial condition. In re Enron, 235 F.Supp.2d at 705, 656-79.
[36] The Court previously rejected the "bright-line" rule approach. # 1194.
[37] Merrill Lynch, notes that the report of Lead Plaintiff's expert, Dr. Blaine Nye, is silent on die question of whether the January 18, 2000 press statement was confirmatory.
[38] Before the 2003 amendment, Rule 23(c)(1)(A) required the district court to decide the class certification hearing "as soon as practicable." The Advisory Notes explain the amendment was necessary so that Rule 23 would "reflect prevailing practice" and provide a sufficient opportunity to "gather information necessary to make the certification decision"; they further state that it is "appropriate to conduct controlled discovery into the `merits,' limited to those aspects relevant to making the certification hearing on an informed basis."
The Court concedes that the timing of the instant action's class certification hearing is not "early," but points to the onslaught of complex motions to dismiss filed in MDL 1446, some of which remain to be resolved. The Manual For Complex Litigation Fourth § 21.33 at 253 (Federal Judicial Center 2004) notes that precertification rulings on threshold Rule 12 motions to dismiss are not only proper, but frequently effective in disposing of part or all of the litigation, and that "early resolution of these questions may avoid expense for the parties and burdens for the court and may minimize use of the class action process . . ." Moreover, "[e]fficiency and economy are strong reasons for a court to resolve challenges to personal or subject-matter jurisdiction before ruling on certification." Id.
[39] Shortly after Eisen, the Supreme Court observed in Coopers & Lybrand v. Livesay, 437 U.S. 463, 469, 98 S. Ct. 2454, 57 L. Ed. 2d 351 (1978), that even though courts should not rule on the merits at the class certification stage, "class determination generally involves considerations that are `enmeshed in the factual and legal issues comprising the plaintiff's cause of action.'" Several years later, requiring the "rigorous analysis" to ensure the prerequisites of Rule 23 are met, the high court further suggested that "sometimes it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question." General Tele phone Co. of the Southwest v. Falcon, 457 U.S. 147, 160, 102 S. Ct. 2364, 72 L. Ed. 2d 740 (1982), quoted in In re Initial Public Offering Securities Litig., 227 F.R.D. 65, 91 (S.D.N.Y. 2004).
[40] "Technically, only the requirements of section (a) of Rule 23 are `prerequisites' to a class action, and section (b) describes the categories of classes maintainable as class actions," but the Fifth Circuit requires that a class action qualify for at least one of the Rule 23(b) categories to be certified. Horton v. Goose Creek Independent School District, 690 F.2d 470, 484 n. 25 (5th Cir.1982), cert denied, 463 U.S. 1207, 103 S. Ct. 3536, 77 L. Ed. 2d 1387 (1983).
[41] In certifying the class in Lincoln Savings, the court found,
Significantly, Plaintiffs' case is not predicated exclusively or even predominantly on Rule 10b-5(b). The central issue is whether Defendants orchestrated . . . a far-reaching scheme to inflate the apparent worth and prospects of ACC/Lincoln, while simultaneously concealing its latent but material weaknesses. These allegations are consonant with § 106-5(a) and (c).
140 F.R.D. at 428.
[42] Harzsberry v. Lee, 311 U.S. 32, 61 S.Q. 115, 85 L. Ed. 22 (1940); 7A Charles Alan Wright, Arthur R. Miller, and Mary Kay Kane, Federal Prac. & Proc. Civ.3d § 1765 at 269 (2d ed.1986).
[43] The Berger standard has since been applied to cases not involving securities fraud. See, e.g., In re Electronic Data Systems Corp., 224 F.R.D. 613 (E.D.Tex.2004) (for ERISA as well as PSLRA claims); In the Matter of American Comm. Lines, LLC, Nos. Civ. A. 00452, 00-2967, and 00-3147, 2002 WL 1066743 (E.D.La. May 28, 2002) (maritime negligence and strict liability); Umsted v. Intelect Communications, Inc., Civ. 3:99-CV-2604, 2003 WL 79750 (N.D.Tex. Jan.7, 2003); Ogden v. AmeriCredizeorp., 225 F.R.D. 529, 532-38 & n. 2 (N.D.Tex.2005) (ERISA); In re Eeliant Energy ERISA Litig., No. Civ. A. 02-2051, 2005 WL 2000707 (S.D.Tex. Aug.18, 2005).
[44] The Supreme Court has stated that the adequacy, typicality, and commonality requirements "`tend[ ] to merge'" and that they "`serve as guideposts for determining whether . . . maintenance of a class action is economical and whether the named plaintiff's claim and the class claims are so interrelated that the interests of the class members will be fairly and . . . adequately protected in their abseride.'" Amchem Products, Inc. v. Windsor, 521 U.S. 591, 626 n. 20, 117 S. Ct. 2231, 138 L. Ed. 2d 689 (1997), quoting General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 157 n. 13, 102 S. Ct. 2364, 72 L. Ed. 2d 740 (1982).
[45] To state a claim on conduct that violates Rule 10b-5(a) and (c), plaintiff must assert that the defendant (1) committed a deceptive or manipulative act, (2) with sciqnter, that (3) the act affected the, market for securities or was otherwise in connection with their purchase of sale, and (4) that the defendant's actions caused the plaintiffs injuries. In re Parmalat Sec. Litig., 376 F. Supp. 2d 472, 491-92 & n. 90 (S.D.N.Y.2005) (and cases cited therein).
[46] The securities statutes do not "provide investors with broad insurance against market losses, but . . . protect them against those economic losses that misrepresentations actually cause." Dura Pharmaceuticals, 125 S.Ct. at 1633.
[47] The Court will address loss causation in greater detail with regard to damages later in this opinion.
[48] "Reliance may be presumed in cases based on omissions if a plaintiff can show that such omissions were material. Otherwise, transaction causation is properly pled by the allegation that `but for the claimed misrepresentations or omissions, the plaintiff would not have entered into the detrimental securities transaction.'" Caiton v. Defense Technology Systems, Inc., No. 05 Civ. 6954(SAS), 2006 WL 27470, *5 (S.D.N.Y. Jan.3, 2006).
[49] In Affiliated Ute, two bank employees, Gale and Haslem, devised a plan to induce mixedblood Indian shareholders of the Ute tribe to sell their securities to non-Indians and actively solicited a market for those securities among non-Indians. Gale and Haslem did not disclose to the shareholders that Gale and Haslem would receive commissions and gratuities from the buyers and the bank would gain increased deposits from the new market from the sales of the securities or that the shares would draw a higher price in the non-Indian market. The Supreme Court examined the three subsections of Rule 10b-5 and concluded that the much broader first and third subsections were not restricted, as was the second, to the making of an untrue statement 'of material fact and/or the omission to state a material fact. The high court found that the defendants' activities fell within the "course of business" or "device, scheme or artifice that operated as a fraud" upon the Indian sellers under what are now subsections (a) and (c). Finding that as market makers Gale and Haslem had an affirmative duty under Rule 10b-5 to disclose material facts that could have influenced their decision to sell their securities, the Supreme Court wrote,
Under the circumstances of this case, involving primarily a failure to disclose, positive proof of reliance is not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the sense that a reasonable investor might have considered them important in the making of this decision. . . . This obligation to disclose and this withholding of a material fact establish the requisite element of causation in fact.
Affiliated Ute, 406 U.S. at 153-54, 92 S. Ct. 1456. The high court did not use the term "presumption,'" but in, its wake, the lower courts developed tests for rebutting the presumption in nondisclosure cases by showing that the plaintiff would not have bought or sold his securities even if the material information had been disclosed or had never read the registration materials or prospectuses if the nondisclosure was in them. See, e.g., Shores v. Sklar, 647 F.2d 462, 468 (5th Cir. 1981), cert. denied, 459 U.S. 1102, 103 S,Ct. 722, 74 L. Ed. 2d 949 (1983); Finkel v. Docutel/Olivetti Corp., 817 F.2d 356, 359 & n. 6 (5th Cir.1987) (observing that although Affiliated Ute did not discuss the question, "Mourts applying Affiliated the have doctrinally invoked a rebuttable presumption of reliance based on proof of materiality alleging deception by non-disclosure of information."), cent denied, 485 U.S. 959, 108 S. Ct. 1220, 99 L. Ed. 2d 421 (1988).
[50] 524 F.2d 891, 905-08 (9th Cir.1975), cert. denied, 429 U.S. 816, 97 S. Ct. 57, 50 L. Ed. 2d 75 (1976).
[51] In an influential opinion that has helped frame Fifth Circuit law, Cammer v. Bloom, 711 F. Supp. 1264, 1276 n. 17 (D.N.J.1989), appeal dismissed, 993 F.2d 875 (3d Cir.1993), the district court set out the key, terms for an efficient market relating to the fraud on the market theory, as defined by Bromberg & Lowenfels, 4 Securities Fraud and Commodities § 8.6 (Aug.1988):
An open market is one in which anyone, or at least a large number of persons, can buy or sell.
A developed market is one which has a relatively high level of activity and frequency, and for which trading information (e.g., price and volume) is widely available. It is principally a secondary market in outstanding securities. It usually, but not necessarily, has continuity and liquidity (the ability to absorb a reasonable amount of trading with relatively small price changes).
An efficient market is one which rapidly reflects new information in price. These terms are cumulative in the sense that a developed market will almost always be an open one. And an efficient market will almost invariably be a developed one.
Examples of open and developed securities markets are the New York and American Stock Exchanges.
[52] Neither the Affiliated Ute nor the Basic presumption may help plaintiffs who purchased their securities in an initial offering or who purchased or sold securities in an undeveloped market. Some courts, led by the Fifth Circuit, have recognized a third theory for presuming reliance, generally dubbed "the fraud-created-the-market theory," to be discussed further. See, e.g., Shores v. Sklar, 647 F.2d at 469-70(presumption of reliance established under Rule 10b-5(a) or (c) if plaintiff "proved the scheme was intended to and did bring the Bonds onto the market fraudulently and proved he relied on the integrity of the securities market"; if the market was not developed, plaintiff must show "that (1) the defendants knowingly conspired to bring securities onto the market which were not entitled to be marketed, intending to defraud purchasers, (2) [plaintiff] reasonably relied on the Bonds' availability on the market as an indication of their apparent genuineness, and (3) as a result of the scheme to defraud, he suffered a loss."); Abell v. Potomac Ins. Co., 858 F.2d 1104, 1122-23 (5th Cir.1988) (reliance may be presumed if the promoter knew despite an inefficient market that the "enterprise was worthless . . . when the securities were issued"), vacated on other grounds sub nom. Fryar v. Abell, 492 U.S. 914, 109 S. Ct. 3236, 106 L. Ed. 2d 584 (1989); Ross v. Bank South, N.A., 885 F.2d 723, 729 (11th Cir. 1989), cert. denied, 495 U.S. 905, 110 S. Ct. 1924, 109 L. Ed. 2d 287 (1990). See also Dalton v. Alston & Bird, 741 F. Supp. 1322, 1327 (S.D.Ill.1990) ("an investor in a new issue obviously cannot rely on the integrity of the market to determine a price for [the) issue; therefore, in a new issue case, to show reliance the purchaser must show that the bonds were not entitled to be marketed at any price."). Unlike the fraud-on-the-market theory, which views the investor as relying on the integrity of the market price of a security, the fraud-created-the-market theory views the investors as relying on the integrity of the existence of a market in the security, itself, to trigger the presumption; the plaintiff must show that absent the fraud, the security would not have been marketable.
Other courts have rejected the fraud-created-the-market theory. See, e.g., Eckstein v. Balcor Film Investors, 8 F.3d 1121, 1130 (7th Cir.1993), cert. denied, 510 U.S. 1073, 114 S. Ct. 883, 127 L. Ed. 2d 78 (1994).
[53] The Court further notes that, as will be discussed, a number of alleged misstatements in the complaint are not actionable under developing law in the Fifth Circuit, their eliinination supports a finding this case is primarily one of omissions.
[54] In Finkel v. Docutel/Olivetti Corp., 817 F.2d 356, 360 (5th Cir.1987), cert. denied, 485 U.S. 959, 108 S. Ct. 1220, 99 L. Ed. 2d 421 (1988), the Fifth Circuit explains the theory as
The fraud on the market theory is premised on the hypothesis that the market price of a security, in an open market as opposed to a private transaction between seller and buyer, accurately reflects the value of that security if all relevant information has been disclosed in the marketplace [the "efficient market" model]. When one fails to disclose or misrepresents material information about a security, the market's efficient pricing mechanism is skewed and the price of the security is distorted. A purchaser or seller who relies on the market to accurate ly value the security suffers damages if the market does not have all the information. Thus, the fraud on the market theory rejects the traditional notion of the investor who acts after carefully examining all available information. It says investors need not, and do not, act that way in an open market transaction because they have a right to presume the market's integrity. It constructs an environment which is hospitable to the reliance presumption. Affiliated Ute. In place of the traditional model it substitutes a market model in which the explicit assumption is that the market relied on the alleged deception, and it rejects the conceptual need to inquire whether or not the injured party did. The market becomes the theoretical agent of the investor.
[55] "'Fraudulently marketed' . . . means the fraudulent scheme alleged by Bishop was so pervasive that without it the issuer would not have issued, the dealer could not have dealt in, and the buyer, could riot have bought these Bonds, because they would not have been offered on the market at any price." 647 F.2d at 464 n. 2. Nevertheless, under the facts of the case, "at any price" was subsequently modified or clarified by the Fifth Circuit because the bonds were not completely worthless; the plaintiff investors "recouped about 37 percent of their investment when the municipal assets dedicated to the failed corporation were liquidated." Abell, 858 F.2d at 1121-22 (discussing Shores v. Sklar ).
In Abell, the Fifth Circuit responded to bondholders arguing that under Shores worthlessness is not a prerequisite to show "not entitled to be marketed" for establishing a fraud on the market with the following distinction:
This argument misses the point, since saleable assets may bless even the most worth-less enterprise. In Shores, the illegitimate securities represented an investment in a hoax made to seem real because valuable assets, including a factory, backed the promoters' promises. Although the assets may have added value to the securities, the sham "business" did not because the promoters never intended to start a legitimate one. We hold, therefore, that securities meet the test of "not entitled to be marketed" only where the promoters knew the enterprise was patently worthless.
Id. at 1122.
[56] The Eleventh Circuit strictly follows the Fifth Circuit's original standard of unmarketability in Shores for the fraud-crPated-the, market presumption of reliance, while, as will be discussed, the Fifth Circuit subsequently modified it. Ross v. Bank South, N.A., 885 F.2d 723, 732, 729-30 (11th Cir.1989) (en banc) (plaintiffs must meet a "high threshold" because the fraud-created-the-market theory only applies to "securities that are so tainted by fraud as to be totally unmarketable"; "fraud must be so pervasive that it goes to the very existence of the bonds."), cert. denied, 495 U.S. 905, 110 S. Ct. 1924, 109 L. Ed. 2d 287 (1990). District courts in the Third Circuit have implied that given the right facts, they might apply the theory. See, e.g., Stinson v. Van Valley Development Corp., 714 F. Supp. 132 (E.D.Pa.1989), aff'd, 897 F.2d 524 (3d Cir.1990); In re Bexar County Health Facility pevelopment Corp. Sec. Litig., 130 F.R.D. 602 (E.D.Pa.1990); Gruber v. Price Waterhouse, 776 F. Supp. 1044 (E.D.Pa.1991).
[57] Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374 (2d Cir.1974), cert. denied, 421 U.S. 976, 95 S. Ct. 1976, 44 L. Ed. 2d 467 (1975).
[58] Rifkin v; Crow, 574 F.2d 256 (5th Cir. 1978).
[59] Docutel stock in Finkel was found or assumed to have been traded in an over-the-counter, active, efficient market.
[60] As suggested by the word "also," which this Court has emphasized in the quoted passage above, Abell does not appear to have affected the Fifth Circuit's application of the theory to a claim of defendants' primarily undisclosed conduct in a scheme or course of conduct to defraud securities investors, as opposed to nondisclosure within a statement or document: "This [fraud-on-the-market] presumption [of reliance] assumes that investors ordinarily and correctly rely upon the 'market price' of a security as an accurate estimate of the future value of that security. Accordingly, if a defendant distorts the market price by lying or concealing the truth, the fraudulently-distorted price can deceive even prudent investors." Id. at 1122.
[61] It is insufficient to show that the securities would have been offered at a higher or lower price. Abell, 858 F.2d at 1120.
[62] As an illustration of the development of different rules by the Circuit Courts of Appeals, the Sixth Circuit has questioned this rule of the Fifth and Eleventh Circuits for newly issued securities traded on an undeveloped market, which has been dubbed "the fraud-created-the-market theory," and recognizes the fraud-on-the-market theory of reliance only when the securities are traded on an efficient market. Freeman v. Laventhol & Horwath, 915 F.2d 193 (6th Cir.1990); Ockerman v. May Zima & Co., 27 F.3d 1151, 1158-60 (6th Cir.1994). The Seventh Circuit also rejects it. Eckstein v. Balcor Film Investors, 8 F.3d 1121 (7th Cir.1993), cert. denied, 510 U.S. 1073, 114 S. Ct. 883, 127 L. Ed. 2d 78 (1994).
Furthermore, as one commentator observed, courts applying the fraud-created-the-market theory [the Fifth, Third, Tenth, and Eleventh Circuits] differ on how to determine what amount of assets qualifies a company as
economically unmarketable or "patently worthless." The Third, [Tenth] and Eleventh Circuits established that their standard for "patently worthless" requires that there be no assets in the company underlying the security in question, while the Fifth Circuit allows for a degree of flexibility in the amount of assets. The Fifth Circuit focuses more on the intention of the issuer rather than an absolute dollar amount. The Sixth and Seventh Circuits have apparently rejected the fraud-created-the-market theory
See generally Peter J. Dennin, Which Came First, the Fraud of the Market: Is the Fraud-Created-The-Market Theory Valid Under Rule 10b-5?, 69 Fordham L.Rev. 2611, 2626-41 (May 2001).
[63] For one thing, the district court in Lincoln Savings rejected Abell's restrictive construction of the proof needed for a Rule 10b-5 claim relating to securities sold in a limited market (that presumption is available in a limited market only where promoters knew enterprise was worthless at the time they issued the securities and the securities were successful only because of the scheme to defraud); instead the Lincoln Savings judge held that the plaintiffs in that case were entitled to a presumption of reliance because the promoters' knowledge was not determinative of plaintiffs' knowledge under Basic and "because the alleged scheme to defraud is of such pervasive materiality as to generally and fundamentally distort the public representations concerning the company." Lincoln Savings, 140 F.R.D. at 433.
[64] The Fifth Circuit's approach in Shores and Abell to the fraud-created the market theory, with the presumption of reliance for securities "not entitled to be marketed," has been widely characterized as economic unmarketability, while the compliance of the issuer with regulatory procedures has been dubbed legal unmarketability. See, e.g., Julie A. Herzog, Fraud Created The Market: An Unwise and Unwarranted Extension of Section 10(b) and Rule 10b-5, 63 Geo. Wash. L.Rev. 359, 373(March 1995); Peter J. Dennin, Which Came First, the Fraud of the Market: Is the Fraud-Created-The-Market Theory Valid Under Rule 10b-5?, 69 Fordham L.Rev. 2611, 2625 (May 2001).
[65] "To state a private securities fraud claim under § 10(b) and Rule 10b-5, `a private plaintiff must allege, in connection with the purchase or sale of securities, (1) a misstatement or an omission (2) of material fact, (3) made with scienter (4) on which plaintiff relied (5) that proximately caused `the plaintiffs' injury.'" Greenberg v. Crossroads Systems, Inc., 364 F.3d 657, 661 (5 Cir.2004), quoting Nathenson v. Zonagen, Inc., 267 F.3d 400, 406-07 (5th Cir.2001).
[66] Lead Plaintiff points out there is no reliance element for its claims under §§ 11, 12(a)(2), and 15 of the 1933 Act. # 1445 at 26. It further states that Enron's common stock, preferred stock, and certain debt securities trade on the New York Stock Exchange, among others, and that "[13]3, proxy, the prices of Enron's and Enron-related entities' publicly traded securities not traded on that exchange closely approximated movements in the Company's NYSE benchmark securities." Id.
[67] "Courts have likened the degree of proof required to the "standards used in preliminary hearings or in Fed. Rule. Civ. P. 12(b)(1) and 12(b)(2) jurisdiction contests. . . . Although the court's determination for class certification purposes may be revised (or wholly rejected) by the ultimate factfinder, the court may not simply presume facts in favor of an efficient market." Unger, 401 F.3d at 322-23. "A preliminary injunction requires the movant, by a clear showing, to carry the burden of persuasion. . . . [Establishing] a 'substantial likelihood of success on the merits' . . . is not the same as holding that the Plaintiffs had established disputed facts as a matter of law. [citations omitted]" Okpalobi v. Foster, 190 F.3d 337, 341 (5th Cir.1999), on rehearing en banc rev'd and remanded on other grounds, 244 F.3d 405 (5th Cir.2001). Thus the court must make a preliminary inquiry into the merits, but its factual findings will not be binding on the jury that may ultimately adjudge the merits.
In Basic, Inc. v. Levinson, 485 U.S. 224, 108 S.Ct: 978, 99 L. Ed. 2d 194 (1988), which established the fraud-on-the-market presumption as an alternative to proving individualized reliance on a defendant's misstatement, the Supreme Court observed that the Advisory Committee Note on Rule 301 of the Federal Rules of Evidence, addressing presumptions generally, states that a party seeking to invoke the presumption need only establish "basic facts giving rise to" the presumption, while to rebut it the nonmovant must establish the nonexistence of the presumed fact. Basic, 485 U.S. at 245, 108 S. Ct. 978; In re PolyMedica Corp. Securities Litig., 432 F.3d 1, 16-17 (1st Cir.2005).
[68] The previously scheduled class certification hearing in this case was continued for thirty days to allow Defendants to respond to a submission by Lead Plaintiff's expert, Declaration of Blaine F. Nye, Ph.D. in support of Lead Plaintiff's Amended Motion For Class Certification (# 4390) to support Lead Plaintiff's case for market efficiency.
[69] Judge Lechner explained in Cammer v. Bloom, in which the first five factors were discussed,
The reason the existence of an actively traded market, as evidenced by a large weekly volume of stock trades, suggests there is an efficient market is because it implies significant investor interest in the company. Such interest, in turn, implies a likelihood that many investors are executing trades on the basis of newly available or disseminated corporate information.
Cammer v. Bloom, 711 F. Supp. 1264, 1286 (D.N.J.1989), appeal dismissed, 993 F.2d 875 (3d Cir.1993). Dr. Blaine Nye, Lead Plaintiff's expert, related high trading volume to liquidity, supporting market efficiency: "A market for a stock is liquid if investors can trade a large number of shares on demand. Liquidity allows investors to buy and sell shares quickly when their assessments about the value of a company's stock have changed, facilitating a prompt price reaction to material new information." # 4390 at 16.
Cammer, 711 F.Supp. at 1293, cites inter alia Bromberg & Lowenfels, 4 Securities Fraud and Commodities § 8.6 (Aug.1988) ("Turnover measured by average weekly trading of two percent or more of the outstanding shares would justify a strong presumption that the market for the security is an efficient one; one percent would justify a substantial presumption."). The average trading volume is one of the most important factors in determining whether the market for a particular stock is efficient. Krogman v. Sterritt, 202 F.R.D. 467, 474 (N.D.Tex.2001).
[70] "The more securities analysts who follow and report on a company's stock, the greater the likelihood that information disseminated by a corporation is being relied upon by the stock trading public. . . . The presence of a substantial number of such analysts indicates that the stock was closely reviewed by investment professionals, who made buy/sell recommendations to client investors based on information publicly available about the company." Krogman, 202 F.R.D. at 475, citing Cammer, 711 F.Supp. at 1286.
[71] The National Association of Securities Dealers ("NAIC") defines a "market maker" as a "`firm that maintains a firm bid and offer price in a given security by standing ready to buy or sell at publicly-quoted prices.'" In re Safety-Kleen Corp. Bondholders Litig., No. 3:XX-XXXX-XX, 2004 WL 3115870, *7 (D.S.C. Nov.1, 2004) (citing http://wwvv.nasd.com/resources/glossary.asp). See also In re PolyMedica Corp. Sec. Litig., 432 F.3d 1, 9 (1st Cir.2005) ("The capacity of arbitrageurs to `seek out new information and evaluate its effects on the price of securities' distinguishes them from ordinary investors, who `lack the time, resources or expertise to evaluate all the information concerning a security.' . . . In an efficient market then, an ordinary investor `who becomes aware of publicly available information cannot make money by trading on it' because the information will already have been incorporated into the market by arbitrageurs. [citations omitted]"). Judge Lechner observed, "The existence of market makers and arbitrageurs would ensure completion of the market mechanism; these individuals would react swiftly to company news and reported financial results by buying or selling stock and driving it to a changed price level." Cammer, 711 F. Supp. at 1286-87 (holding that the existence of many market makers is one factor helping to support an inference that a compa ny's stock is traded in an efficient market). Other courts have discounted this factor as an indicator of market efficiency. See Krogman, 202 F.R.D. at 476 (and cases cited therein), cited by Unger, 401 F.3d at 324 ("the `number of market makers factor' has in practice proven an unreliable measure of market efficiency unless tied to trade volume and price").
[72] The panel in Unger explained, 401 F.3d at 323 n. 5,
Form S-3 is reserved for companies whose stock is actively traded and widely followed. To file a Form S-3, a company must have filed SEC reports for twelve consecutive. months and possess a seventy-five million dollar market capitalization level. See 17 C.F.R. § 239.13. By contrast, there is no minimum capitalization requirement to file either Form S-1 or S-2. Further, a company need not even meet the reporting requirements spelled out in § 239.13 to file a Form S-1. See 17 C.F.R. §§ 239.11-239.12.
See also Cammer v. Bloom, 711 F. Supp. 1264, 1271 n. 5 ("Generally speaking it is the largest and most well known companies which register equity securities on Form S-3. To be eligible to use Form S-3' in connection with an equity offering, an issuer must, among other things, have been filing reports under the Exchange Act for at least thirty-six months and either have outstanding $150 million of voting stock held by nonaffiliates or $100 million of such stock outstanding coupled with an annual trading volume of three million shares per year. SEC Form S-3 Instructions, 111-B-1.") and 1284-85 (SEC allows older, "more' seasoned" companies to use Form S-3 because they usually provide high quality corporate reports, including Exchange Act reports, their corporate information is widely disseminated, and they are widely followed by professional analysts and investors in the market place) (D.N.J.1989), appeal dismissed, 993 F.2d 875 (3d Cir.1993). Id. at 1287. The Cammer court found that "Form S-3 status is an important factor weighing in favor of a finding that a market is efficient." 711 F. Supp. at 1285. Similarly the district court in Krogman, 202 F.R.D. at 476, noted that the SEC permits the filing of an S-3 Registration Statement only where
"the stock is already traded on an open and efficient market, such that further disclosure is unnecessary." . . . According to SEC regulations, certain companies may use the S-3 short form, rather than Form S-1, to register securities if they are sufficiently large and have filed reports with the SEC for the requisite period of time. Corporations permitted to, use the S-3 form are thus presumed to be actively traded and widely followed. . . . Therefore, a company's ability to file an S-2 Registration Statement points to market efficiency.
Thus demonstrating that a company is entitled to file an S-3 Registration statement in connection with public offerings supports a showing of an efficient market. During the class certification hearing various individuals characterized Form S-3 as a "short-cut" allowed by the SEC to "seasoned" public issuers about which there was substantial information available, like Enron Corporation.
[73] Cammer states that this factor is "the essence of an efficient market and the foundation for the fraud on the market theory." 711 F. Supp. at 1287. See also Krogman, 202 F.R.D. at 477 ("Mil an efficient market, a stock's price remains relatively stable in the absence of news, and changes very rapidly as the market receives new and unexpected information.").
[74] "Market capitalization, calculated as the number of shares multiplied by the prevailing share price, may be an indicator of market efficiency because there is a greater incentive for stock purchasers to invest in more highly capitalized corporations." Krogman, 202 F.R.D. at 478.
[75] "The bid-ask spread is the difference between the price at which investors are willing to buy the stock and the price at which current stockholders are willing to sell their shares. . . . A large bid-ask spread in indicative of an inefficient market, because it suggests the stock is too expensive to trade." Krogman, 202 F.R.D. at 478.
[76] "`Because insiders may have private information that is not reflected in stock prices, the prices of stocks that have greater holdings by insiders are less likely to accurately reflect all available information about the security.'" Krogman, 202 F.R.D. at 478 (finding that a low float, i.e., a small percentage of shares held by the public in contrast to the percentage held by insiders, weighs against a finding of market efficiency).
[77] Dr. Nye adds three more that "have been addressed in the economic literature and/or have been considered" by the Courts:
the principal exchange on which the security was listed and traded;
institutional ownership of the security; and
news coverage and dissemination of information to news sources pertaining to the Company and its securities during the Class Period.
# 4390 at 14.
[78] Dr. Nye states that he employed the following factors in evaluating market efficiency for Enron debt and preferred securities during the Class Period:
-whether information on the purported financial condition of Enron was made available to the investors in the securities from many sources, including
-whether securities analysts followed and reported on, the Company and its securities;
-news coverage and dissemination of information by news sources pertaining to the Company and its securities;
-whether the securities had a significant trading volume;
-the market value of the securities;
-underwriters/market makers for the securities;
-whether the company was eligible to file SEC Form S-3;
-the registration status and trading venues for the securities;
-institutional ownership of and trading activity in the securities;
-the bid/ask spread for the securities;
-the securities' public float (amount outstanding excluding insider ownership);
-whether credit rating agencies rated the securities; and
-Whether there are empirical facts showing a cause-and-effect relationship between unexpected corporate events or financial information releases, and an immediate response in the securities' prices.
# 4390 at 18-19.
[79] In Unger the Fifth Circuit characterized the causal connection between corporate information and stock price as "one of the most important market-efficiency factors," and pointed out that a court must "take into account the many other factors that could affect the price" of the company's stock. 401 F.3d at 324.
[80] See footnote 15.
[81] Moreover Judge Cote went further and concluded that if WorldCom's SEC filing were accepted as an "earning statement" for purposes of § 11, "issues common to the class would continue to predominate. The fraud on the market presumption should apply to the plaintiffs' Section 11 claims, just as it does to the Section 10(b) claims." 219 F.R.D. at 294. She observed, "The reasons behind the creation of the presumption for securities fraud claims apply with equal force to the Section 11 claims brought here. Not only does the statute provide that even when a twelve-month earning statement triggers the burden to show reliance on the registration statement, the investor need not show that she actually read the registration requirement. Id. Where the securities at issue are sold in an open and developed market, as WorldCom's were, like the § 10(b) claimants, the § 11 investor/claimants relied on the market price as the reflection of all public information about the company's financial condition and should be entitled to a presumption of reliance under such circumstances." Id. This Court will not speculate whether the Fifth Circuit would also apply the fraud-on-the-market theory to § 11 claims.
[82] Section 20A, 15 U.S.C. § 78t-1(a), provides in relative part, "Any person who violates any provision of this chapter or the rules and regulations thereunder by purchasing or selling a security while in possession of material, nonpublic information shall be liable . . . to any person who contemporaneously with the purchase or sale of securities that is the subject of such violation, has purchased . . . or sold . . . securities of the same class."
[83] Certain Individual Defendants claim that the class definition includes persons with conflicting interests because it includes not only those who suffered losses as a result of defendants' actions, but also those who bought and sold at profitable times, benefitting from their stock investment. Furthermore, because the class representatives are intent on proving Defendants' conduct was wrongful, the interests of those who benefitted will not be properly represented by the named plaintiffs. The Court's requirement that Lead Plaintiff amend the class definition to include only those injured by the alleged wrongful conduct will cure such a problem.
[84] Although Lead Plaintiff in its latest submission (# 4621) objects to Defendants continuing to argue against the Court's earlier rulings on motions to dismiss, the Court emphasizes that it does have the power to reconsider such interlocutory decisions, especially in light of the limited and much of it recent case law emerging on scheme liability. Moreover, as noted, at class certification, especially after such substantial discovery as has been done here, the Court may look behind the pleadings at evidence to determine whether a class should be certified.
[85] See also In re Parmalat Sec. Litig., 376 F. Supp. 2d 472, 502-03 (S.D.N.Y.2005) ("This Court largely agrees [that the sham companies in Lernout were deceptive devices because they created an appearance of substance where substance was lacking], but takes issue with the Lernout & Hauspie court on the point. The term `substantially participated' does not appear in the text of Section 10(b) or Rule 10b-5, and it invites dispute over whether a particular defendant's role was or was not substantial. The text asks only whether a defendant directly or indirectly used or employed a manipulative or deceptive device or contrivance. The Court adheres to that language."). Judge Kaplan insists, "This analysis is not a back door into liability for those who help others make a false statement or omission in violation of subsection (b) of Rule 10b-5. The Second. Circuit [which follows a bright-line rule] has made clear that to `make' a statement for purposes of Rule 10b-5(b) requires that the statement be attributed to its maker at the time it is made. That is a different matter from whether a defendant's challenged conduct in relation to a fraudulent scheme constitutes the use of a deceptive device or contrivance." Id. at 503.
For other post-Central Bank decisions recognizing scheme liability see also SEC v. Hopper, No. Civ. H-04-1054, 2006 WL 778640, *11 (S.D.Tex. Mar.24, 2006) (Werlein, J.) (finding that "the SEC has adequately alleged that Pallas' round-trip trading scheme was a `device' or `scheme' to defraud, or at least a `practice' or `course of business' which operated as a fraud or deceit upon the investing public, that encompassed conduct beyond mere misstatements" "[b]ecause the roundtrip trades were sham transactions, and therefore had an inherent tendency to deceive"); In re Global Crossing Ltd. Sec. Litig., 322 F. Supp. 2d 319, 336-37 (S.D.N.Y.2004) ("Schemes used to artificially inflate the price ofIstocks by creating phantom revenue fall squarely within both the language of section 10(b) and its broad purpose to `prevent practices that impair the function of stock markets in enabling people to buy and sell securities at prices that reflect undistorted (though not necessarily accurate) estimates of the underlying' economic value of the securities traded.'"); In re AOL, Time Warner, Inc. Sec. & ERISA Litig., 381 F. Supp. 2d 192, 217 (S.D.N.Y.2004) ("If, as the 308-page Amended Complaint alleges, the defendants in fact engaged in a systemic scheme for more than 3½ years to inflate AOL's reported advertising revenue by at least $1.7 billion based on various sham transactions and accounting improprieties,' then there can be little doubt that investors have been very seriously misled by the defendants' acts. Accordingly, plaintiff is permitted to proceed under both Rules 10b-5(a) and (c).").
[86] The Court has also reviewed Deutsche Bank Entities' Notice of Supplemental Authority (# 4626), addressing the Charter case with respect to their motion for reconsideration and dismissal (# 3791, # 3794)and Lead Plaintiff's motion for leave to file a second amended complaint (# 3903).
[87] Turning to contemporary definitions, the SEC states that "employ" and "use" (derived from the Latin word for "engage") are synonyms and that "use" means "to engage m" or "to put into operation." Ex. I at 15, citing Funk & Wagnalls, New Standard Dictionary of the English Language 2622 (2d ed.1934)"
[88] The Court previously ruled that the § 12(a)(2) claims based on the Osprey Trust Osprey I, Inc. issue on 9/23/99 are time-barred. #.2044 at 6-7.
[89] This Court observes that the Supreme Court noted in American Pipe that it was not addressing a case in which class certification was denied "for lack of standing of the representative," but one where certification was denied for failure to satisfy the numerosity requirement. 4.14 U.S. at 553, 94 S. Ct. 756.
[90] Factual issues about limitations should not be resolved at the class certification stage. Chiang v. Veneman, 385 F.3d 256, 269 (3d Cir.2004) (statute of limitations defense goes to the merits and should not be a basis to deny class certification).
[91] Certain Defendants argue that Hawaii Laborers' Pension Fund and Employer-Teamsters Local Nos. 175 & 505 should not be included in the class because they bought and sold Enron stock during the Class period and thus profited from the alleged fraudulent scheme. Lead Plaintiff properly responds that the two brought claims under § 11 based only on their bond investments and did lose mbney on the bonds, so they were damaged by the fraud.
[92] Neither § 10(b) nor Rule 10b-5 addresses how to calculate damages. Courts have applied the out-of-pocket measure in § 28 of the 1934 Act, 15 U.S.C. § 78bb(a) ("correct measure of damages . . . is the difference between the fair value of all the [plaintiff] received and the fair value of what he would have received had there been no fraudulent conduct") to these claims. Randall v. Loftsgaarden, 478 U.S. at 661-66, 106 S. Ct. 3143, quoted for that proposition, Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 178 n. 19 (3d Cir.2001).
[93] In 1995 Congress codified the loss causation element in the PSLRA:
In any private action arising under this chapter, the plaintiff shall have the burden of proving that the act or omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages.
15 U.S.C. § 78u-4(b)(4).
[94] Justice Breyer noted that the Ninth Circuit's standard would not serve the public policy goals of the federal securities laws, i.e., maintenance of public confidence in the market by making available private securities fraud actions; these statutes do not aim to "provide investors with broad insurance against market losses, but to protect them against those economic losses that misrepresentations actually cause." 125 S. Ct. at 1633. The PSLRA "makes clear Congress' intent to permit private securities fraud actions for recovery where, but only where, plaintiffs adequately allege and prove the traditional elements of causation and loss." Id.
[95] In Dura, Pharmaceuticals the Supreme Court found that although the complaint alleged that the plaintiffs paid artificially inflated prices for Dura Pharmaceutical's securities, it failed to allege that the share price of the stock at issue fell substantially after the truth was disclosed. 125 S. Ct. at 1634. Instead the only allegation was that the purchase price was inflated and "the, complaint nowhere else provides the defendants with notice of what the relevant economic loss might be or of what the causal connection might be between the loss, and the misrepresentation concerning Dura's `spray device:" Id at 1634.
[96] See, e.g., In re Imperial Credit Industries, Inc. Sec. Litig., 252 F. Supp. 2d 1005, 1014-15 (C.D.Cal.2003) (requiring an event study or similar analysis to eliminate the parts of a stock price decline because "[a] proper measure of, damages in the securities context . . . requires elimination of that portion of the price decline or price difference which is unrelated to the alleged wrong"), aff'd sub nom. Mortensen v. Snavely, 145 Fed.Appx. 218 (9th Cir.2005); In re Northern Telecom Ltd. Sec, Litig., 116 F. Supp. 2d 446, 460, 468 (S.D.N.Y. 2000) (granting suMmary judgment for defendants where their expert's event study concluded that none of the challenged statements caused increases in the stock price and where plaintiffs' expert failed to perform an event study or similar analysis to controvert the defendants'); In re Executive Telecard Ltd. Sec. Litig., 979 F. Supp. 1021, 1025-26 (S.D.N.Y.1997); In re Oracle Sec. Litig., 829 F. Supp. 1176, 1181 (N.D.Cal.1993) (rejecting expert's report for failure to perform an event study).
[97] Section 11, like § 12(a)(2), provides two affirmative defenses: where the party can show that the depreciation in the value of the security was caused by something other than the misrepresentations in the registration statement or prospectus and where it can show due diligence, 15 U.S.C. § 77k(e) and § 77k(b)(3), and 15 U.S.C. § 771(b) and § 771(a)(2). Affirmative defenses need not be addressed at this stage of the litigation.
[98] Liability under the 1933 Act operates as follows. Section 11 provides for joint and several liability for all defendants (any signer, director of the issuer, accountant preparing or certifying the registration statement, or underwriter) except outside directors. 15 U.S.C. §§ 77k(f)(1). Outside Directors are generally subject to proportionate liability. 15 U.S.C. § 78u-4(f)(2)(B)(i). If, however, the jury finds that the outside directors are "knowing" violators of the securities laws, they are subject to joint and several liability. § 78u-4(1)(2)(A). There is also a very limited exception for underwriters under § 11(e): "In no event shall any underwriter (unless such underwriter shall have knowingly received from the issuer for acting as an underwriter some benefit, directly or indirectly, in which all other underwriters did not share in proportion to their respective interests in the underwriting) be liable in any suit or as a consequence of suits authorized under subsection (a) of this section for damages in excess of the total price at which the securities underwritten by him and distributed to the public were offered to the public." § 77k(e). Thus in these exceptions the "knowing" violator is subject to the harsher joint and several liability.
The remedy for violations of § 12(a)(2) by the statutory "seller" is rescission "except where the plaintiff no longer owns the security," under which circumstance damages may be recovered. Randall v. Loftsgaarden, 478 U.S. 647, 655, 106 S. Ct. 3143, 92 L. Ed. 2d 525 (1986); Gustafson v. Alloyd Co., 513 U.S. 561, 567, 115 S. Ct. 1061, 131 L. Ed. 2d 1 (1995).
For control. person liability, the controlling person is held jointly and severally liable with the controlled person under § 15 of the 1933 Act and § 20(a) of the 1934 Act. 15 U.S.C. § 77o, § 78t(a).
[99] Section 21D(f) of the 1934 Act, added by the PSLRA, provides:
For purposes of this Subsection, the term "covered persons" means
(i) a defendant in any private action arising under this chapter; or
(ii) a defendant in any private action arising under section 77k of this title [§ 11 of the 1933 Act], who is an outside director of the issuer of the securities that are the subject of this action. . . .
15 U.S.C. § 78u-4(f)(10)(C).
[100] Therefore the Court does not have to resolve an issue raised by Lead Plaintiff about whether the Rule 144A and Reg S offerings are covered by § 12(a)(2).
[101] Hansberry v. Lee, 311 U.S. 32, 61 S. Ct. 115, 85 L. Ed. 22 (1940).
[102] The Berger standard has since been applied to cases not involving securities violations. See, e.g., In re Electronic Data Systems Corp., 224 F.R.D. 613 (E.D.Tex.2004) (for ERISA as well as PSLRA claims); In the Matter of American Comm. Lines, LLC, Nos. Civ. A. 00-252, 00-2967, and 00-3147, 2002 WL 1066743 (E.D.La. May 28, 2002) (maritime negligence and strict liability); Umsted v. Intelect Communications, Inc., Civ. A. 3:99-CV-2604, 2003 WL 79750 (N.D.Tex. Jan.7, 2003); Ogden v. AmeriCredit Corp., 225 F.R.D. 529, 532-38 & n. 2 (N.D.Tex.2005) (ERISA); In re Reliant Energy ERISA Litig., No. Civ. A. H-02-2051, 2005 WL 2000707 (S.D.Tex. Aug. 18, 2005).
[103] "[S]he agreed that the majority of people that had been named were involved, and and any attempt of theirs to get out of it was denied. And I think there was someone, a lead; attorney or something for Enron that was released."
[104] Speck did recognize Rick Buy as "the guy that married the stripteaser" and Rebecca Mark-Jusbasche as "the gal that . . . wanted to get to the top, wanted to be the top one, and she was pretty well in charge of the Wessex (phonetic) deal and thewater deal and she blew that very well by engaging in contracts that didn't have a chance."
[105] Moreover, while several said they found Milberg, Weiss independently by searching the internet, none testified they had done any research about counsel's qualifications or suitability as class counsel. See Ogden v. AmeriCredit Corp., 225 F.R.D, 529, 535 (N.D.Tex. 2005). Because there is no challenge to the adequacy of designated class counsel, the Court does not place much weight on this failure.
[106] The Court has read the deposition excerpts of all the designated class representatives and finds those not challenged by Defendants to be adequate, though some are "close questions." Rather than go into detail about each, as an example of an individual class representative for comparison, the. Court examines the deposition of Michael Bessire (Ex. 16 to # 1855) from Lubbock, Texas, previously an executive at Safeway, who summarized the lawsuit's allegations as having to do
directly with Enron and its chief officers' engagement in fraudulent financial activities, deception, and providing inaccurate information to the public that was making investment decisions and doing it in ain a knowing way. Andand then thethe enablers or the banks and the attorneys and auditing firms that went along with these deceptive practices that allowed theallowed thethat led to the collapse and the financial losses of so many people.
Ex. 16 at 121, ll. 23-122, l. 8. Bessire understood the "fraudulent financial activities" as "[s]pecifically setting up debt in companies that were off the balance sheet and borrowing money thatwhere the debt was not reflected on the balance sheet of the company and then using the borrowed money to report as revenue. . . . [The off-balance-sheet transactions were] not disclosed to the public. . . ." Id. at 122, 11. 16-24. He did state that his understanding came from investigations and information provided by his attorney; he also represented that he had not done any independent investigation of the truth of these allegations because "that's the job of the attorneys." Id. at 123, 11. 6-12. Nevertheless Bessire qualified that comment, stating that he had, on his own, obtained written materials (press releases, analysts' reports) relating to Enron's restatement of its earnings over five years for over a billion dollars, which made it "in my mind, more factual than allegation and improperimproper bookkeeping and reporting." and led him to be part of the class action and "allow the attorneys toto do the additional legal research that will be required to make a case out of it." Id. at 124, 11. 6-18; at 125, 11. 1-9. As noted, a class representative must have a "sufficient level of knowledge and understanding to be capable of `controlling' or `prosecuting' the litigation"; class representatives do not have to "be legal scholars and are entitled to rely on counsel," but they "need to know more than that they were `involved in a bad business deal.'" Berger, 257 F.3d at 482-83. "Plaintiffs should understand the actions in which they are involved, and that understanding should not be limited to derivative knowledge acquired solely from counsel." Id. at 483 n. 18. Bessire did state that the lawyers, not he, were running the litigation for the plaintiffs. Ex. 16 at 201 at ll. 23-25. He also commented that although he was not aware that he had any responsibility to direct or monitor what his lawyers were doing, he did have a responsibility to communicate with them "enough to where I'm comfortable with the direction that they are going," and if he was not, "to address it with the rest of the class members." Id. at 150, ll. 1-19.
He knew defendants included Ken. Lay, Jeffrey Skilling, and Andrew Fastow, Arthur Andersen and a number of banks, naming Citibank, and brokerage firms, naming Merrill Lynch, but was not familiar with the names of the individual defendants. He identified two statements by Lay in the months prior to Enron's bankruptcy filing that he believes were inaccurate when made.
As a class representative he was prepared to spend whatever time was necessary on the case and was willing to testify at trial, and to participate generally. His zeal to participate in a class action against "a huge deception that was intentional" and where "the greed factor isis to the scope that the American public's never seen before," was effectively expressed:
And I think I want to, in some way, take a stand, and if that means, you know, doing being deposed or appearing at a trial or, you know, having to memorize 1,150 pages of documents to make this thing happen, I'd like to seeI'd like to see a ruling that would prevent this type of action, if in fact . . . it's seen by a judge and jury that it did take place in thein what I perceived, I'd like to see thata ruling that's so grave that it provides a disincentive for anyone to ever think of doing this again. I think there are hundreds of thousands of people outside the scope of just employees whose lives were altered forever, and people should not be able to personally benefit at the cost, you know, of tens of thousands or hundreds of thousands of people. And so I want to participate. . . .
[107] See exhibits to Instrument # 1446 (Declaration of James I. Jaconnette, Exs. 5-25) and # 1855 (Lead Plaintiff's Appendix in Support of Replies for Class Certification).
[108] In Smith v. Suprema, the district court refused to appoint the asset manager with twenty-two independent clients (which did not work together effectively as a group, so the asset manager could not function as a "single investor") as a Lead Plaintiff because its clients were the actual purchasers of the securities at issue, the authority to invest is not the same as authority to initiate suit, and it did not show that its clients had authorized it to file suit.
[109] Murray observes, id. at 411,
An asset manager who purchases for a client's account often has some, if not all, of the attributes viewed as desirable in a lead. plaintiff [or class representative]: sophistication, wealth, experience, and incentive to achieve a large recovery. Although the purchase is not made with the manager's own money, the asset manager's reputation and credibility are on the line with the client, and an asset manager has every incentive to achieve a recovery and get back in its client's good graces. In addition, it is almost impossible to get in a position to manage someone else's money without having achieved a certain level of sophistication and experience in financial matters.
At the close of his article, id. at 418, he concludes,
The trend of authority is to allow asset managers to serve as lead plaintiffs or class representatives. These decisions seem more consonant with the purpose of the federal securities laws, which, as one court noted, is "to protect decision-makers in securities transactions." The federal securities laws are premised on a theory of full and fair disclosure. An asset manager, who has been granted investment discretion and actually purchases the securities, even if for the account of another, is in the best position to assess whether it is the victim of fraud or misrepresentation and should be accorded standing to sue. [footnote omitted]
[110] Staro's typical partnership agreement (second part of Ex. 41 to #1855) states that the general partner is authorized "to commence or defend any litigation involving the Partnership or the General Partner in its capacity as General Partner," "to make all investment and trading decisions to sell, hold and purchase Securities (including the short sale or lending of Securities)," and authorizes the general partner to acts' as it "lawful attorney-in-fact."
[111] Similarly, to the complaint that Staro failed to list all the securities transactions Staro had with Enron on its application to serve as Lead Plaintiff and reply brief in Newby, the Court finds that Staro's explanation on its face that Staro's claim rests only on the zero coupons is reasonable and not indicative of deception.
The same arguments of edited disclosure (listing only bond investments and leaving out stock) and the absence of any loss because of the net effect of Staro's offset convertible arbitrage strategy were raised against Staro in In re Sepracor Inc. Sec. Litig., 233 F.R.D. 52 (D.Mass.2005). Judge Lasker rejected
Sepracor's suggested cumulative methodology, which includes offsetting gains in the loss calculation. To the contrary, I find a transaction-based methodology, which allows claims for unprofitable transactions without offsetting diet recoverable loss with gains from profitable transactions, to be more consistent with the provisions of the statute and the Rule. . . . Both provisions make it illegal for someone to make materially misleading statements "in connection with the purchase or sale of any security." . . . Neither the statute nor the Rule authorize any kind of aggregation of purchases or sales that could sanction the cumulative approach.
Id. at 54.
[112] Dr. Blaine Nye, a financial economist and Lead Plaintiff's expert on market efficiency, defines a "short sale" as
the sale of a stock that an investor does not own. When an investor holds the belief that a stock price will decline, he can borrow the stock, sell the stock, and then buy the stock back later to return it to the lender. If the price drops between the time that the short seller sold the stock and he buys it back, the short seller realizes a gain. Thus short-selling can facilitate market efficiency by allowing borrowing and selling of stock when investors believe that the price could decline.
#4390 at 21.
[113] Bobbs explained his job:
Well, I am an investment analyst, so the real crux of my investments all originates from analyzing publicly filed financial statements that companies are required to issue that are presented in accordance with generally accepted accounting principles.
And I rely heavily upon those publicly filed financial statements totoform my opinions and to evaluate prices of securities "that are issued by companies who file those financial statements. Bobbs Dep. At 15-15. In addition to the financial statements, he would review the offering memorandum, id. at 31, and would read and rely on Arthur Andersen's audit opinion, id. at 51.
[114] Staro v. Arthur Andersen, et al., H-01-C4480, filed on December 21, 2002. Ex. 39 to # 1855.
[115] The Second Circuit employs a much laxer evidentiary standard for class certification than the Third, Fourth, Fifth, and Seventh Circuits and requires only "some showing" of evidence, without the district court testing it and making findings. Caridad v. Metro-North Commuter Railroad, 191 F.3d 283, 292-93 (2d Cir.1999) (plaintiffs have the burden to make "some showing," e.g., by expert opinion, document, affidavit, or live testimony, but the "district court is forbidden to weigh the evidence on class certification [and] plaintiffs need not establish the elements of Rule 23 by a preponderance of the evidence"); In re Visa Check/MasterMoney Antitrust Litigation, 280 F.3d 124 (2d Cir.2001); Fogarazzo v. Lehman Bros., Inc., 232 F.R.D. 176, 179 (S.D.N.Y. 2005). In contrast, the Third, Fourth, Fifth and Seventh Circuits require the Court to go beyond the pleadings to make factual and legal inquiry where necessary, for making findings in an informed ruling on class certification.
[116] Judge Jed Rakoff in DeMarco v. Lehman Bros. opined, "[T]here is a qualitative difference between a statement of fact emanating from an issuer and a statement of opinion emanating from a research analyst. A well-developed efficient market can reasonably be presumed to translate the former into an effect on price, whereas no such presumption attaches to the latter. . . ." 222 F.R.D. at 246. Judge Rakoff denied class certification because "plaintiffs' proffered evidence does not remotely satisfy the aforementioned burden because, even when taken most favorably to plaintiffs, it does not warrant a finding that [the research analyst's] allegedly false statements materially impacted the market price of [the subject securities] in any reasonably quantifiable respect." Id. As discussed, in the Fifth Circuit, under' Greenberg, a showing that the statement affected the price of the securities in an efficient market is required no matter who issues the allegedly misleading statement.
[117] In Robertson Stephens, the court found that the predominance requirement for class certification was met where plaintiffs provided evidence that the court characterized as "weak," including "(1) the 12.6% rise in the market price of the subject company's stock following the publication of a favorable research report by the defendant investment bank; (2) the decline in the price of the stock in the day after the publication of a newspaper article detailing how the defendant analyst and some of his colleagues . . . sold their own shares [of] the stock while their employer maintained a "Buy" rating for it; (3) the role of the investment bank as the lead underwriter for the company and, accordingly, the `influence its pronouncements would have on the market'; and (4) the affidavit of an expert `attesting to' the prevalence in the financial literature of `robust' empirical results supporting a generally-accepted conclusion that analyst rating changes are `associated with significant stock-price changes.'" Id. at 473.
[118] As with Greenberg, the Fifth Circuit issued Southland long after this Court denied Defendants' motions to dismiss.
[119] Even if Lead Plaintiff had shown scienter on the part of its analysts, the Court would agree and would not accept as a general principle that analyst reports with financial statements attached are per se confirmatory under Greenberg because if the analysts did not contribute something of significance, there would be no purpose in issuing the reports. Clearly the substance of such reports would need to be examined on a case by case basis to determine if the analysts's statements independent of the financial statements were false and misleading.
[120] Dr. Nye's Declaration focuses solely on information efficiency in the market for Enron securities. He expressly states that his Declaration "is not a damage study, or a calculation of damages, or a determination regarding loss causation, and should not be construed as such. Any report or analyses on the subjects of damages or loss causation in this matter will be submitted at a later time." #4390 at 89.
[121] The Second Circuit has established as the test for loss causation for scheme liability under § 10(b) and Rule 10b-5(a) and (c) that the plaintiff must show both that the loss was foreseeable and that it was caused by materialization of the concealed risk. Lentell v. Merrill Lynch & Co., 396 F.3d 161, 173 (2d Cir.2005), cert. denied, 546 U.S. 935, 126 S. Ct. 421, 163 L. Ed. 2d 321 (2005), Parmalat is in accord with that standard. The Fifth Circuit has not addressed the question.
[122] In his Rebuttal Declaration (#4527 at 13), Dr. Nye pointed out that with bonds, when the interest rate goes up, usually the yield goes up and the price of the bond goes down because that bond is less desirable compared with the higher rate of a newly issued bond of similar quality; conversely, typically when the interest rate falls, price of the bond goes up and the yield goes down. The longer the time of a bond to maturity, the more its price is affected by those changes. He submitted the graph in Exhibit 4, charting the yields of each of the Enron bonds against the yields for Aaa and Baa corporate bonds during the pre-distressed period, which he states demonstrates that the price of each of the Enron bonds moved with changes in interest rates.
[123] Dr. Sundaresan's view is similar. He identifies as the key factors for pricing debt securities (1) probability of default by the issuer; (2) the likely loss to bond investors in the event of a default; (3) information that influences the issuer's ability to meet contractual bond payments; and (4) macro-economic factors such as interest rates and inflation. #4481 at 6.
[124] Dr. Sundaresan stated that he had found "multiple indications of inefficiency and of non-transparent, non-well-developed markets" for these bonds. #4481 at 4-5.
[125] During the class certification hearing, Dr. Sundaresan stated, "But I must confess that, when I searched the literature for studies of bond market efficiency, I could not look at too many of them. In a way, I'm not surprised because you don't have good quality data that is available so easily that you could get in the stock market. After the introduction of TRACE [rules approved by the SEC to establish a corporate bond trade reporting and transactions dissemination facility that became effective on July, 1, 2002, after the Class Period], in two, three years' time, we are going to have lots of studies speaking to the efficiency of the corporate bond market. But, as of today, I couldn't look at too many papers. In fact, I couldn't look at one." TR at 250; #4481 at 16. See also #4481 at 6 (The ECMH's weak-form; semi-strong form and strong form of efficiency "were developed in the context of equity markets. The literature on the efficiency or inefficiency of bond markets is very sparse.")
[126] In Cammer, the securities being traded over-the-counter were stocks, not bonds.
[127] Dr. Sundaresan maintains generally that secondary markets for corporate bonds are inefficient because, in contrast with the national exchange markets for stocks, there is a lack of transparency in the over-the-counter market: transaction prices and volume information are not displayed or reported on electronic platforms at central exchanges the way they are for stocks, the market makers do not post live bids and offers, trading activity is less in volume and more sporadic than for stocks, and there is a lack of impersonal trading because the traders "negotiate" trading prices with each other over the telephone. #4481 at 3. When asked under what conditions a corporate bond might trade efficiently, he cautiously and speculatively replied, "For example, the top 10 percent of the bonds, like GM or Ford, they trade almost every day. Their trading volume is quite high. I would expect with that kind of a trading frequency and trading volume to be possibly efficient, but I have not conducted any tests." TR of Class Certification Hearing (#4558) at 247.
[128] Suggesting that the efficient market "premise" (id. at 246, 108 S. Ct. 978) is not a perfect or accurate construct, the Supreme Court in Basic, Inc. also commented,
We need not determine by adjudication what economists and social scientists have debated through the use of sophisticated statistical analysis and the application of economic theory. For purposes of accepting the presumption of reliance in this case, we need only believe that market professionals generally consider most publicly announced material statements about companies, thereby affecting market prices.
Id. at 247 n. 24, 108 S. Ct. 978 (emphasis added by the Court).
[129] The Court notes that only last year did the Fifth Circuit issue the three cases requiring more stringent examination of market efficiency (Bell v. Ascendant Solutions, Inc.; Unger v. Amedisys, Inc.; Greenberg Crossroads Systems, Inc.), sending the parties scrambling in the fall to meet the demand with detailed expert reports before the class certification hearing. Indeed the Court postponed the hearing to allow Defendants to respond to Dr. Nye's Declaration.
Dr. Nye's Declaration states that approximately sixty-two subpoenas were sent to underwriters, and that thus far data had been received back from only thirteen. He suggests that some of the underwriters may have merged.
[130] In his report (#4390 at 2) Dr. Nye provided as "a clear and simple definition of and test for market efficiency . . . someone with publicly available knowledge can access the market that he/she desires and can trade on any information that he/she might have." Id. But then he discussed an "informationally efficient" market, in which "the price of the security reflects publicly available information," the traditional definition of an efficient market, and concluded that "[t]he response of Enron securities prices to material new information during the period at issue (most dramatically the price responses to the cascade of fraud-related disclosures from mid-October through late November 2001), indicates the prices of Enron securities did respond promptly to material new information." Id. His report also states, "A direct empirical test of market efficiency is to examine price responsiveness to the release of new and material information. If the security price responds quickly, the response supports a conclusion that the market for the security is efficient." Id. at 12. Moreover, during the class certification hearing he stated, "A market is efficient if the prices at which transactions take place fully reflect all publicly available information." TR at 61. He also discussed and applied the Cammer/Bell/Unger factors to the Enron bond market. He did later say that this last definition is "not my view. That's a definition." TR at 163. He identified it as the definition of Dr. Eugene Fama, the "godfather" of expertise In market efficiency. Id. at 163-64. See In re PolyMedica Corp. Sec. Litig., 432 F.3d 1, 10 (1st Cir. 2005), citing `Eugene F. Fama, Efficient Capital Markets: A Review of Theory and Empirical Work, 25 J. Fin. 383 (1970) (an efficient market is one in which market price reflects all publicly available information). Nevertheless his analysis meets the traditional definition.
[131] Black's Law Dictionary (6th ed. West 1990) defines "puts and calls": "A `put' in the language of the commodity or stock market is a privilege of delivering or not delivering the subject-matter of the sale; and a `call' is a privilege of calling or not calling for it." It further defines a "call option" as follows:
A negotiable instrument whereby writer of option, for a certain sum of money (the "premium"), grants to the buyer of the option the irrevocable right to demand, within a specified time, the delivery by the writer of a specified number of shares of a stock at a fixed price (the "exercise" or "striking" price). . . . An option permitting its holder (who has paid a fee for the option) to call for a certain commodity or security at a fixed price in a stated quantity within a stated period.
It defines a "put" as,
An option permitting its holder to sell a certain stock or commodity, at a fixed price for a stated quantity and within a stated period. Such a right is purchased for a fee paid the one who agrees to accept the stock or goods if they are offered. The buyer of this right to sell expects the price, of the stock or commodity to fall so that he can deliver the stock or commodity (the put) at a profit. If the price rises, the option need not be exercised. The reverse transaction as a call.
A "put option" is "one under which buyer of the option may demand payment by the writer of a fixed price (the "striking" price) upon delivery by the buyer of a specified number of shares of stock."
[132] Dr. Nye explained that stock trades on major exchanges in a centralized market with rules, regulations and price listings, in high frequency and volume and it generally splits when its prices get too high. In contrast the bond market tends to be over-the-counter, not centered around a hub, and operates by dealers and brokers communicating with each other via telephone and electronic messaging devices. Bonds are "bigger animals" that do not trade as frequently or in as large a volume as stocks, and the bond market in many ways is "a market of big boys" institutions, dealers, brokers, investment banks etc., which have numerous trained staff and information gatherers, arid which are in constant communication with each other, polling for the up-to-the-minute prices of these debt securities. TR at 69-71. He emphasized that the important point is that an efficient market reflect information, not that the securities be traded quickly or in large volume. TR at 74, 67 ("informational efficient market means that the price fully reflects all publicly available information").
[133] For example, he found that information on the purported financial condition of Enron was available to investors from many sources, including analyst and media coverage, identified in, his discussion of the market for stocks, and was relevant to the bonds. Emphasizing that bond investors focus upon the terms of the debt security and the company's creditworthiness, reflected in the bond's yield to maturity and price, and, critically, on the risk of default, which depends on the financial health of the company, Dr. Nye pointed out that information on Enron's financial and operational performance was widely disseminated during the Class Period through the following avenues: registration materials and prospectuses of the securities at issue (available to the public from the SEC); Enron's SEC filings (including Forms 10-K and quarterly Forms 10-Q containing Enron's published financial statements), annual Proxy Statements, Forms 8-K reporting new events and developments, and other filings; conference calls between Enron executives and the investor and analyst communities; news coverage of the company (summarized at pp. 37-38); and security analysts' reports, including reports issued by credit rating agencies and reports on Enron's debt issues by credit analysts, in addition to reports by equity analysts which are also relevant.
[134] Again because the market for Enron stocks during the Class Period is not contested as inefficient, the Court will not repeat his statistics here.
[135] In his Declaration at 145 Dr. Nye left out the period and reported $4059 billion, but his illustrative Ex, 15 reflects the proper amount, in line with the other figures.
[136] The Court notes that the preferred securities were traded on the NYSE and acted more like the common stocks than the bonds.
[137] Nye did The same to the Foreign Debt Securities (#4390 at 60-76), but since the Court has found no plaintiff with standing to represent the class for claims under § 10(b), as well as under § 12(a)(2), it does not summarize his analysis as to these securities.
[138] He did not include the $10.50 Convertible, for which he has not been able to identify the underwriter and for which he has thus far only ten underwriter transactions during the Class Period, and he also excluded the $200M Enron Capital LLC MIPS 8% Preferred Securities, due November 20, 2043, for which he has received fewer than ten underwriter transactions. He stated that he has not received transaction data from Goldman Sachs, which is listed as the lead underwriter for these two Preferred Securities.
[139] Dr. Nye previously reported this as 8.125%; the Court assumes that one or the other is a typographical error.
[140] Dr. Sundaresan characterizes these as "made up" or fictional prices.
[141] More specifically, Nye maintained that the October 16, 2001 announcement by Enron of substantial write-downs and charges did not have much impact of the stocks because bondholders focus on the corporation's ability to pay; Enron's credit rating at that time remained intact because the credit rating agencies perceived Enron as having the financial ability to make good on its debt securities and not insolvent and assured the public that their credit ratings would remain the same. Dr. Nye identified the following public announcements of key information for Enron bond investors and corresponding drops or increases in the price of the exemplar Enron bond, constituting indicia of an efficient market for Enron registered bonds, after that date: Enron announced on October 22, 2001 that the SEC was seeking information from the company regarding related party transactions; during a conference call on October 23, 2001 Enron was confronted with questions about the adequacy of assets held by the Marlin and Osprey entities to pay those entities' debts; Fastow was terminated on October 24, 2001; Fitch and Standard & Poor's revised their evaluation of Enron's long term outlook to negative on October 25, 2001; on October 26, 2001 the Wall Street Journal published an article reporting that Enron had drawn down about $3 billion, the bulk of its available bank credit lines, arid was seeking to obtain a new multibillion dollar credit line from its banks; Enron announced on November 1, 2001 that its investment bankers had committed to providing Enron with $1 billion of secured credit, to the disappointment of analysts; Standard & Poor's lowered Enron's corporate credit and senior unsecured debt ratings and commercial paper ratings on November 1, 2001; reports surfaced during the week leading up to November 8, 2001 that Dynegy might rescue Enron; Moody's cut Enron's senior unsecured debt ratings to its lowest investment grading on November 9, 2001; later the same day Enron announced that Dynegy would buy Enron and Fitch upwardly revised its rating of Enron; Enron filed its Form 10-Q for the third quarter of 2001; and Dynegy called off of the merger on November 28, 2001.
[142] Dr. Nye provided data demonstrating the declining matrix price reaction of an exemplar Enron registered bond to the entry into the, market of material public information during the remainder of that fall: # 4390 at 52-58. He did the same kind of detailed factor analysis for an exemplar Enron Foreign Debt Security and for an Enron Preferred stock. Id. at 58-76, 76-88.
[143] Dr. Nye responded that it was unreasonable not to consider price reactions during the distressed period as indicators of an efficient price response. This Court agrees. Dr. Nye asserts that even by October 23, 2001, although the risk of default by Enron was perceived as higher, default was not viewed as imminent. It is precisely at such a time that one would expect a price reaction if the market was efficient. He points out that although the debt security prices declined, they also then rose with news that Dynegy might buy Enron. # 4527 at 8-9.
[144] Dr. Nye stated that a lot of economic studies use matrix pricing. TR at 136.
[145] Dr. Sundaresan cites from case law the characteristics of an efficient equity market: open ("any one, or at least a large number of persons, can buy or sell"); well developed ("one which has a relatively high level of activity and frequency, and for which trading information (e.g., price and volume) is widely available"); and impersonal ("where transactions are executed based on posted bids and offers without further negotiations"). # 4481 at 10-11. While he cites cases for the first two definitions, he fails to do so for the last, which constitutes one of his main objections to the corporate bond market generally as an efficient market. Moreover, the cases he cites dealt with stocks, not debt securities.
Dr. Sundaresan then argues that for primary markets for new issuances of corporate bonds, "there can be, no assessment whether the markets have developed well, and are performing efficiently, because the markets have not developed at all. A primary market is not an open market, with many buyers and sellers, but instead has only one seller and pricing is set by the issuer and the underwriter, after assessing macroeconomic conditions and what customers will likely pay. With bond offerings, they may overprice the issue and offer a `new issue premium' to the issuer from highly rated bonds." Id. at 12.
Primary bond markets are very different from primary stock markets, as is true of the relevant secondary markets. It appears to this Court that rather than impose identical standards on both the equity and bond markets, primary and secondary, even when those standards will not fit the bond market, the Court needs to look at the specific facts of the disputed bond market, whether primary or secondary, and determine whether it was sufficiently informationally efficient. There is no established, absolute standard.
[146] Dr. Sundaresan makes such a showing when, instead of methodically applying the market maker factor from the equity analysis to the primary bond market and concluding there is a deficiency, he points out that the offering memoranda for several of the Foreign Debt Securities (i.e., Marlin Trust IL Marlin Water Capital Corporation II), Osprey Trust (Osprey I, Inc.) $750 million, 7.79% issue, Osprey Trust (Osprey, Inc.) $1.40 billion, 8.31% issue, and (Enron CLN Trust), state that there is no existing or potential markets for these notes. The Court agrees. Because, however, there is no class representative who has bought the Foreign Debt Securities, the Court has already ruled that the section 10(b) claims based on them must be dismissed.
[147] Mr. Newkirk defines "IPO": "An IPO is the issuer's original sale of a security to the investing public. This initial offering occurs in what is known as the primary market. The secondary market in which buyers and sellers trade the security after the initial sale. (The New York Stock Exchange and the over-thecounter markets are examples of secondary markets.) IPO securities may be stocks, bonds, or other financial instruments." 58 U. Chi. L.Rev. at 1422 n. 5.
[148] Although the Court has ruled that claims based on the Foreign Debt Securities cannot be certified here, it notes in passing that the offering memoranda of the Osprey, Yosemite and Marlin offerings stated, "There is no existing market for" the securities and "there can be no assurance as to the liquidity of any market that may develop." Osprey I at 14; Yosemite III at 11; Osprey II at 16; Marlin II at 16-17. These facts also support a finding of an inefficient primary market.
[149] The Court earlier determined that the allegations that Deutsche Bank's six pre-Class Period structured tax transactions operated as a sham, lacked a legitimate business purpose, were designed to mislead investors by inflating Enron's financial results, and thus the value of its publicly traded securities, and allowed Enron to avoid paying federal income taxes from 1996-2001 as well as to recognize present earnings from future speculative tax savings, would have stated primary violations of § 10(b) and Rule 10(b)-5(a) and (c) if they were not time-barred. Among the SEC's examples in its recent amicus curiae brief, the Court would place these allegations in the category of the third party (as primary violator) and the corporation engaging in a sham transaction whose principal purpose and effect is to create a false appearance of revenues for years into the future, intended to deceive investors in that corporation's stock.
[150] Initially the Court dismissed the § 10(b) claims against Deutsche Bank based on the structured tax transactions as time-barred, but left the § 12(a)(2) claims pending. In the wake of Southland, Lead Plaintiff was permitted to replead with allegations against Cambridge making or authorizing misleading offering memoranda for the. Foreign Debt Securities at issue within the Class Period. To plead scienter, the new pleadings alleged that Cambridge knew about the fraudulent structured tax transactions because, as Deutsche Bank's Senior Relationship Manager for the Enron account, he reviewed all the tax transactions at least once a year, met with the tax team to discuss the objectives of each transaction before it was closed, received numerous memoranda on specific dates from named individuals regarding specific tax transactions generating specified sums in after-tax accounting income, indicating that Enron was recognizing pre- and plat-tax income from these tax transactions that had no legitimate business purpose, and that Neal Batson's interim report found no reasonable basis for characterizing such income as pretax income. Thus Lead Plaintiff alleged that Cambridge knew that the offering memoranda for the Foreign Debt Securities underwritten by Deutsche Bank, incorporating Enron's financial statements and not disclosing the lasting effects of the tax transactions, were false and misleading. The Court found these allegations sufficient at the time to state a primary violation under § 10(b) and reinstated the claims under the statute. The Greenberg' case issued since, however, requires reconsideration of that ruling.
[151] Moreover, as noted elsewhere in this opinion, for purposes of the fraud-on-the-market presumption of reliance, more than a preponderance of the evidence thus far indicates that the offering memoranda of these Foreign Debt Securities state that they were issued under Rule 144A or Regulation S in restricted offerings, which as discussed elsewhere in this opinion, would not qualify as efficient markets. The offering memoranda expressly stated that they are confidential and prepared solely for the QIBs permitted to purchase them, are not offers to any other persons of the public generally, and that there is no existing market for the notes offered nor any assurance that there would be the development or liquidity of a market for them.
[152] Lead Plaintiff argues that in the offering memoranda Deutsche Bank not only incorporated the Enron financial statements, but also omitted any explanation of the tax transactions. As noted, claims based on the latter are time-barred.
[153] Available on Westlaw: 2005 WL 3704688, *10-11 (S.D.Tex. Dec.5, 2005).
[154] As indicated, the claims of the purchasers of those Foreign Debt Securities are not certifiable as class claims because of a lack of a class representative to prosecute them.
[155] Lead Plaintiff asserts generally that as a member of the Advisory Committee Deutsche Bank had an obligation to police the transactions that LJM2 entered into to make sure they were negotiated at fair-market rates, review transactions for potential conflicts of interest, including Fastow's self-dealing, and approve a number of LJM2's investments including the fraudulent Raptor transactions. As a member of the Committee, Deutsche Bank may have had such an obligation, but .Lead Plaintiff fails to assert facts addressing specifically what was presented to that Committee and what Deutsche Bank, in particular, actually did on that Committee.
[156] The First Amended Consolidated Complaint (# 1388 at 4648) asserts that "Fastow's glaring conflict of interest" and the self-dealing of the, banks investing in LJM2 were noted. The February 11, 2002 edition of Business Week reported that many institutional investors rejected the invitation to buy in and questioned the credibility of "some of the world's biggest" that "took a piece," including Citigroup, Credit Suisse Group, Deutsche Bank, JP Morgan and Lehman Brothers.
[157] Lead Plaintiff does not plead specific facts showing how any of the LJM2 investing banks knew the Raptors were, or would be "infamous," no less for what purposes they were to be used.
[158] The same is true of. Lead Plaintiff's claim that Deutsche Bank "structured Osprey to fund Whitewing knowing Enron sold assets to Whitewing at inflated values to falsify Enron's earnings." There are no specific facts demonstrating an inherently improper, deceptive structure designed by Deutsche Bank that deceived investors. As stated, the allegation is for aiding and abetting. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2901016/ | COURT OF APPEALS
COURT
OF APPEALS
EIGHTH
DISTRICT OF TEXAS
EL
PASO, TEXAS
WELLS FARGO BANK, N.A., )
)
No. 08-04-00142-CV
Appellant, )
) Appeal from the
v. )
)
346th District Court
ANTHONY C. AGUILAR, )
)
of El Paso County, Texas
Appellee. )
)
(TC# 2003-5280)
)
MEMORANDUM OPINION
Pending before the
Court on its own initiative is the dismissal of this appeal for want of
prosecution. Finding no Appellant=s brief has been filed, we dismiss the
appeal.
Tex.R.App.P. 42.3 states:
Under the following
circumstances, on any party=s
motion--or on its own initiative after giving ten days=
notice to all parties--the appellate court may dismiss the appeal or affirm the
appealed judgment or order. Dismissal or
affirmance may occur if the appeal is subject to dismissal:
(a) for want of jurisdiction;
(b) for want of prosecution; or
(c) because the appellant has failed to
comply with a requirement of these rules, a court order, or a notice from the
clerk requiring a response or other action within a specified time.
This Court
possesses the authority to dismiss an appeal for want of prosecution when an
appellant in a civil case fails to timely file its brief and gives no
reasonable explanation for such failure.
Tex.R.App.P. 38.8(a)(1).
On June 7, 2004,
Appellant timely filed a notice of appeal in this cause. On July 9, 2004, this Court determined that
case was appropriate for referral to mediation and ordered the case referred to
mediation. The mediator=s report informed the Court that there
was no resolution of the case and no further negotiations were planned. On September 24, 2004, the Court granted
Appellee=s motion
to reinstate the appellate timetable.
The clerk=s record
and reporter=s record
were filed on October 11, 2004.
Appellant=s brief
was due on November 10, 2004. As of this
date, no Appellant=s brief
nor motion for extension of time has been filed with the Court. On November 18, 2004, this court=s clerk sent a letter to the parties
indicating the Court=s
intent to dismiss the case for want of prosecution absent a response from any
party within ten days to show grounds for continuing the appeal. No response has been received as of this
date. Accordingly, pursuant to Tex.R.App.P. 42.3(b) and (c), we dismiss
the appeal for want of prosecution.
December
30, 2004
DAVID WELLINGTON
CHEW, Justice
Before Panel No. 2
Barajas, C.J., McClure, and Chew, JJ. | 01-03-2023 | 09-09-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/105032/ | 344 U.S. 1 (1952)
BROWN ET AL.
v.
BOARD OF EDUCATION OF TOPEKA ET AL.
No. 8.
Supreme Court of United States.
October 8, 1952.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS.[*]*2 Robert L. Carter, Thurgood Marshall, Spottswood W. Robinson, III, George E. C. Hayes, George M. Johnson, William R. Ming, Jr., James M. Nabrit, Jr. and Frank D. Reeves for appellants. Oliver W. Hill was also with them on the brief in No. 191.
T. C. Callison, Attorney General of South Carolina, John W. Davis, Robert McC. Figg, Jr. and William R. Meagher for appellees in No. 101.
J. Lindsay Almond, Jr., Attorney General, and Henry T. Wickham, Assistant Attorney General, for the State of Virginia, and T. Justin Moore, Archibald G. Robertson and John W. Riely for the Prince Edward County School Board et al., appellees in No. 191.
PER CURIAM.
In two appeals now pending, No. 8, Brown et al. v. Board of Education of Topeka et al., and No. 101, Briggs et al. v. Elliott et al., the appellants challenge, respectively, the constitutionally of a statute of Kansas, and a statute and the Constitution of South Carolina, which provide for segregation in the schools of these states. Appellants allege that segregation is, per se, a violation of the Fourteenth Amendment. Argument in these cases has heretofore been set for the week of October 13, 1952.
In No. 191, Davis et al. v. County School Board of Prince Edward County et al., the appellants have filed a statement of jurisdiction raising the same issue in respect to a statute and the Constitution of Virginia. Appellees in the Davis case have called attention to the similarity between it and the Briggs and Brown cases; by motion *3 they have asked the Court to take necessary action to have all three cases argued together.
This Court takes judicial notice of a fourth case, which is pending in the United States Court of Appeals for the District of Columbia Circuit, Bolling et al. v. Sharpe et al., No. 11,018 on that court's docket. In that case, the appellants challenge the appellees' refusal to admit certain Negro appellants to a segregated white school in the District of Columbia; they allege that appellees have taken such action pursuant to certain Acts of Congress; they allege that such action is a violation of the Fifth Amendment of the Constitution.
The Court is of the opinion that the nature of the issue posed in those appeals now before the Court involving the Fourteenth Amendment, and also the effect of any decision which it may render in those cases, are such that it would be well to consider, simultaneously, the constitutional issue posed in the case of Bolling et al. v. Sharpe et al.
To the end that arguments may be heard together in all four of these cases, the Court will continue the Brown and Briggs cases on its docket. Probable jurisdiction is noted in Davis et al. v. County School Board of Prince Edward County et al. Arguments will be heard in these three cases at the first argument session in December.
The Court will entertain a petition for certiorari in the case of Bolling et al. v. Sharpe et al., 28 U.S. C. §§ 1254 (1), 2101 (e), which if presented and granted will afford opportunity for argument of the case immediately following the arguments in the three appeals now pending.
It is so ordered.
MR. JUSTICE DOUGLAS dissents from postponing argument and decision in the three cases presently here for Bolling et al. v. Sharpe et al., in the United States Court of Appeals for the District of Columbia Circuit.
NOTES
[*] Together with No. 101, Briggs et al. v. Elliott et al., Members of Board of Trustees of School District #22, on appeal from the United States District Court for the Eastern District of South Carolina; and No. 191, Davis et al. v. County School Board of Prince Edward County et al., on appeal from the United States District Court for the Eastern District of Virginia. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/105039/ | 344 U.S. 43 (1952)
UNITED STATES
v.
BEACON BRASS CO., INC. ET AL.
No. 30.
Supreme Court of United States.
Argued October 23, 1952.
Decided November 10, 1952.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS.
Marvin E. Frankel argued the cause for the United States. With him on the brief were Acting Solicitor General Stern, Acting Assistant Attorney General Lyon, Ellis N. Slack and Melva M. Graney. Philip B. Perlman, then Solicitor General, was on the Statement as to Jurisdiction.
Richard Maguire argued the cause and filed a brief for appellees.
MR. JUSTICE MINTON delivered the opinion of the Court.
On March 16, 1951, a one-count indictment was returned in the United States District Court for the District of Massachusetts against the appellees, Beacon Brass Company, a corporation, and Maurice Feinberg, its *44 president and treasurer. The indictment charged that in violation of § 145 (b) of the Internal Revenue Code, 40 Stat. 1085, as amended, 26 U.S. C. § 145 (b), the appellees had willfully attempted to evade taxes by making false statements to Treasury representatives on October 24, 1945, "for the purpose of supporting, ratifying, confirming and concealing the fraudulent and incorrect statements and representations made in the corporate tax return of said Beacon Brass Co., Inc., for the fiscal period ending October 31, 1944, filed on or about January 5, 1945 . . . ." Section 145 (b) provides in pertinent part:
"[A]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this chapter or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony . . . ." (Emphasis supplied.)
The six-year limitation period, 43 Stat. 341, 342, as amended, 26 U.S. C. § 3748 (a) (2), applicable to offenses under this statute, had expired on a charge for filing a false tax return in January 1945, but it had not expired on a charge of making false statements to Treasury employees in October 1945. The District Court viewed the indictment as charging the separate crimes of filing a false return and making subsequent false statements to Treasury representatives, and dismissed the indictment as duplicitous.
On September 14, 1951, a second indictment was returned against the appellees which repeated the charge that in violation of § 145 (b) they "did wilfully and knowingly attempt to defeat and evade a large part of the taxes due and owing by the said corporation . . . by making certain false and fraudulent statements and representations, at a hearing and conference before representatives and employees of the United States Treasury *45 Department, on or about October 24, 1945 . . . ." Reference to the allegedly false return filed in January 1945 was omitted, and instead it was charged that the false statements were made "for the purpose of concealing additional unreported net income . . . ."
Section 35 (A) of the Criminal Code, 18 U.S. C. (1946 ed.) § 80 (now 18 U.S. C. (Supp. V) § 1001) makes it unlawful to "knowingly and willfully . . . make . . . any false or fraudulent statements or representations . . . in any matter within the jurisdiction of any department or agency of the United States . . . ." Obviously, at the times of the indictments here, the three-year limitation period, 18 U.S. C. (Supp. V) § 3282, for violations of this statute had expired as to statements made in October 1945. The District Court concluded that since § 35 (A) deals specifically with false statements, Congress must be presumed to have intended that the making of false statements should be punishable only under § 35 (A). Therefore, the District Court dismissed the indictment on the ground that it failed to charge an offense under 26 U.S. C. § 145 (b). 106 F. Supp. 510. We noted probable jurisdiction of the United States' appeal taken under authority of 18 U.S. C. (Supp. V) § 3731.
We have before us two statutes, each of which proscribes conduct not covered by the other, but which overlap in a narrow area illustrated by the instant case. At least where different proof is required for each offense, a single act or transaction may violate more than one criminal statute. United States v. Noveck, 273 U.S. 202, 206; Gavieres v. United States, 220 U.S. 338. Unlike § 35 (A), § 145 (b) requires proof that the false statements were made in a willful effort to evade taxes. The purpose to evade taxes is crucial under this section. The language of § 145 (b) which outlaws willful attempts to evade taxes "in any manner" is clearly broad enough to include false statements made to Treasury representatives *46 for the purpose of concealing unreported income. Cf. Spies v. United States, 317 U.S. 492, 499. The question raised by the decision below is whether by enacting a statute specifically outlawing all false statements in matters under the jurisdiction of agencies of the United States, Congress intended thereby to exclude the making of false statements from the scope of § 145 (b).
We do not believe that Congress intended to require the tax-enforcement authorities to deal differently with false statements than with other methods of tax evasion. By providing that the sanctions of § 145 (b) should be "in addition to other penalties provided by law," Congress recognized that some methods of attempting to evade taxes would violate other statutes as well. See Taylor v. United States, 179 F.2d 640, 644. Moreover, since no distinction is made in § 35 (A) between written and oral statements, the reasoning of the court below would be equally applicable to false tax returns which are, of course, false written statements. But the Courts of Appeals have uniformly applied § 145 (b) to attempts to evade taxes by filing false returns. E. g., Gaunt v. United States, 184 F.2d 284, 288; Taylor v. United States, supra, at 643-644. Further support for our conclusion can be found in United States v. Noveck, supra, where this Court rejected the contention that the enactment of § 145 (b) impliedly repealed the general perjury statute insofar as that statute applied to false tax returns made under oath. Cf. United States v. Gilliland, 312 U.S. 86, 93, 95-96. Finally, the enactment of other statutes expressly outlawing false statements in particular contexts, e. g., 18 U.S. C. (Supp. V) §§ 1010, 1014, negates the assumptionwhich was the foundation of the decision of the court belowthat Congress intended the making of false statements to be punishable only under § 35 (A).
The appellees contend that the acts charged constitute only one crime of tax evasion which was complete when *47 the allegedly false tax return was filed. On the basis of this contention, appellees seek to sustain the decision below on the grounds that the six-year statute of limitations had run, and that the dismissal of the first indictment is res judicata and a bar to the second indictment for the same offense. We do not consider these questions because our jurisdiction on this appeal is limited to review of the District Court's construction of the statute in the light of the facts alleged in the indictment. 18 U.S. C. (Supp. V) § 3731; United States v. Borden Co., 308 U.S. 188, 206-207.
The judgment of the District Court is reversed, and the cause is remanded for further proceedings not inconsistent with this opinion.
Reversed.
MR. JUSTICE BLACK is of the opinion that the District Court reached the right result and would affirm its judgment. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/2627196/ | 197 P.3d 1151 (2008)
221 Or. App. 178
STATE
v.
RAMIREZ.
Court of Appeals of Oregon.
November 19, 2008.
Affirmed without opinion. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1925477/ | 455 Pa. 303 (1974)
Commonwealth
v.
Yount, Appellant.
Supreme Court of Pennsylvania.
Argued September 25, 1973.
January 24, 1974.
*304 *305 Before JONES, C.J., EAGEN, O'BRIEN, ROBERTS, POMEROY, NIX and MANDERINO, JJ.
*306 Francis V. Sabino, with him Harry R. Ruprecht, and Harrison, King, Bowman, Sabino and Gillotti, for appellant.
John K. Reilly, Jr., District Attorney, for Commonwealth, appellee.
OPINION BY MR. JUSTICE ROBERTS, January 24, 1974:
In October of 1966, a jury found appellant guilty of the crimes of murder in the first degree and rape. A sentence of life imprisonment was imposed. On appeal, this Court reversed the judgment of sentence and granted a new trial because appellant's rights, as mandated by Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602 (1966), were violated. Commonwealth v. Yount, 435 Pa. 276, 256 A.2d 464 (1969), cert. denied, 397 U.S. 925, 90 S. Ct. 918 (1970).
On retrial in November, 1970, a jury again found appellant guilty of murder in the first degree,[1] and the penalty was again fixed at life imprisonment. Post-trial motions were denied and this direct appeal followed.[2] We now affirm.
On April 28, 1966, the body of Pamela Sue Rimer, an eighteen year-old high school student, was discovered in a wooded area near her home in Luthersburg, Pennsylvania. One of her stockings was knotted and tied around her neck. An autopsy revealed that death was caused by strangulation. Further examination disclosed *307 three slashes across the victim's throat and cuts of the fingers of her left hand, inflicted by a sharp instrument, and numerous wounds about her head, caused by a blunt instrument.
At approximately 5:45 a.m. on the morning of April 29, 1966, appellant, a teacher at the school the deceased had attended, voluntarily appeared at the state police substation in DuBois, Pennsylvania, and rang the doorbell. An officer opened the door and asked whether he could be of assistance. Appellant stated, "I am the man you are looking for." The officer asked whether he was referring to the "incident in Luthersburg," and appellant responded in the affirmative.
The officer then asked appellant to come into the police station and be seated. Leaving appellant unattended, the officer proceeded to a back bedroom where a detective and another police officer were sleeping, woke them, and informed them that "there was a man in the front that said we are looking for him." He then returned to the front office where appellant, who had removed his coat, hat, and gloves, identified himself as Jon Yount.
After dressing, the detective and the second officer entered the front office. The detective was told by the first officer that appellant's name was Jon Yount. The detective then asked appellant to be seated inside a smaller office adjacent to the front office, where he asked, "Why are we looking for you?" Appellant replied, "I killed that girl." Upon hearing that answer, the detective inquired, "What girl?", and appellant responded, "Pamela Rimer."
In response to the detective's next question, "How did you kill this girl?", appellant answered, "I hit her with a wrench and I choked her." At that point the detective gave appellant admittedly inadequate Miranda warnings, and began interrogation as to the details *308 of the crime. A written confession was subsequently obtained.
Prior to appellant's second trial, the question "How did you kill this girl?" and its answer, as well as the written confession were suppressed, on the authority of our prior decision, Commonwealth v. Yount, supra, as violative of Miranda. The admissibility of appellant's initial statements that the police were looking for him in connection with the Luthersburg incident is not challenged, nor could a challenge be successful. See Commonwealth v. Miller, 448 Pa. 114, 121 n.2, 290 A.2d 62, 65 n.2 (1972).
Appellant does contend, however, that the court erred in not suppressing his statement, "I killed that girl," and his identification of the victim as "Pamela Rimer." It is argued that these two admissions were the product of "custodial interrogation" and therefore should have been preceded by Miranda warnings. Appellant argues that warnings were required before the question "Why are we looking for you?" was asked.[3]
We are asked to determine the precise time when the need for Miranda warnings arose. It is now beyond question that "`whenever an individual is questioned while in custody or while the object of an investigation of which he is the focus, before any questioning begins the individual must be given the warnings established in Miranda. . . .'" Commonwealth v. D'Nicuola, 448 Pa. 54, 57, 292 A.2d 333, 335 (1972) (quoting Commonwealth v. Feldman, 432 Pa. 428, 432, 248 A.2d 1, 3 (1968)). Accord, Commonwealth v. Simala, 434 Pa. 219, 225, 252 A.2d 575, 578 (1969); see Commonwealth v. Hamilton, 445 Pa. 292, 285 A.2d 172 (1971).
*309 It is, however, only that questioning which is interrogation initiated by law enforcement officers which calls for Miranda warnings. Miranda v. Arizona, supra at 444, 86 S. Ct. at 1612. As this Court held in Commonwealth v. Simala, supra at 226, 252 A.2d at 578: "`[I]t is not simply custody plus "questioning," as such, which calls for the Miranda safeguards but custody plus police conduct . . . calculated to, expected to, or likely to, evoke admissions.'" The rationale behind this holding is found in Miranda, where the Court stated: "Confessions remain a proper element in law enforcement. . . . The fundamental import of the privilege. . . is not whether [an individual] is allowed to talk to the police without the benefit of warnings and counsel, but whether he can be interrogated. There is no requirement that the police stop a person who enters a police station and states that he wishes to confess to a crime . . . . Volunteered statements of any kind are not barred by the Fifth Amendment . . . ." Miranda v. Arizona, supra at 478, 86 S. Ct. at 1630 (emphasis added).
Clearly, "any question likely to or expected to elicit a confession constitutes `interrogation' under Miranda. . . ." Commonwealth v. Simala, supra at 227, 252 A.2d at 579. Accord, Commonwealth v. Mercier, 451 Pa. 211, 214, 302 A.2d 337, 339 (1973). But "[a]ny statement given freely and voluntarily without any compelling influences is, of course, admissible in evidence." Miranda v. Arizona, supra at 478, 86 S. Ct. at 1630.
On this record it cannot be said that the two police inquiries here challenged constitute conduct calculated to, expected to, or likely to elicit an incriminating response, or that they were asked with an intent to extract or an expectation of eliciting an incriminating statement. All this record establishes is that the detective knew only that a man named Jon Yount a name which the detective had never heard before voluntarily *310 came to the police station early in the morning and volunteered that the police were looking for him. In response to this information, the detective extemporaneously asked, "Why are we looking for you?" Appellant was not coerced, prompted, or urged to incriminate himself. To the contrary, the detective's inquiry, made in response to information volunteered by appellant, was of a neutral character and not interrogative.
Appellant's answer, "I killed that girl," was given freely and without compelling influence. It was therefore volunteered in the constitutional sense. That the answer was in fact incriminating does not alter its volunteered character nor preclude its use. Miranda v. Arizona, supra at 478, 86 S. Ct. at 1630.
Similarly, we are of the opinion that the statement identifying "that girl" as "Pamela Rimer" was volunteered. Appellant, without any compulsion, went to the substation and volunteered that he had killed "that girl." As we indicated in Commonwealth v. Simala, supra at 226 n.2, 252 A.2d at 579 n.2, after an incriminating, but ambiguous, statement is volunteered, as was done here, a question which does not do "anything more than clarify statements already made," in the absence of any coercion or prompting, subtle or overt, is permissible. See also Kamisar, "`Custodial Interrogation' Within the Meaning of Miranda," in Institute of Continuing Legal Education, Criminal Law and the Constitution Sources and Commentaries 335, 354 (1968).
Here, immediately upon hearing appellant's volunteered statement, "I killed that girl," the detective spontaneously asked, "What girl?" By this he sought only to clarify appellant's prior statement. Appellant responded, "Pamela Rimer." Such a clarifying inquiry, made in response to a statement volunteered by appellant during an interview which he initiated, is proper. The identification must be deemed constitutionally volunteered. *311 Accord, State v. Perry, 14 Ohio St. 2d 256, 237 N.E.2d 891 (1968); People v. Mercer, 257 Cal. App. 2d 244, 64 Cal. Rptr. 861 (1967); see Hicks v. United States, 382 F.2d 158 (D.C. Cir. 1967).
As already indicated, appellant volunteered both that he had killed someone and the victim's identity. Because "[v]olunteered statements . . . are not barred by the Fifth Amendment," Miranda v. Arizona, supra at 478, 86 S. Ct. at 1630, their use as evidence was constitutionally permissible.
However, after these statements were given, Miranda warnings became necessary. Commonwealth v. Yount, supra at 280, 256 A.2d at 465; see Commonwealth v. Feldman, 432 Pa. 428, 248 A.2d 1 (1968); Commonwealth v. Jefferson, 423 Pa. 541, 226 A.2d 765 (1967). Appellant's initial admission and identification created the critical moment after which interrogation without Miranda warnings was impermissible. It was the absence of warnings at that moment, and not before, that required our prior reversal. The earlier, volunteered statements, however, were not the product of interrogation initiated by the police.[4]
On this record, therefore, it must be concluded that the Commonwealth satisfied its burden of proving by a preponderance of the credible evidence that the two statements here challenged were constitutionally permissible evidence. Commonwealth v. Ravenell, 448 Pa. 162, 292 A.2d 365 (1972); Pa. R. Crim. P. 323(h).
Appellant raises ten additional assignments of error. These need be discussed only briefly.
Appellant contends that the trial court erred in refusing his timely motions for a change of venue, and advances three arguments in support of this position. *312 First, it is asserted that excessive pretrial publicity prevented a fair trial. In responding to this argument, the trial court observed: "The first of the trials occurred in 1966, and as pointed out herein, the second one occurred in 1970. As the record will indicate there was practically no publicity given to this matter through the news media in the meanwhile except to report that a new trial had been granted by the Supreme Court. It is to be noted also that throughout the second trial there was practically no public interest shown in the trial; one thing to be noted is that on some days there being practically no persons present even to listen to it. . . ." These findings, fully supported by the record, do not sustain appellant's claim, and the court properly denied appellant's motion for a change of venue predicated on this theory. Commonwealth v. Pierce, 451 Pa. 190, 303 A.2d 209, cert. denied, 414 U.S. 878, 94 S. Ct. 164 (1973); Commonwealth v. Johnson, 440 Pa. 342, 269 A.2d 752 (1970).
Second, appellant contends that the excusing of a large number of veniremen for cause, and the nature of the answers of those so excused, conclusively demonstrated substantial community bias and prejudice which required a change of venue. Nothing in this record, however, refutes the court's assertion that it liberally granted appellant's challenges for cause "to assure that there could be no complaint about the final jury empanelled." Neither does the voir dire, as appellant argues, reveal a "clear and convincing" build-up of prejudice or a "`pattern of deep and bitter prejudice' shown. . . throughout the community" which would require a change of venue. Irvin v. Dowd, 366 U.S. 717, 725, 727, 81 S. Ct. 1639, 1644, 1645 (1961). See Commonwealth v. Hoss, 445 Pa. 98, 103-07, 283 A.2d 58, 61-63 (1971); Commonwealth v. Swanson, 432 Pa. 293, 248 A.2d 12 (1968), cert. denied, 394 U.S. 949, 89 S. Ct. 1287 (1969).
*313 Third, it is argued that the Act of March 18, 1875, P.L. 30, § 1, 19 P.S. § 551 (1964), mandated a change of venue. This Act states, inter alia:
"In criminal prosecutions the venue may be changed, on application of the defendant . . .
". . . .
". . . When, upon second trial of any felonious homicide, the evidence on the former trial thereof shall have been published within the county in which the same is being tried, and the regular panel of jurors shall be exhausted without obtaining a jury."
The Act, however, by its own terms, is directed to the sound discretion of the trial court. As this Court established in Commonwealth v. Karmendi, 328 Pa. 321, 337-38, 195 A. 62, 69 (1937): "The act is not mandatory; it lies within the sound discretion of the court below: Com. v. Cleary, 148 Pa. 26, but in a particularly notorious case in a given community, this court will review that discretion, and if in its judgment it is felt the accused could not help but be prejudiced in her subsequent trial by the feeling engendered, a new trial will be granted. . . ." See also Commonwealth v. Sacarakis, 196 Pa. Super. 455, 175 A.2d 127 (1961). Although the regular panel of jurors was in fact exhausted before the jury was selected,[5] this circumstance alone obviously does not require a change of venue. It cannot be said that the court abused its discretion *314 where, as here, the record fails to disclose undue community prejudice.
Similarly, we reject appellant's argument that, during voir dire, the court erred in denying certain challenges for cause. Our reading of the testimony of the challenged jurors satisfies us that the trial court correctly concluded that "even where a juror may have had any opinion in the matter, the jury was without prejudice and was able to and did arrive at its verdict on the testimony and the law involved." The record shows that none of the jurors had a fixed opinion as to appellant's guilt or innocence, or was otherwise legally unable to serve. See Commonwealth v. Hoss, supra at 107, 283 A.2d at 63-64; Commonwealth v. Swanson, supra at 299, 248 A.2d at 15; Commonwealth v. McGrew, 375 Pa. 518, 525, 100 A.2d 467, 470 (1953).[6]
Appellant also argues that all evidence seized during a search of his automobile should have been suppressed. He asserts that the search warrant relied upon by the police was issued without probable cause.
Before the time appellant appeared at the DuBois substation, another state policeman, working entirely separately and in a location different from the station *315 to which appellant went, received from two witnesses a description of an automobile they had seen near where the victim's body was found. The witnesses reported that, at about the time the murder was committed, the automobile passed their home headed toward the scene, and that later it passed from the opposite direction travelling at high speed. That policeman, working only from this information, learned that one Jon Yount owned an automobile fitting the description.
After appellant admitted that he had killed Pamela Rimer, one of the officers at the substation reported that fact to the main police barracks. This collective knowledge, properly before the magistrate,[7] constituted the requisite probable cause for the issuance of the search warrant. See Spinelli v. United States, 393 U.S. 410, 89 S. Ct. 584 (1969); Aguilar v. Texas, 378 U.S. 108, 84 S. Ct. 1509 (1964); Commonwealth v. Hall, 451 Pa. 201, 302 A.2d 342 (1973); Commonwealth v. D'Angelo, 437 Pa. 331, 263 A.2d 441 (1970). Since appellant's admission was not tainted we agree with the trial court that the subsequent search was not impermissible as the "fruit of a poisonous tree." Commonwealth v. Marabel, 445 Pa. 435, 444, 283 A.2d 285, 289 (1971); see Wong Sun v. United States, 371 U.S. 471, 83 S. Ct. 407 (1963).
Appellant contends that a pocketknife found on his person when he was arrested was improperly admitted into evidence. As previously noted, the victim suffered cuts of the neck and fingers, and appellant was arrested about twelve hours after the commission of the crime. The knife was of a kind that could have inflicted the wounds, even though the prosecution was unable conclusively *316 to demonstrate that the particular knife was the weapon used. Its relevance cannot be successfully challenged. "The fact that the accused had a weapon or implement suitable to the commission of the crime charged, such as a knife . . . is always a proper ingredient of the case for the prosecution." 1 Wharton's Criminal Evidence § 157 at 289-90 (13th ed. C. Torcia 1972).
This relevant evidence clearly was admissible. As this Court recently held in Commonwealth v. Ford, 451 Pa. 81, 84, 301 A.2d 856, 857 (1973): "[P]ositive testimony that the knife in question was actually the murder weapon is not required prior to introduction into evidence. . . . If a proper foundation for the admission of the evidence has been laid, as here, then admission into evidence is permissible. . . . The fact that the knife could not be positively identified affects the weight of such evidence, but not its admissibility. . . ."[8]
Here, not only was the knife a possible murder implement, but it was found upon the person of the appellant at a time "reasonably proximate to the commission of the crime." 1 Wharton's Criminal Evidence § 211 at 442 (13th ed. C. Torcia 1972). A foundation *317 sufficient to support the admission of the knife was laid. Its evidentiary use was therefore a proper element in the prosecution's case.[9]
Appellant assigns as error the admission of certain photographs of decedent and several items of her clothing, including the knotted stocking which was one of the murder weapons. It is well-settled law in this Commonwealth that "the admission of photographs exhibiting the body of a deceased in homicide cases is primarily within the discretion of the trial judge. . . ." Commonwealth v. Powell, 428 Pa. 275, 278, 241 A.2d 119, 121 (1968). Moreover, this Court has repeatedly declared that "the proper test to be applied by a trial court in determining the admissibility of photographs in homicide cases is whether or not the photographs are of such essential evidentiary value that their need clearly outweighs the likelihood of inflaming the minds and passions of the jurors. . . ." Id. at 278-79, 241 A.2d at 121. Accord, Commonwealth v. Ford, supra at 86, 301 A.2d at 858; Commonwealth v. Eckhart, 430 Pa. 311, 317, 242 A.2d 271, 274 (1968). This test is also applicable to the other demonstrative evidence, i.e., the clothing, admitted here. See Commonwealth v. Ford, supra at 85, 301 A.2d at 857-58.
It is to be noted that the stocking was one of the murder implements. The paramount evidentiary need for this item is obvious. As to the other challenged items, the court found, and we agree that "[t]he photographs aided in the jurys' [sic] understanding of the type of injuries inflicted, where and how the deceased was found, the site and position of the deceased, and in very definite corroboration of the oral testimony of witnesses. . . ." Moreover, the court stated that "the photographs were [not] at all inflamatory[sic]," and there *318 is no suggestion that the victim was, for example, pictured naked, or that the photographs or items of clothing were gruesome or grotesque.[10] On this record, we hold that the court correctly applied the Powell test, that the evidentiary value of the admitted evidence outweighed any potential for prejudice, and that the court did not abuse its discretion in admitting the challenged items.
Appellant also argues that the trial court erred in denying his motion to sequester the Commonwealth witnesses, particularly the state police officers. This Court has previously held that "the question of sequestration of witnesses is left largely to the discretion of the trial Judge and his decision thereon will be reversed only for a clear abuse of discretion." Commonwealth v. Kravitz, 400 Pa. 198, 218, 161 A.2d 861, 870 (1960), cert. denied, 365 U.S. 846, 81 S. Ct. 807 (1961); see Pa. R. Crim. P. 326.
In its opinion the court justified its denial of the motion, by explaining that "no witness was called who had not previously testified at the first trial; and examination of all the testimony will indicate that it was much as was given at the first trial of this case." These witnesses were not sequestered at the first trial. The record also establishes that the same police officers who testified at trial also testified a few weeks earlier at the suppression hearing. No request to sequester was then made. We find the court's reasons for refusing to sequester the officers convincing, and find no abuse of discretion.
It is also argued that the trial court variously erred in its instructions to the jury. Only one of these now-asserted challenges, however, was properly raised by specific objection before the jury retired to deliberate. That objection alone can now be reviewed. Commonwealth *319 v. Watlington, 452 Pa. 524, 306 A.2d 892 (1973); Pa. R. Crim. P. 1119(b). The objection is to an allegedly improper expression of the court's opinion that the evidence did not warrant a verdict of voluntary manslaughter.[11]
The trial court expressed the view that if the jury found that appellant did in fact maliciously kill decedent, the court recalled no evidence of extenuating circumstances which would reduce the act to voluntary manslaughter. The court, however, also gave the jurors a full, complete, adequate, and correct charge on voluntary manslaughter, and instructed them that voluntary manslaughter was an entirely permissible verdict. The trial judge also specifically instructed the jurors that their recollection of the testimony, and not his, controlled, that his opinion was no more than a gratuitous observation, and that the jury could and should return any verdict it felt justified. Moreover, the court did not express an opinion as to guilt or innocence or suggest that the jury return any particular verdict. The charge, read in its entirety, removed nothing from the province of the jury nor did it contain any judicial expression of guilt. The charge therefore was proper. Commonwealth v. Archambault, 448 Pa. 90, 290 A.2d 72 (1972); Commonwealth v. Motley, 448 Pa. 110, 289 A.2d 724 (1972); see Commonwealth v. Miller, 448 Pa. 114, 124-26, 290 A.2d 62, 67-68 (1972).
Appellant complains that the court erred in denying his motion for a mistrial based on allegedly inflammatory and prejudicial remarks by the prosecutor in his closing argument.[12] We are satisfied, as was the trial court, that the prosecutor's remarks were limited to the *320 facts in evidence and the legitimate inferences therefrom, and consequently cannot be deemed improper. See Commonwealth v. Goosby, 450 Pa. 609, 301 A.2d 673 (1973); ABA Project on Standards for Criminal Justice, Standards Relating to the Prosecution Function § 5.8 (Approved Draft, 1971).
Finally, appellant contends that if the oral admission, the pocketknife, the clothing and photographs, and the items seized from appellant's automobile were improperly before the jury, then the remaining evidence could not sustain any verdict of guilty. Since we have determined that those items of evidence were properly admitted, this challenge must fail. Reviewing all the record evidence in the light most favorable to the Commonwealth, we are satisfied that the jury reasonably could have found, beyond a reasonable doubt, all the elements of murder in the first degree, and that the evidence therefore is sufficient to sustain the verdict. Commonwealth v. Lee, 450 Pa. 152, 154, 299 A.2d 640, 641 (1973).
Judgment of sentence affirmed.
Mr. Justice POMEROY concurs in the result.
NOTES
[1] Appellant's motion to quash the indictment for rape was granted, and the second trial was for the crime of murder alone.
[2] Jurisdiction attaches by virtue of the Appellate Court Jurisdiction Act of 1970, Act of July 31, 1970, P.L. 673, art. II, § 202(1), 17 P.S. § 211.202(1) (Supp. 1973).
[3] In our prior decision, a new trial was granted because the written confession admitted into evidence was not preceded by warnings satisfying Miranda. The question of the admissibility of the two statements here challenged, not being necessary to our earlier decision, was not there decided.
[4] In light of our determination that appellant's statements were volunteered, we need not determine, as the Commonwealth argues, whether appellant was then in "custody." See Commonwealth v. Marabel, 445 Pa. 435, 283 A.2d 285 (1971).
[5] Indeed, the exhaustion of the initial array is not an unusual occurrence. As Dean Laub observed: "It sometimes happens that there are so many disqualified or excused jurors that the array is not large enough to permit the completion of a particular civil or criminal panel. This extraordinary situation is frequently encountered during the selection of a panel in murder cases. In that type of case the large number of peremptory challenges allowed to each side, and the liberal allowance of causal challenges frequently exhausts the array or reduces it to the point where the trial cannot proceed until additional jurors have been summoned." 1 B. Laub, Pennsylvania Trial Guide § 34.4 at 81 (1959).
[6] See also ABA Project on Minimum Standards for Criminal Justice, Standards Relating to Trial by Jury § 2.5 (Approved Draft, 1968). The Commentary to that section suggests:
"A challenge for cause to an individual juror may be made only on the ground:
". . . .
"(j) That the juror has a state of mind in reference to the cause or to the defendant or to the person alleged to have been injured by the offense charged, or to the person on whose complaint the prosecution was instituted, which will prevent him from acting with impartiality; but the formation of an opinion or impression regarding the guilt or innocence of the defendant shall not of itself be sufficient ground of challenge to a juror, if he declares, and the court is satisfied, that he can render an impartial verdict according to the evidence." Id. 68-69.
[7] For purposes of establishing probable cause, the officer who obtained the warrant was entitled to rely on the information communicated to him from the DuBois substation. United States v. Stratton, 453 F.2d 36, 37-38 (8th Cir.), cert. denied, 405 U.S. 1069, 92 S. Ct. 1515 (1972).
[8] See also 1 Wharton's Criminal Evidence § 211 at 441-42 (13th ed. C. Torcia 1972) (footnotes omitted):
"It is relevant to show that the defendant owned or had access to an implement with which the crime could have been committed.
The possession by the defendant of a weapon or implement of crime is relevant even though there is no evidence that it was used in the commission of any particular crime, but there must be evidence that some crime was committed.
The possession or ownership of the weapon or implement of crime must be reasonably proximate to the commission of the crime. If too great a period has elapsed between the commission of the crime and the period of possession or ownership, the evidence would be too remote and hence inadmissible. Thus, in a prosecution for assault with intent to kill, the admission in evidence of the finding of a weapon on the person of the accused when he was arrested nearly a month after the assault, was prejudicial error."
[9] Appellant also contends that he was entitled to an instruction that the knife had no evidentiary value. Because the knife was correctly admitted, appellant's point for charge was properly refused.
[10] We also note that the court in its discretion did not allow these allegedly inflammatory items into the jury room.
[11] Appellant also argues that the court overemphasized the crime of murder in the first degree, and that it did not, while reviewing the evidence, sufficiently stress the jury's role as factfinder.
[12] It is contended that the prosecutor improperly commented on the gravity of the crime charged, that the inferences he drew from the evidence tended toward the speculative, and that he improperly defended, after appellant had attacked, the competence of the state police. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2437311/ | 712 S.W.2d 587 (1986)
Thomas F. JENKINS, Appellant,
v.
STEAKLEY BROTHERS CHEVROLET CO., Appellee.
No. 10-85-259-CV.
Court of Appeals of Texas, Waco.
May 29, 1986.
*588 Leon J. Barish, Barish & Van Helden, Austin, for appellant.
LaNelle L. McNamara, McNamara & McNamara, Waco, for appellee.
OPINION
JAMES, Justice.
In this case Plaintiff-Appellant Thomas F. Jenkins brought this suit against Defendant-Appellee Steakley Brothers Chevrolet Co. for breach of contract and also under the Texas Deceptive Trade Practices Act (Texas Business and Commerce Code, Section 17.41 et seq.), concerning the purchase by Jenkins of a new car from Steakley. Trial was before the court without a jury after which judgment was entered that Plaintiff Jenkins take nothing, from which Jenkins appeals. We affirm.
The trial court's judgment contains the following findings of fact and conclusions of law:
FINDINGS OF FACT
"1. By written quotation, on July 20, 1983, Defendant issued to Plaintiff an offer to sell Plaintiff a 1984 Suburban automobile on the terms and conditions set forth in the written quotation;
"2. The written offer issued to Plaintiff on July 20, 1983, was subject to increases in price without notice;
"3. The written offer issued to Plaintiff on July 20, 1983, was contingent on Plaintiff's trade-in of a 1982 Suburban;
"4. Plaintiff did not accept Defendant's offer of July 20, 1983;
"5. On October 13, 1984 (should be 1983), Plaintiff and Defendant entered into a written contract of sale; and
"6. The contract of sale executed by Plaintiff and Defendant on October 13, 1983, constituted an accord and satisfaction of all disputed claims of Plaintiff arising from Defendant's offer of July 20, 1983."
CONCLUSIONS OF LAW
"1. Defendant did not breach any contract with Plaintiff;
"2. Defendant did not commit a false, misleading, or deceptive trade practice; and
*589 "3. Any claim alleged by Plaintiff, either on the basis of breach of contract or violation of the Texas Deceptive Trade Practices Act, is barred by Defendant's affirmative defense of accord and satisfaction."
As a winner in a bass fishing tournament in June of 1983, Jenkins became entitled to a 1983 Chevrolet S-10 Blazer automobile provided by Steakley. Jenkins contacted Steakley asking whether the value of the S-10 Blazer could be applied toward the purchase of another automobile. At that time, Jenkins dealt with one Sam Wheat, a fleet salesman employed by Steakley. Wheat issued to Jenkins a written quotation for the purchase of a 1984 Suburban at a price of $15,330.79. The terms of the price quotation included a $13,000.00 credit for the S-10 Blazer that had been won by Jenkins, plus an additional credit of $8,000.00 for the trade-in by Jenkins of his 1982 Suburban. The price quotation further included a statement that "This quotation is subject to Federal, factory, and freight change without notice."
In October 1983, Steakley contacted Jenkins to advise him that the 1984 Suburban that he (Jenkins) had ordered was available for delivery. When Jenkins arrived at the Steakley place of business, he advised Steakley that he was not trading in his 1982 Suburban, since he (Jenkins) had sold this 1982 Suburban shortly after he ordered the 1984 Suburban. Thereafter, Steakley prepared a bill of sale reflecting a sales price of $18,002.98 with a credit of $13,000.00 for the value of the S-10 Blazer. At first Jenkins strongly protested the sales price to Mike Knight, the Fleet Manager of Steakley, and to Robert W. Steakley III, the President of Steakley.
Mr. Steakley explained to Mr. Jenkins that he would have to pay the list price for the 1984 Suburban, since he was not trading in his 1982 Suburban, and further offered to Jenkins an alternative of taking delivery of the S-10 Blazer, which was the original vehicle won by him. Thereafter, Jenkins paid the balance due to Steakley after deducting the $13,000.00 credit for the S-10 Blazer from the list price of the 1984 Suburban, signed the bill of sale accepting delivery and the terms of the bill of sale, and took delivery of the 1984 Suburban.
Appellant comes to this court with ten points of error, all of which we have carefully considered. We overrule all of said points of error and affirm the trial court's judgment.
By his first point of error, Appellant contends the trial court erred in granting Defendant-Appellee's motion to enlarge time for filing Defendant's answer to Plaintiff's request for admissions, because (he says) Plaintiff was prejudiced thereby in maintaining his action, and that said action by the trial court constituted an abuse of discretion.
Plaintiff-Appellant was inconvenienced by the failure of Defendant-Appellee to answer written interrogatories on time as well as failure on the part of Defendant-Appellee to cooperate on settings of hearings, mainly between April 1984, and June 1985. Most of these problems were solved when Defendant-Appellee changed lawyers.
The case was set for trial for June 12, 1985. On that same day, immediately prior to trial, Defendant-Appellee filed the motion to enlarge time for filing answers to Plaintiff-Appellant's request for admissions. A brief hearing was held before the trial court, after which the court granted Defendant-Appellee's motion to enlarge the time, and the case was continued and reset for trial on the merits on July 3, 1985.
Under Rule 169, Texas Rules of Civil Procedure, effective April 1, 1984, "the court may permit withdrawal or amendment when the presentation of the merits of the action will be subserved thereby and the party who obtained the admission fails to satisfy the court that withdrawal or amendment will prejudice him in maintaining his action or defense on the merits ..." Appellant admits in his brief that "the competent and admissible evidence introduced at trial does not vary from the admissions *590 or aid in presentation of the merits of the case."
It is well-settled law that the trial court has broad discretion in refusing or granting a motion of the non-answering party to permit the filing of an answer or denial to a request for admissions after the time therefor has expired. The ruling made by the trial court in the exercise of that discretion in either situation will be set aside only upon a showing of clear abuse. See Texas Employers Insurance Association v. Bragg (Corpus Christi CA 1984) 670 S.W.2d 712, NRE, and the cases cited therein at page 715.
In the case at bar, there is no showing that the trial court's action in question prejudiced Plaintiff-Appellant in maintaining his action. In short, there is no showing of abuse of discretion. Appellant's first point of error is overruled.
Appellant's second point of error asserts the trial court erred in making its finding of fact number 6 and conclusion of law number 3 because (Appellant contends) as a matter of law, the affirmative defense of accord and satisfaction cannot be raised by the Defendant in response to a Plaintiff's cause of action under the Texas Deceptive Trade PracticesConsumer Protection Act.
The affirmative defense of accord and satisfaction rests upon a new contract, express or implied, in which the parties agree to the discharge of an existing obligation in a manner otherwise than as originally agreed. The new agreement need not state on its face that it is intended to be an accord and satisfaction. The facts and circumstances surrounding the execution of the new agreement are sufficient to establish the existence of an accord and satisfaction. See Harris v. Rowe (Tex.1979) 593 S.W.2d 303.
Plaintiff-Appellant has cited no case in support of his contention that the defense of accord and satisfaction is unavailable to a defendant in a cause of action brought under the Texas Deceptive Trade Practices Act. Instead, Appellant has cited cases which hold that some other common law defenses are not available, to wit, substantial performance, failure of consideration, statute of frauds, and impossibility of completion. From these holdings Appellant draws the conclusion that all common law defenses are unavailable to a defendant in a cause of action brought under the Texas Deceptive Trade Practices Act. We do not agree. To the contrary, Miranda v. Joe Myers Ford, Inc. (Houston 1st CA 1982) 638 S.W.2d 36, writ dismissed, holds that an accord and satisfaction barred the plaintiff's suit brought under the Texas Deceptive Trade Practices Act. We agree with the Miranda holding in this respect.
In the case at bar, the evidence conclusively establishes Defendant-Appellee's affirmative defense of accord and satisfaction. Appellant's second point of error overruled.
Appellant's third, fourth, fifth, and sixth points are as follows:
"3. The trial court erred in admitting evidence of accord and satisfaction over Appellant's objections and in granting Defendant's motion to amend pleadings to include allegations in support of Defendant's affirmative defense of accord and satisfaction, because such defense cannot be raised by Defendant in response to a cause of action under the Texas Deceptive Trade PracticesConsumer Protection Act.
"4. The trial court erred in granting Defendant's motion to amend pleadings to include allegations in support of Defendant's affirmative defense of accord and satisfaction, because Defendant failed to comply with the requirement of Rule 21, Texas Rules of Civil Procedure.
"5. The trial court erred in granting Defendant's motion to amend pleadings to include allegations in support of Defendant's affirmative defense of accord and satisfaction, because Plaintiff was denied a hearing on said motion which was presented to the trial court ex parte.
"6. The trial court erred in admitting evidence of accord and satisfaction over Appellant's objections and in granting Defendant's motion to amend pleadings *591 to include allegations in support of Defendant's affirmative defense of accord and satisfaction, because such defense was not tried by consent."
We believe the foregoing points of error are without merit for two reasons:
(1) Plaintiff-Appellant's pleadings (Plaintiff's Original and First Amended Petitions) anticipated the defense of accord and satisfaction, and then alleged propositions relied upon to destroy this defense. A party is not required to plead matters already asserted in his opponent's pleadings. More specifically, when the Plaintiff has put matters in issue which form the basis of an affirmative defense, the Defendant may rely upon his general denial. Ford Motor Co. v. Garcia (Waco CA 1980) 595 S.W.2d 602, no writ, and the authorities cited therein at page 607.
In the case at bar, Plaintiff's pleadings incorporated by reference Plaintiff's Exhibit No. 2, the bill of sale executed by Plaintiff-Appellant when he purchased the 1984 Suburban. Moreover, such pleadings alleged that Plaintiff paid the price listed in the bill of sale and took delivery of the automobile. Although Plaintiff-Appellant alleged that his payment and acceptance of the 1984 Suburban was made with protest, yet he alleged facts which form the basis of Defendant-Appellee's affirmative defense of accord and satisfaction, and Appellant's allegation of protest was controverted by Appellee's general denial.
(2) We believe the issue of accord and satisfaction was tried by consent. Plaintiff-Appellant himself introduced in evidence Plaintiff's Exhibit No. 2, same being the bill of sale signed by Plaintiff when he took delivery of the 1984 Suburban and paid the purchase price shown on the bill of sale. Although Plaintiff-Appellant testified that he took delivery and paid the purchase price under protest, Defendant-Appellee offered evidence to the effect that following an initial dispute, Plaintiff-Appellant agreed to the terms of the bill of sale without protest. There is nothing in the bill of sale or accompanying papers to show any protest on the part of Plaintiff-Appellant.
For the foregoing reasons, we overrule Appellant's points 3, 4, 5, and 6.
Appellant's eighth point contends the trial court erred in making its findings of fact one through six, as hereinabove quoted, for the stated reason that such findings are against the great weight and preponderance of the evidence. We have already recited sufficient facts to show that there is ample evidence to support such findings.
Plaintiff-Appellant has other points and contentions, all of which we have carefully considered. All are overruled as being without merit.
Judgment of the trial court is affirmed.
AFFIRMED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2591575/ | 50 N.Y.2d 183 (1980)
Guard-Life Corporation, Respondent,
v.
S. Parker Hardware Manufacturing Corp., Appellant.
Court of Appeals of the State of New York.
Argued February 11, 1980.
Decided May 1, 1980.
Leonard H. Moche, Harry A. Gottlieb and Glenn Backer for appellant.
Milton W. Levy and Arnold Bennett Glenn for respondent.
Judges JASEN, WACHTLER and MEYER concur with Judge JONES; Chief Judge COOKE dissents in part and votes to affirm in a separate opinion in which Judges GABRIELLI and FUCHSBERG concur.
*187JONES, J.
As a general rule, if no improper means have been employed, a competitor may not be held liable for intentional interference with a contract that is unenforceable for lack of mutuality.
In January, 1968 plaintiff Guard-Life Corporation entered into a contract with Kokusan, a Japanese manufacturer of locks, which provided that Guard-Life would be Kokusan's exclusive distributor in the United States and Canada with respect to locks described in a schedule attached to the contract, production samples of which were to be subject to prior approval by Guard-Life. The contract had a stated term of five years and was thereafter "automatically [to] continue in force indefinitely" subject to the right of either party to terminate on one year's prior written notice. Guard-Life immediately placed an order (No. 1001) with Kokusan for 12 monthly shipments of Segal and National Type Locks, with shipment to begin on Guard-Life's approval of production samples. That approval was given on June 27, 1968, thus fixing the term of Order No. 1001 to expire on June 27, 1969. Order No. 1001 proved to be the only order ever to be placed by Guard-Life under its 1968 contract with Kokusan.
In the fall of 1968 defendant S. Parker Hardware Manufacturing Corp., a competitor of Guard-Life in the importation and wholesale distribution of various kinds of locks, initiated conversations with Katsura Company, Inc., of Japan, to establish a business relationship. (Solely for the purpose of the motion that is the subject of the present appeal, Parker accepts Guard-Life's contention that Parker's transactions with Katsura were the equivalent of doing business with Kokusan.) Parker was informed that Guard-Life's contract *188 with Kokusan would continue in effect until June, 1969 but that Kokusan did not intend to continue it thereafter and that it would cease supplying locks under that contract "to prove our faith to you". Parker's negotiations with Katsura resulted in the execution of a formal agreement between them, dated March 10, 1969, providing that Katsura would supply front door locks to Parker exclusively in accordance with conditions to be specified in Parker's orders. Two orders had already been placed by Parker on January 7, 1969, which included locks of the type included in Guard-Life's Order No. 1001, each requesting the prior submission of production samples to Parker for approval before manufacture. Parker's approval was not given until July, 1969 and delivery was not made to Parker until September, 1969.
Deliveries to Guard-Life by Kokusan under Order No. 1001 ceased in April, 1969. In September, 1969 Guard-Life instituted an arbitration proceeding against Kokusan in Japan which ultimately culminated in an award dated November 30, 1976. The arbitrators awarded Guard-Life damages of $75,529 plus interest, representing lost profits, for nondelivery by Kokusan of locks under Order No. 1001. No relief was granted, however, on Guard-Life's claim for alleged breach of the exclusive distributorship provisions of the 1968 contract, and the arbitrators further determined that the 1968 contract was not binding beyond Order No. 1001 because the parties had "an option of mutual cancellations" after the expiration of the term of that order on June 27, 1969. The motion papers do not disclose what part, if any, of the award has been collected by Guard-Life.
Guard-Life served the amended complaint in the present action against Parker in 1977, for willful interference by Parker with the 1968 contract between Guard-Life and Kokusan. After answer, Parker moved by order to show cause for a stay of trial and for complete and partial summary judgment. Supreme Court denied Parker's motion and on reargument adhered to its decision. The Appellate Division modified to the extent of granting partial summary judgment dismissing Guard-Life's claim for punitive damages (an issue not before us on this appeal) and as so modified affirmed the disposition of Supreme Court. It thereafter denied a motion for reargument but granted Parker leave to appeal to our court on a certified question as to the propriety of its order of modification. We now modify further to the extent of directing dismissal *189 of all Guard-Life's claims against Parker, except that for alleged tortious interference with Kokusan's performance under Order No. 1001.
Two closely related issues are posed on this appeal: May Parker be held liable to Guard-Life, on the theory of tortious interference with contract rights, first, for having induced Kokusan to cease deliveries on Order No. 1001 in April, 1969 (for which Kokusan was held liable to Guard-Life in the Japanese arbitration proceeding), and, second, for inducing Kokusan thereafter to terminate all contract relations with Guard-Life under their 1968 contract (for which Kokusan was not held liable to Guard-Life in the arbitration proceeding)? We conclude that, on the papers submitted on Parker's motion for summary judgment, it is not entitled to a dismissal with respect to the alleged interference with Order No. 1001, but that it is entitled to summary judgment with respect to all other claims based on alleged interference with the 1968 contract (CPLR 3212, subd [e]). Additionally, an order should be entered limiting any recovery by Guard-Life to no more than $75,529.
Before proceeding to evaluation of the proof tendered on the motion for summary judgment, it is necessary to state the law applicable to the disposition of Guard-Life's claims. With respect to the tort of interference with contract relations, it has been aptly said that "the law in this area has not fully congealed but is still in a formative stage" (Restatement, Torts 2d, ch 37, Introductory Note, p 5). That jurisdictions, and even courts within a single jurisdiction, have taken different views with respect to liability for interference with contract performance is demonstrated by the collection of cases appearing in a recent annotation treating only one aspect of the subject, interference with an invalid contract (Ann., 96 ALR3d 1294).
The American Law Institute in the Restatement of the Law of Torts 2d, adopted May, 1977, has stated the fundamental principle: "One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract." (§ 766.) The keystone of the statement is the adverb "improperly" a term selected in preference to the phrase "without justification" appearing frequently in *190 judicial decisions and giving rise to questions of burden of proof the definition of which is inconstant and mutable, drawing its substance from the circumstances of the particular situation at hand. Section 767 of the Restatement sets out several factors for consideration in determining whether an intentional interference with a contract is "improper", accompanied by the observation that "[t]he issue in each case is whether the interference is improper or not under the circumstances; whether, upon a consideration of the relative significance of the factors involved, the conduct should be permitted without liability, despite its effect of harm to another. The decision therefore depends upon a judgment and choice of values in each situation" (Comment b). Included among the factors to be considered are the nature of the conduct of the person who interferes (a chief factor in determining whether conduct is improper), the interest of the party being interfered with (whether in an enforceable contract or in a contract voidable and thus unenforceable or terminable at will),[1] and the relationship between the parties.[2]
Where the party claiming injury and the party charged with interference are business competitors as are the parties to this action there is presented a frequently encountered, particularized occasion for the application of the general principles as to liability for tortious interference with contract performance. Generalizations must be refined in this context to achieve a balancing of the protection of the interests of the one party in future enjoyment of contract performance and society's interest in respect for the integrity of contractual relationships, on the one hand, and, on the other, the right to freedom of action on the part of the party interfering and society's concern that competition not be unduly hampered. The Restatement in section 768 undertakes to articulate this balance. It differentiates between interference with an existing contract and interference with a prospective contractual relation (§ 768, Comment a). Although his status as a competitor does not protect the interferer from the consequences of *191 his interference with an existing contract, it may excuse him from the consequences of interference with prospective contractual relationships, where the interference is intended at least in part to advance the competing interest of the interferer, no unlawful restraint of trade is effected, and the means employed are not wrongful.[3] "Wrongful means" include physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure; they do not, however, include persuasion alone although it is knowingly directed at interference with the contract (op. cit., § 768, Comment e; § 767, Comment c). The distinction thus made between the possible liability of a competitor for interference with performance of an existing contract and the more demanding requirements to establish liability for interference with prospective contractual relations reflects a recognition of the difference in the two situations in the relationship of the parties and in the substance and quality of their resulting interests; greater protection is accorded an interest in an existing contract (as to which respect for individual contract rights outweighs the public benefit to be derived from unfettered competition) than to the less substantive, more speculative interest in a prospective relationship (as to which liability will be imposed only on proof of more culpable conduct on the part of the interferer).
Critical to the determination of the second of the two issues in this case is whether a contract which is voidable for lack of mutuality is to be classified in the category of an existing contract or in that of a prospective contractual relation only. The Restatement (§ 768) expressly places a contract terminable at will in the latter category. Although the similarity *192 between voidable contracts and contracts terminable at will is elsewhere noted,[4] no explicit reference is made in section 768 to voidable contracts. It may be inferred that the reporter thought to classify voidable contracts with existing contracts or perhaps that voidable contracts were not to be classified at all for purposes of this section. For our part, however, we are persuaded that interference with performance of voidable contracts should be treated the same as interference with contracts terminable at will for purposes of imposing liability in tort, and that both fall in the same category with interference with prospective contractual relations. For present purposes there are only superficial distinctions between the rights and interests under contracts terminable at will and voidable contracts of the parties who claim to have been injured by the interference of the alleged tort-feasor. In both instances the contract will continue to be operational until action on the part of the other contracting party brings it to a halt, and in both instances the other party at his election may bring it abruptly to a halt, by termination in the one instance and by avoidance in the other.
It is not sufficient, we suggest, to make the result hinge on the subjective expectation or state of mind of the parties, as the dissenters appear to think appropriate. They would distinguish between contracts which are terminable at will and those which are voidable. The internalized expectation of the party seeking to recover for an alleged tort, however, may well be the same whichever the form of the contract. Thus, under a contract in form terminable at will, other factors may *193 give reliable assurance that there will likely be no exercise of the right of termination, accordingly fostering an expectation of future relations a consequence the dissenters would ascribe to voidable contracts. By similar token, although their contract contains no right of termination, one party to a contract may be aware, as the result of legal advice or otherwise, that his contracting partner has an equivalent right to escape the obligation to perform because the contract is voidable, thus undermining any expectation of continuity a consequence attributable by the dissent to a contract terminable at will.
Nor, although the dissenters appear to suggest otherwise, should the state of mind of the interfering tort-feasor be determinative. While it must be established, as a threshold predicate for any claim of tortious interference, that the alleged tort-feasor knew that his competitor had a contract with the third party, as a practical matter he will usually be totally unaware of, and customarily indifferent to, the legal particulars of that contract (as distinguished, perhaps, from its economic or operational aspects). He will seldom if ever know whether the third party has a right to terminate or is entitled to avoid the contract. To the extent that ethical considerations are urged by the dissenters as having a bearing, we perceive no difference in the ethical culpability, if any there be, of the uninformed, intentional interferer, whether it later turns out that the contract he interfered with was terminable at will, voidable, or indeed unquestionably enforceable. Yet the dissenters would deny relief in the first instance (absent fraud or other misconduct) but grant it in the latter two.
In sum, the imposition of liability for intentional interference with performance of a contract to which the competitor is a party must depend on the worth and significance of the objective interest to be protected. The actual, legal interest under a contract which may be avoided by the other contracting party at his election is not materially different from that under a contract which the other contracting party may terminate at will. In both instances the party seeking to impose liability enjoys no legally enforceable right to performance; his interest is a mere expectancy a hope of future contractual relations. Consequently, there having been no trespass or invasion of a substantial legal interest, there is no liability for interference with performance of a competitor's *194 voidable contract absent employment of wrongful means, unlawful restraint of trade, or lack of competitive motive.
The principles embodied and the precepts set out in the Restatement and delineated above commend themselves in this developing area of the law and, in large measure, reflect prior case decisions in this jurisdiction. Thus, in Hornstein v Podwitz (254 N.Y. 443) a case involving a contract neither voidable nor terminable at will this court upheld a verdict for plaintiff in an action for inducement of breach of the contract on proof of the existence of a valid contract, defendant's intentional interference with performance and consequential damages suffered by plaintiff, a party to the contract. With respect to a contract for a definite term, persuasion to breach alone, as by an offer of better terms (Gold Medal Farms v Rutland County Co-op. Creamery, 9 AD2d 473), has been sufficient to impose liability on one who thereby interferes with performance (Gonzales v Reichenthaler, 233 N.Y. 607).
Where contracts terminable at will have been involved, we have upheld complaints and recoveries in actions seeking damages for interference when the alleged means employed by the one interfering were wrongful, as consisting of fraudulent representations (Rice v Manley, 66 N.Y. 82), or threats (Lurie v New Amsterdam Cas. Co., 270 N.Y. 379) or as in violation of a duty of fidelity owed to the plaintiff by the defendant by reason of a relation of confidence existing between them (A. S. Rampell, Inc. v Hyster Co., 3 N.Y.2d 369; Duane Jones Co. v Burke, 306 N.Y. 172). Absent some such misconduct, no liability has resulted to one whose actions have induced nonperformance of a contract deemed to be voidable and thus unenforceable (Livoti v Elston, 52 AD2d 444).
Against this background of the applicable principles of law, we proceed to consideration of Guard-Life's claims in this case.
From the several extended affidavits and documentary proof submitted on the motion for summary judgment, Guard-Life has demonstrated that Kokusan ceased deliveries in April, 1969, prior to completion of its performance under Order No. 1001. It also appears undisputed that Parker, through Katsura, began communications with Kokusan as early as the fall of 1968 looking to its replacement of Guard-Life at least in part as Kokusan's exclusive dealer in the United States and Canada. There is documentary and other evidence that Parker *195 knew of Guard-Life's 1968 contract with Kokusan. It is true that Katsura by letter dated January 18, 1969 stated that that contract "will last until the end of June this year" and that the seller was willing to terminate it on that occasion and had no intention to "renew" the contract. It is also true however that in that same letter it stated that it was going to cease supplying under that contract to demonstrate its faith to Parker. On March 10, 1969 a contract was entered into with Parker, granting Parker a worldwide exclusive distributorship, the contract to be "for a period of ten years from the date hereof", although deliveries were not to be made under the agreement until approval of production samples by Parker which did not occur until after the expiration of the one-year term of Order No. 1001. The record further discloses other communications between Parker and Katsura and Kokusan prior to the cessation by Kokusan of performance of its obligations under Order No. 1001 in April, 1969 and prior to the expiration of the 12-month period from June, 1968 fixed for delivery of merchandise included in that order. What significance is properly to be ascribed to these transactions and what inferences are to be drawn as to the part, if any, that they played in Kokusan's decision not to complete its obligations under Order No. 1001 involve factual determinations appropriately to be made after trial (Restatement, Torts 2d, § 766, Comment o). The fact, so heavily relied on by Parker, that performance under its contract with Katsura did not occur until after expiration of the delivery period under Order No. 1001 does not preclude a finding that Parker's conduct from the fall of 1968 through the spring of 1969 bore a causal relationship to Kokusan's default under Order No. 1001. Guard-Life's submission is adequate to require a trial of material issues of fact insofar as it claims tortious interference with that order and thus to defeat Parker's motion for summary judgment as to that aspect of the litigation.
The situation is otherwise, however, with respect to Guard-Life's claim based on alleged tortious interference by Parker in inducing Kokusan to abandon all performance under the 1968 contract after expiration of the term of Order No. 1001. The legal status of Order No. 1001 and that of the 1968 contract for the remainder of the five-year term alluded to in the agreement are significantly and critically different. While the former was an enforceable contract for a definite term, the remainder of the 1968 contract was held to be unenforceable *196 for lack of mutuality in the Japanese arbitration proceeding. Under familiar principles of issue preclusion, or collateral estoppel, Guard-Life is now bound by that determination. It did, as it could, agree to resolution of disputes arising under the contract by arbitration in Japan (Gilbert v Burnstine, 255 N.Y. 348); it fully participated in the arbitration proceeding and there litigated, unsuccessfully, its claim of nonperformance by Kokusan of a continuing obligation (beyond the obligation of delivery under Order No. 1001) under the contract; no assertion is now made that it was restricted or handicapped in presentation of its position, and it has formally admitted that the Japanese award has the effect of a judgment which is final and conclusive between the parties. In these circumstances, Guard-Life is bound by the arbitrators' determination as to unenforceability of the 1968 contract generally (Schwartz v Public Administrator of County of Bronx, 24 N.Y.2d 65; cf. Matter of American Ins. Co. [Messinger Aetna Cas. & Sur. Co.], 43 N.Y.2d 184).
Moreover, inasmuch as the alleged interference on this branch of the case was with respect to an unenforceable contract, there is no liability in tort unless the means employed to effect the interference was wrongful;[5] mere knowing persuasion would not be sufficient. The evidence tendered by Guard-Life has been described in detail above. There was no proof tendered of any wrongful means persuasion and offer of better terms, yes; fraud, misrepresentation, threats, other wrongful conduct, no. In sum, Guard-Life has made no submission sufficient to defeat Parker's motion for summary judgment with respect to alleged interference with the 1968 contract when Order No. 1001 is disregarded.
Finally, defendant Parker requests that it be granted partial summary judgment "limiting plaintiff's monetary claim against defendant". It contends that if plaintiff recovers at all its recovery should be limited either to $37,284, the amount of lost profits found by the arbitrators to have been sustained by reason of defendant's actual purchases of front door locks of the type covered by plaintiff's agreement with Kokusan, or to *197 $75,529, the total lost profits found by the arbitrators to have been sustained by plaintiff by reason of Kokusan's failure to fulfill Order No. 1001.
There is no merit to the claim that recovery should be limited to the first figure tendered, for if it should be determined on the trial of the action that defendant improperly interfered with Kokusan's performance with respect to Order No. 1001 then Guard-Life will be entitled not simply to lost profits attributable to the type of locks purchased by defendant Parker but to the full pecuniary loss of the benefits of the contract with which Parker interfered (Restatement, Torts 2d, § 774A, subd [1], par [a]). What other damages, if any, might be recovered in an action of this nature[6] we are not here required to determine, inasmuch as Guard-Life, by its bill of particulars, has limited its claim only to lost profits resulting from Parker's alleged interference. Because the determination by the arbitrators that with respect to Order No. 1001 those profits amounted to $75,529 is conclusive on Guard-Life though of course not on Parker, a stranger to the arbitration process it necessarily follows that an award to it on the trial of the action may not exceed that figure.[7] While a holding to the effect that a verdict may not be more than a stated amount does not lend itself to the form of an award of judgment on this motion for summary judgment, it may properly be included in an order aiding in the disposition of the action as authorized by CPLR 3212 (subd [g]).
For the reasons stated, the order of the Appellate Division should be modified, with costs, to the extent of remitting the case to Supreme Court, New York County, with directions to grant Parker's motion for summary judgment dismissing the complaint except with respect to Guard-Life's claim of tortious interference with Kokusan's performance under Order No. 1001 and to order that damages awarded to Guard-Life on *198 that claim may not exceed $75,529, and as so modified, affirmed.
Chief Judge COOKE (dissenting in part).
I dissent in part and vote that the order of the Appellate Division be affirmed.
It is agreed that summary judgment should be denied to plaintiff in respect to the claim of tortious interference with the order for locks, denominated as "Order No. 1001".
Issue, however, is taken with that portion of the majority's determination which grants summary judgment to defendant dismissing that part of the complaint relating to claims of tortious interference in respect to the underlying 1968 contract (apart from said numbered order). It is agreed that if that contract, granting Guard-Life an exclusive distributorship, was terminable at will, defendant's competitive interference would be justified (Restatement, Torts 2d, § 768; accord, e.g., Terry v Dairymen's League Co-Op. Assn., 2 AD2d 494, 500-501). The fact, however, is that the contract, though voidable, was for a definite term and prior to defendant's interference was being performed by the parties.[*] It was not terminable at will. Being such a contract, the rules governing tortious interference with voidable contracts should be applied here. The majority's failure to apply said rules is the touchstone from which this dissent springs.
It is undisputable that where an agreement is terminable at will, a competitor of one of the parties is free to use proper and legal means to induce termination (e.g., Terry v Dairymen's League Co-Op. Assn., 2 AD2d 494, supra; Restatement, Torts 2d, § 768; Prosser, Torts [4th ed], § 129, at p 946). This privilege of competition exists because the contracting parties have no contractual right to have their "relation continued, but only an expectancy" (Prosser, at p 946). Such an expectancy of future relations has, from early common-law days, always been subject to competitive interference (see, e.g., Mogul S. S. Co. v McGregor, Gow & Co., 23 QBD 598, affd [1892] AC 25).
But, for present purposes, a voidable contract with a prescribed duration simply is not akin to a contract terminable at *199 will. Indeed, the Restatement of Torts Second, heavily relied upon by the majority, treats the two types of agreements differently. According to the Restatement, "the fact that the contract is terminable at will * * * is a factor to be considered in some cases in determining whether the defendant is free to interfere (see § 768, Comment j)" (Restatement, Torts 2d, § 766, Comment g [Tent Draft No. 23]; emphasis added). With respect to voidable contracts, however, the Restatement provides that the existence of a formal defect does not justify interference "with performance of the contract before it is avoided" (Restatement, Torts 2d, § 766, Comment f). Moreover, section 768 of the Restatement, which deals with the privilege of competition, expressly states that competition provides no justification for interfering with an agreement, "if the contract is not terminable at will" (Restatement, Torts 2d, § 768, subd [2]).
There are sound reasons supporting the distinction drawn by the drafters of the Restatement. Significantly, the expectations of the parties to a voidable contract, which is for a prescribed duration, differ substantially from the expectations of parties to a terminable at will agreement. The latter are usually aware, when they enter into the contract, that their relationship is to continue only so long as is mutually agreeable, and hence will refrain from relying on the agreement in planning future transactions. Parties to a voidable contract, on the other hand, believe that they have established a relationship which will span a period of time and may order their future conduct accordingly. Indeed, since the formal defect which renders the agreement voidable such as a failure to comply with the Statute of Frauds or technical rules relating to mutuality often does not surface except as a post hoc defense to an action for breach, the fact that the agreement is voidable is of little practical significance. From a pragmatic standpoint, then, parties to such a voidable contract are in a situation akin to parties to an enforceable agreement with a fixed duration.
Moreover, the nature of the conduct of one who interferes with a voidable contract does not differ from that of the person who interferes with an enforceable contract. In both cases, the wrongdoer is aware of the existing contractual relation, and chooses to intentionally interfere with it. In both cases, the contracting parties are performing their agreement, and expect the relationship to continue for a set period of *200 time. And, in both cases the wrongdoer has violated "the ethical precept that one competitor must keep his hands off of the contracts of another" (Prosser, Torts [4th ed], § 129, p 945).
In fact, it is this ethical precept which, at bottom, is the raison d'etre of the law of interference with contractual relations. If society were interested only in fostering economic competition, the tort of contractual interference would never have developed. Rather, the law would have allowed business entities to engage in unfettered competition, and relegated injured parties to a breach of contract action. But this is not the path that has been followed.
Instead, the law has decided, long ago, that enforcement of certain market morals is a societal interest worthy of protection. When these fundamental precepts are violated, the law provides a remedy. And the remedy, in form a tort action, exceeds that which would be available in a contract action. One who induces a breach of contract is liable, not just for contractual damages, but for all damages legally caused by the wrong (Restatement, Torts 2d, § 774A, Comment c; majority opn, at p 197, n 6). The form of the action and the measure of damages signals that more than economic interests are being protected. Contrary to the majority opinion, then, the interests involved here are not solely protection of contract rights versus freedom to compete. Rather, society's weighty interest in insuring a minimum level of ethical behavior in the marketplace is directly implicated.
It becomes clear why voidable contracts must be distinguished from contracts terminable at will. When a competitor induces termination of a contract terminable at will, he commits no ethical violation, and does not produce a result contrary to the expectations of the parties. In such a situation, there is no basis for prohibiting competitive interference. By contrast, where a competitor induces a breach of a voidable contract, which was being performed and which was for a designated period, he not only violates an important ethical precept himself, but he induces the contracting party to abandon his ethical obligation to carry out the promise contained in the technically unenforceable agreement. In addition, since the parties did not intend to create a voidable contract, and were likely unaware of the defect, the interferer has upset their expectations.
Finally, the majority's suggestion that neither the subjective *201 expectations of the contracting parties nor the state of mind of the interferer are relevant factors is noted. It is precisely those factors which must be balanced in determining liability for interference with economic relations. As the Restatement puts it, "the plaintiff's interest in his contractual rights and expectancies must be weighed * * * against the defendant's interest in freedom of action". And, "the nature of [the interferer's] conduct is an important factor" (Restatement, Torts 2d, § 766, Comment c). Indeed, the subjective expectancies of the contracting party are a major reason for permitting competitive interference with contracts at will, while not allowing it when a durational contract exists. In the latter instance, "the greater definiteness of the [contracting party's] expectancy and [the] stronger claim to security for it" justify legal protection against interference (Restatement, Torts 2d, § 767, Comment e). In short, the subjective expectations of persons who enter into a contract are important considerations when evaluating whether a third party is free to interfere with the ongoing contractual relationship. A view that would make liability turn upon the circumstance that the contract might be voidable without regard to the interests involved would exalt form over substance.
To uphold contracting parties expectations, and to protect the society's interest in assuring a level of market morality, I would adopt the formulation of the Restatement, and hold that the privilege of competition only justifies interference with an at will and not a voidable contract.
Contrary to the implication of the majority, then, the wrongfulness of the act of the interferer in respect to a voidable contract need not rise above "intentional interference, without justification", with the contractual rights of another, with knowledge of the contract (see, e.g., Campbell v Gates, 236 N.Y. 457, 460). Accordingly, Guard-Life need only show that defendant intentionally interfered with its contractual rights, without justification and with knowledge of the contract to make out a cause of action. Having produced ample evidence in substantiation, but there being a true factual question as to the intentional interference, summary judgment should be denied in this respect.
Accordingly, affirmance is in order.
Order modified, with costs to defendant, and the case remitted to Supreme Court, New York County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed. Question certified answered in the negative.
NOTES
[1] The Restatement recognizes that these two types of contracts present similar situations. In each there is a valid and subsisting relation until opposition to enforcement is raised or termination is effected (Restatement, Torts 2d, § 766, Comments f, g).
[2] Other factors include the motive and interests sought to be advanced by the one who interferes, the social interests in protecting the freedom of action of that person as well as the contractual interests of the party interfered with, and the proximity or remoteness to the interference of the conduct complained of.
[3] Section 768 of Restatement, Torts 2d, provides:
"§ 768 Competition as Proper or Improper Interference
"(1) One who intentionally causes a third person not to enter into a prospective contractual relation with another who is his competitor or not to continue an existing contract terminable at will does not interfere improperly with the other's relation if
"(a) The relation concerns a matter involved in the competition between the actor and the other and
"(b) the actor does not employ wrongful means and
"(c) his action does not create or continue an unlawful restraint of trade and
"(d) his purpose is at least in part to advance his interest in competing with the other.
"(2) The fact that one is a competitor of another for the business of a third person does not prevent his causing a breach of an existing contract with the other from being an improper interference if the contract is not terminable at will."
[4] See footnote 1, supra. To describe these contracts as "existing" in the sense that they are conceptually in esse and form the predicate for enforceable obligations unless and until terminated or avoided does not advance our present analysis. In this sense contracts terminable at will and contracts which are voidable at the election of the party concerned are indistinguishable. The Comments of the Restatement with respect to contracts terminable at will would appear to be equally applicable to voidable contracts: "If the third person is free to terminate his contractual relation with the plaintiff when he chooses, there is still a subsisting contract relation; but any interference with it that induces its termination is primarily an interference with the future relation between the parties, and the plaintiff has no legal assurance of them. As for the future hopes he has no legal right but only an expectancy; and when the contract is terminated by the choice of the third person there is no breach of it. The competitor is therefore free, for his own competitive advantage, to obtain the future benefits for himself by causing the termination. Thus he may offer better contract terms, as by offering an employee of the plaintiff more money to work for him or by offering a seller higher prices for goods, and he may make use of persuasion or other suitable means, all without liability." (Op. cit., § 768, Comment i.)
[5] There is no suggestion that any of the other bases for liability as to an unenforceable contract set out in section 768 of the Restatement of Torts 2d the relation concerns a matter not within the competition between the parties, the action complained of creates or continues an unlawful restraint of trade, or the purpose of the interference is other than to advance the competitive interest of the one interfering with performance of the contract is applicable in the present case.
[6] On principle, the injured party in the action against the other contracting party for breach of contract would be limited to the elements of damage recoverable in a contract action. In an action against the third party for tortious interference, however, the elements of damages, including consequential damages, would be those recognized under the more liberal rules applicable to tort actions (Restatement, Torts 2d, § 774A, Comment c).
[7] Guard-Life concedes its willingness to give credit to Parker for whatever has been paid by Kokusan in satisfaction of the arbitration award. Whether Parker will assert any claim for additional credit for funds it may contend could have been collected by Guard-Life by recourse to reasonable collection methods remains to be seen when the action is tried.
[*] The contract was found to lack mutuality in a Japanese arbitration proceeding and plaintiff Guard-Life is bound by that determination. A contract may be voidable because of lack of mutuality (Restatement, Torts 2d, § 766, Comment f). The question whether the contract would be enforceable in New York need not be reached (see Prosser, Torts [4th ed], § 129, p 932). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1255693/ | 251 Ga. 831 (1984)
312 S.E.2d 102
BARTOW COUNTY BANK
v.
BARTOW COUNTY BOARD OF TAX ASSESSORS et al. CITIZENS & SOUTHERN BANK OF BARTOW COUNTY
v.
BARTOW COUNTY BOARD OF TAX ASSESSORS et al. FIRST NATIONAL BANK OF CARTERSVILLE
v.
BARTOW COUNTY BOARD OF TAX ASSESSORS et al.
37868, 37869, 37870.
Supreme Court of Georgia.
Decided January 4, 1984.
Alston & Bird, G. Conley Ingram, Michael G. Wasserman, John L. Coalson, Jr., for appellant (case no. 37869).
Hansell & Post, Charles T. Zink, Trammell Newton, Paul Oliver, for appellant (case no. 37870).
Nelson & Bradley, G. Carey Nelson, Stephen R. Bradley, Michael J. Bowers, Attorney General, James C. Pratt, Assistant Attorney General, for appellees.
William P. Trotter, James F. Grubiak, Walter Edwin Sumner, W. Stell Huie, C. Wilson Dubose, Trammell Newton, amici curiae.
HILL, Chief Justice.
These cases are now before us on remand from the United States Supreme Court. When these cases originally appeared before this court, we held that the Georgia bank share tax act, then Code Ann. § 91A-3301, later OCGA § 48-6-90 (repealed by Ga. L. 1983, p. 1350), was not rendered unconstitutional by the fact that it provided for taxation of bank shares based on the net worth of the bank without subtracting the value of federal securities owned by the bank. Bartow County Bank v. Bartow County Board of Tax Assessors, 248 Ga. 703, 711 (285 SE2d 920) (1982). An appeal was docketed in the United States Supreme Court. Id., 50 USLW 3824 (April 13, 1982).
Subsequently, the United States Supreme Court rendered its decision in American Bank &c. Co. v. Dallas County, 463 U. S. ____ *832 (103 SC 3369, 77 LE2d 1072) (1983). The Court held that the Texas bank share tax, which was calculated by use of an equity capital formula,[1] violated Rev. Stat. § 3701, 31 USC § 742, as amended in 1959 (Pub. L. 86-346),[2] because the tax considered the value of United States obligations held by the banks. Since Rev. Stat. § 3701, 31 USC § 742, as amended, prohibits such consideration, directly or indirectly, in the computation of the tax, the state tax violated the supremacy clause. U. S. Const., Art. VI, Cl. 2. The U. S. Supreme Court then vacated the judgment in Bartow County Bank, supra, and remanded the case to this court for reconsideration in light of its opinion in American Bank &c. Co., supra. Bartow County Bank, supra, ___ U. S. ___ (103 SC 3563, 77 LE2d 1402) (1983).
1. As we explained in Bartow County Bank, supra, 248 Ga. at 704, our bank share tax "authorizes as deductions from the fair market value of the shares (net worth of the bank) real estate taxed separately, investments in subsidiary banks taxed under the act, undistributed earnings of other subsidiaries subject to Georgia corporate taxes, and reasonable capital reserves. . . . The act does not provide for deduction of U. S. government securities." Therefore, under American Bank &c. Co., supra, it is clear that Georgia's bank share tax act, like that of Texas, as the Bartow County Board of Tax Assessors and the Attorney General of the State of Georgia now concede, is unconstitutional unless it be construed so that the value of federal obligations which the banks hold not be considered, directly or indirectly, in computing the tax.
While our statute admittedly does not provide by its terms for the exemption of federal obligations, neither does it expressly provide that federal obligations shall not be exempted. Prior to the United States Supreme Court decision in American Bank &c. Co., supra, we construed the statute so as not to allow such exemption on the premise, based upon U. S. Supreme Court decisions rendered prior to 1959, that such a statute would be constitutional. On remand, *833 we must reconsider that construction in light of the decision in American Bank &c. Co., supra, that such a statute, as so construed, is now unconstitutional.
It has long been the law in Georgia "that Acts of the Legislature are not only presumed to be constitutional, but that the authority of the Courts to declare them void, will never be resorted to, except in a clear and urgent case...." Boston & Gunby v. Cummins, 16 Ga. 102, 105 (1854). Moreover, statutes are to be construed so as to be constitutional whenever possible. Freeman v. Ryder Truck Lines, 244 Ga. 80, 83 (259 SE2d 36) (1979). This rule is related to the rule of construction that: "In all interpretations of statutes, the courts shall look diligently for the intention of the General Assembly. . . ." OCGA § 1-3-1 (a) (Code Ann. § 102-102). It follows that, because the General Assembly is presumed to intend all laws it enacts to be constitutional, the courts will choose a constitutional construction which realizes that intent. Thus we conclude that we should construe the bank share tax, if possible, so as to render it constitutional (i.e., so as to avoid violating 31 USC § 742, supra), rather than declare the entire share tax act unconstitutional. See Columbia Bank for Cooperatives v. Blackmon, 232 Ga. 344, 347 (206 SE2d 424) (1974); City Council of Augusta v. Mangelly, 243 Ga. 358, 363 (254 SE2d 315) (1979).
2. Having concluded that the banks' federal obligations cannot "be considered, directly or indirectly, in the computation of the tax," 31 USC § 742, we confront the problem of how the share tax is to be calculated. The Attorney General argues for a proportionate method of deduction; e.g., determine the extent to which federal obligations are represented in the bank's assets, and then deduct the exempt federal obligations to the extent that they are represented in net worth (and by which the share tax is measured). The banks, on the other hand, argue for an absolute deduction. Alternatively put, they argue that the statutory command that federal obligations not "be considered, directly or indirectly, in the computation of the tax," means that for state tax purposes those of the bank's assets which are represented by federal obligations should be deducted in full, notwithstanding the fact that only a portion of the federal obligations are attributable to net worth. We disagree because we deal here with a value tax measured by net worth, rather than by total assets. The law commands that we exclude federal obligations from the tax base, which is to say, that we exclude federal obligations from net worth to the extent that they are represented therein.
The nature of a balance sheet is such that so much of a bank's assets as consist of federal obligations are represented by an equivalent amount of liabilities (resulting in those assets not being taxed) and net worth (resulting in those assets being taxed). Thus the *834 proportionate deduction method, which we adopt, affords deduction of federal obligations to the full extent they are represented in net worth.[3]
The statute commands that federal obligations not be taxed directly (as in a tax assessed on a federal obligation), or indirectly (as in a tax assessed on a share in a bank the value of which includes federal obligations). But we agree with the Attorney General that it does not mean that the value of the federal obligations need be or should be deducted in full from the bank's net worth. Rather, allowing a deduction from the bank's net worth of the percentage of assets attributable to federal obligations fully insulates the federal obligations from the tax.[4] Yet while such deduction fully insulates the federal obligations from the tax as the law requires it does so without insulating the bank's taxable assets at the same time. While not identical, the bank's argument is similar to that of the unsuccessful insurance company in United States v. Atlas Life Ins. Co., 381 U.S. 233, 251 (85 SC 1379, 14 LE2d 358) (1965), because it can be said of both that the argument "is tantamount to saying that those who purchase exempt securities instead of taxable ones are constitutionally entitled to reduce their tax liability and to pay less tax per taxable dollar than those owning no such securities." Id. at 251 (emphasis supplied).
The banks rely on two arguments: first, that the fact that under the statute the value of a bank's real estate holdings is deducted from net worth mandates identical treatment for federal obligations;[5] and second, that the opinion in Schuylkill Trust Co. v. Pennsylvania, 296 U.S. 113 (56 SC 31, 80 LE 91) (1935), stands for the proposition that a pro rata deduction will not suffice. However, neither argument is controlling.
Code Ann. § 91A-3301 does provide for the deduction of real estate which is taxed separately from net worth. But the fact that it does so does not mean that that is the only method which will insulate the real estate from taxation under Code Ann. § 91A-3301. Rather it is simply the method the General Assembly chose. Nor does it follow *835 that the General Assembly would choose the same method to exempt federal obligations. The real estate deduction is only for real estate which is taxed separately; exempt federal obligations are, of course, not taxed separately.[6]
In Schuylkill Trust Co., 296 U.S. 113, supra, the Supreme Court dealt with a Pennsylvania tax statute which purported to tax the shares of trust companies rather than their corporate assets. But the act allowed the Trust Company to deduct from its net assets either directly or by means of a "proportional method of deduction" so much of its assets as were represented by shares of Pennsylvania corporations already taxed or exempt from tax. Id., 296 U. S. at 117. It did not allow a like exemption for federal obligations. Thus, by allowing certain deductions, but not federal obligations, the burden of the tax fell more heavily on the federal obligations. The Court first found that the act therefore discriminated against federal obligations, not because of the proportional method of deduction, but because of the inclusion of federal obligations in the tax base after the deduction of other securities. 296 U. S. at 120.
Next, the Court dealt with the Schuylkill Trust Company's ownership of shares of stock of the Philadelphia National Bank. These shares had already been taxed to the Trust Company. Id., 296 U. S. at 121. Pennsylvania had elected to exempt certain shares of stock of Pennsylvania corporations because they had been taxed, but it failed to exempt shares of the Philadelphia National Bank which also had been taxed. The Court held that the state was bound to exempt National Bank shares. 296 U. S. at 123. The Court did not focus on the proportional method of deduction (other than to find that the question as to the National Bank shares had been raised for its review).
The banks argue that the Schuylkill Trust decision is controlling because the National Bank shares had been afforded proportionate deduction treatment and this was disallowed by the Court. On the contrary, the National Bank shares had been afforded no deduction at all. See Commonwealth v. Schuylkill Trust Co., 315 Pa. 429 (173 A. 309, 310) (1934), reversed, 296 U.S. 113 (1935); Schuylkill Trust Co. v. Pennsylvania, 302 U.S. 506, 509 (58 SC 295, 82 LE 392) (1938).
Applying the proportionate deduction method to the appellant Citizens and Southern Bank of Bartow County (which deducted its federal securities in full), its total assets of $20,463,522 for the year *836 1979 included $1,995,393 in federal securities. Thus its federal securities represented 9.75% of its assets. Hence, 9.75% of its net worth is represented by federal securities. The bank therefore is entitled to reduce its net worth ($2,082,488) by 9.75% ($203,043) so as to remove from the tax base so much of its net worth as is represented by federal securities. Its deductions would then be as follows:
Deduction of federal securities $ 203,043
Real estate taxed separately 1,284,943
Reasonable capital reserves 82,000
One-half of the principal or GHEAC loans 4,895
----------
Total deductions $1,574,881
Subtracting its total deductions ($1,574,881) from its net worth ($2,082,484), leaves $507,607 as the taxable share value. Dividing the taxable share value by the number of outstanding shares provides the taxable value of each share.
The foregoing computation removes from the tax base (net worth) so much of the net worth (tax base) as includes federal securities, thereby excluding, as required by 31 USC § 742, supra, such securities from consideration in the computation of the tax.
Judgment reversed. Cases remanded for further proceedings not inconsistent with this opinion. All the Justices concur, except Marshall, P. J., disqualified.
NOTES
[1] As described by the U. S. Supreme Court, the equity capital formula involves "determining the amount of the bank's capital assets, subtracting from that figure the bank's liabilities and the assessed value of the bank's real estate, and then dividing the result by the number of shares." Id., 103 SC at 3374 (51 USLW at 5183-5184).
[2] Rev. Stat. § 3701, 31 USC § 742, as amended, provides: "All stocks, bonds, Treasury notes, and other obligations of the United States, shall be exempt from taxation by or under State or municipal or local authority. This exemption extends to every form of taxation that would require that either the obligations or the interest thereon, or both, be considered, directly or indirectly, in the computation of the tax, except nondiscriminatory franchise or other non-property taxes in lieu thereof imposed on corporations and except estate taxes or inheritance taxes."
[3] We need not here decide whether those banks which can prove that federal obligations were actually purchased from capital stock or surplus are entitled to an absolute deduction from assets or net worth because the banks have not as yet made such showing (other than in hypothetical examples).
[4] This method of ascertaining the tax is not foreclosed by American Bank &c. Co., supra. See footnote 10 of that decision.
[5] The banks presumably rely upon the deduction for real estate rather than the deduction for investments in subsidiary banks, etc., because the banks in these cases have no such investments.
[6] See Schuylkill Trust Co. v. Pennsylvania, 302 U.S. 506, 514 (58 SC 295, 82 LE 392) (1938). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1406903/ | 88 Wash. 2d 75 (1977)
558 P.2d 781
THE STATE OF WASHINGTON, Respondent,
v.
WALTER GREGORY McKINNON, Appellant. THE STATE OF WASHINGTON, Respondent,
v.
LARRY RAYMOND YATES, Appellant.
Nos. 44376, 44377.
The Supreme Court of Washington, En Banc.
January 7, 1977.
Kenneth H. Davidson (of King, King & Davidson), for appellant McKinnon.
Graham, Cohen & Wampold and R. Joseph Wesley, for appellant Yates.
*77 Christopher T. Bayley, Prosecuting Attorney, and Charles S. Hamilton III, Deputy, for respondent.
HAMILTON, J.
In separate trials, defendant (appellant) Yates was convicted of possession of a controlled substance with intent to deliver, and defendant (appellant) McKinnon was convicted of two counts of possession of a controlled substance. The cases were consolidated for appeal. Both cases involve the contention that evidence seized by the defendants' high school principal was improperly admitted against them.
On November 4, 1974, the chief of police for Snoqualmie, Washington, received a call from a confidential informant that the defendants, who were high school students, were selling "speed." The informant described the clothes which the defendants were wearing that day, and pinpointed in which pockets the "speed" was located. The police chief immediately contacted the principal of the defendants' high school and related the above information. The principal responded that he would talk to the defendants and get back to the chief of police.
The principal then contacted defendant Yates and brought him to the principal's office. At the same time the vice-principal contacted defendant McKinnon and took him to the vice-principal's office. The principal asked defendant Yates to empty his pockets. Defendant Yates then emptied all of his pockets, except the one in which the informant had said the "speed" would be located. The principal then reached into that pocket and found two packages of white pills. Meanwhile, the vice-principal was having defendant McKinnon empty his pockets. The principal then entered the vice-principal's office and reached into defendant McKinnon's pocket the pocket in which the informant had said the "speed" was located and found several packets of white pills. Laboratory analyses later confirmed that the pills found on both defendants' persons were amphetamines.
*78 The principal then telephoned the chief of police who went to the school and placed both students under arrest. While the police chief was driving the defendants to the police station, he saw defendant McKinnon take a bag out of his pocket and place it under the car seat. When they arrived at the police station, the chief of police told defendant McKinnon to go back out to the car and retrieve the bag he had secreted. Defendant McKinnon did so, and then voluntarily surrendered another bag. Laboratory analysis confirmed that these two bags contained marijuana. Later that same day, both defendants signed written statements regarding the drugs.
Defendants contend that the searches of their persons by the high school principal violated their right to be free from unreasonable searches as guaranteed to them by the fourth amendment to the United States Constitution,[1] and therefore the fruits of these searches should have been excluded under Mapp v. Ohio, 367 U.S. 643, 6 L. Ed. 2d 1081, 81 S. Ct. 1684, 84 A.L.R. 2d 933 (1961), because the principal is a state official. Although there is a split of authority whether school officials are governmental agents within the meaning of the Fourth Amendment, compare In re Donaldson, 269 Cal. App. 2d 509, 75 Cal. Rptr. 220 (1969); Mercer v. State, 450 S.W.2d 715 (Tex. Civ. App. 1970), with State v. Baccino, 282 A.2d 869, 49 A.L.R. 3d 973 (Del. Super. Ct. 1971); State v. Mora, 307 So. 2d 317 (La. 1975); and Doe v. State, 88 N.M. 347, 540 P.2d 827 (1975), we need not decide this question for we believe the search conducted by the principal did not violate defendants' Fourth Amendment rights.
[1] The Fourth Amendment does not prohibit all searches, but only unreasonable searches. The question of reasonableness always involves balancing the governmental *79 interests with the individual's right to be free from instrusions. See Camara v. Municipal Court, 387 U.S. 523, 18 L. Ed. 2d 930, 87 S. Ct. 1727 (1967). When law enforcement officers are conducting a search, they are generally required to secure a search warrant issued upon a showing of probable cause, except for a few "jealously and carefully drawn" exceptions. Coolidge v. New Hampshire, 403 U.S. 443, 29 L. Ed. 2d 564, 91 S. Ct. 2022 (1971). However, in some situations, the search and seizure is allowed upon less than the traditional standard of probable cause because the governmental interests outweigh the intrusion. See Terry v. Ohio, 392 U.S. 1, 20 L. Ed. 2d 889, 88 S. Ct. 1868 (1968) (stop and frisk); United States v. Brignoni-Ponce, 422 U.S. 873, 45 L. Ed. 2d 607, 95 S. Ct. 2574 (1975) (stopping of vehicles by roving border patrol); United States v. Martinez-Fuerte, 428 U.S. 543, 49 L. Ed. 2d 1116, 96 S. Ct. 3074 (1976) (stopping vehicles at a routine border checkpoint).
It is well established that students do not lose their constitutional rights when they enter the school grounds. Tinker v. Des Moines Independent Community School Dist., 393 U.S. 503, 506, 21 L. Ed. 2d 731, 89 S. Ct. 733 (1969). The Washington State Board of Education has recognized the student's right to be secure against unreasonable searches and seizures. See WAC 180-40-095(3). In Tinker, certain students wore black armbands to express their objections to the hostilities in Vietnam. The students were suspended until they would return to the school minus their armbands. The Supreme Court found that the wearing of armbands was closely akin to "pure speech" and did not interfere with school operations or with the right of other students to be secure and to be left alone. It held that the wearing of these armbands was speech protected by the first amendment to the United States Constitution and that students could not be suspended for expressing their nondisruptive objections to the armed conflict in Vietnam:
The principal use to which the schools are dedicated is to accommodate students during prescribed hours for the *80 purpose of certain types of activities. Among those activities is personal intercommunication among the students. This is not only an inevitable part of the process of attending school; it is also an important part of the educational process. A student's rights, therefore, do not embrace merely the classroom hours. When he is in the cafeteria, or on the playing field, or on the campus during the authorized hours, he may express his opinions, even on controversial subjects like the conflict in Vietnam, if he does so without "materially and substantially interfer[ing] with the requirements of appropriate discipline in the operation of the school" and without colliding with the rights of others. Burnside v. Byars, [363 F.2d 744, 749 (5th Cir.1966)]. But conduct by the student, in class or out of it, which for any reason whether it stems from time, place, or type of behavior materially disrupts classwork or involves substantial disorder or invasion of the rights of others is, of course, not immunized by the constitutional guarantee of freedom of speech.
(Footnote omitted. Italics ours.) Tinker v. Des Moines Independent Community School Dist., supra at 512-13. The protection of schoolroom decorum was also affirmatively recognized in Goss v. Lopez, 419 U.S. 565, 42 L. Ed. 2d 725, 95 S. Ct. 729 (1975).
[2] Although Tinker and Goss did not deal with students' Fourth Amendment rights, we believe this same recognition of schoolroom decorum is appropriate when dealing with Fourth Amendment rights. In Washington, students must attend school through the age of 14 and in most cases through the age of 17. RCW 28A.27.010. Certificated school personnel are given the authority and indeed have the duty to maintain good order and discipline in the schools. RCW 28A.67.100; WAC 180-44-020(1). This duty to maintain order and discipline is not founded upon arbitrary grounds. The school's function is to educate children, both intellectually and socially, to prepare them to properly function in our evermore complex adult world. Because of the number of students brought together during a school day, the educational function can only be accomplished by *81 maintaining order and discipline in the school. Further, certificated school personnel must maintain schoolroom decorum in order to protect other students' rights to be secure and to be left alone.
The high school principal is not a law enforcement officer. His job does not concern the discovery and prevention of crime. His duty as the chief administrator of the high school includes a primary duty of maintaining order and discipline in the school. In carrying out this duty, he should not be held to the same probable cause standard as law enforcement officers. Although a student's right to be free from intrusion is not to be lightly disregarded, for us to hold school officials to the standard of probable cause required of law enforcement officials would create an unreasonable burden upon these school officials. Maintaining discipline in schools oftentimes requires immediate action and cannot await the procurement of a search warrant based on probable cause. We hold that the search of a student's person is reasonable and does not violate his Fourth Amendment rights, if the school official has reasonable grounds to believe the search is necessary in the aid of maintaining school discipline and order. See State v. Baccino, supra; State v. Young, 234 Ga. 488, 216 S.E.2d 586 (1975); In re State in the Interest of G.C., 121 N.J. Super. 108, 296 A.2d 102 (1972); Doe v. State, supra; People v. D., 34 N.Y.2d 483, 358 N.Y.S.2d 403, 315 N.E.2d 466 (1974); People v. Jackson, 65 Misc. 2d 909, 319 N.Y.S.2d 731 (1971), aff'd, 30 N.Y.2d 734, 333 N.Y.S.2d 167, 284 N.E.2d 153 (1972). Contra, State v. Mora, supra. The factors to be judged in determining whether the school official had reasonable grounds are the child's age, history, and school record, the prevalence and seriousness of the problem in the school to which the search was directed, the exigency to make the search without delay, and the probative value and reliability of the information used as a justification for the search. See Doe v. State, supra; People v. D., supra.
*82 Turning to the facts in the instant case, we think it is clear that the principal did have reasonable grounds upon which to base his search. He received a telephone call from the chief of police who relayed the information about possible distribution of drugs in the school. The information included a description of the defendants' clothing and the pockets in which the "speed" was located. Drug use and abuse by secondary students are not unknown, and eyes should not be closed to the practices. There can be no doubt that the selling of drugs in a school is highly disruptive of school discipline and order. When the principal was confronted with information that "speed" would be distributed to other members of the student body, he had no alternative but to conduct the search without delay. Furthermore, delay could greatly enhance the possibility that the drugs might be destroyed or otherwise disposed of.
[3] Defendants further argue that, even if a school official may conduct a search based on reasonable grounds, these particular searches were invalid because they were instigated by the chief of police. Although joint action by a law enforcement officer and a private person may constitute police action, see State v. Birdwell, 6 Wash. App. 284, 288, 492 P.2d 249 (1972), joint action was not present in these cases. Both trial courts found that at no time did the chief of police instruct the principal to search the defendants or detain them. We have independently searched the record and find no evidence that the police chief directed or even suggested to the principal that a search should be conducted. He merely relayed the information he had received to the principal, and the principal then acted independently in contacting defendants McKinnon and Yates. The fact that the principal called the chief of police after conducting the search does not indicate complicity. If the principal had received this information from sources other than the police, he then would be under a duty both to conduct a search and notify the police of his discoveries. We find no difference here where the information was merely relayed to the principal by the chief of police.
*83 Defendants' other assignments of error concern their written statements at the police station. They do not contend that the statements were involuntarily given, but rather hinge their argument on the "fruit of the poison tree" doctrine. Because the searches of their persons did not violate their Fourth Amendment rights, the statements were not tainted and hence were properly admitted against them.
The respective judgments are affirmed.
STAFFORD, C.J., and HUNTER, WRIGHT, BRACHTENBACH, and HOROWITZ, JJ., concur. ROSELLINI, J. (dissenting)
In response to a telephone call from the local chief of police and with no other basis for his action the defendants' high school principal called them to his office, searched them, found controlled substances in their possession, and called the police to come and arrest them. All of this occurred within a space of 7 minutes. I cannot conceive of a situation giving rise to a stronger inference that the school official acted in conjunction with and as an agent of the police.
Where the evidence shows that such a relationship existed, the fourth amendment to the United States Constitution requires that, unless the principal had probable cause to make an arrest, evidence obtained in the attendant search should be suppressed. Piazzola v. Watkins, 442 F.2d 284 (5th Cir.1971). See also Annot., Admissibility, in Criminal Case, of Evidence Obtained by Search Conducted by School Official or Teacher, 49 A.L.R. 3d 978, 987-89 (1973), and cases cited therein. The majority admits that such cause did not exist. The search was based upon an anonymous tip, unsupported by other facts then known to the officer or subsequently learned by investigation. Such cause is not sufficient. In re Little v. Rhay, 68 Wash. 2d 353, 413 P.2d 15 (1966).
*84 In my view, the question whether school officials, solely for the purpose of maintaining order and a proper educational atmosphere, may make searches of individuals or their property with less than probable cause is not before the court. However, the majority has found it necessary to decide that question, since it does not recognize that this was a search involving active police participation.
In reaching its decision, the majority pays no attention to the fact that the fruits of the search were used for a criminal prosecution and not as the basis for a school disciplinary action, nor does it consider other important factors which are involved in the policy decision made here.
I do not believe that the students of this state should be subjected to a serious erosion of a very valuable and cherished constitutional right without some consideration being given to those matters. In my exploration of this subject, I have found that commentators, both in the legal profession and in the education profession, are not at all convinced that the denial of constitutional rights to students is beneficial to the educational atmosphere or process, or that the gain in discipline outweighs the loss of personal privacy and dignity. This loss, it must be remembered, is felt by the innocent as well as the guilty.
The arguments in favor of preservation of the students' rights are set forth, with scholarship, compassion, and wisdom, in a dissent to the case of State v. Young, 234 Ga. 488, 216 S.E.2d 586 (1975), written by Justice Gunter. That case, like this, involved a prosecution for illegal possession of drugs. There, however, the search was made without the connivance of law enforcement officials. Aside from that difference the cases are very similar, both in the factual situation and the majority's reasoning. My views are so well expressed therein and I am so little capable of improving upon it, that I have taken the liberty of quoting at length from that opinion, omitting those portions not relevant to the case before us. Justice Gunter said:
*85 The Fourth Amendment stands as a bulwark between the government and a citizen. It means that the government, federal or state or local, which can act only through its agents-employees, cannot invade the person of a citizen by conducting an "unreasonable search and seizure." The Fourth Amendment, as well as its equivalent in the Georgia Constitution, reads: "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated; ..."
In Camara v. Municipal Court, 387 U.S. 523 (1967), the Supreme Court of the United States held that the Fourth Amendment was applicable to a municipal housing inspector. Mr. Justice White, the author of the Court's opinion in that case, said: "The basic purpose of this Amendment, as recognized in countless decisions of this court, is to safeguard the privacy and security of individuals against arbitrary invasions by governmental officials." P. 528. At p. 534 he said: "In summary, we hold that administrative searches of the kind at issue here are significant intrusions upon the interests protected by the Fourth Amendment, ..." And at p. 539 he said that the approach taken by the court in that case "best fulfills the historic purpose behind the constitutional right to be free from unreasonable government invasions of privacy."
In See v. City of Seattle, 387 U.S. 541 (1967), the Supreme Court of the United States held the prohibition of the Fourth Amendment applicable to a representative of the City of Seattle Fire Department. The See case and the Camara case were decided on the same date, June 5, 1967.
In a case decided somewhat earlier, West Virginia Bd. of Ed. v. Barnette, 319 U.S. 624 (1943), the Supreme Court of the United States said (p. 637): "The Fourteenth Amendment, as now applied to the States, protects the citizen against the state itself and all of its creatures boards of education not excepted. These have, of course, important, delicate, and highly discretionary functions, but none that they may not perform within the limits of the Bill of Rights. That they are educating the young for citizenship is reason for scrupulous protection of constitutional freedoms of the individual, if we are not to strangle the free mind at its source and teach youth to *86 discount important principles of our government as mere platitudes."
School administrators are considered government officials for purposes of the First Amendment and procedural due process requirements. See Tinker v. Des Moines &c. School District, 393 U.S. 503 (1969); Goss v. Lopez, 43 USLW 4181 (January 22, 1975). And it is now clearly established that a minor, whether a public school student or not, is a person under our Constitution and entitled to its protections. See Tinker and Goss, supra, and In Re Gault, 387 U.S. 1 (1967).
...
The majority asserts that searches of students in public schools by school officials "are reasonable under the Fourth Amendment on considerably less than probable cause. We conclude that in the good faith exercise of their public trust teachers and administrators must be allowed to search without hindrance or delay subject only to the most minimal restraints necessary to insure that students are not whimsically stripped of personal privacy and subjected to petty tyranny."
My view, of course, is that there must be "probable cause" for the search of a student in a public school by a school official, and such a search without "probable cause" violates the Fourth Amendment rights of a student as a citizen. A student, in my view, cannot be stripped of his Fourth Amendment rights at the entrance to the public school. Nor do I think that the Fourth Amendment rights of a high school student are a diluted version of the Fourth Amendment rights of an adult.
There can be no doubt that the need for order and discipline in a public school is a valid concern; but it must be conceded that the maintenance of order and discipline in a public school is one thing, and the acknowledgement and enforcement of constitutional rights in a criminal prosecution is an entirely different thing. This case has nothing to do with the maintenance of school discipline; the State is prosecuting a student for having committed an alleged crime; the student is entitled to a "fair prosecution" which is an integral part of a "fair trial"; if an adult had been searched by a government official in the manner that this student was searched, the adult would have, as the majority concedes, a right to suppress any item seized; the adult is entitled *87 to a fair prosecution as an integral part of a fair trial, but a student is not; and all of this adds up to making a public school student a second-class citizen not entitled to a fair prosecution by the State in a fair trial conducted by the State.
In the context of criminal prosecutions where Fourth Amendment rights must be acknowledged and enforced, I would hold that the standard of reasonableness for the search of a public school student is the same standard that must be applied to searches of adults, "probable cause."
I do not think that students have mere "minimal Fourth Amendment rights." And I certainly do not subscribe to the "adequate reason for the searches" enunciated by the majority in this case. As quoted from the majority opinion, the acts of the students in this case involved at most "a furtive gesture and an obvious consciousness of guilt by these students at the approach of the assistant principal." In fact, the record shows only that one of three students jumped up and put his hand down his pants. All three were searched. The record does not show whether the student in the present case was the one who jumped up. The majority's standard, subjectively applied by a school official, will justify the search of the person of any student in a public school. Such a standard is really no standard at all.
The majority has arrived at its standard by a general balancing test.[[2]] The majority has placed upon the scales the age of the student, the status of the student, the status of the administrator, the fact that the search occurred in the schoolhouse, and the "governmental interests of discipline, security, and enablement of the education function." But why each of these considerations is relevant for purposes of the Fourth Amendment and what weight each brings to the scales remain unclear.
For example, the majority stresses the age of the student, citing Ginsburg v. New York for the general proposition that children have lesser constitutional rights than adults. It may be that in some First Amendment contexts *88 the age of a person is relevant to the constitutional balance. Yet nobody has suggested that a high school student standing on the street has less freedom from governmental intrusions upon his privacy than an adult standing beside him. The relevance of age to Fourth Amendment problems is hard to perceive. Similarly, the fact that the search occurred in the schoolhouse cannot bring much weight to the scales if police in the schoolhouse are held to full warrant and probable cause requirements; and the courts addressing this issue here have so held. Piazzola v. Watkins, 442 F2d 284 (5th Cir.1971); Waters v. United States, 311 A2d 835 (DC App. 1973); People v. Bowers, 72 Misc. 2d 800 (339 NYS2d 783)(NYC Crim Ct. 1973) affd. 77 Misc. 2d 697 (356 NYS2d 432)(App. Div. 1974).
What then are the relevant considerations? As the majority states, it is necessary first to focus upon the governmental interest which allegedly justifies official intrusion upon the constitutionally protected interest of the private citizen. Most searches are made in vindication of the State's interest in enforcing the criminal law, which includes, of course, an interest in protecting law abiding citizens from lawless ones. Ordinarily, a lower standard than probable cause is justified only when some additional interest is involved. Even then, the nature and extent of the governmental intrusion must be considered as well as the necessity for the particular form of intrusion. If the governmental interests can be served by a limited intrusion, then the Fourth Amendment permits only the limited intrusion. Terry v. Ohio, 392 U.S. 1 (1968); Camara v. Municipal Court, supra; United States v. Skipwith, 482 F2d 1272 (5th Cir.1973).
The reasoning of the majority places no limits on the nature and extent of the search a school official may make, as long as the search is justified in the first instance under the majority's "minimal standard." Furthermore, the facts of the case do not show a limited intrusion of the kind associated with the relaxed standards of reasonableness in Camara and Terry. The search here was personal in nature and aimed at the discovery of evidence of specific misconduct. See Camara, 387 U.S., p. 537. Compare Sibron v. New York, 392 U.S. 40 *89 (1968), where emptying a suspect's pocket was not justified by the same considerations which justified a patdown search in Terry.
The governmental considerations said to be in issue are not very convincing in the context of this case. The facts give not the slightest hint of any threat to "the enablement of the education function" in the conduct of the students before the search. If we are to restrict a student's privacy in his own person in the name of education, let us do so on a record which provides evidence of potential disruption or disorder. There is none here. Compare Tinker v. Des Moines School District, supra, 393 U.S., p. 511. Furthermore, in the context of the present case, the government's interest in discipline and security is indistinguishable from the general law enforcement interest. See Buss, "The Fourth Amendment and Searches of Students in Public Schools," 59 Iowa L. Rev. 739 (1974).
What of the special status of the school official? Most courts ruling on schoolhouse searches have stressed this factor, noting that at common law school officials are said to stand in loco parentis. The majority here correctly avoids reliance on common law maxims, although much of the reasoning has the same familiar ring. It cannot be doubted that a school official occupies a status different from a police officer for many purposes. But the school official also has essentially law enforcement responsibilities. When he acts upon a suspicion of specific misconduct and conducts an investigation he is performing a law enforcement function. "What so many of the courts persist in talking about as a parental relationship between school and the student is really a law enforcement relationship in which the general student society is protected from the harms of anti-social conduct. As such, it should be subjected to law enforcement rules. Besides presenting a false picture of a person acting in a parental fashion, casting the school administrator in the parental role diverts attention from the relevant considerations that might argue for or against permitting the search." Buss, supra, at p. 768.
The schoolhouse search presents a unique situation. The question is whether its unique aspects reduce high school students to second-class citizens under the Fourth *90 Amendment. I have examined what the case law establishes as the primary considerations under the Fourth Amendment and have tried to examine the facts of this particular case in the light of those considerations. I conclude that a school official performing a law enforcement function conducted a search of the person. I find no basis on this record for relieving the official of the probable cause requirement. Furthermore, I conclude that a search of three students after one of them jumps up and puts his hand down his pants is unreasonable.
Underlying the position of the majority in this case is a concern about the potential civil liability of school officials for violations of Fourth Amendment rights. The answer to that problem is not to apply a watered-down Fourth Amendment standard in criminal prosecutions but to recognize a qualified immunity for school officials in civil actions. The Supreme Court has recently done just that. Wood v. Strickland, ___ U.S. ___ (95 SC ___, 43 LE2d 214) (1975). The effect of the present decision is to combine that qualified immunity with a "minimal standard" of reasonableness and an abandonment of the right to suppress evidence. The result is that there is no effective judicial sanction for violations of a high school student's Fourth Amendment rights by a school official.
State v. Young, supra at 500-01, 507-11.
William G. Buss, whose article in 59 Iowa L. Rev. 739 (1974) is mentioned in the above opinion, is the author of a monograph entitled "Legal Aspects of Crime Investigation in the Public Schools" from which that article was excerpted. The monograph was commissioned by the ERIC Clearinghouse on Educational Management and published by the National Organization on Legal Problems of Education. In the excerpt, after reviewing the leading Fourth Amendment cases, and the cases involving school searches, Buss undertakes to balance the interest in law enforcement and school discipline against the right to privacy. His conclusion is that the letter has been unnecessarily and unwisely invaded in searches which the courts have upheld, which involved less than probable cause to believe that the student was engaged in illegal activity.
*91 Buss argues that the exceptions to the warrant requirement[3] would seldom be applicable in the school environment, where students are subject to restraints upon their movements which do not exist in the society outside the school doors. Emergency situations do arise, as in one case where a student had a gun, but in most of the cases which have come before the courts, there was time to get a warrant before the search was made.
This writer argues that because students are compelled to attend school, either by law or by economic and social pressures, the courts should be more diligent in the protection of their constitutional rights, not less so than they are *92 where the adult is in a given place by choice. He also points out the fallacy of the in loco parentis rationale as applied in this setting, stating that it is obvious that the school official displays none of the protective concern for the student which is an expected characteristic of parentage. The school official, he says, acts as a representative of government not a representative of parents when he takes a child in hand and turns him over to the police.
The writer concludes that the failure of the courts to weigh the students' right to privacy against the law enforcement interest, or "educational environment" interest, and their assumption that the latter are controlling, sacrifices long-term principle to short-term expediency. Furthermore, he does not subscribe to the view that the denial of students' constitutional rights is conducive to the health and welfare of the educational environment. By the way they are treated more than by what they are told, students learn to respect the constitution or to hold it in contempt.
I find these arguments exceedingly persuasive. They indicate that assumptions which courts have apparently made to the effect that the minimizing of certain constitutional rights is in the public interest have very little validity when analyzed and viewed against the background of actual human experience. As guardians of the constitution, I believe it is our duty to make our assumptions in favor of the rights guaranteed therein and to zealously guard against their erosion.
I would reverse the judgment and order a new trial, with directions that the illegally obtained evidence and its fruits should be suppressed.
UTTER and DOLLIVER, JJ., concur with ROSELLINI, J.
Petition for rehearing denied February 24, 1977.
NOTES
[1] "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized." U.S. Const. amend. 4.
[2] The majority of this court sets up some criteria for determining "reasonable cause" and then presumes that the facts of the case satisfy the criteria. Like the dissent said in State v. Young, 234 Ga. 488, 216 S.E.2d 586 (1975), it does not explain the relevance or the significance of the criteria.
[3] The circumstances under which the United States Supreme Court has permitted searches to be conducted without probable cause are:
(1) Where the arresting officer has reasonable cause to believe that he is dealing with an armed and dangerous person, he may "stop and frisk" him for a weapon. Terry v. Ohio, 392 U.S. 1, 21-22, 20 L. Ed. 2d 889, 88 S. Ct. 1868 (1968).
(2) A warrant for the search of a designated area of houses may issue upon a showing that there are "reasonable administrative or legislative standards for conducting the inspection with respect to a particular dwelling," for health and safety purposes. For such administrative searches, the strict requirement of personal knowledge of the officer is relaxed. Camara v. Municipal Court, 387 U.S. 523, 18 L. Ed. 2d 930, 87 S. Ct. 1727 (1967).
(3) Warrantless searches at borders for aliens or contraband are held to be reasonable because of the legitimate interest in self-protection, where there is reasonable cause to believe that laws are being violated. Carroll v. United States, 267 U.S. 132, 69 L. Ed. 543, 45 S. Ct. 280, 39 A.L.R. 790 (1925).
(4) Where there is reasonable cause to believe that contraband is being carried, an automobile may be searched, without a warrant. The emergent circumstance that the contraband may be carried away out of the jurisdiction and its contents destroyed was the rationale for this exception. Carroll v. United States, supra.
Lower federal courts have also held that passengers (and their luggage) boarding airplanes may be searched, during a time of a significant number of hijackings. United States v. Skipwith, 482 F.2d 1272 (5th Cir.1973); United States v. Moreno, 475 F.2d 44 (5th Cir.1973).
(5) No warrant is necessary where the defendant consents to the search. Bumper v. North Carolina, 391 U.S. 543, 20 L. Ed. 2d 797, 88 S. Ct. 1788 (1968); Katz v. United States, 389 U.S. 347, 19 L. Ed. 2d 576, 88 S. Ct. 507 (1967).
(6) An object in plain view of the government official can be seized, provided he is rightfully in the position to have that view. Harris v. United States, 390 U.S. 234, 19 L. Ed. 2d 1067, 88 S. Ct. 992 (1968); Ker v. California, 374 U.S. 23, 10 L. Ed. 2d 726, 83 S. Ct. 1623 (1963).
It was not contended in this case and the lower court did not find that any of these exceptions was applicable. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1477122/ | 137 S.W.3d 510 (2004)
Simuel JEFFERSON, Respondent,
v.
Darlene JEFFERSON, Appellant.
No. ED 83583.
Missouri Court of Appeals, Eastern District, Division One.
June 29, 2004.
*511 Nadine V. Nunn, St. Louis, MO, for appellant.
Raymond Howard, St. Louis, MO, for respondent.
*512 MARY R. RUSSELL, Judge.
Darlene Jefferson ("Wife") appeals from the judgment holding Simuel Jefferson ("Husband") not to be the father of her child, A.A.O.J. ("Daughter"), and dismissing her petition to have Husband declared Daughter's "equitable parent." Wife asserts the trial court erred in that it did not exercise its equity powers to find Husband to be Daughter's father because he supported Daughter since her birth. We disagree in that Missouri has not recognized the "equitable parent" theory. We affirm the judgment.
Simuel Jefferson ("Husband") and Darlene Jefferson ("Wife") were married in 1989. The parties had two children born during the marriage, and Daughter, who was born two years before the marriage. Daughter is the biological daughter of Wife. Acting on Wife's representation that he was Daughter's father, Husband held himself out as, and acted as, her father, as well as the father to the two other children.
Husband filed for dissolution in 2001. He sought court-ordered blood tests to determine the paternity of Daughter and one of the children born during the marriage after Wife revealed that she had sexual intercourse with other men before and during the marriage. The blood test excluded Husband as Daughter's biological father.[1]
In response to the results of the blood test, Husband filed a Petition for Determination of Father-Child Relationship, Order of Custody, and Reimbursement for Past Child Support. Wife moved to dismiss Husband's petition, asserting that he did not have standing to bring an action for determination of parent-child relationship under Missouri law. Wife also filed a Counter-Petition for Declaration of Equitable Parent-Child Relationship, which Husband moved to dismiss. The trial court denied Wife's motion to dismiss Husband's petition, and it sustained Husband's motion to dismiss Wife's counter-petition, finding that Husband is not Daughter's father. Wife's subsequent Motion to Reconsider was denied and she now appeals.
We will affirm the judgment in a judge-tried case unless there is no substantial evidence to support it, it is against the weight of the evidence, or it erroneously declares or applies the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976).
Wife asserts three points on appeal. In her first point, she argues that the court erred in sustaining Husband's motion to dismiss her Counter-Petition for Declaration of Equitable Parent-Child Relationship, in that the Court should have exercised its equity powers to declare Husband an "equitable parent." Her second point asserts the trial court erred in denying her motion to dismiss Husband's petition in that Husband did not have standing to bring an action for determination of parent-child relationship. Wife's third point asserts the trial court erred in not equitably estopping Husband from denying paternity. She asserts in all three points that the trial court's judgment was a misapplication of law in that it was not in Daughter's best interests.
Because Wife's first and third points assert that the trial court erred in not exercising its equity powers to decree Husband to be Daughter's father, we will address them first.
Wife's first point alleges that the court erred in dismissing her Counter-Petition for Declaration of Equitable Parent-Child Relationship because the court should have *513 exercised its equity powers to declare Husband Daughter's "equitable parent."
We review de novo the grant of a motion to dismiss, examining the pleadings to determine whether they invoke principles of substantive law. Weems v. Montgomery, 126 S.W.3d 479, 484 (Mo.App. 2004). When the trial court's judgment does not state the basis for its granting the dismissal, as in the instant case, we presume the dismissal was based upon one of the grounds presented by the moving party. Wineteer v. Vietnam Helicopter Pilots Ass'n, 121 S.W.3d 277, 282 (Mo.App.2003). We will affirm the trial court's ruling so long as it could be sustained on any of the grounds asserted by the movant. Id.
Husband's motion to dismiss is a motion to dismiss for failure to state a claim upon which relief can be granted. As such, our review tests the adequacy of Wife's petition, assuming all her averments are true and liberally granting her all reasonable inferences therefrom. Hammond v. Mun. Corr. Inst., 117 S.W.3d 130, 133 (Mo.App.2003). We do not weigh the facts, but review the petition in an "almost academic manner, to determine if the facts alleged meet the elements of a recognized cause of action, or of a cause that might be adopted in that case." Id. (internal citations omitted).
Courts in other jurisdictions have declared a person who is not the biological parent of a child an "equitable parent" if he or she has assumed a parenting role in the child's life. Alan Stephens, Annotation, Parental Rights of Man Who Is Not Biological or Adoptive Father of Child But Was Husband or Cohabitant of Mother When Child Was Conceived or Born, 84 A.L.R.4th. 655, 666-67 (1991). An "equitable parent" is substituted for the biological parent and can, therefore, be granted custody and ordered to maintain child support. See id.
Missouri has not adopted the "equitable parent" theory. Cotton v. Wise, 977 S.W.2d 263, 264 (Mo.1998). Our Supreme Court, in addressing this issue, found that "equitable parenting" is not a widely accepted theory and has no fixed meaning or application. Id. In Cotton, the trial court had applied the "equitable parent" theory in awarding custody of two children to their half-sister, where the children's only living parent showed a history of abuse. 977 S.W.2d at 263-64. The Supreme Court, however, found that the trial court erred in applying the "equitable parenting" theory because Missouri's statutory scheme was adequate under the circumstances to resolve the dispute without requiring the court to exercise its equity powers. Id. at 265.
Wife argues that Cotton is distinguishable from the instant case because neither party shows a history of abuse or has been adjudged an unfit parent. She reminds us that Cotton held that "[u]nless a statutory scheme is plainly inadequate under circumstances where a court has a duty to act, there is no need for the court to exercise its equity powers to fashion a `better' remedy than exists in the statutes." 977 S.W.2d at 264. She asserts that the statutory scheme applicable in this case does not adequately protect Daughter's rights and best interests and, therefore, the court should exercise its equity powers in adopting the "equitable parent" theory.
One of the applicable statutes, the Uniform Parentage Act ("UPA"), was largely adopted and codified by Missouri in 1987 and provides the statutory procedure for determining paternity. In re Marriage of Fry, 108 S.W.3d 132, 135-36 (Mo.App.2003) (holding the provisions of the UPA apply in determining paternity in dissolution actions). The other applicable *514 statutes, Missouri's Probate Code for Guardianship, Chapter 475, provide the procedure for establishing a minor's legal guardian. Wife argues that both the UPA and the Probate Code for Guardianship do not provide an adequate statutory scheme by which Husband can be found to be Daughter's father.
Section 210.834.4, RSMo 2000,[2] of the UPA provides that a blood test is conclusive evidence of nonpaternity if results so indicate. Dobyns v. Phillips, 936 S.W.2d 588, 589 (Mo.App.1996). In the case at hand, a blood test established that Husband is not Daughter's biological father. Guardianship statutes also do not provide a category by which Husband could be assigned parentage or guardianship of Daughter. Section 475.030.4 allows for letters of guardianship to be granted where the minor has no parent living, the living parent or parents are adjudged unfit, or where the living parent or parents have had their parental rights terminated. None of these conditions exist in the instant case.
We agree with Wife that Missouri's statutory scheme does not allow Husband to be adjudged Daughter's father. We disagree, however, with her assertion that Cotton requires equity to be applied to overcome this allegedly inadequate statutory scheme and appoint Husband as Daughter's "equitable parent." A court should exercise its equity powers only when the statutory scheme is plainly inadequate. Cotton, 977 S.W.2d at 264 (emphasis added). Since the Supreme Court's refusal in 1998 to recognize the "equitable parent" theory in Cotton, our legislature has not chosen to enact legislation codifying this theory. The trial court did not err in dismissing Wife's petition seeking to apply the "equitable parent" theory because that theory is not recognized in Missouri. See Cotton, 977 S.W.2d 263 (Mo.1998). In Cotton, the Supreme Court stated that "[the] legislature has provided standards under which the courts of this state may abrogate or abridge the rights and prerogatives of natural parents," and these legislative standards "are entitled to be observed." Id. at 265. The Court pointed out that "[t]he problem with a court-fashioned `equitable parent' theory is that the court has to improvise, as it goes along, substantive standards and procedural rules about ... matters that already have well-charted passageways under state statutes and related court decisions." 977 S.W.2d at 265. "Courts may not disregard a statutory provision, for where the Legislature has enacted a statute which governs and determines rights of the parties under stated circumstances, equity courts equally with courts of law are bound thereby." McGhee v. Dixon, 973 S.W.2d 847, 849 (Mo.1998) (quoting Kuenzle v. Missouri State Highway Patrol, 865 S.W.2d 667, 669 (Mo. banc 1993)). We cannot find Missouri's statutory scheme plainly inadequate to resolve this issue and decline to exercise our equity powers. The existing statutes are "quite sufficient" to serve Daughter's interests. Cotton, 977 S.W.2d at 263.
While several other jurisdictions recognize the theory of "equitable parentage," we do not find those extrajurisdictional cases persuasive in that they are factually distinguishable.
Wife cites a Michigan case, Atkinson v. Atkinson, 160 Mich.App. 601, 408 N.W.2d 516 (1987), holding that a husband who was not the biological father of a child born or conceived during the marriage could be considered the "equitable parent" under certain circumstances. 408 N.W.2d *515 at 519. Atkinson, however, is distinguishable in several material aspects. The elements of "equitable parentage" applied in Atkinson included a requirement that the husband willingly takes on the responsibility for child support. Id. In this case, Husband is unwilling to pay child support. Most importantly, the husband in Atkinson was attempting to assert his parentage by equitable means while the mother attempted to bar it. Id. at 517. In the instant case, Wife is attempting to assert Husband's parentage by equitable means, while Husband attempts to bar it. We find Atkinson unpersuasive in considering whether "equitable parentage" is applicable here. We find the statutory scheme in Missouri for determining parentage, as provided by the legislature, is adequate to determine that Husband is not Daughter's father. Further, no Missouri case indicates that equity requires application of the "equitable parent" theory in this case. Wife failed to state a claim upon which relief may be granted in that Missouri has not recognized the "equitable parent" theory. Wife's first point is denied.
We next address Wife's third point, in which she asserts that Husband should be equitably estopped from denying that he is Daughter's father because he acted as her father for 14 years.
Limited authority addressing parentage by estoppel exists in Missouri courts. In S.E.M. v. D.M.M., 664 S.W.2d 665 (Mo. App.1984), a wife conceived a child during her separation from her husband. 664 S.W.2d at 666. The couple reunited and the husband cared for the wife during her pregnancy. Id. at 666-67. After the child's birth, the husband acknowledged the child as his own to hospital and insurance officials and for tax purposes. Id. at 667. He told his wife he would care for the child, and he represented the child as his own to others. Id. During dissolution proceedings, both parties stipulated that the husband was not the biological father, as proved by a blood test and his successful vasectomy prior to the marriage, but the trial court ordered him to pay child support. Id. Our court held that the trial court erred in ordering the husband to pay child support because the general rule is that "a husband is not bound to support illegitimate children born to his wife before or during the marriage." Id. We acknowledged, however, that there are two exceptions to this general rule wherein child support liability might be imposed on a person for a child not his own. Id. First, an obligation for continued support may arise from an express contractual assumption wherein a husband has agreed to a continuing obligation to support a child. Id. Second, an obligation might arise based on the theories of estoppel. Id. Wife does not assert a contractual assumption by Husband, but asserts that the estoppel exception creates liability for Husband to continue supporting Daughter in this case.
In S.E.M., the court discussed the California appellate court's use of the estoppel exception in Clevenger v. Clevenger, 189 Cal. App. 2d 658, 11 Cal. Rptr. 707 (1961). S.E.M., 664 S.W.2d at 667-68. It was noted that the estoppel exception can impose child support liability in cases where assertions are made by the husband to the child such that the husband represents himself as the child's natural father with an intent that the representation be accepted and acted upon by the child, and the child relies on the representation to his detriment. Id. at 667 (citing Clevenger, 11 Cal.Rptr. at 714-15). In S.E.M., we found that the parties' actions did not merit the application of the estoppel exception because the child was only eight months old when the parties separated and the elements of estoppel, particularly detrimental *516 reliance, were not established.[3]
Missouri courts have not thoroughly addressed the theory of establishing a child support obligation through equitable estoppel since S.E.M., and the definitions of misrepresentation, reliance, and detriment in this context have not been fully explored. As such, an examination of other jurisdictions' decisions is appropriate in our review of this case.
Jurisdictions that apply equitable estoppel as a means of imposing a child support obligation or disallowing denial of parentage consider a variety of criteria.
Some jurisdictions do not permit equitable estoppel where the father is ignorant of the child's true paternity. See Dews v. Dews, 632 A.2d 1160 (D.C.1993) (husband did not knowingly misrepresent his parenthood to child); Masters v. Worsley, 777 P.2d 499 (Utah Ct.App.1989) (wife misrepresented parentage to husband, and husband therefore did not misrepresent parentage to children).
Other jurisdictions consider the reliance of, and detriment to, the child or mother. In Pietros v. Pietros, 638 A.2d 545 (R.I. 1994), for example, a husband sought a blood test to establish paternity during divorce proceedings to avoid child support obligations. 638 A.2d at 545-46. The Supreme Court of Rhode Island held that he was equitably estopped from denying paternity because the mother had told her future husband that she was pregnant by another man, and he had assured the mother that he would support the child. Id. She relied on the assurances in deciding to marry him and not terminate the pregnancy, and he acted as the child's father for five years. Id. The Court stated that the application of equitable estoppel itself did "not affirmatively ... impose a duty of child support upon [the husband]." Id. at 548 (citing Knill v. Knill, 306 Md. 527, 510 A.2d 546, 560 (1986)). Rather, the duty of child support was imposed through the husband's "voluntary and continuous course of conduct as the child's only father." Id.[4] The case at hand is distinguishable in that Wife did not disclose the fact that she had sexual intercourse with another man about the time of Daughter's conception and because she misrepresented to Husband that he was Daughter's father. In Pietros, the husband, knowing he was not the child's father, assured the mother he would support the child and did so for five years. Id. at 545.
Some courts, however, do not find detriment to the child by a husband's accepting a parental and support role, yet later rejecting that role. See In re Marriage of A.J.N. & J.M.N., 141 Wis. 2d 99, 414 N.W.2d 68 (1987) (finding no detriment where the wife would have borne the child even without support of her husband or the child's biological father). Other jurisdictions find detriment only if financial harm arises from the husband preventing the mother and child from pursuing or accepting support from the true father. See Knill v. Knill, 306 Md. 527, 510 A.2d 546, 548 (1986); see also W. v. W., 248 Conn. 487, 728 A.2d 1076 (1999) (husband *517 estopped from denying paternity where he destroyed unprocessed paternity papers, preventing mother from pursuing support from natural father or public assistance). Other jurisdictions, however, may find detriment in emotional harm, as well. See Clevenger v. Clevenger, 189 Cal. App. 2d 658, 11 Cal. Rptr. 707 (1961); A.R. v. C.R., 411 Mass. 570, 583 N.E.2d 840 (1992) (finding that two children under two and a half years old had not relied in any meaningful way on the husband's representation of paternity, but declining to decide whether emotional detriment alone would be sufficient to trigger estoppel).
Although estoppel has been applied in other jurisdictions, it has never been applied where the wife has falsely misrepresented to the husband his paternity of the child, and he has acted on that misrepresentation until discovering the truth. We find no Missouri cases applying equitable estoppel in a paternity dispute such as this, and the legislature has given no authority to the courts to exercise such a power.
Imposing a permanent obligation of support on Husband by equitable estoppel may discourage other non-biological fathers from entering into a parent-child relationship with a child not their own. See In re Marriage of A.J.N. & J.M.N., 414 N.W.2d at 71. We agree with the Wisconsin appellate court's holding in A.J.N. that declined to apply equitable estoppel to impose a child support obligation on a husband "merely because [he] developed a close relationship with the child and nurtured them into a family unit while `acting' as the natural parent." Id. People in such positions "may choose to avoid supporting the child in order to not find themselves permanently obligated." Id. We agree with the A.J.N. court that "[v]oluntary support of nonmarital children or stepchildren should not be discouraged." Id.
Courts should exercise equity powers only if the statutory scheme is plainly inadequate. Cotton, 977 S.W.2d at 264. As we discussed above, the statutory scheme in Missouri adequately establishes that Husband is not Daughter's father under our statutes. The trial court did not err in failing to exercise its equity powers to estop Husband from denying paternity and imposing a child support obligation. Wife's third point is denied.[5]
Finally, in Wife's second point, she argues that the lower court erred in denying her Motion to Dismiss Respondent's Second Amended Petition for determination of paternity. Husband had prayed for an order declaring he was not Daughter's father, and that a third party was the father. Wife argues that the trial court was without jurisdiction to consider the petition because, under section 210.826(2), Husband had no standing to bring the action. Section 210.826 states who may bring an action to determine paternity. In relevant part, section 210.826(2) states that an action to determine the existence of the father and child relationship with respect to a child who has no presumed father may be brought by "any person having physical or legal custody of a child for a period of more than 60 days." No person was the presumed father of Daughter, and Daughter was in Husband's custody for 14 years. *518 Husband had standing to bring the action under section 210.826(2), and the trial court did not err in denying Wife's motion to dismiss Husband's petition. Wife's second point is denied.
The judgment of the trial court is affirmed.
GARY M. GAERTNER, SR., P.J., and ROBERT G. DOWD, JR., J., concur.
NOTES
[1] The blood test determined that Husband was the father of the other child who was tested. Daughter's biological father is unknown.
[2] All further statutory references are to RSMo 2000 unless otherwise indicated.
[3] Although the S.E.M. court found that the parties' actions did not rise to the level of promissory estoppel, the rule and its exceptions have been applied when dealing with equitable estoppel. See Stein v. Stein, 831 S.W.2d 684, 688-689 (Mo.App.1992) (following S.E.M. estoppel exception in analyzing an equitable estoppel argument in an equitable adoption dispute).
[4] See Atkinson, 408 N.W.2d at 518-19, discussing briefly the theory of equitable estoppel and holding that where a husband voluntarily acted as a child's father and desired parental rights, he acquired paternity rights through the "equitable parent" theory.
[5] We summarily address Wife's assertion in all three points that the trial court erred in denying her counter-petition because the decision was not in the best interests of Daughter. We find no Missouri case where, in the child's best interests, equitable powers were exercised to establish paternity for the payment of child support. As discussed above, the trial court properly dismissed Mother's petition and did not err in finding Husband not to be Daughter's father. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1508573/ | 116 F.2d 789 (1941)
MOTOR BOAT SALES, Inc.,
v.
PARKER, Deputy Commissioner, et al.
No. 4693.
Circuit Court of Appeals, Fourth Circuit.
January 6, 1941.
*790 Before PARKER and DOBIE, Circuit Judges, and CHESTNUT, District Judge.
M. J. Fulton, of Richmond, Va., for appellant.
Robert R. Parrish, of Richmond, Va., and Harry H. Holt, Jr., Sp. Asst. to U. S. Atty., of Norfolk, Va. (Sterling Hutcheson, U. S. Atty., John V. Cogbill, Asst. U. S. Atty., T. C. Gordon, Jr., and Parrish, Butcher & Parrish, all of Richmond, Va., on the brief), for appellees.
DOBIE, Circuit Judge.
George Armistead, Jr. (hereinafter called Armistead), an employee of Motor Boat Sales, Incorporated (hereinafter called the Boat Corporation), was drowned, when a motor boat in which he was riding was overturned on the James River. Armistead's widow and minor children filed a claim against the Boat Corporation under the Longshoremen's and Harbor Workers' Compensation Act, 33 U.S.C.A. §§ 901-950, hereinafter called the Act. E. V. Parker, Deputy Commissioner for the Fifth Compensation District of the United States Employees' Compensation Commission (hereinafter called the Deputy Commissioner), made an award in favor of the claimants and against the Boat Corporation. Thereupon, the Boat Corporation instituted an action, under the terms of the Act, in the United States District Court for the Eastern District of Virginia, to review, set aside and enjoin the Deputy Commissioner's award. The District Court, by a final decree, sustained the award of the Deputy Commissioner and dismissed the Boat Corporation's complaint. This appeal was duly taken from that decree.
Armistead was employed by the Boat Corporation as a janitor, porter or handyman at its store, No. 3 West Grace Street, in the City of Richmond, Virginia. His duties appear to have been of the general character usually involved in such a job. He had no specialized knowledge about boats or motors. The Boat Corporation was engaged in selling small boats, outboard motors and maritime supplies needed in the types of boats it sold. The Boat Corporation did not service boats and did not do repair work on boats, engines or motors upon navigable waters. The boats it sold were fully equipped and ready for service. Unlike the situation as to automobiles, it was not customary for the Boat Corporation to demonstrate on navigable *791 waters the boats that it had for sale; for, in this type of business, it seems that a boat, when once placed in the water and run, becomes, for trade purposes, a second-hand boat. On occasions, employees were sent, in the performance of their duties, upon navigable waters, but these occasions were rather few and somewhat far-between. The testimony is clear that Armistead had been repeatedly and specifically cautioned and instructed that he was not to get on boats, ride in boats, or perform any services on navigable waters.
On August 8, 1938, the day on which Armistead was drowned, a Mr. Crown and his brother came by the store of the Boat Corporation, with a fifteen-foot row boat. The Crowns talked with Mr. Hobbs and Mr. Lloyd, Assistant Managers of the Boat Corporation, about the purchase of a second-hand outboard motor for this boat, and two particular motors were examined by the Crowns, with the idea that one of these might be purchased. It was decided that these two motors would be sent down to the James River to be attached to the boat and to be tested and operated. Both Johnnie Cooper (hereinafter called Cooper), a mechanic's helper of the Boat Corporation, and Armistead went with the motors.
The testimony is not altogether clear as to just what instructions were given by the officers of the Boat Corporation as to Armistead's duties. It seems, though, that these instructions contemplated that Armistead was to go along as a strongarm man to help lift the motors from the car to the boat on the river and, after the motors had been tested, to help in lifting the motors back from the boat to the car. It would, of course, have been the mark of wisdom for the officers of the Boat Corporation to caution Armistead, then and there, against going out on the James River in the boat. This was not done. These officers testified, however, that though they said nothing on this particular occasion about Armistead going out on the river in the boat, Armistead had been previously given specific warning against going out on boats; and that they, therefore, fully contemplated that he would not go out on the river in the boat, but would stay on shore and limit his activities solely to such efforts as were necessary to carry the motors to and from the boat. The testimony shows that Armistead had never before been sent by the Boat Corporation on any work that might take him upon navigable waters. There was testimony that Armistead had once acted as watchman on a boat; but this was an undertaking completely on his own, outside of his hours of work and not on behalf of the Boat Corporation.
When the party, on the day in question, reached the shore of the James River, one of the outboard motors was, with the assistance of Armistead, attached to the boat and a trip on the James River was begun. Armistead got in the boat with the others and made this trip. No one either specifically told him to go in the boat or impliedly encouraged him to do so. However, it is equally clear that before he got in the boat, no one told him not to get in, and that, after he had taken his place, no one told him to get out of the boat.
After this first trip was completed, when one of the outboard motors had been tested on the boat, the two Crowns stated that they had an engagement and left. Thereupon, with Armistead's aid, the first outboard motor was removed from the boat and the second outboard motor was attached. Armistead again got in the boat and the ill-fated second trip was begun. Cooper occupied the stern of the boat, operating and navigating the boat, while Armistead sat in the bow. On this second trip, again Armistead was not asked to get in the boat; again no one forbade him to get in, and no one later asked him to get out of, the boat. Cooper testified that he gave Armistead no instructions as to any duty that Armistead was to perform on his ill-fated trip; but Cooper testified further that Armistead did act as lookout on this trip. The boat struck some obstruction, was capsized, and Armistead was drowned.
Some questions of administrative procedure under the Act are involved in this appeal. We shall confine ourselves, however, to a discussion of the single question of whether or not Armistead's employment brought him within the ambit of the Act. As to that inquiry, we think that the answer must be in the negative and that, in the light of this answer, the judgment of the District Court must be reversed.
The federal Longshoremen's and Harbor Workers' Act of 1927 was enacted, with the New York State Compensation *792 Act as a model, to set up a compensation scheme for injury or death on navigable waters, provided that no recovery could be had under state laws, by reason of the maritime character of the employment of the person who was killed or injured. The history of the Act is outlined by Chief Justice Hughes in Nogueira v. New York, etc., Ry. Co., 281 U.S. 128, at page 136, 50 S. Ct. 303, at page 375, 74 L. Ed. 754; while many of its provisions are sketched by the Chief Justice in the leading case of Crowell v. Benson, 285 U.S. 22, 52 S. Ct. 285, 76 L. Ed. 598. The Act is admirably discussed, with ample citation of authorities, in Robinson on Admiralty, pages 109-133. As we interpret the Act, it was designed to cover a gap between the real seamen and sailors "seafaring men with sad, seaweary eyes" on the one hand, and the landlubbers, whose labors never took them upon the bounding deep, on the other hand. Between these two classes was a large group of laborers whose tasks have been called amphibious a part of their work was on the land, another part was on navigable waters. These were the longshoremen and harbor workers. For them a federal compensation act seemed fair; so Congress enacted this statute.
The Act applies "only if the disability or death results from an injury occurring upon the navigable waters of the United States" Act, Section 3(a). There seems to be no question that this requisite was completely fulfilled in the instant case. Clearly, too, the employer-employee relation, another requisite of liability, existed between Armistead and the Boat Corporation at the time of Armistead's death.
This same section of the Act also permits recovery under the Act "if recovery for the disability or death through workmen's compensation proceedings may not validly be provided by State law". And under Section 2(4), we find: "The term `employer' means an employer, any of whose employees are employed in maritime employment, in whole or in part, upon the navigable waters of the United States". Sections 2 and 3 of the Act are the nub of this case. "Maritime employment" under the Act excludes matters that are purely "local". Thus, in 2 C.J.S., Admiralty, § 62, at page 132, we find: "Under federal compensation act, providing that compensation shall be payable only if recovery may not validly be provided by state law, an injury received in an employment, although maritime, pertaining to local matters and having only an incidental relation to navigation and commerce, is subject to the application of the local compensation act and without the scope of the federal act."
It is not necessary here for us to discuss in detail the well-known hair-line that divides the federal admiralty jurisdiction, on the one hand, from the purely local jurisdiction of the states, on the other hand. Landmarks in this field are Southern Pacific Co. v. Jensen, 244 U.S. 205. 37 S. Ct. 524, 61 L. Ed. 1086, L.R.A.1918C, 451, Ann.Cas.1917E, 900; Chelentis v. Luchenbach Steamship Co., 247 U.S. 372, 38 S. Ct. 501, 62 L. Ed. 1171; Knickerbocker Ice Co. v. Stewart, 253 U.S. 149, 40 S. Ct. 438, 64 L. Ed. 834, 11 A.L.R. 1145; Grant Smith-Porter Ship Co. v. Rohde, 257 U.S. 469, 42 S. Ct. 157, 66 L. Ed. 321, 25 A.L.R. 1008; Great Lakes Dredge & Dock Co. v. Kierejewski, 261 U.S. 479, 43 S. Ct. 418, 67 L. Ed. 756. We are here concerned with the difficult problem of a specific statutory application of the general rule. Was Armistead engaged in maritime employment at the time of his death so that a recovery may be had under the Act? Or was his employment not "so directly connected with navigation and commerce that to permit the rights of the parties to be controlled by the local law would interfere with the essential uniformity of the general maritime law"? Alaska Packers' Ass'n v. Industrial Accident Comm., 276 U.S. 467, 469, 48 S. Ct. 346, 72 L. Ed. 656.
We are forced to the conclusion that Armistead's employment at the time of his death was strictly local and thus was without the scope of the Act. Though it is by no means conclusive, we think the title of the Act (Longshoremen's and Harbor Workers' Act) is very informative on our problem. Here is a janitor in a city store, who has been forbidden to go out on boats in navigable waters. To call him a harbor worker or a longshoreman would seem to be a misnomer. When he was sent by his employer on the day of his death to the shore of the James River, this, as far as the record discloses, was the only instance when his duties ever brought him into contact with navigable waters.
Counsel for Armistead laid great stress on the fact that Armistead was a colored man, sent to help a white man; that when Armistead took his place in the boat on the first trip, without any objection *793 from Cooper, and when he again, without objection from Cooper, took his place in the boat for the tragic second trip, this extended the scope of his employment; and that, as a result, Armistead, during the second trip, was actually engaged in maritime employment, as that term is used in the Act. In other connections, and for other purposes, there may well be real force in this argument. Yet, when it is remembered that Armistead had been expressly forbidden by his employers to go on navigable waters in boats, we do not think that Cooper's passive acquiescence (if such it be) has sufficient legal force to bring the death of Armistead under the beneficent terms and scope of the Act. His activities, we believe, were still local, and the control of these activities by state law works no material prejudice to the general maritime law which, in turn, is enforced as a matter of federal concern by the federal courts. We think "the employment * * * pertains to local matters, having only an incidental relation to navigation and commerce." Associate Justice VanDevanter, in Sultan Ry. & Timber Co. v. Department of Labor, etc., 277 U.S. 135, 48 S. Ct. 505, 506, 72 L. Ed. 820.
It should be noted here that compensation is payable under the Act if, for the injury or death, a recovery "may not validly be provided by State law". Act, Section 3(a). It is not necessary for the exclusion of the operation of the federal Act that a recovery should be actually available under a state compensation act. This is clearly brought out by the opinion of Circuit Judge Soper in United States Casualty Co. v. Taylor, 4 Cir., 64 F.2d 521, certiorari denied, 290 U.S. 639, 54 S. Ct. 56, 78 L. Ed. 555. The Boat Corporation in our case was not subject to the Virginia Workmen's Compensation Act, because it did not employ the minimum number of employees to bring it under the Virginia statute; but we think that Armistead's employment was so local in character that had the Boat Corporation employed the required number of employees, an action could have been brought under the state statute, and that is determinative. If the state statute can apply, the federal statute cannot.
The cases under the Act defining its scope and application are literally legion. Many of these cases will be found in the state courts, when an attempt was made to bring the injury or death within the provisions of the compensation act of the state in question. These cases, of course, are not all consistent. We think, however, that the cases have worked out a fairly well-defined theory and philosophy of the Act; and, further, we believe, that under this theory and philosophy of the Act, our decision fits with the holdings in the great majority of these cases. These cases do not prick out a clear and clean-cut line of demarcation between maritime employment and employment that is purely local; yet the cases do furnish valuable guides in a field in which we must proceed largely upon intuitions grounded in experience. We shall now proceed to discuss some of the more important of these cases. It is manifestly impracticable even to cite all of them.
First, we shall consider the cases in which the employment was held to be maritime, not local. One of the best considered opinions in all the books, fortified by an ample citation and discussion of the authorities, is St. John v. Thompson, 108 Vt. 66, 182 A. 196, and note in (1936) 22 Va. Law Rev. 822. St. John was employed to go with his employers to a summer resort on Lake Champlain, where he was to work on land, and was also to do what was required of him with regard to a motor boat that was to be operated on Lake Champlain. The motor boat became disabled on Lake Champlain and a row boat was procured and moored to the motor boat. In some way, this mooring was unloosened and the row boat drifted away from the motor boat. St. John dove overboard, in an attempt to retrieve the row boat, and was drowned. The Vermont court held that St. John's employment was maritime and that he could not recover under the Vermont Workmen's Compensation Act. It was expressly stated in this case that since the accident happened on navigable waters, the mere fact that the major portion of St. John's employment was upon land was unimportant; but this was only following Northern Coal & Dock Co. v. Strand, 278 U.S. 142, 49 S. Ct. 88, 73 L. Ed. 232. This leading case, we think, can easily be distinguished from our case. An appreciable part of St. John's employment must necessarily have been on navigable waters in the motor boat. In the instant case, however, Armistead was hired as a janitor and cautioned never to go on navigable waters.
The employment was held to be maritime in Mangieri v. Stephens, 232 N.Y. 596, 134 N.E. 586, where the employee was a laborer for a wholesale coal dealer and he *794 slipped and fell into the water while he was pulling a coal-boat to the dock. The same result was reached in Doey v. Clarence P. Howland Co., 224 N.Y. 30, 120 N.E. 53, when a carpenter was hurt while making repairs on a steamship; and in Keator v. Rock Plaster Mfg. Co., 224 N.Y. 540, 120 N.E. 56, certiorari denied, State Industrial Comm. v. Rock Plaster Mfg. Co., 248 U.S. 574, 39 S. Ct. 12, 63 L. Ed. 428, when an employee was injured while unloading rock from a vessel. There were like holdings in Wheeler Shipyard v. Lowe, D.C., 13 F. Supp. 863, where an employee, a painter and utility man in a shipyard company, was drowned while delivering a motor boat to a customer; in Buren v. Southern Pacific Co., 9 Cir., 50 F.2d 407, when a brakeman was injured while unloosing brakes upon a train which was being ferried across navigable waters; and, also, in Wood Towing Corp. v. Parker, 4 Cir., 76 F.2d 770, when the employee, a carpenter and general utility man for a company which operated tugs and barges, was injured while installing an engine on a motor boat purchased by the employer. Even repairing a completed vessel upon navigable waters has been held to be maritime. Robins Dry Dock Co. v. Dahl, 266 U.S. 449, 45 S. Ct. 157, 69 L. Ed. 372; John Baizley Iron Works v. Span, 281 U.S. 222, 50 S. Ct. 306, 74 L. Ed. 819.
In Independence Indemnity Co. v. Mansfield, Tex.Civ.App.1928, 2 S.W.2d 547, the employee was cleaning oil tanks on a vessel and this was held to be maritime, even though the general employment of the employee was non-maritime. A similar result was reached in United States Fidelity & Guaranty Co. v. Lawson, D.C., 15 F. Supp. 116, when the employee, a carpenter employed by an oil company for such work as he might be called on to do, was injured while he was enlarging the cabin of the private yacht of the president of the company that employed him.
Two other interesting border-line cases, in which the employment was held to be maritime, are worthy of note. In Norton v. Gulf Refining Co., 3 Cir., 94 F.2d 380, the employee was an oil gauger who had entered on a barge to take samples of her oil cargo. In Moore Dry Dock Co. v. Pillsbury, 9 Cir., 100 F.2d 245, the employee was a rigger who ate and slept at home but worked on a launch on which he lost his life.
Now for the cases in which the employment was held to be local rather than maritime. Fairly close to the instant case is Johnson v. Swonder, 84 Ind.App. 155, 150 N.E. 615, 616, in which Chief Justice Nichols said: "Appellants' decedent had been employed for years by appellee as a helper around a mattress and upholstering manufactory, and, incidental to that employment, he was sent on the day of the accident to assist in upholstering on a small speed boat, used for appellee's business during the week and on Sundays for pleasure. It is well established that generally federal courts have exclusive jurisdiction of admiralty matters, but where, as here, the enforcement of the state statute works no material prejudice to the characteristic features of the general maritime law, nor interferes with the proper harmony or uniformity of that law in its international or interstate relations, the general rule does not apply."
Equally illuminating is Madderns v. Fox Film Corp., 205 A.D. 791, 200 N.Y.S. 344, 346, in which a moving picture actor, while enacting a scene on a boat in navigable waters, tripped and fell into the water. This was held to be local and the court said: "His work on the boat was merely incidental to his general duties as an actor, and had nothing to do with the boat, save to use it as a background for a moving picture, which, except for this single incident, was produced upon the land."
The employment was held to be merely local in Travelers' Insurance Co. v. Bacon, 30 Ga.App. 728, 119 S.E. 458, where an employee was to fish in the employer's boat in navigable waters, but always in sight of land, his compensation to be determined by the size of his catch, and he was drowned when he jumped into the water, after an explosion on the boat set fire to his clothes; also in United Dredging Co. v. Industrial Commission, 92 Cal. App. 110, 267 P. 763, where a man, employed as a helper and all-around man on a dredge, was drowned while operating a row boat used to carry men from the dredge to the shore.
Another leading case is In re Herbert, 283 Mass. 348, 186 N.E. 554, 555, and see notes on this case in 4 Detroit Law Rev. 36 and 38 Monthly Labor Rev. 99. Herbert worked on a scow used to ferry garbage to an island about two miles away in Boston Harbor. His job was to sweep the scow after it had been unloaded. He was engaged in this work while the scow was tied up at the island when he fell overboard. Said Chief Justice Rugg: "It seems *795 to us difficult to conceive of anything more local in its general nature * * *. It does not appear that the deceased had any work directly connected with maritime affairs. * * *"
The Supreme Court of Washington has held in two interesting cases that the employment was not maritime. In Dewey Fish Co. v. Department of Labor and Industries, 181 Wash. 95, 41 P.2d 1099, note 10 Wash.Law Rev. 165, the employee worked on vessels in the job of driving and capping piles and hanging upon these piles webbing which served as a fish trap. He also helped to service and repair these traps. He lived on the vessel through the fishing season but the vessel came into a sheltered cove at night. He had nothing to do with operating or navigating the vessel. In Eclipse Mill Co. v. Department of Labor and Industries, 141 Wash. 172, 251 P. 130, the employee worked upon navigable waters in booming and rafting logs preparatory to towing.
In three other cases the local doctrine was applied by state appellate courts. In McClain v. Kansas City Bridge Co., Mo. App. 1935, 83 S.W.2d 132, the employee was working as a laborer on a pile driver mounted on a boat anchored in the Missouri River, and the general job was that of placing piles in the river to turn the current. Quite similar was Belk v. Massman Construction Co., 133 Neb. 303, 275 N.W. 76, note 17 Neb.Law Rev. 39, in which the employee was hired to fire a boiler used to operate a pile driver on a barge. In Jones v. International Mercantile Marine Co., 252 A.D. 347, 300 N.Y. S. 238, the employee was a watchman on a vessel which, though out of commission, had not been dismantled and was still seaworthy, and was temporarily laid up until the vessel would be needed later.
Other cases lighting the outer edge of, but held to be within, the local doctrine, were: Wooley v. E. M. Wichert Co., 275 Pa. 167, 118 A. 765, involving a fireman on a derrick boat which was anchored in a harbor and used for excavating purposes; McBride v. Standard Oil Co., 196 A.D. 822, 188 N.Y.S. 90, chauffeur of truck sent to a vessel at a wharf to receive merchandise from a vessel; Lumbermen's Reciprocal Association v. Adcock, Tex.Civ. App. 1922, 244 S.W. 645, employee of a lumber company who worked on a raising boat on a navigable stream to raise logs; Bockhop v. Phoenix Transit Co., 97 N.J.L. 514, 117 A. 624, employee was injured while painting a ferry boat moored to a dock, when ferry boat was struck by a lighter; Sunny Point Packing Co. v. Faigh, 9 Cir., 63 F.2d 921, watchman on a fishing trap floating on navigable waters.
In South Chicago Coal & Dock Co. v. Bassett, 309 U.S. 251, 260, 60 S. Ct. 544, 549, 84 L. Ed. 732, the Supreme Court took care to point out that the Act was applicable to employees whose service was that of a sort performed by longshoremen and harbor workers. And in Sultan Ry. & Timber Co. v. Department of Labor, 277 U.S. 135, 48 S. Ct. 505, 72 L. Ed. 820, it was stated that the Act was not applicable even if the employee's work had some admiralty feature, provided this work had only incidental relation to navigation, so that the rights and duties of employer and employee could properly be regulated by local or state law, without working material prejudice to the characteristic features of the general maritime law.
Armistead's case, we think, differs from the cases discussed above by virtue of the fact that in all of these cases the tasks assigned, and the instructions given to the employee, necessarily involved the presence of the employee on navigable waters. Armistead, however, was a janitor and he had been expressly cautioned by his employers never to go on boats in navigable waters. Any authorization for Armistead's going on the ill-fated boat trip in question, which may be binding upon his employer, can be predicated only upon the theory that Cooper, the mechanic's helper, was a supervisory employee as to Armistead, and that Cooper's negative acquiescence to Armistead's presence in the boat on this trip might bring the making of this trip within the scope of Armistead's employment. Even should this theory be applicable here, we still believe that any admiralty feature of Armistead's employment falls well within the local doctrine, as that doctrine has been expounded and applied by the courts in connection with the Longshoremen's and Harbor Workers' Act. Armistead was not a mechanic; he had no expert knowledge of outboard motors. This record is devoid of any evidence which might show that, when Armistead was sent upon the errand on the day of his death, the officers of the Boat Corporation ever contemplated that he would go out upon the river in the boat owned by the brothers Crown.
*796 Let us suppose that the officers of the Boat Corporation desired to take out insurance, which would fully protect the corporation against any claims for injury or death which might be made against it, arising out of any injury to, or any such death of, its employees. Would it have occurred to its officers, acting carefully and prudently, to take any policy so worded as to include within its coverage a possible claim against the corporation on the part of Armistead, under the Longshoremen's and Harbor Workers' Act? We hardly think so, even though the Boat Corporation employed too few employees to come within the Virginia Workmen's Compensation Act.
Since our decision in this case places the death of Armistead beyond the pale of the federal Act, and since the Boat Corporation is not subject to the State Compensation Act, the result we have reached may well seem unfortunate and regrettable. It is our function, however, to interpret and construe statutes, not to make them, and not to extend them beyond what appears to be the legislative intent. We cannot obey the Shakespearian maxim and wrest the law to our authority, even once. The Longshoremen's and Harbor Workers' Act is indeed a remedial statute, enacted to subserve an admirable purpose. It should perforce be construed liberally, even generously; but its provisions should not be so distorted by the courts as to make it a trap for employers.
The judgment of the District Court is reversed and the case is remanded to that court, with directions to enter judgment in favor of the plaintiff-appellant, Motor Boat Sales, Incorporated.
Reversed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2220810/ | 504 N.W.2d 767 (1993)
STATE of Minnesota, Respondent,
v.
Edward Lee DAVIS, a/k/a Eddie Davis, petitioner, Appellant.
No. C7-92-1037.
Supreme Court of Minnesota.
August 27, 1993.
John M. Stuart, State Public Defender, Mark F. Anderson, Asst. State Public Defender, Minneapolis, for appellant.
Hubert H. Humphrey, III, Atty. Gen., Tom Foley, Ramsey County Atty., Darrell C. Hill, Asst. Ramsey County Atty., St. Paul, for respondent.
Heard, considered, and decided by the court en banc.
OPINION
SIMONETT, Justice.
The issue in this case is whether the holding of Batson v. Kentucky, 476 U.S. 79, 106 S. Ct. 1712, 90 L. Ed. 2d 69 (1986), should be extended to peremptory strikes on the basis of religion. In an unpublished opinion, the court of appeals concluded that because the peremptory strike was based on race-neutral grounds there was no equal *768 protection violation, and, after reviewing the other claims of error, affirmed the defendant's conviction. We granted further review on the peremptory challenge issue and now affirm.
Defendant Edward Lee Davis, an African-American, was charged with aggravated robbery. No jurors were struck for cause during the jury selection. The defense, however, exercised four of its five peremptory strikes, while the State used one of its three. When the State used the one peremptory to strike a black man from the jury panel, defense counsel objected and asked for a race-neutral explanation. See footnote 4, infra.
The prosecutor, in response, stated for the record that the prospective juror would have been a very good juror for the State and that race had nothing to do with her decision to strike. She explained:
However it was highly significant to the State * * * that the man was a Jahovah [sic] Witness. I have a great deal of familiarity with the sect of Jahovah's Witness. I would never, if I had a preemptory [sic] challenge left, strike [] or fail to strike a Jahovah Witness from my jury.
She went on:
In my experience * * * that faith is very integral to their daily life in many ways, many Christians are not. That was reenforced at least three times a week he goes to church for separate meetings. The Jahovah Witness faith is of a mind the higher powers will take care of all things necessary. In my experience Jahovah Witness are reluctant to exercise authority over their fellow human beings in this Court House.
The prosecutor concluded her statement by saying she did not feel it appropriate "to further pry" into this matter with the juror because there was no need to when exercising a peremptory on race-neutral grounds. Defense counsel had nothing further to add, and the trial judge ruled the peremptory strike would stand.
There is no transcript of the voir dire, nor do we know the composition of the jury that was selected. In any event, the defendant concedes the State's peremptory was exercised for race-neutral reasons, but now contends that the race-neutral explanation offered by the State is constitutionally impermissible as religious discrimination.
The United States Supreme Court has not ruled on whether Batson should extend beyond race-based peremptory challenges. Batson, itself, speaks solely of the need to eradicate racial discrimination. "The core guarantee of equal protection, ensuring citizens that their State will not discriminate on account of race, would be meaningless were we to approve the exclusion of jurors on the basis of such assumptions * * *." Id. at 97-98, 106 S. Ct. at 1723. The Supreme Court has yet to examine directly the viability of peremptory challenges employed for discriminatory reasons other than race, although just recently it has granted certiorari to examine peremptory challenges based on gender bias. See J.E.B. v. State ex rel. T.B., 606 So. 2d 156 (Ala.Civ.App.1992), certiorari denied (Ala. 1992), certiorari granted by ___ U.S. ___, 113 S. Ct. 2330, 124 L. Ed. 2d 242 (1993). In the cases the United States Supreme Court has reviewed to date involving Batson, it has extended that case's protection against purposeful racial discrimination to defendants whose race differs from that of the excluded jurors, Powers v. Ohio, 499 U.S. 400, 111 S. Ct. 1364, 113 L. Ed. 2d 411 (1991), to parties in civil lawsuits, Edmonson v. Leesville Concrete Co., ___ U.S. ___, 111 S. Ct. 2077, 114 L. Ed. 2d 660 (1991), and to prosecutors in criminal cases, Georgia v. McCollum, ___ U.S. ___, 112 S. Ct. 2348, 120 L. Ed. 2d 33 (1992), but never to other forms of discrimination.
Because Batson was crafted as a limited exception to Swain v. Alabama, 380 U.S. 202, 85 S. Ct. 824, 13 L. Ed. 2d 759 (1965), the Batson equal protection rationale must be read in the context of that earlier case. In Swain, the Court recounted the "very old credentials" of the peremptory strike. Id. at 212-15, 85 S. Ct. at 831-33. Absent a showing of systematic exclusion of blacks on a petit jury, the Court held that the exercise of the peremptory against black *769 jurors was not a denial of equal protection of the laws. "In the quest for an impartial and qualified jury, Negro and white, Protestant and Catholic, are alike subject to being challenged without cause." Id. at 221, 85 S. Ct. at 836. "In the light of the purpose of the peremptory system and the function it serves in a pluralistic society in connection with the institution of jury trial," the Court went on to say, "we cannot hold that the Constitution requires an examination of the prosecutor's reasons for the exercise of his challenges in any given case." Id. at 222, 85 S. Ct. at 836.
Swain was decided in 1965. In Batson, decided in 1986, the Court concluded it could no longer ignore the racist manipulation of the jury selection process and, therefore, modified use of the peremptory with respect to race. Batson, 476 U.S. at 98, 106 S. Ct. at 1723. Therefore, if the peremptory raises a prima facie case of racial bias, the strike may be challenged, and the proponent must then advance a race-neutral explanation for the strike which, however, need not rise to the level of cause. Id. It is against this background that the defendant-appellant asks us to extend the Batson exception to Swain to include religion.
Defendant-appellant's claim of religious discrimination is one of cross-bias, much like Powers v. Ohio, 499 U.S. 400, 111 S. Ct. 1364, 113 L. Ed. 2d 411 (1991), where a white defendant raised a Batson challenge to the prosecutor's exercise of a peremptory on a black juror. Here the defendant, presumably not a Jehovah's Witness, is objecting to a peremptory challenge of a juror who is a Jehovah's Witness. Significantly, in Powers, while the Court sustained the Batson challenge, it did not do so on the theory that the defendant's equal protection rights were violated; rather, the decision was based on an equal protection violation of the excused juror's rights. Powers, 499 U.S. at ___, 111 S.Ct. at 1370.[1] The Court further held that the defendant had standing to assert the juror's rights.
The reasoning in Powers is pertinent here. Powers did not hold that striking the black juror was constitutionally impermissible because that juror might be sympathetic to the white defendant. Rather, the vice of the cross-bias exclusion was twofold: First, racial discrimination "invites cynicism respecting the jury's neutrality and its obligation to adhere to the law." Id. at ___, 111 S.Ct. at 1371. Secondly, and equally important, the juror rejected solely because of skin color "suffers a profound personal humiliation * * *." Id. at ___, 111 S.Ct. at 1372. And as the Court noted a year later in McCollum, ___ U.S. at ___, 112 S.Ct. at 2354, "The need for public confidence is especially high in cases involving race-related crime * * * [and] is essential for preserving community peace in trials involving race-related crimes."
If the life of the law were logic rather than experience, Batson might well be extended to include religious bias and, for that matter, an endless number of other biases.[2] The question, however, is whether *770 the peremptory strike has been purposefully employed to perpetrate religious bigotry to the extent that the institutional integrity of the jury has been impaired, and thus requiring further modification of the traditional peremptory challenge.
We begin our analysis with a closer look at the role of the peremptory. While jurors have their individual preconceived notions and prejudices, it is assumed that they can set them aside so as to be fair and impartial. The purpose of voir dire is to test that assumption. If it is made to appear that a prospective juror cannot be fair, the juror may be challenged for cause. The peremptory is needed, however, if the challenge for cause is denied by the court. It is needed also when there is legitimate concern for a juror's fairness but this concern is insufficient to be a challenge for cause. It happens often enough that a juror expresses doubt about being able to be fair, but then opposing counsel or the judge ostensibly "rehabilitates" the juror; in this problematic situation, the peremptory is useful. Also, without the peremptory, trial counsel may be deterred from asking probing questions on voir dire for concern that any hostility inadvertently raised could not be remedied by a peremptory strike.
In other words, the peremptory gives added assurance of an accurate verdict by "resolv[ing] doubts (up to a specified number) in favor of exclusion." B. Underwood, Ending Race Discrimination in Jury Selection: Whose Right Is It, Anyway?, 92 Colum.L.Rev. 725, 771 (1992). The fact that some unbiased jurors may be excused in the process is an affordable price to pay for removing doubts about a particular juror's impartiality and competence, especially when the vote of one biased juror can make a critical difference.
Then, too, "the role of the litigants in determining the jury's composition provides one reason for wide acceptance of the jury system and of its verdicts." Edmonson, ___ U.S. at ___, 111 S.Ct. at 2088 (quoted in McCollum, ___ U.S. at ___, 112 S.Ct. at 2358). The randomness built into the jury pool to obtain a cross-section can seem, to the apprehensive litigant, to be arbitrary and unfair, leaving the litigant to the "luck of the draw." The peremptory alleviates this apprehensiveness by allowing the parties to exercise their own intuitive judgment with respect to perceived juror bias.
It is against this background then that we consider extending the Batson challenge to religion. As we have noted, Batson is directed at the use of peremptories for purposeful race discrimination. "The reality of practice, amply reflected in many state- and federal-court opinions, shows that the challenge may be, and unfortunately at times has been, used to discriminate against black jurors." Id. at 99, 106 S. Ct. at 1724. And Justice Marshall, concurring, pointed out, "Misuse of the peremptory challenge to exclude black jurors has become both common and flagrant." Id. at 103, 106 S. Ct. at 1726. See also Swain, 380 U.S. at 231-39, 85 S. Ct. at 841-46 (Justice Goldberg's dissent detailing deplorable racial problems with jury selection). Because of these serious and well-documented conditions, the United States Supreme Court has ruled that a party exercising *771 a peremptory which is prima facie race-oriented should be called to account.
The use of the peremptory strike to discriminate purposefully on the basis of religion does not, however, appear to be common and flagrant. We are not aware the peremptory is being so misused, nor does the defendant make any such claim. No such problem is documented in appellate court decisions.[3] This is not to say that religious intolerance does not exist in our society, but only to say that there is no indication that irrational religious bias so pervades the peremptory challenge as to undermine the integrity of the jury system.
Then, too, the nature of the bias sought to be eliminated by a Batson challenge is particularly illusive in the case of religion. Presumably, the bias sought to be eliminated in jury deliberations is intolerance for the doctrinal beliefs and practices of the adherents of a particular religious group. Yet when religious beliefs translate into judgments on the merits of the cause to be judged, it is difficult to distinguish, in challenging a juror, between an impermissible bias on the basis of religious affiliation and a permissible religion-neutral explanation. In the case before us, for example, would the explanation that the juror was "reluctant to exercise authority over their fellow human beings" be sufficient to overcome a prima facie case of religious bias? A juror's religious beliefs are inviolate, but when they are the basis for a person's moral values and produce societal views on such matters as the use of intoxicating liquor, cohabitation, necessity of medical treatment, civil disobedience, and the like, it would not seem that a peremptory strike based on these societal views should be attributed to a pernicious religious bias.
Furthermore, religious affiliation (or lack thereof) is not as self-evident as race or gender. Consequently, for every peremptory strike, opposing counsel could demand a religion-neutral explanation. This would unduly complicate voir dire and be excessively intrusive for the end sought to be achieved. Cf. Holland v. Illinois, 493 U.S. 474, at 484, 110 S. Ct. 803, at 809 (1990) (rejecting Sixth Amendment "fair cross-section" requirement for petit jurors because this would amount, as a practical matter, to the elimination of peremptory challenges).
Because religious bigotry in the use of the peremptory challenge is not as prevalent, or flagrant, or historically ingrained in the jury selection process as is race, we conclude that neither the federal nor our state constitution requires an extension of Batson. To extend Batson would complicate and erode the peremptory challenge procedure unnecessarily, and it would not serve to remedy any long-standing injustice perpetrated by the court system against specific individuals and classes, as Batson clearly does. We decline, therefore, to extend Batson to religious affiliation.
Justice O'Connor speaks of Batson aptly as "a special rule of relevance." Brown v. North Carolina, 479 U.S. 940, 942, 107 S. Ct. 423, 424, 93 L. Ed. 2d 373 (1986) (O'Connor, J., concurring in denial of certiorari). It is the "painful social reality" of racial discrimination which acts in a special, institutional sense to implicate the Equal Protection Clause. This implication is lacking for religious affiliation. Consequently, "[o]utside the uniquely sensitive area of *772 race the ordinary rule that a prosecutor may strike without giving any reason applies." Id., at 942, 107 S. Ct. at 424.
This case serves too, we think, to put in perspective the role of "relevance" in both its common law and its constitutional sense. Here the prosecutor announced a presumed group bias. She said she would strike not just this juror but any Jehovah's Witness. But defendant's challenge was only to racial bias. The prosecutor was not advised the State was being charged with religious bias, if, indeed, that charge was being made, which is not at all clear.[4]
If the prosecutor had said no more than she was striking the black juror because he was a Jehovah's Witness, we think this would not have rebutted the prima facie case of racial bias, anymore than if the prosecutor had said she was striking because the black juror was a Lutheran, a Baptist, or a Muslim. In fact, however, the prosecutor went on to explain the reason for her challenge, pointing out Jehovah's Witnesses, as a group, were reluctant to exercise civil authority over other people and that the juror was a devoted member of that religious group.[5]
Ordinarily at common law, inquiry on voir dire into a juror's religious affiliation and beliefs is irrelevant and prejudicial, and to ask such questions is improper. Questions about religious beliefs are relevant only if pertinent to religious issues involved in the case, or if a religious organization is a party, or if the information is a necessary predicate for a voir dire challenge. Coleman v. United States, 379 A.2d 951, 954 (D.C.1977). See, e.g., United States v. Schullo, 390 F. Supp. 1067 (D.Minn.1975) (Devitt, J.) (in an illegal gambling case, jurors asked by court if they had any moral or religious feelings about gambling so that they could not be fair and impartial). The trial court, in the exercise of its discretion, controls the questions that can be asked to keep the voir dire within relevant bounds. In this case, we do not know how the juror's religious affiliation came to light, but proper questioning for a challenge should be limited to asking jurors if they knew of any reason why they could not sit, if they would have any difficulty in following the law as given by the court, or if they would have any difficulty in sitting in judgment.
Affirmed.
WAHL, GARDEBRING and PAGE, JJ., dissent.
WAHL, Justice (dissenting).
I respectfully dissent.
We deal here not with whether direct voir dire inquiry into religious affiliation of individual jurors ought generally to be allowed. I agree with the majority that such inquiry generally, although not necessarily always, is improper.
Rather, we deal with whether the Constitution allows purposeful discrimination in *773 jury selection on the basis of religious affiliation. The majority, alluding to Justice Holmes' famous aphorism, says that if the life of the law were logic rather than experience, then it might follow from Batson v. Kentucky, 476 U.S. 79, 106 S. Ct. 1712, 90 L. Ed. 2d 69 (1986), and subsequent cases, that the Constitution does not allow purposeful discrimination in jury selection on the basis of religious affiliation. In my view, the dilemma between logic and experience posed by the majority is a false one in this case. In any event, the very words used by the United States Supreme Court in several of its relevant decisions support my conclusion that the Constitution does not allow purposeful discrimination in jury selection on the basis of religious affiliation.
Near the end of its opinion in Georgia v. McCollum, ___ U.S. ___, 112 S. Ct. 2348, 120 L. Ed. 2d 33 (1992), the Court said:
But there is a distinction between exercising a peremptory challenge to discriminate invidiously against jurors on account of race and exercising a peremptory challenge to remove an individual juror who harbors racial prejudice. This Court firmly has rejected the view that assumptions of partiality based on race provide a legitimate basis for disqualifying a person as an impartial juror. As this Court stated just last Term in Powers, "[w]e may not accept as a defense to racial discrimination the very stereotype the law condemns." 499 U.S., at ___, 111 S.Ct., at 1370. "In our heterogeneous society policy as well as constitutional considerations militate against the divisive assumption as a per se rule that justice in a court of law may turn upon the pigmentation of skin, the accident of birth, or the choice of religion." Ristaino v. Ross, 424 U.S. 589, 596, n. 8, 96 S. Ct. 1017, 1021, n. 8, 47 L. Ed. 2d 258 (1976). We therefore reaffirm today that the exercise of a peremptory challenge must not be based on either the race of the juror or the racial stereotypes held by the party.
Id. ___ U.S. at ___, 112 S.Ct. at 2359 (emphasis added).
In Ristaino v. Ross, 424 U.S. 589, 96 S. Ct. 1017, 47 L. Ed. 2d 258 (1976), the Court held that the Constitution does not require that voir dire inquiry into racial prejudice by individual jurors generally be allowed. The Ristaino Court also said:
At least where crimes of violence are involved, [defendant] would require defense motions for voir dire on racial prejudice to be granted in any case where the defendant was of a different race from the victim. He would require a similar result whenever any defendant sought voir dire on racial prejudice because of the race of his own or adverse witnesses. We note that such a per se rule could not, in principle, be limited to cases involving possible racial prejudice. It would apply with equal force whenever voir dire questioning about ethnic origins was sought, and its logic could encompass questions concerning other factors, such as religious affiliation or national origin. In our heterogenous society policy as well as constitutional considerations militate against the divisive assumption as a per se rule that justice in a court of law may turn upon the pigmentation of skin, the accident of birth, or the choice of religion. * * *
Id. at 596 n. 8, 96 S. Ct. at 1021 n. 8 (citations omitted) (emphasis added). This suggests to me that the Court might hold that the Constitution does not require that voir dire inquiry into religious affiliation of individual jurors generally be allowed but that the Constitution also does not allow purposeful discrimination in jury selection on the basis of religious affiliation, since religious classifications, like racial ones, are subject to strict scrutiny.
As I said at the outset, I agree with the majority that inquiry on voir dire into religious affiliation of individual jurors generally is improper. Ordinarily there is no basis for such inquiry. The preclusion of such inquiry in no way precludes counsel from asking other questions designed to uncover flaws in individual jurors that would render them unsuitable for jury service in a particular case.
*774 In this case, however, the prosecutor in fact learned of the juror's religious affiliation and, for whatever reasons, expressly stated that the reason for striking the juror was the juror's religious affiliation, without any voir dire of the man as to whether that religious affiliation would interfere with his ability to be a fair juror and responsibly exercise his duties as a juror. When the record of discrimination on the basis of religious affiliation is so stark, this court ought to act. I would extend the holding of Batson v. Kentucky to peremptory strikes based on religious affiliation and grant the defendant a new trial.
GARDEBRING, Justice, dissenting.
I join in the dissent of Justice WAHL.
PAGE, Justice (dissenting).
I am in agreement with the dissent of Justice Wahl. I write separately because I believe that Minn.Stat. § 593.32 (1992) provides adequate grounds for resolution of this case, allowing us to avoid reaching the constitutional issues presented.
Under Minn.Stat. § 593.32, subd. 1, a citizen may not be excluded from jury service in Minnesota "on account of race, color, religion, sex, national origin, economic status, or a physical or sensory disability." Thus, if Minn.Stat. § 593.32 applies to the impaneling of juries, the prosecutor's conduct here is a clear violation. It is argued that the provisions of Minn.Stat. § 593.32, subd. 1, apply only to the selection of the jury pool and not to the impaneling of any given jury. However, subdivision 2 of Minn.Stat. § 593.32 suggests otherwise. Subdivision 2 states: "Nothing in subdivision 1 restricts the right to strike an individual from being impaneled on a jury for cause based on a showing that a physical or sensory disability will impair the juror's ability to try a particular case." (Emphasis added.) By implication, I read the language of subdivision 2 to say that subdivision 1 applies to the impaneling of juries as well as to creating jury pools. In addition, it would seem to make no sense for the legislature to provide for a system allowing an attorney to peremptorily challenge a juror because of that juror's religion while, at the same time, requiring the attorney to have cause in order to challenge a person with a physical or sensory disability. Therefore, I would hold that the prosecutor's challenge of the prospective juror in this case on the basis of that juror's religion violated Minn.Stat. § 593.32, and I would remand this case to the district court for a new trial.
NOTES
[1] Edmonson v. Leesville Concrete Co., ___ U.S. ___, 111 S. Ct. 2077, 114 L. Ed. 2d 660 (1991), extending Batson to racial bias in civil cases, also relies on the rights of the jurors. Barbara D. Underwood, in her article, Ending Race Discrimination in Jury Selection: Whose Right is it, Anyway?, 92 Colum.L.Rev. 725 (1992), argues that the prohibition against race-selected juries should be based on the equal protection rights of the jurors, not the defendant. If a race-selected jury is assumed to be racially biased against the defendant, then, logically, a defendant should be tried only before a jury of his own race, a proposition the United States Supreme Court has rejected. Id. at 730. If the claim is that jurors tend to favor defendants of their own race and disfavor defendants of other races, then, "as an empirical proposition, this is a highly controversial claim." Id. at 731. Even if this proposition were true, it is undeserving of equal protection. Id. In any event, as Underwood points out, the Court has itself stated that the Batson rule does not have a "fundamental impact on the integrity of factfinding," quoting Allen v. Hardy, 478 U.S. 255, 259, 106 S. Ct. 2878, 2880, 92 L. Ed. 2d 199 (1986).
"The effort to trace a link between jury discrimination and verdicts, and thereby to identify a harm to litigants, is fundamentally misguided." Underwood, supra, at 774. Instead, Underwood argues the harm of jury discrimination is an institutional harm, similar to the harm of discrimination in voting rights.
[2] "The claim that the [peremptory] rule is in hopeless conflict with the [Batson] challenge is frequently linked to the suggestion that the ban on jury discrimination must inevitably expand to prohibit not only jury selection based on race, but also jury selection based on religion, national origin, gender, language, disability, age, occupation, political party, and a host of other categories. The relationship between the two points is clear: the longer the list of prohibited categories, the less room there is for a lawful challenge other than a challenge for cause." Underwood, supra, at 761.
Recently, in State v. Everett, 472 N.W.2d 864, 869 (Minn.1991), this court declined to extend Batson to age discrimination, noting the United States Supreme Court "thus far" has limited Batson to race discrimination.
Justice Marshall, in his Batson concurrence, argued for eliminating peremptories entirely in criminal cases. Id. at 107, 106 S. Ct. at 1728. Defendant-appellant in this case attaches to his brief, as an appendix, an article by Judge Raymond J. Broderick, Why the Peremptory Challenge Should Be Abolished, 65 Temple L.Rev. 369 (1992). The author believes the peremptory is a "flaw in our judicial fabric," which should be totally abolished. Id. at 422. For a different view, see S.M. Puiczis, Edmonson v. Leesville Concrete Co.: Will the Peremptory Survive Its Battle With the Equal Protection Clause?, 25 John Marshall L.Rev. 37 (1991).
[3] In People v. Wheeler, 22 Cal. 3d 258, 148 Cal. Rptr. 890, 583 P.2d 748, 761-62 (1978); Commonwealth v. Soares, 377 Mass. 461, 387 N.E.2d 499, 516 (1979), cert. denied, 444 U.S. 881, 100 S. Ct. 170, 62 L. Ed. 2d 110 (1979); and State v. Gilmore, 103 N.J. 508, 511 A.2d 1150, 1159 (1986), state supreme courts barred the use of peremptories based on group bias for race, sex, religion, or national origin. All of these cases, however, dealt specifically with racial bias and no evidence of group bias with respect to religious affiliation in jury selection was presented or suggested. Instead, the cases, all decided before Batson, were decided on the "fair cross-section" theory applied to petit juries, a theory since rejected by the United States Supreme Court in Holland v. Illinois, 493 U.S. 474, 110 S. Ct. 803, 107 L. Ed. 2d 905 (1990).
There is authority that the religious beliefs of a juror may provide a race-neutral reason for a Batson challenge. E.g., United States v. Clemmons, 892 F.2d 1153, 1157 (3rd Cir.1989), cert. denied, 496 U.S. 927, 110 S. Ct. 2623, 110 L. Ed. 2d 644 (1990); People v. Malone, 211 Ill.App.3d 628, 156 Ill. Dec. 108, 112-13, 570 N.E.2d 584, 588-89 (Ill.App.Ct.1991), appeal denied, 142 Ill. 2d 660, 164 Ill. Dec. 923, 584 N.E.2d 135 (1991).
[4] During voir dire, at conference in chambers, defense counsel stated for the record:
"[I]t's my understanding when there is a juror struck even for a preemptory [sic] challenge that's the same race as the defendant, the defense can request that the State at least put on the record its reason for challenging of that individual juror and I'm requesting that at this time."
At this point the prosecutor gave her explanation about Jehovah's Witnesses as quoted in the beginning of this opinion. When she finished, the court said to defense counsel, "Any comments?" Defense counsel answered, "No, Your Honor." Transcript of Proceedings, Jan. 3, 1992, pp. 107-08. The record does not tell us when it occurred to the defendant to raise a religious bias claim, but apparently it was after the trial.
[5] "The Witnesses claim to base all their teachings on the Bible, which they accept as literally true. * * * In the U.S. the society has taken 45 cases to the Supreme Court and has won significant victories for freedom of religion and speech."
"The Witnesses also stand apart from civil society, refusing to vote, run for public office, serve in any armed forces, salute the flag, stand for the national anthem, or recite the pledge of allegiance." The New Encyclopaedea Britannica, Vol. 10, p. 131, 132. See also In re Jenison Contempt Proceedings, 265 Minn. 96, 120 N.W.2d 515, judgment vacated, 375 U.S. 14, 84 S. Ct. 63, 11 L. Ed. 2d 39 (1963), on remand 267 Minn. 136, 125 N.W.2d 588 (1963) (juror refusing to serve on petit jury because of the Biblical injunction, "Judge not, so you will not be judged."). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1125196/ | 948 P.2d 1028 (1997)
Steven ST. JAMES, Petitioner,
v.
The PEOPLE of the State of Colorado, Respondent.
No. 96SC580.
Supreme Court of Colorado, En Banc.
December 8, 1997.
*1029 Chambers, Dansky and Hansen, P.C., David J. Dansky, Denver, for Petitioner.
Gale A. Norton, Attorney General, Martha Phillips Allbright, Chief Deputy Attorney General, Richard A. Westfall, Solicitor General, John Daniel Dailey, Deputy Attorney General, Robert Mark Russel, First Assistant Attorney General, Clemmie P. Engle, Senior Assistant Attorney General, Criminal Enforcement Section Denver, for Respondent.
Justice MARTINEZ delivered the Opinion of the Court.
This appeal involves an alleged breach of a plea agreement between the defendant, Steven M. St. James, and the prosecution. St. James filed a Crim. P. 35(c) motion alleging that the prosecution's statements at a sentencing hearing breached its promise to refrain from advocating a particular sentence. After considering "the totality of the circumstances under which the sentence was imposed," the trial court determined that "the sentence is appropriate and should not be modified." In People v. St. James, 931 P.2d 501 (Colo.App.1996), the court of appeals applied a de novo standard of review and affirmed the trial court's order denying St. James's Crim. P. 35(c) motion.[1] The court of appeals correctly applied a de novo standard of review in determining the meaning of the plea agreement. We hold, however, that the appropriate standard of appellate review for an alleged breach of a plea agreement is whether the trial court's determination was clearly erroneous. We therefore reverse and direct the court of appeals to remand the case to the trial court with directions that it apply the meaning of the agreement which we determined in our de novo review and decide whether the prosecution's comments at the sentencing hearing were a material and substantial breach of the plea agreement.
I.
On May 10, 1988, St. James pleaded guilty to a criminal information charging him with one count of felony theft by receiving[2] and one count of felony attempted possession of a vehicle without a vehicle identification number.[3] In return for his plea, the prosecution agreed to dismiss the remaining criminal charges as well as additional criminal actions pending in Boulder, Arapahoe, and Summit Counties.[4] The plea agreement also required the prosecution to refrain from "advocat[ing] a sentence to the Department of Corrections ... a sentence of probation ... [or] a sentence to Community Corrections." However, the prosecution expressly reserved the right to "place all of the appropriate facts before the Court for consideration."[5]
After entering his plea, St. James absconded and failed to appear for sentencing until he was apprehended three years later. However, the parties continued to abide by the terms of the plea agreement. In October 1991, the trial court conducted a sentencing hearing during which St. James and his attorney *1030 addressed the court, and the prosecution responded with the following remarks:
Your Honor, the defendant's criminal history runs from basically the time he was 18 years old until the present date. Now, it's a continuous criminal history, time after time after time after time, he commits crimes.... I paint a different picture of Mr. St. James [than the one presented by defense counsel]. I paint a picture of Mr. St. James that he is a consummate con artist, and he knows precisely what he's done. And, yet, he only walks away with so few convictions.... And does he pay for [the cars involved in the charges]? No, he doesn't pay for them. And, yet, a few years later, in between the time he pled guilty in this case and the time he is here today [three years], he does the same thing again. He cons women or he convinces these women that they should be involved in these insurance scams....
The trial court sentenced St. James to fourteen years for theft by receiving, with a consecutive six-year sentence for attempted possession of a vehicle without a vehicle identification number.[6]
In May 1995, St. James filed a Crim. P. 35(c) motion alleging that the prosecution's remarks during the 1991 sentencing hearing breached the terms of the plea agreement and that his sentence should therefore be vacated and the action remanded for resentencing. St. James asserted that the prosecution's recitation of St. James's criminal history, coupled with statements that St. James was a "consummate con artist" who had repeatedly engaged in the type of criminal activity for which he was being sentenced, frustrated St. James's reasonable expectation that the prosecution would refrain from advocating a sentence. On May 25, 1995, the trial court, "[a]fter considering the totality of the circumstances under which the sentence was imposed," determined that "the sentence is appropriate and should not be modified." Thus, the trial court denied the Crim. P. 35(c) motion.
Applying a de novo standard of review, the court of appeals affirmed the trial court and held that the prosecution "did not agree to take `no position' on sentencing. Rather, [the prosecution] agreed only that [it] would not advocate a particular sentence, a more narrow promise." St. James, 931 P.2d at 503. The court reasoned that "the rhetoric defendant challenges falls short of the more inflammatory rhetoric" involved in other federal cases. Id. The court of appeals concluded that the prosecution's comments did not "violate any reasonable expectation arising under [St. James's] plea agreement." Id. at 504.
II.
Interpreting the meaning of a plea agreement is strictly a question of law. The court of appeals properly applied a de novo standard of review in determining that the plea agreement called for the prosecution not to advocate a particular sentence. However, the court of appeals erroneously applied a de novo standard of review to decide whether the prosecutor's conduct violated the plea agreement.
A.
The court of appeals began its analysis of whether the prosecutor's sentencing argument violated the plea agreement by expressing its understanding that "[t]he standard of reviewing a trial court's determination of a claim that a plea agreement has been breached is unsettled." St. James, 931 P.2d at 503. The court noted that the defendant did not seek an evidentiary hearing and never alleged that any extrinsic evidence was relevant to an interpretation of the plea agreement, but based his appeal solely on the transcript of the sentencing hearing. The court utilized the de novo standard of review because there were no contested facts before the trial court concerning either the interpretation of the plea agreement or the content of the prosecutor's sentencing argument. Id. Thus, the court of appeals "assume[d] without deciding" that the circumstances presented an issue of law for de novo review because St. James "did not seek an evidentiary hearing on his Crim. P. 35(c) motion and, on appeal, likewise does not allege that any extrinsic evidence is relevant to an interpretation of the stipulation." Id.
*1031 It is true that courts are divided concerning the standard of appellate review to be applied to a trial court's determination of whether a plea agreement has been violated. See United States v. Pollard, 959 F.2d 1011, 1022-23 (D.C.Cir.1992). Several courts employ a de novo standard. See United States v. Cooper, 70 F.3d 563, 565 (10th Cir.1995); Allen v. Hadden, 57 F.3d 1529, 1534 (10th Cir.1995); United States v. O'Rourke, 43 F.3d 82, 94 (3d Cir.1994); Lucero v. Kerby, 7 F.3d 1520, 1522 (10th Cir.1993); United States v. Moscahlaidis, 868 F.2d 1357, 1360 (3d Cir.1989). Other courts employ a clearly erroneous standard. See United States v. Conner, 930 F.2d 1073, 1076-77 (4th Cir. 1991); Raulerson v. United States, 901 F.2d 1009, 1012 (11th Cir.1990); United States v. Ataya, 864 F.2d 1324, 1327 (7th Cir.1988); United States v. Parrilla-Marquez, 825 F.2d 572, 578 (1st Cir.1987); United States v. Wood, 780 F.2d 929, 932 (11th Cir.1986); State v. Wills, 193 Wis.2d 273, 533 N.W.2d 165, 166 (1995).
It is not true that the standard of review to be applied to a trial court's determination of whether a plea agreement has been violated is unsettled in Colorado. In People v. McCormick, 859 P.2d 846 (Colo.1993), we considered the appropriate standard for reviewing violations of plea agreements. We granted certiorari specifically "to address the appropriate standard to be applied in determining whether a defendant has breached a plea agreement." Id. at 856.[7] We held that "[i]f a trial court's finding of a material and substantial breach is supported by evidence in the record, it will not be overturned on appeal unless the reviewing court is convinced that the finding is clearly erroneous." Id. at 858.
McCormick did not discuss the standard of review involved in determining the meaning of the plea agreement. Instead, McCormick reviewed the trial court's factual determination that the defendant's conduct discharged the prosecution from performing its obligations under the plea agreement. We discern no reason to depart from the clearly erroneous standard applied in McCormick merely because we are reviewing the prosecution's actions here. Regardless of which party allegedly violates a plea agreement, a trial court judge is in the best position to evaluate whether the conduct of a party exceeded the bounds of an agreement.
Appellate review of plea agreements often involves a blend of law and facts. Cases involving conduct that may have violated plea agreements can turn on an evaluation of demeanor conveyed through voice inflections or even facial expressions. See Pollard, 959 F.2d at 1023. Trial judges have an advantage in making factual determinations because they hear the evidence and observe the demeanor of witnesses. Accordingly, we have previously recognized that the trial court initially resolves disputed factual questions, which are subsequently reviewed under the clearly erroneous standard. See People v. Thomas, 853 P.2d 1147, 1149 (Colo.1993) (stating that "[d]eference is given to the trial court's findings of fact and, as long as there is support for them, [appellate courts] will not overturn such findings").
Because the determination of the meaning of a plea agreement is a question of law, de novo review is the proper standard for interpreting a party's obligation under a plea agreement. See Pollard, 959 F.2d at 1023. However, the more subtle question of whether a party has materially and substantially breached a plea agreement is left to the discretion of the trial court. See McCormick, 859 P.2d at 858. We therefore hold that the proper standard for reviewing a determination of whether a party has breached a plea agreement is whether the decision of the trial court was clearly erroneous.[8]
B.
We next look to the findings of the trial court and conclude that it failed to determine *1032 both the meaning of the plea agreement and whether the conduct of the prosecutor breached its obligations. The proper standard for determining whether a party has breached its obligations under a plea agreement is whether its actions constituted a material and substantial breach. The trial court failed to apply this standard and merely reaffirmed the defendant's sentence. It is not possible to discern from the trial court order whether the trial court thought that there was no breach, or instead believed that no remedy was necessary for the breach because it had already reduced the sentence.
When a defendant reasonably and detrimentally relies on the prosecution's promises in a plea agreement, due process requires the enforcement of the plea agreement. See id. at 856; see also Santobello v. New York, 404 U.S. 257, 262, 92 S.Ct. 495, 499, 30 L.Ed.2d 427 (1971) ("[W]hen a plea rests in any significant degree on a promise or agreement of the prosecutor, so that it can be said to be part of the inducement or consideration, the promise must be fulfilled."); People v. Macrander, 756 P.2d 356, 359 (Colo.1988) (same); see also ABA Standards for Criminal Justice, Prosecution & Defense Function § 3-4.2 at 88 (3d ed. 1993) ("A prosecutor should not fail to comply with a plea agreement, unless a defendant fails to comply ... or other extenuating circumstances are present."). However, not every breach by a party releases the other party from its promises under the agreement.[9] A party is released from its plea agreement obligations in situations where the other party materially and substantially breaches an obligation under the plea agreement. See McCormick, 859 P.2d at 857; see also United States v. Barresse, 115 F.3d 610, 612 (8th Cir.1997) (noting that "[w]hen the government fails to fulfill a material term of a plea agreement, the defendant may seek... to withdraw his plea"); Rodriguez v. New Mexico, 12 F.3d 175, 175 (10th Cir.1993) (recognizing that "only breaches of material promises will allow a court to conclude that a plea was involuntarily induced and thus constitutionally infirm"); United States v. Johnson, 582 F.2d 335, 337 (5th Cir.1978) (noting that the government breaches its plea agreement only when its conduct violates the essence of the plea bargain); State v. Bangert, 131 Wis.2d 246, 389 N.W.2d 12, 32 (1986) (recognizing that a party seeking to vacate a plea agreement has the burden of establishing "`both the breach, and that the breach is sufficiently material to warrant releasing the party from its promises (prosecution or defense) before the same judge who accepted the plea, whenever possible'") (quoting State v. Rivest, 106 Wis.2d 406, 316 N.W.2d 395, 399 (1982)); State v. Clement, 153 Wis.2d 287, 450 N.W.2d 789, 794 (App.1989) (noting that defendant has the burden to prove that a material and substantial breach of the plea agreement occurred).
In its written order, the trial court simply concluded that the "sentence is appropriate and should not be modified." The trial court did not determine whether the prosecution's actions constituted a material and substantial breach of the plea agreement. Nor did the trial court indicate whether, if there was a breach, it believed the defendant was not entitled to a remedy since the trial court had already reduced the sentence of the defendant. Because no determination was made by the trial court, the appellate function is hindered. The clearly erroneous standard of review cannot be applied in the absence of a resolution by the trial court of whether the prosecution's statements at the sentencing hearing materially and substantially breached its obligations under the plea agreement.[10] The court of appeals *1033 correctly applied a de novo standard of review to determine the meaning of the plea agreement between St. James and the prosecutor. In applying this standard, the court of appeals examined the prosecution's promise to refrain from advocating a sentence to either the Department of Corrections, probation, or Community Corrections. The court determined that "the prosecution did not agree to take `no position' on sentencing. Rather, it agreed only that it would not advocate for a particular sentence, a more narrow promise." St. James, 931 P.2d at 503. The court of appeals also noted that because the plea agreement did not prevent the prosecution from "placing all of the appropriate facts before the trial court," the prosecution had "some latitude in attempting to influence the sentence without actually commenting on the sentence itself." Id.
In conducting our de novo review, we determine that the meaning of the plea agreement is that the prosecution may not advocate for a particular sentence although it may place appropriate facts before the court. We hold that the court of appeals improperly assumed that a trial court's determination of whether a plea agreement has been breached is reviewed de novo. The appropriate standard of appellate review for an alleged breach of a plea agreement is whether the trial court's determination was clearly erroneous. It is necessary for the trial court to determine whether the prosecution breached the plea agreement, applying the meaning of the agreement which we have determined in our de novo review. We therefore reverse the judgment of the court of appeals.
C.
For purposes of direction, we briefly address the remedies a trial court may grant if it determines that the prosecution materially and substantially breached its plea agreement obligations.
Generally, a defendant is entitled to specific performance of a plea agreement if "`no other remedy is appropriate to effectuate the accused's legitimate expectation engendered by the governmental promise.'" Macrander, 756 P.2d at 361 (quoting People v. Fisher 657 P.2d 922, 931 (Colo.1983)). Therefore, the trial court must first consider whether it can fashion a remedy which effectively gives to the defendant that which the defendant legitimately expected. See Macrander, 756 P.2d at 361-62. When it is not possible to fashion such a remedy, specific performance must be considered. See id. Specific performance would entail resentencing before a judge other than the one who imposed the original sentence. See Santobello, 404 U.S. at 263, 92 S.Ct. at 499 (remanding to the discretion of the state court to determine "whether the circumstances ... require ... specific performance of the agreement on the plea, in which case petitioner should be resentenced by a different judge"); Brunelle v. United States, 864 F.2d 64, 65 (8th Cir.1988) (remanding to trial court for new sentencing hearing and imposition of sentence "before a judge other than the one who imposed the sentence"); United States v. McCray, 849 F.2d 304, 305 (8th Cir.1988) (same); People v. Davis, 94 Ill.App.3d 809, 50 Ill.Dec. 616, 619, 419 N.E.2d 724, 727 (1981) (same).[11] Only under circumstances where *1034 specific performance is not possible must a trial court allow a defendant to withdraw the plea.
III.
We reverse and return the case to the court of appeals to remand to the trial court with directions that the trial court decide whether the prosecution's comments at the sentencing hearing were a material and substantial breach of the agreement not to advocate a sentence, applying the meaning of the agreement which we have determined in our de novo review. The trial court shall also determine the ultimate relief to which St. James is entitled if it finds that the prosecution breached the plea agreement.
Chief Justice VOLLACK concurs in part and dissents in part, and Justice
MULLARKEY joins in the concurrence and dissent.
Chief Justice VOLLACK concurring in part and dissenting in part:
I concur with the majority that the court of appeals erred in not applying a "clearly erroneous" standard in reviewing whether the plea agreement was breached. However, I disagree with the majority's decision to remand this case for an express determination as to whether the prosecution breached the plea agreement. In my view, remand is unnecessary because the trial court implicitly determined that the agreement was not breached. Furthermore, this determination was not clearly erroneous. Accordingly, I concur in part and dissent in part.
I.
In 1991, defendant pled guilty to felony theft by receiving and felony attempted possession of a vehicle without a vehicle identification number. In return for defendant's plea, the prosecution made certain promises regarding sentencing in a written plea agreement:
[T]he [prosecution] agrees not to advocate a sentence to the Department of Corrections; nor a sentence of probation; nor a sentence to Community Corrections. However, this stipulation shall not in any manner prevent the prosecution from placing all of the appropriate facts before the Court for consideration.
At the sentencing hearing, the defense presented mitigating factors to the court, and the prosecution responded by recounting the defendant's criminal history.[12] The trial court sentenced the defendant to a total of twenty years in the Department of Corrections.[13] The defendant then filed a motion pursuant to Crim. P. 35(c), arguing that the prosecution breached the plea agreement because its comments at the sentencing hearing "advocated a sentence." The trial court denied the motion, stating that "[a]fter considering the totality of the circumstances ... this Court is persuaded that the sentence is appropriate and should not be modified." The court of appeals affirmed.
II.
The majority remands this case because it concludes that the trial court made no determination as to whether the prosecution *1035 breached the plea agreement. I disagree. In my view, the trial court implicitly determined that the prosecution did not breach the agreement when it denied defendant's Crim. P. 35(c) motion. This motion raised only one issue: whether the prosecution breached the plea agreement. Thus, in denying the motion, the trial court simultaneously rejected defendant's contention that the prosecution breached the agreement.
The majority concludes, however, that in the absence of an express finding on the issue of breach, we cannot apply the clearly erroneous standard. I disagree. To apply the clearly erroneous standard, we need only judge whether the record supports the trial court's determination that the prosecution did not breach the plea agreement. See People v. D.F., 933 P.2d 9, 14 (Colo.1997) (explaining that the "clearly erroneous" standard has been met if the trial court's findings are supported by the record). In the plea agreement, the prosecution promised "not to advocate a sentence." According to the majority, this provision means that the prosecution could not advocate a particular sentence. The record is devoid of any evidence that the prosecution advocated a particular sentence for the defendant.[14] Moreover, the agreement provides that it "shall not in any manner prevent the prosecution from placing all the appropriate facts before the Court for consideration." Thus, contrary to the defendant's assertions, the prosecution was free to recount defendant's criminal history during the sentencing hearing. Because the record supports the trial court's determination that the prosecution did not breach the agreement, this determination was not clearly erroneous.
III.
In my view, remand is unnecessary. By denying defendant's Crim. P. 35(c) motion, the trial court implicitly determined that the prosecution did not breach the plea agreement. Furthermore, it is possible to review this determination using the "clearly erroneous" standard because the record contains all the evidence considered by the trial court. Remanding for an express finding would not provide any additional evidence; it would only force the trial court to restate its conclusion and unnecessarily consume judicial resources. Accordingly, I concur in part and dissent in part.
I am authorized to say that Justice MULLARKEY joins in this concurrence and dissent.
NOTES
[1] We granted certiorari to determine "[w]hether the court of appeals erred in determining that the prosecution did not breach its plea agreement with the defendant while addressing the trial court at the sentencing hearing."
[2] See § 18-4-410, 6 C.R.S. (1997).
[3] See § 18-2-101, 6 C.R.S. (1997) (criminal attempt); § 42-5-102, 11 C.R.S. (1997) (stolen motor vehicle).
[4] The prosecution, in conjunction with the appropriate prosecutorial officers, agreed to dismiss the following pending actions: probation violation (Boulder County), theft and fraud by check (Arapahoe County), criminal solicitation and aggravated motor vehicle theft (Summit County).
[5] The plea agreement provides in relevant part that
[T]he District Attorney agrees not to advocate a sentence to the Department of Corrections; nor a sentence of probation; nor a sentence to Community Corrections. However, this stipulation shall not in any manner prevent the prosecution from placing all of the appropriate facts before the Court for consideration.
[6] In 1994, the trial court reduced the theft by receiving sentence to eight years.
[7] We also granted certiorari to address whether the compulsory joinder provisions of section 18-1-408(2), 8B C.R.S. (1986) precluded a subsequent prosecution for murder. See McCormick, 859 P.2d at 852.
[8] A finding is clearly erroneous when, "although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been made." United States v. United States Gypsum Co., 333 U.S. 364, 375, 68 S.Ct. 525, 532, 92 L.Ed. 746 (1948).
[9] A number of cases have concluded that an agreement not to take a position on the sentence or an agreement to stand mute at the sentencing hearing prohibits the prosecution from attempting to influence the sentencing judge. See United States v. Avery, 589 F.2d 906 (5th Cir.1979); United States v. Crusco, 536 F.2d 21 (3d Cir. 1976). However, efforts by the prosecution to provide relevant factual information or to correct misstatements are not tantamount to taking a position on the sentence and will not violate the plea agreement. See United States v. Johnson, 582 F.2d 335 (5th Cir.1978); United States v. Garcia, 544 F.2d 681 (3d Cir.1976); ABA Standards for Criminal Justice, Prosecution & Defense Function § 3-6.2 (3d ed.1993) (discussing information relevant to sentencing).
[10] In determining whether the prosecution's statements at the sentencing hearing breached the plea agreement, the court of appeals compared the prosecutor's statements in the present case with the statements made in other federal cases and held that "[t]he rhetoric defendant challenges falls short of the more inflammatory rhetoric involved in cases relied on by defendant, such as United States v. Moscahlaidis, supra, and in other cases which have divided the courts." St. James, 931 P.2d at 503. In Moscahlaidis, the prosecution stipulated that it would not take a position relative to whether or not the trial court should impose a custodial sentence. See Moscahlaidis, 868 F.2d at 1358. The Third Circuit analyzed the alleged breach in the context of whether the statements contravened the express terms of the plea agreement and not whether the statements themselves were inflammatory. See id. Thus, we do not agree that Moscahlaidis turned on whether the contested statements were inflammatory.
[11] At least three United States Courts of Appeals have concluded that a remand for resentencing based upon the breach of a plea agreement by the government does not require resentencing by a different judge. See United States v. Wolff, 127 F.3d 84, 87-88 (D.C.Cir. 1997) (establishing three-part test to determine whether judicial reassignment is a necessary remedy when granting specific performance); United States v. Travis, 735 F.2d 1129, 1132 (9th Cir.1984) (noting that "[r]emand to a different judge [for resentencing] is not the usual remedy, it is one reserved for `unusual circumstances'") (relying on United States v. Arnett, 628 F.2d 1162 (9th Cir. 1979)); United States v. Bowler, 585 F.2d 851, 856 (7th Cir.1978) (noting that "it is [not] necessary to have the resentencing before a different judge"). Other courts have determined that judicial reassignment is a necessary component of the specific performance remedy. See United States v. Hayes, 946 F.2d 230, 236 (3d Cir.1991) ("If specific performance is elected, [defendant] must be resentenced by a different judge as dictated by the Supreme Court in Santobello."); United States v. McCray, 849 F.2d 304, 306 (8th Cir.1988) (per curiam) (noting that "[t]he Supreme Court [in Santobello] instructs us that when the government breaches a plea agreement, the defendant is entitled to be resentenced by a different judge").
[12] The prosecution made the following comments at the sentencing hearing:
Your Honor, the defendant's criminal history runs from basically when he was 18 years old until the present date. Now, it's a continuous criminal history, time after time after time after time, he commits crimes....
....
I paint a different picture of Mr. St. James [than the one presented by defense counsel]. I paint a picture of Mr. St. James that he is a consummate con artist, and he knows precisely what he's done. He's very smart at what he's doing, he's done it so often. And, yet, he only walks away with so few convictions.
....
And does he pay for [the cars involved in the charges]? No, he doesn't pay a thing for them. And, yet, a few years later, in between the time he pled guilty in this case and the time he is here today, he does the same thing again. He cons women or convinces these women that they should be involved in these insurance scams....
[13] Defendant's sentence was later reduced.
[14] Defendant did not seek an evidentiary hearing on his Crim. P. 35(c) motion, nor did he present any extrinsic evidence of breach. Instead, the defendant relied solely on the transcript of the sentencing hearing to support his allegation. This transcript is fully reproduced in the record. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1125199/ | 948 P.2d 366 (1997)
MESA DEVELOPMENT COMPANY, INC., Plaintiff and Appellant,
v.
SANDY CITY CORPORATION, Defendant and Appellee.
No. 970029-CA.
Court of Appeals of Utah.
November 6, 1997.
*367 Keith W. Meade, Cohne, Rappaport & Segal, Salt Lake City, for Appellant.
Walter R. Miller, Sandy, for Appellee.
Before BILLINGS, GREENWOOD and ORME, JJ.
BILLINGS, Judge:
Mesa Development Company (Mesa) appeals an order of the district court granting summary judgment for the City of Sandy (Sandy City) in Mesa's challenge to a city ordinance annexing Mesa's property. We affirm.
FACTS
Mesa is a Utah corporation engaged in real estate development. In 1993, Mesa owned numerous properties in the Salt Lake City area, including an undeveloped 3.89 acre lot in a semirural neighborhood adjacent to Sandy City limits.
In 1993, the Church of Jesus Christ of Latter-day Saints (LDS Church) began plans to build a chapel on Mesa's lot. As part of the development agreement, Mesa filed a petition asking Sandy City to annex the 2.84 acre chapel site. Mesa then sold the chapel site to the LDS Church and filed a second petition asking Sandy City to annex its remaining 1.05 acre lot. Mesa requested in both petitions that the city zone the properties for suburban development.
Between September and December 1993, Sandy City conducted a public review of Mesa's annexation petition and petitions from neighboring property owners. Sandy City eventually consolidated these petitions into a single annexation proposal covering 10.55 acres. On December 14, 1993, the Sandy City Council approved this consolidated proposal, thereby annexing Mesa's property. However, because of strong public opposition, Sandy City rejected Mesa's request to zone the area for suburban development.
On December 13, 1994, Mesa filed suit in district court challenging the annexation on procedural grounds. The trial court found that Sandy City had substantially complied with the statutory requirements for municipal annexation. The court also questioned Mesa's right to challenge the annexation because Mesa was not a resident of the annexed area. Mesa now appeals the trial court's grant of summary judgment in favor of Sandy City.
ANALYSIS
This case presents three issues. First, whether Mesa's claims have been mooted by the 1997 amendments to the annexation statute. Second, whether Mesa is a resident of the annexed area for the purpose of challenging Sandy City's annexation. Third, whether Sandy City effected a valid annexation by substantially complying with statutory requirements. Because we conclude Mesa is not a resident of the annexed area, we do not reach the validity of the annexation proceedings.
I. Mootness
As a threshold argument Sandy City claims this case is moot. In May 1997, the Utah Legislature amended the annexation statute to create a comprehensive new statutory scheme for municipal annexations. See Utah Code Ann. §§ 10-2-401 to 510 (Supp. 1997). The 1997 amendments repealed most of the provisions underlying Mesa's procedural challenge. However, these amendments explicitly apply only to annexation petitions still pending on May 5, 1997. See id. § 10-2-404.
The "substantive law to be applied throughout an action is the law in effect at the date the action was initiated." Utah Dep't of Soc. Servs. v. Higgs, 656 P.2d 998, 1000 (Utah 1982); see also Okland Constr. Co. v. Industrial Comm'n, 520 P.2d 208, 210 (Utah 1974). "`The well established general rule is that statutes not expressly retroactive should only be applied prospectively.'" In re Disconnection of Certain Territory from Highland City, 668 P.2d 544, 549 (Utah 1983) (quoting In re J.P., 648 P.2d 1364, 1369 (Utah 1982)). We give retroactive application only to "procedural statutes ... which do not enlarge, eliminate or destroy vested or contractual rights." Pilcher v. Dep't of Soc. Servs., 663 P.2d 450, 455 (Utah 1983).
*368 The Utah Supreme Court has rejected retroactive application of similar amendments. See Highland City, 668 P.2d at 549. In Highland City, the supreme court addressed the retroactive application of amendments to the disconnection statute.[1] The court rejected retroactive application because it found that the amendments "constitute[d] a fundamental change in the substantive law on which both sides relied in preparing and presenting their cases and which the district court applied in reaching its decision." Id. at 549.
The amendments now before us involve changes to the annexation process far broader in scope than the changes to the disconnection statute at issue in Highland City. Specifically, the 1997 amendments demand that cities meet new public notice requirements, conduct a lengthy feasibility assessment, and consider public policy factors that were not contemplated in the annexation statute as it applied before 1997. See Utah Code Ann. §§ 10-2-413 to 415 (Supp.1997). Thus, we conclude the 1997 annexation amendments do not apply retroactively, and we proceed to the merits of Mesa's appeal.
II. Residency
The second issue before us is whether Mesa's suit is a challenge by a resident of the annexed area. Sandy City urges that (1) Mesa's suit is barred because only residents of annexed areas have standing to directly challenge municipal annexations on procedural grounds, and (2) Mesa is not a resident of the annexed area and thus cannot overcome the conclusive presumption of valid annexation mandated by Utah Code Ann. § 10-2-423 (1996).
The statutory backdrop for this dispute is Utah's annexation statute. See Utah Code Ann. §§ 10-2-401 to 424 (1996). The annexation statute establishes a process by which municipalities may extend their city limits and resolve intermunicipal conflicts over city boundaries. Together with the disconnection statute, the annexation statute provides the sole means through which existing municipalities may alter their corporate boundaries.
Section 10-2-423 of the statute explicitly limits our authority to review municipal annexations:
Whenever the residents of any territory annexed to any municipality pay property taxes levied by the municipality for one or more years following the annexation and no residents of the territory contest the annexation in a court of proper jurisdiction during the year following the annexation, the territory shall be conclusively presumed to be properly annexed to the annexing municipality.
(Emphasis added). Because only Mesa has challenged the annexation and because Sandy City has documented receipt of all municipal taxes from the annexed area, we must presume that Sandy City properly annexed the area unless we find that Mesa is a resident whose objection is sufficient to defeat the conclusive presumption of validity. See id; see also Sandy City v. South Jordan, 652 P.2d 1316, 1320 (Utah 1982) (stating that annexation meeting section 10-2-423 conditions was "deemed by operation of the statute to have been properly passed and implemented," and issues arising from procedural defects were moot).
We therefore examine the annexation statute to determine whether Mesa, a corporation owning undeveloped property within the annexed area, is a resident of the area within the meaning of section 10-2-423. "We look first to the plain language of the statute to discern the legislative intent.... `Only when we find ambiguity in the statute's plain language need we seek guidance from the legislative history and relevant policy consideration.'" South Salt Lake v. Salt Lake County, 925 P.2d 954, 957 (Utah 1996) (quoting Gohler v. Wood, 919 P.2d 561, 562-63 (Utah 1996)). Furthermore, we will "assume that [the statute's] words were chosen advisedly and that they should all be given meaning." Cottonwood City Electors v. Salt Lake County Bd. of Comm'rs, 28 Utah 2d 121, 124, 499 P.2d 270, 272 (Utah 1972). Finally, we examine the entire statutory scheme and harmonize its provisions if possible. *369 O'Keefe v. Utah State Retirement Bd., 929 P.2d 1112, 1115 (Utah Ct.App.1996), cert. granted, 939 P.2d 683 (Utah 1997).
The Utah Supreme Court has stated that in the construction of both contracts and statutes, words such as "resident," "which are used in common, daily, nontechnical speech, should, in the absence of evidence of a contrary intent, be given the meaning which they have for laymen in such daily usage." Government Employees Ins. Co. v. Dennis, 645 P.2d 672, 675 (Utah 1982). In this context, "the definition of `resident' in the standard nonlegal dictionaries" is a helpful guide to its general meaning. Id. Webster's Third New International Dictionary defines a resident as "one who resides in a place: one who dwells in a place for some period of duration often distinguished from inhabitant." Webster's Third New Int'l Dictionary 1931 (1986). Thus, a "resident" is someone who dwells or resides in a place so as to be more than a mere inhabitant. In Dennis, the supreme court applied this everyday meaning to find that a resident of a household for the purpose of insurance coverage was "one, other than a temporary or transient visitor, who lives together with others in the same house for a period of some duration, although he may not intend to remain there permanently." 645 P.2d at 676.
Mesa did not "dwell" or "reside" in the annexation area and thus is not a resident under the everyday meaning of the word. Mesa owned a small, undeveloped plot in the annexation area. Mesa's only plans for the plot were to develop it for sale on the real estate market. Mesa conducted no business on the plot, and its primary place of business was outside the annexation area. No officers of Mesa lived in the annexation area, nor were their city services or voting rights affected by the annexation. However, Mesa argues that because it paid property taxes on land in the annexation area, we must assume it was a resident for the purpose of section 10-2-423. We disagree.
Utah's annexation statute makes repeated reference to both "residents" and "property owners." On examining its plain language, we find that the statute clearly distinguishes between these groups by granting them different rights and remedies. Section 10-2-414 of the statute entitles both residents and property owners to receive notice of proposed annexations:
At least 30 days prior to any hearing [on an annexation policy declaration], notice of the time and place of such hearing ... shall be published in a newspaper of general circulation in the area proposed for expansion, except that when there are 25 or fewer residents or property owners within the affected territory, mailed notice may be given to each affected resident or property owner.
Utah Code Ann. § 10-2-414(2) (1996) (emphasis added).
In addition to mandating public notice, the statute gives broad rights to property owners. First, most annexations can only be initiated by a majority of property owners:
Whenever the majority of the owners of real property and the owners of at least one-third in value of the real property ... in territory lying contiguous to the corporate boundaries of any municipality, shall desire to annex such territory to the municipality, they shall [file a petition for annexation]. Except as provided for in Section 10-2-420 [a narrow exception allowing municipalities to initiate annexation proceedings for islands or peninsulas of county territory within their boundaries], no annexation may be initiated except by [a property owner] petition.
Id. § 10-2-416 (emphasis added). Second, property owners retain a right of veto over any annexations that cities initiate:
Any municipality ... may ... extend its corporate limits to include [islands or peninsulas of urbanized county land within its boundaries], however, any such annexation... shall be defeated if a majority of the owners of real property and the owners of at least one-third in value of the real property ... of the area file a written protest to such annexation not later than the day preceding the public hearing.
Id. § 10-2-420 (emphasis added). Finally, property owners in already-annexed areas may petition a district court to remove their property from a municipality under the disconnection *370 statute: "A majority of the real property owners in any territory within and lying on the borders of any incorporated municipality may file with ... the district court ... a petition [of] disconnect[ion]." Id. § 10-2-501 (emphasis added).
In contrast, the annexation statute protects residents' interests largely through traditional notice and hearing requirements. "Before annexing unincorporated territory having more than five acres, a municipality shall ... adopt a policy declaration [which] shall include ... an estimate of the tax consequences to residents in both new and old territory of the municipality." Id. § 10-2-414(2) (emphasis added). The only substantive protection for residents is the presumption of proper annexation mandated by section 10-2-423:
Whenever the residents of any territory annexed to any municipality pay property taxes levied by the municipality for one or more years following the annexation and no residents of the territory contest the annexation in a court of proper jurisdiction during the year following the annexation, the territory shall be conclusively presumed to be properly annexed to the annexing municipality.
(Emphasis added.) Thus, once residents have accepted an annexation for one year, they will not be deprived of municipal services and voting rights because of a procedural defect in the original annexation. This presumption of validity furthers the statutory goal of extending municipal rights and benefits to all residents of urbanized areas. See Utah Code Ann. § 10-2-401 (1996).
The above provisions clearly distinguish property owners from residents. Both property owners and residents are entitled to receive notice of annexations and participate in public hearings. However, in granting additional protections, the Legislature adopted two different procedures: one for property owners and another for residents. These separate provisions reflect the unique nature of each group's interest in the annexation process. In sections 10-2-416 and-420, the Legislature protected property rights and economic interests by granting property owners a strong role in the determination of municipal boundaries. In sections 10-2-414 and -423, the Legislature safe-guarded residents' municipal rights by requiring public notice of new annexations and by crafting a presumption of valid annexation that protects residents who already enjoy voting rights and other benefits of incorporation. Thus, the statutory scheme supports Sandy City's claim that property owners are not residents under the statute and that the presumption of validity mandated by section 10-2-423 bars Mesa's action.[2]
Mesa argues that exclusion of nonresident property owners from the definition of "resident" in section 10-2-423 deprives Mesa of any remedy against Sandy City's annexation of its property. However, Mesa has already chosen to forego the clear remedies that the annexation statute provides for property owners. Furthermore, Mesa is free to petition the district court for disconnection. "Annexation and disconnection ... serve different purposes, are effected by different statutory procedures, and are governed by different criteria." Chevron, 711 P.2d 228, *371 229. In Mesa's case, a disconnection action would not be merely "a substitute procedure for attacking an annexation." Id. Rather, it would air Mesa's grievance in a forum that, unlike the current annexation challenge, is explicitly designed to allow public debate on the policy implications of altering established city boundaries.
In sum, the principles of statutory construction require us to presume that the Legislature used the terms "property owner" and "resident" advisedly to describe two distinct categories of potential plaintiffs under the annexation statute. See Cottonwood City Electors, 28 Utah 2d at 124, 499 P.2d at 272. We conclude the Legislature did not contemplate that "residents" under section 10-2-423 would include nonresident property owners. On the contrary, Mesa's claim in which the absentee owner of a single undeveloped lot raises procedural defects to invalidate the annexation of an entire residential neighborhood is clearly preempted by the statute's plain language. We conclude that, based on the presumption of validity in section 10-2-423, Sandy City's annexation of Mesa's property was valid.
CONCLUSION
The 1997 amendments to the annexation statute do not apply retroactively to Sandy City's 1993 annexation of Mesa's property, and thus Mesa's claims are not moot. However, Mesa is not a resident of the annexed area under section 10-2-423 and cannot overcome that section's conclusive presumption of valid annexation. Sandy City's annexation of Mesa's property is therefore valid regardless of any procedural defect.
GREENWOOD, J., concurs.
ORME, J., concurs in the result.
NOTES
[1] This statute, which is closely related to the annexation statute, governs the disconnection, or removal, of property from municipalities. See Utah Code Ann. § 10-2-501 (Supp.1997).
[2] Mesa contends that Utah courts have already recognized standing for corporate property owners to challenge annexations, regardless of whether they are residents of annexed areas. However, the cases Mesa cites do not support its position. Mesa's leading case is Chevron v. North Salt Lake, 711 P.2d 228 (Utah 1985). In Chevron, the Utah Supreme Court held invalid the annexation of an area belonging entirely to a single corporation. The only issues at trial were whether the City had annexed the corporation's property solely to increase tax revenue in violation of Utah Code Ann. § 10-2-417(3) (1996), and whether the corporation was entitled to disconnection. Thus, the court never determined whether corporate property owners are residents of annexed areas with a cause of action under the annexation statute. See also Paulsen v. Hooper Water Dist., 656 P.2d 459, 463 (Utah 1982), overruled on other grounds, Pike Countryside v. Vernal, 711 P.2d 240, 243 (Utah 1985), (holding that water district could not directly contest annexation proceeding because it was not "an affected resident or property owner"); Sweetwater Properties v. Alta, 622 P.2d 1178, 1181, modified, 638 P.2d 1189 (Utah 1981), (holding, after modification, that annexation statute limited property owner's remedies against forced municipal annexation); Doenges v. Salt Lake City, 614 P.2d 1237, 1241 (Utah 1980) (holding that group including property owners and residents of annexed area had standing to seek declaratory judgment on constitutionality of the annexation statute). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1224172/ | 972 P.2d 570 (1999)
Joan SCHWINDT, as assignee of the interest of Pan Pacific Builders, Ltd., Appellant,
v.
COMMONWEALTH INSURANCE COMPANY, a foreign corporation, Respondent.
No. 41622-7-I.
Court of Appeals of Washington, Division 1.
March 8, 1999.
Thomas W. Hayton, Seattle, for Appellant.
Scott D. Fletcher, Seattle, for Respondent.
*571 GROSSE, J.
In this action by Pan Pacific Builders, Ltd. (Pan Pacific), against its insurer, Commonwealth Insurance Co. (Commonwealth), for failure to cover damage to a building which Pan Pacific was constructing, the trial court granted Commonwealth's motion for summary judgment on the basis that the applicable statute of limitation had expired. Joan Schwindt, as assignee of the interest of Pan Pacific, appeals the trial court's order. She alleges that the trial court improperly identified the triggering event for statutes of limitation under insurance policy contracts, and that there are disputed issues of material fact relating to when the covered damage occurred, and when Pan Pacific became aware of the covered damage. Because the trial court correctly determined that Schwindt's claim is barred by the statute of limitation, we affirm.
FACTS
In December 1984, Pan Pacific contracted with Commonwealth to provide insurance for Pan Pacific during its construction of the Bellingham Surgery Center. Pan Pacific purchased from Commonwealth a business risk policy which insured against losses occurring between December 20, 1984 and January 31, 1986the expected period of construction for the Bellingham Surgery Center. The policy specifically exempted from coverage the "[c]ost of making good faulty or defective workmanship, material, construction or design," but the policy did cover "damage resulting from such faulty or defective workmanship, material, construction or design." Schwindt refers to this latter type of damage as "radiating" or "continuing" damage.
Pan Pacific abandoned construction of the Bellingham Surgery Center prior to its completion and, in 1991, the Bellingham Surgery Center's owners, Schwindt and Richard Jones, sued Pan Pacific in Whatcom County, alleging negligent workmanship and breach of contract.[1] In October 1993, Pan Pacific notified Commonwealth that it intended to seek indemnification for this claim by the owners, and on January 20, 1994, Pan Pacific commenced this suit against Commonwealth. On April 25, 1994, the owners and Pan Pacific settled the Whatcom County actions, and Pan Pacific assigned its rights under the pending lawsuit with Commonwealth to the owners. On February 13, 1997, Pan Pacific provided Commonwealth with a "Proof of Loss" statement signed by Pan Pacific's president, Bruce Beard, which claimed $318,346 in damages.[2] All of the claimed damages resulted from defective workmanship and materials used in the installation of the air conditioner chiller, the glass block towers, and the basement waterproofing. The proof of loss statement indicated that Beard was aware of this original damage before January 31, 1986the date the insurance policy expired.
On October 9, 1997, the trial court granted Commonwealth's motion for summary judgment, finding that there were no disputed issues of material fact, and concluding as a matter of law that Pan Pacific's failure to commence its action within the six-year statute of limitation precluded recovery under the insurance contract. Pan Pacific appealed, claiming that this cause of action accrued when Commonwealth rejected its claim for indemnification, not when the damage occurred, and that the equitable doctrine of prejudice suffices to protect insurers from tardy claims. It also argues that genuine issues of material fact exist as to when Pan Pacific discovered the continuing loss it asserts is the subject of its claim.
DISCUSSION
The parties do not dispute that the applicable statute of limitation period for written insurance contracts is six years,[3] but they disagree about the timing of accrual of *572 the claim. Commonwealth argued, and the trial court agreed, that because Washington law requires that contract actions be commenced within six years after the claim accrues, Commonwealth properly denied coverage of Pan Pacific's claims.[4] Schwindt counters that the limitation period on insurance policy claims accrues when an insurer rejects an insured's claimnot when the insured incurs covered damage. It explains that the resulting delay in notice to the insurance company is significant only if the company suffers prejudice as a result of the delay.
Interpretation of an insurance policy is a matter of law.[5] Insurance policy language is interpreted as it would be understood by an average person and in a manner that gives effect to every provision.[6] The Commonwealth policy provides coverage "in respect of occurrence happening during the period of this Policy, against All Risk of Direct Physical Loss of or Damage to ... Property in course of construction...." The policy further defines "occurrence" as "any one loss, disaster or casualty or series of losses, disasters or casualties arising out or [sic] any one event." Consistent with this policy definition, Washington law views the time of an "occurrence" for property insurance coverage purposes as the date the property sustains damage.[7]
The cases Schwindt relies upon to support her claim that accrual occurs when an insurance company rejects a claim from an insured are not helpful to her argument. For instance, in Bush v. Safeco Insurance Co. of America,[8] an insured sought compensation for liability stemming from his commission of an intentional tort. The court decided that the cause of action accrued when the court entered a final judgment against the insured. Situations such as these have no direct relevance to property insurance claims that condition coverage directly on "occurrence" of damage or loss. Because we reject Schwindt's theory of accrual, her related prejudice arguments need not be addressed.
Alternatively, Schwindt contends that, "even if the limitation period starts with the discovery by the insured of the damage," the trial court erred in granting summary judgment because there are unanswered questions of material fact. Schwindt argues that original installation of defective materials combined with faulty workmanship resulted in continuing damage to other areas of the building which may have occurred within the policy period. This damage would have likely been covered by the Commonwealth policy because the policy includes "damage resulting from ... faulty or defective workmanship, material, construction or design." She contends that the trial court's entry of summary judgment was inappropriate because there are unanswered questions of material fact about when Pan Pacific discovered the continuing damage. With this argument, Schwindt assumes that discovery, and not occurrence, of covered loss can serve as the statute of limitation trigger.[9] This logic seems to stem from either the concept of continuing damage, or from a notion that this court should apply the discovery rule to RCW 4.16.040.[10]
*573 The continuing damage theory can be used to hold insurance companies liable for damage discovered after the expiration of an insurance policy only when the damage is unforeseeable.[11] In these situations, the date of discovery serves as the time of accrual of the statute of limitation.[12] In Gruol Construction Co. v. Insurance Co. of North America, this court held that dry rot caused by negligent backfilling during construction was an "accident" or "occurrence" within the language of the insurance policy and that "the injury and damage [resulting from the backfilling] was a continuing process until its discovery...."[13] If not for several significant distinctions, this case would support Schwindt's argument. First, the insurance contracts construed by the Gruol court differ from the Commonwealth contract. The two insurance policies at issue in Gruol specifically define "occurrence" as including "continuous or repeated exposure to conditions...." As previously noted, the Commonwealth policy defined occurrence as "any one loss, disaster or casualty or series of losses, disasters or casualties arising out or [sic] any one event." The damage in the current case, therefore, "occurred" at the time of the defective installation of the chiller, glass towers, and basement waterproofing.
Second, the Gruol court stated that "[h]ad the trial court found that Gruol knew about the defective backfilling and its possible result,"[14] it would have reached a contrary result. The court stressed that the concept of continuing damage can be used only when the damage is "unusual, unexpected or unforeseen...."[15] Because Bruce Beard, Pan Pacific's president, stated in the proof of loss statement he provided to Commonwealth that he was aware of the defective workmanship and materials which allegedly led to the "continuing damage" before the insurance policy expired, Schwindt cannot now claim that this damage was unexpected for the purpose of circumventing the statute of limitation. The trial court correctly concluded that Schwindt's claims are barred as a matter of law.
Affirmed.
KENNEDY, A.C.J., and COX, J., concur.
NOTES
[1] The owners' amended complaint, filed in 1994, similarly referred to defective equipment and material, specifically "mechanical equipment" and "doors and door hardware."
[2] For a detailed description of the damage, see the related case, Schwindt v. Underwriters at Lloyd's of London, 81 Wash.App. 293, 296, 914 P.2d 119, review denied, 130 Wash.2d 1003, 925 P.2d 989 (1996).
[3] RCW 4.16.040.
[4] The claims originated before the insurance policy expired on January 31, 1986, and were not brought to Commonwealth's attention until October 27, 1993.
[5] McDonald v. State Farm Fire & Cas. Co., 119 Wash.2d 724, 730, 837 P.2d 1000 (1992).
[6] McDonald, 119 Wash.2d at 733, 837 P.2d 1000.
[7] See Villella v. Public Employees Mut. Ins. Co., 106 Wash.2d 806, 811, 725 P.2d 957 (1986); Cope Constr. Co. v. American Home Assurance Co., 28 Wash. App. 38, 44, 622 P.2d 395 (1980); Swift v. American Home Assurance Co., 22 Wash. App. 777, 780, 591 P.2d 1216 (1979); Gruol Constr. Co. v. Insurance Co. of North Am., 11 Wash.App. 632, 636, 524 P.2d 427 (1974).
[8] Bush v. Safeco Ins. Co. of Am., 23 Wash.App. 327, 330, 596 P.2d 1357 (1979).
[9] Commonwealth also mischaracterizes the statute of limitation trigger as the date the insured became aware of the loss, but its error is due to the fact that it is referring to Pan Pacific's awareness of the original damage sustained during the construction period.
[10] Whether to extend the discovery rule to the circumstances of a particular case is "a judicial policy determination." Gazija v. Nicholas Jerns Co., 86 Wash.2d 215, 221, 543 P.2d 338 (1975); Peters v. Simmons, 87 Wash.2d 400, 405, 552 P.2d 1053 (1976). In all cases in which it has been applied, the plaintiff has lacked the means or ability to ascertain that a legal cause of action has accrued. See In re Estates of Hibbard, 118 Wash.2d 737, 750, 826 P.2d 690 (1992). Because Pan Pacific did not lack the ability to discover the damage it complains of within the statute of limitation period and because Schwindt did not specifically ask this court to judicially extend the discovery rule to insurance contract claims, further analysis of this issue is not required.
[11] Gruol, 11 Wash.App. at 635, 524 P.2d 427.
[12] See Gruol, 11 Wash.App. at 633, 524 P.2d 427.
[13] Gruol, 11 Wash.App. at 633, 524 P.2d 427.
[14] Gruol, 11 Wash.App. at 635, 524 P.2d 427.
[15] Gruol, 11 Wash.App. at 635, 524 P.2d 427. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1245632/ | 18 Wash. App. 517 (1977)
569 P.2d 1211
THE STATE OF WASHINGTON, Respondent,
v.
GARY S. CUNNINGHAM, Appellant.
No. 2171-3.
The Court of Appeals of Washington, Division Three.
September 28, 1977.
Nels A. Hansen and Collins & Hansen, for appellant.
*518 Paul A. Klasen, Jr., Prosecuting Attorney, and Ken Jorgensen, Deputy, for respondent.
MUNSON, C.J.
On October 21, 1976, the jury returned verdicts finding defendant, Gary Cunningham, guilty of second-degree burglary and attempted second-degree arson. He appeals the trial court's failure to dismiss either on the grounds that he was denied his right to speedy trial or that the State's lack of cooperation resulted in a denial of his right to counsel and his right to participate in his own defense. We affirm.
In 1969, while the defendant was in the Navy, he was struck in the back of the head by a 50-pound weight falling approximately 300 feet. This blow resulted in a cyst forming in his brain, causing him to be subject to seizures and requiring that he take medication to control these seizures. The defendant's first marriage, to which two children were born, ended in divorce March 28, 1975. After the divorce, apparently considerable friction developed between defendant and his former wife over the defendant's visitation rights. This friction ultimately resulted in the defendant being charged with assault upon his former wife, to which he pleaded guilty.
On October 12, 1975, the defendant and his present wife returned to Moses Lake for sentencing on that assault charge. Upon arriving in Moses Lake, he proceeded to his former wife's home, intending to see his children, but no one was there. Later that morning, he talked with police, demanding that he be allowed to see his children; the police told him to call his attorney. Mid-morning the police were summoned to his former wife's residence, where they found the defendant inside the residence, threatening to burn it unless he was allowed to see his children. There was a strong odor of gasoline in the house, and the defendant was holding a cigarette lighter. After a 2-hour confrontation, the defendant was enticed from the house and forcibly arrested.
*519 Thereafter, the following events occurred:
10/14/75 An information was filed charging the defendant
with second-degree burglary, attempted second-degree
arson, and possession of a firearm.[1]
The defendant was arraigned on these charges
and bail was set.
10/17/75 The defendant was sentenced to a state correctional
institution on the second-degree assault
guilty plea previously entered. Defendant had
attempted to stay the sentencing, but the trial
court imposed the sentence and ordered a stay
of the proceedings and the defendant to be
transported to the Veterans Hospital in Spokane
to receive a psychiatric and medical examination.
The defendant was so transported, but
the Veterans Hospital refused to examine the
defendant because he was a sentenced felon.
10/24/75 Entry of order quashing the stay of proceedings
and ordering the defendant to be transported to
the state correctional institution and that he
was to be afforded the proper medical and psychiatric
examination.
10/24/75 Entry of defendant's plea of not guilty to the
arson and burglary charges.
10/31/75 Entry of order setting trial date as 12/8/75.
12/5/75 Pursuant to defendant's motion for continuance
in order the defendant be able to obtain the
necessary medical and psychiatric examination,
entry of order of continuance with 12/19/75 set
as the trial setting date.
12/19/75 Trial setting hearing conducted. Defendant's
attorney explained the difficulty he had been
encountering obtaining an examination for the
defendant, stated that he anticipated an examination
during January of 1976, and predicted
that he would be ready for trial the end of January
or in February 1976. The court instructed
*520
the defense attorney to notify the prosecuting
attorney when the examination was completed
so that the prosecuting attorney could note the
case for trial.
2/11/76 Trial set for May 26, 1976.
5/18/76 Entry of order denying defendant's motion for
dismissal because of lack of speedy trial.
Defendant asserted that his request for a continuance
in December was not justification for
the trial being set as late as May 1976.
5/26/76 Pursuant to defendant's motion for continuance
to allow defendant to obtain the necessary medical
and psychological exam, entry of order
granting continuance until 8/9/76.
8/4/76 Pursuant to defendant's motion for continuance
on grounds that medical examination was
scheduled for 8/10/76, entry of order continuing
trial to 10/19/76.
10/18/76 Entry of order allowing the defendant to
retrieve the papers necessary for his defense
from the prison in Walla Walla.
10/19/76 Entry of order denying defendant's motion to
dismiss. The defendant had contended that the
record failed to state the reasons why the court
on February 11, 1976, set the trial date as May
26, 1976. Entry of order granting continuance
until 10/20/76 to allow the defendant to obtain
medication so that he could participate in his
defense in the trial.
10/20/76 Trial commenced.
10/21/76 Guilty verdict returned on both counts.
FAILURE TO MAKE A RECORD JUSTIFYING EXTENDED TRIAL SETTING ON FEBRUARY 11, 1976
The defendant correctly states the interpretation of CrR 3.3 that when a continuance is granted extending the time of trial beyond the time periods of the rule and the record does not state the reasons for the extension, the defendant *521 is entitled to a dismissal. State v. Williams, 87 Wash. 2d 916, 557 P.2d 1311 (1976); State v. Jack, 87 Wash. 2d 467, 553 P.2d 1347 (1976); State v. Williams, 85 Wash. 2d 29, 530 P.2d 225 (1975); State v. Walker, 16 Wash. App. 637, 557 P.2d 1330 (1976); State v. Espeland, 13 Wash. App. 849, 537 P.2d 1041 (1975).
The absence of any notation in the record provides the defendant with his argument for dismissal. The uncertainty of whether a record of the February 11 proceeding was made, was lost, or was eradicated is all that is necessary under the cases cited to allow the defendant to move for a dismissal. It is imperative that the trial court insure that a record is made of any matter considered in a criminal case. Had that been done here, the primary issue on this appeal would have been eliminated.
During the trial setting hearing conducted December 19, 1975, the defense attorney explained the difficulties he had encountered in obtaining a mental examination of the defendant, stated he anticipated obtaining such an examination during January 1976, and that he would probably be ready for trial the end of January or during February 1976. In the ensuing discussion, the following comments were made:
[DEFENSE ATTORNEY]: So, I have some difficulties, and I don't know when I can be ready to try the case. As yet I am still trying to determine the mental capacity of the man. And I think that waives the requirement that he be tried within a certain period of time or at least we exclude that from this time period....
...
[DEFENSE ATTORNEY]: I am not sure when we commenced this period. But, as of now I would consider that period stayed....
THE COURT: I understand. Are you in a position to waive the speedy trial rule?
[DEFENSE ATTORNEY]: Well, as long as we are having the mental examination I think it is stayed. But, as soon as I get that back, then it wouldn't be stayed any longer.
*522 Thereafter, the defense attorney agreed that he would inform the prosecuting attorney when the examination had been completed so that the prosecuting attorney could set the case for trial.
The record is void of any such communication. In fact, the defendants made additional requests for continuance (in May and August of 1976) because no examination had been conducted. It is evident he did not receive the mental examination until at least August 10, 1976. The continuance until the defendant obtained the mental examination granted in December 1975, in conjunction with three subsequent continuances,[2] granted at his request, constituted a waiver of the defendant's right to speedy trial until the trial date October 20, 1976. CrR 3.3(d)(1); CrR 3.3(e)(1).
[1] Furthermore, implicit in this record of defendant's difficulty in obtaining the mental examination is the conclusion that he was not prepared to proceed to trial without that examination. This fact was confirmed by defense counsel at oral argument before this court. Counsel can properly waive the provisions of CrR 3.3 under those circumstances for the benefit of the defendant. Cf. State v. Franulovich, 18 Wash. App. 290, 567 P.2d 264 (1977).
Thus, by excluding the time awaiting a mental examination,[3] the defendant was brought to trial within the 90-day speedy trial period.[4] Defendant's claim that he was denied his right to speedy trial is without merit.
*523 STATE'S LACK OF COOPERATION DENIED DEFENDANT HIS RIGHT TO EFFECTIVELY PARTICIPATE IN HIS OWN DEFENSE
This assignment of error is based upon (1) the State Department of Institution's interference and lack of cooperation resulting in the delay of his mental examination until August of 1976, thus depriving his counsel of the aid and advice of a necessary expert, i.e., a psychiatrist; and (2) the prison officials' refusal to allow the defendant to take with him his personal papers and medication when he was transported for trial, thus depriving him of his right to participate in his own defense.
[2] There is no evidence that the delay in the defendant's mental examination prejudicially affected the defense attorney's preparation of the case. A defendant is entitled to his right to counsel, including the allowance of sufficient opportunity for his counsel to prepare for trial. Powell v. Alabama, 287 U.S. 45, 77 L. Ed. 158, 53 S. Ct. 55, 84 A.L.R. 527 (1932); State v. Burri, 87 Wash. 2d 175, 550 P.2d 507 (1976); State v. Cory, 62 Wash. 2d 371, 382 P.2d 1019, 5 A.L.R. 3d 1352 (1963). This right to counsel may include defense counsel being given the opportunity to obtain the advice of experts, including psychiatrists. See In re Ketchel, 68 Cal. 2d 397, 438 P.2d 625, 66 Cal. Rptr. 881 (1968); Cornell v. Superior Court, 52 Cal. 2d 99, 338 P.2d 447, 72 A.L.R. 2d 1116 (1959); Ex parte Ochse, 38 Cal. 2d 230, 238 P.2d 561 (1951). Although we cannot condone the actions of the State Department of Institutions in this case,[5] there is no evidence that these actions were prejudicial to the defense attorney's preparation of the case. State v. Burri, supra.
Neither the postponement of the trial an additional day to allow the defendant to obtain his necessary medication or the prison officials' initial denial of defendant's request *524 to transport his personal papers to trial were sufficient to constitute a denial of his right to participate in his own defense. The facts are that he was able to obtain his personal papers, that they were available for use at trial, and that he was able to obtain the necessary medication so that he could function properly at trial. The state institution's refusal to send the defendant's medication with him when he was transported for trial is not analogous to the forced administration of drugs in State v. Maryott, 6 Wash. App. 96, 492 P.2d 239 (1971). The defendant admits that, because of the blow he received on the head in 1969, it was necessary for him to take medication to control his seizures. However, there is no evidence that this medication changed since the incident October 12, 1975, or that the defendant at that time should have been receiving different medication. Therefore, such action did not constitute a denial of the defendant's right to participate in his own defense.
Moreover, the judicial branch should not necessarily be held accountable for the actions of the State Department of Institutions, a portion of the executive branch of government. See Robinson v. Peterson, 87 Wash. 2d 665, 669, 555 P.2d 1348 (1976); January v. Porter, 75 Wash. 2d 768, 453 P.2d 876 (1969); State v. Christianson, 17 Wash. App. 264, 562 P.2d 671 (1977).
Judgment is affirmed.
GREEN and McINTURFF, JJ., concur.
Reconsideration denied November 2, 1977.
Review denied by Supreme Court May 12, 1978.
NOTES
[1] The possession of firearm charge was later dismissed.
[2] The May 26, 1976, continuance; the August 4, 1976, continuance; and the October 19, 1976, continuance.
[3] October 17-24, 1975 stay for examination at Spokane Veterans Hospital; December 5, 1975, until trial date set for October 18, 1976 allow defendant's mental examination; October 19, 1976 additional continuance requested by defendant. Thus, this case is distinguished factually from State v. DeLong, 16 Wash. App. 452, 557 P.2d 14 (1976), in that here attempts to determine defendant's competency were in process.
[4] Since the defendant was incarcerated on a previous conviction, the 90-day, rather than the 60-day, time period is applicable. CrR 3.3; State v. Hanson, 14 Wash. App. 625, 544 P.2d 119 (1975); State v. O'Neil, 14 Wash. App. 175, 540 P.2d 478 (1975); accord, State v. Keith, 86 Wash. 2d 229, 543 P.2d 235 (1975).
[5] In the event that a court-ordered examination appears to be unduly delayed, the court may consider issuing a show cause order requiring the proper officials to come before the court and explain the necessity for delay. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2353798/ | 941 F. Supp. 1281 (1996)
Peter DUCA, Plaintiff,
v.
Arthur MARTINS, Alan Nardini, Craig Davis, Paul Shastany, and Edward Yarosz, Defendants.
Charles ESPANET, Plaintiff,
v.
Arthur MARTINS, Alan Nardini, Craig Davis, Paul Shastany, and Edward Yarosz, Defendants.
C.A. Nos. 90-10349-WF, 90-10350-WF.
United States District Court, D. Massachusetts.
August 20, 1996.
*1282 *1283 *1284 Peter Duca, Ashland, MA and Charles Espanet, Hopedale, MA, Plaintiffs Pro Se, and Lauren P. Smith, Stewart T. Herrick & Associates, Framingham, MA, for Plaintiffs.
Phillip B. Benjamin, Bikofsky & White, Framingham, MA, for Arthur Martins, Alan Nardini, Craig Davis, Paul Shastany, Edward Yaros, Defendants.
Peter D. Stanton, Law Offices of Mainini & Mainini, Framingham, MA, and Craig S. Orent, Bingham, Dana & Gould, Framingham, MA, for Jon Robinson, Defendant.
MEMORANDUM AND ORDER
WOLF, District Judge.
Plaintiffs brought these actions, pursuant to 42 U.S.C. § 1983, against members of the Framingham, Massachusetts Police Department, alleging violations of their constitutional rights and violations of the Massachusetts Civil Rights Act, M.G.L. ch. 12 § 11I. Plaintiffs also make various claims under Massachusetts tort law, including false arrest, false imprisonment, malicious prosecution, abuse of process, and defamation.[1] The cases were consolidated on April 5, 1991. Defendants have subsequently moved for summary judgment on all counts in plaintiffs' amended complaints. A hearing was held on January 24, 1996. For the reasons stated below, defendants' motions for summary judgment on plaintiffs' federal and state civil rights claims are meritorious and are, therefore, being allowed. Plaintiffs' remaining pendent state law claims are being dismissed without prejudice to their being reinstituted in the courts of the Commonwealth of Massachusetts.
I. FACTS
Unless otherwise indicated, the undisputed facts include the following.
A. Investigation and Arrest of Duca and Espanet
During the relevant time period, from 1986 to early 1987, Plaintiff Peter Duca was the general manager/operator of Jessica's Restaurant ("Jessica's") in Framingham, Massachusetts. The restaurant was also popularly known as "Duca's." Plaintiff Charles Espanet was the manager of Jessica's. Also during that time, defendant Arthur Martins was the Chief of Police of Framingham. Defendant Alan Nardini was the Captain of the Detective Bureau of the Framingham Police Department. Defendants Craig Davis, Paul Shastany, and Edward Yarosz were Detectives in the Framingham Police Department.
Between July 1986 and February 1987, the Detective Bureau of the Framingham Police Department instituted "Operation Lost Call," a broad-scale drug investigation which targeted alleged sales of cocaine at several restaurants and lounges in Framingham. Jessica's was a subject of the investigation. In their investigation of Jessica's, the police employed John Robinson as a confidential informant. Robinson was used by the police to make "controlled buys" of cocaine at Jessica's. The "controlled buys" were all done in a similar fashion. Shastany and Davis (sometimes as a pair, sometimes individually paired with other detectives) would meet Robinson prior to his entering Jessica's and search him for money or contraband. When satisfied that Robinson had neither money nor contraband on his person, the detectives would provide Robinson with a certain sum of money with recorded serial numbers. The detectives would wait in or around the parking lot of Jessica's and watch Robinson enter *1285 Jessica's through a public entrance. When Robinson exited Jessica's, he would immediately turn over any cocaine on his person to the waiting detectives and then submit to a search. All items on his person would be tagged and recorded, and any chemical substances which he carried would be sent to a state laboratory for testing.
Between November 1986 and January 1987, Robinson made seven controlled buys of cocaine at Jessica's. On November 6, 1986, on two separate occasions, Robinson exited Jessica's with cocaine and reported that he had purchased the cocaine from the cook at Jessica's, Bruce Salamone. The second purchase was reportedly in Duca's office with Duca present.[2] On that night, the Framingham police had placed Detective William Delaney inside Jessica's for the purpose of corroborating Robinson's version of events. Robinson reported that Delaney witnessed the first purchase. In his report, Delaney does not state that he saw Robinson purchase cocaine from Salamone.
On November 23, 1986, Robinson reported a purchase of cocaine from Salamone and Espanet. On November 28, 1986, Robinson reported a purchase of cocaine from Duca, Espanet, and Salamone. On December 5, 1986, Robinson reported a purchase from Duca and Salamone. On January 7, 1987, Robinson reported a purchase of cocaine from Espanet and Salamone. On January 16, 1987, Robinson reported a purchase of cocaine from Espanet. These controlled buys were conducted without an inside surveillant. On January 29, 1987, Steven Murphy, an undercover agent for the United States Drug Enforcement Agency, accompanied Robinson to Jessica's. Murphy and Robinson did not report a purchase at Jessica's on that occasion.
Based upon this information, the detectives sought, and were issued, arrest warrants for Duca and Espanet by a magistrate on February 11, 1987.[3] On the same day, Framingham police "raided" Jessica's and arrested Espanet, Salamone, and a bartender. Also on February 11, 1987, Duca was arrested at his home in Ashland, Massachusetts and was immediately taken to Jessica's, arriving shortly after the arrests had been made at Jessica's.
The local news media was present at Jessica's at the time of the arrests and at the time of Duca's arrival on the scene. At that time, defendant Shastany made the following statement to the media:
The Manager, the Bartender and Cook were all selling cocaine at this establishment here. As a result of information received from prominent members of the community we initiated an investigation, planted an undercover operative and were successful in making buys from all the people I mentioned.
Plaintiffs' Exhibit 7. In addition, Lieutenant Brent Larrabee, who is not a defendant in this case, stated that "[t]his is a bar that was organized, had different levels of management in it, the different levels of management were selling cocaine ... they controlled some of the flow of narcotics within the Framingham area." Id.
On December 8, 1987, a probable cause hearing was conducted in Framingham District Court. The court found probable cause as to both Duca and Espanet. After criminal trials in Superior Court in 1989, both Duca and Espanet were acquitted of all criminal charges.
B. Yarosz's Investigation and Filing of Charges Against Duca
Duca also alleges constitutional violations and torts arising out of a separate incident involving Yarosz. In January 1987, Yarosz was investigating a stabbing incident which had occurred at or near Jessica's. Duca had previously testified before a grand jury about the incident and had been granted immunity *1286 for his testimony. According to Yarosz's signed police report, he sought to ask Duca some further questions about "information received from Matthew Gutwell that he has been drinking at Jessica's and the Sports Bar over the past year, even though he was under 21 years of age". Plaintiffs' Exhibit 18. Gutwell was at Jessica's on the night of the stabbing and was a potential eyewitness. Yarosz's was concerned about reports that Duca had told Gutwell to tell the police that the stabbing had occurred outside Jessica's. Id.
On January 21, 1987, Yarosz went to Jessica's to gather more information from Duca about the incident. In addition to acting on behalf of the Framingham Police Department on that occasion, Yarosz was also "acting as an Agent[] of the Selectmen in regard to the licensing of [Jessica's]." Id. When Yarosz arrived at Jessica's, Duca refused to speak to him, upon the advice of his attorney.[4] Deposition of Peter Duca ("Duca Deposition"), Plaintiffs' Exhibit 10, p. 44. According to Duca, Yarosz became angered, screamed at Duca, insisted that Duca speak to him without his lawyer present, and then left the premises. Id. After the incident at Jessica's, Duca and his attorney went to the Framingham police station at Yarosz's request. According to Duca, he agreed to speak to Yarosz, provided that his attorney was present. Id. at 45. Yarosz disapproved of this arrangement, allegedly saying to Duca that "[y]ou got no goddamn rights." Id. As a result of these incidents, Yarosz filed a criminal complaint against Duca, pursuant to M.G.L. ch. 138 §§ 63 and 63A, for hindering a licensing investigation.[5] Despite statements to the contrary in their memorandum, plaintiffs conceded at oral argument that Duca was not arrested in connection with this complaint. Rather, he was summoned to court to defend himself against these charges. The charges were subsequently dismissed.
II. DISCUSSION
A. Summary Judgment Standard
Fed.R.Civ.P. 56(c) provides, in pertinent part, that summary judgment is appropriate "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 judgment as a matter of law." In determining the merits of a motion for summary *1287 judgment, the court should undertake two inquiries: (1) whether the factual disputes are genuine, and (2) whether any fact genuinely in dispute is material. Anderson v. Liberty Lobby, 477 U.S. 242, 247-48, 106 S. Ct. 2505, 2509-10, 91 L. Ed. 2d 202 (1986). "As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law properly preclude the entry of summary judgment." Id. As to whether a dispute about a material fact is "genuine", the court must determine whether "the evidence is such that a reasonable [factfinder] could return a verdict for the nonmoving party." Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.1990). At all times in making this assessment, "the court must look at the record in the light most favorable to the party opposing the motion and must indulge all inferences favorable to that party." Stepanischen v. Merchants Despatch Transp. Corp., 722 F.2d 922, 928 (1st Cir. 1983).
B. Qualified Immunity
Defendants claim that they are entitled to qualified immunity with respect to the constitutional violations alleged by plaintiffs. The Supreme Court has held that "government officials performing discretionary functions, generally are shielded from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S. Ct. 2727, 2738, 73 L. Ed. 2d 396 (1982). By focusing on objective reasonableness, "[t]he Supreme Court's decision in Harlow effectively eliminates from the qualified immunity calculus consideration of a government actor's subjective state of mind." Collins v. Marina-Martinez, 894 F.2d 474, 478 n. 6 (1st Cir.1990).
The Supreme Court has established a two-step inquiry which a reviewing court should utilize in determining qualified immunity. First, a court must decide "whether the plaintiff has asserted a violation of a constitutional right at all." Siegert v. Gilley, 500 U.S. 226, 232, 111 S. Ct. 1789, 1793, 114 L. Ed. 2d 277 (1991). If a violation of a constitutional right is, in fact, asserted, the court should then determine whether the right was "clearly established" at the time of the relevant conduct.
As the Court explained in Anderson v. Creighton, 483 U.S. 635, 107 S. Ct. 3034, 97 L. Ed. 2d 523 (1987), the question of whether a constitutional right is "clearly established" at the time of the relevant conduct should not be analyzed at such a level of "generality" as "to bear no relationship to the `objective legal reasonableness' that is the touchstone of Harlow." Anderson, 483 U.S. at 639, 107 S. Ct. at 3039. Rather:
[T]he right the official is alleged to have violated must have been `clearly established' in a more particularized, and hence more relevant sense: The contours of the right must be sufficiently clear that a reasonable official would understand that what he is doing violates that right. This is not to say that an official action is protected by qualified immunity unless that very action in question has previously been held unlawful ...; but it is to say that in light of pre-existing law the unlawfulness must be apparent.
Id. at 640, 107 S. Ct. at 3039. The Court of Appeals for the First Circuit has elaborated upon the circumstances in which a right may not be "clearly established":
In some instances it may be unclear whether an alleged official action even potentially implicates the constitutional or statutory right relied upon.... On the other hand, the law regarding the alleged violation may have been clearly enunciated, but application of that law to the facts may be unclear.... Or, while the right allegedly violated may have been clear in general outline, it may have been unclear how that right would be balanced against competing rights or interests.
Borucki v. Ryan, 827 F.2d 836, 838 (1st Cir.1987). The Court of Appeals for the First Circuit more recently discussed these principles in Singer v. State of Maine, 49 F.3d 837, 845 (1st Cir.1995), explaining that:
[T]he inquiry whether the right at issue was clearly established properly focuses *1288 `not upon the right at its most general or abstract level, but at the level of its application to the specific conduct being challenged.' [citation omitted.] `Moreover, the manner in which this [clearly established] right applies to the actions of the official must also be apparent.' [citation omitted.] `[I]f there is a `legitimate question' as to whether an official's conduct constitutes a constitutional violation, the official is entitled to qualified immunity.' [citation omitted.]"
Id.
C. Defendants Are Protected By Qualified Immunity With Respect to the Investigation and Arrest of Duca and Espanet.
Plaintiffs contend that the investigation and arrest of Duca and Espanet violated rights secured to them by the United States Constitution. The crux of plaintiffs' claim is that Duca and Espanet were improperly arrested without probable cause on the basis of information that was either fabricated or known to be false or incomplete. In support of this claim, plaintiffs point to the following alleged facts: (a) Delaney failed to corroborate Robinson's first two buys from Salamone; (b) Murphy failed to make a buy at Jessica's despite attempting to do so; (c) defendants did not have any independent corroboration of Robinson's reports; (d) defendants, in applying for arrest warrants, did not present to the magistrate evidence of Robinson's past record of reliability; and (e) defendants failed to follow proper investigatory techniques in making the seven controlled buys from Jessica's.[6]
The Supreme Court has stated that where, as here, investigators have obtained a warrant, "[o]nly where the warrant application is so lacking in indicia of probable cause as to render official belief in its existence unreasonable ... will the shield of immunity be lost." Malley v. Briggs, 475 U.S. 335, 345, 106 S. Ct. 1092, 1098, 89 L. Ed. 2d 271 (1986) The Court of Appeals for the First Circuit has interpreted this standard to mean that "[a]n officer will be held liable for seeking an arrest warrant later found to be without probable cause only if there clearly was no probable cause at the time the warrant was requested." Floyd v. Farrell, 765 F.2d 1, 5 (1st Cir.1985). The court in Floyd explained that the qualified immunity standard "eliminates from consideration allegations about the official's subjective state of mind, such as bad faith or malicious intention, concentrating the inquiry upon the `objective reasonableness' of the official conduct." Id. at 4 (quoting Harlow, 457 U.S. at 818, 102 S. Ct. at 2738). "[S]eeking an arrest warrant is `objectively reasonable' so long as the presence of probable cause is at least arguable." Floyd, 765 F.2d at 5. "[T]he objective reasonableness determination is for the judge to make, not for the jury." Hall v. Ochs, 817 F.2d 920, 924 (1st Cir.1987).
Even when viewed in the light most favorable to the plaintiffs, the undisputed facts indicate that a reasonable factfinder could not conclude that there clearly was no probable cause for the warrants. The police records, detailing controlled purchases of cocaine from Duca on two occasions and from Espanet on four occasions, provide a substantial basis on which a police officer could have reasonably believed that seeking an arrest warrant was appropriate in the circumstances. In other words, probable cause in this situation was "at least arguable." Floyd, 765 F.2d at 5.
Plaintiffs appear to contend that the defendants' failure to provide the magistrate with evidence of Robinson's historical reliability as an informant precludes a finding of probable cause. This contention is erroneous. Under the Supreme Court's "totality of the circumstances" test, there are no specific or mechanical requirements which an informant must meet. Illinois v. Gates, 462 U.S. 213, 230-31, 103 S. Ct. 2317, 2328-29, 76 *1289 L.Ed.2d 527 (1983). Indeed, the Court of Appeals for the First Circuit has specifically rejected plaintiffs' argument that an informant's previous "track record" must be demonstrated. See United States v. Taylor, 985 F.2d 3, 6 (1st Cir.1993) ("[A]n informant's reliability need not invariably be demonstrated through the detailed narration of the information previously furnished to law enforcement"); United States v. Cochrane, 896 F.2d 635, 641 (1st Cir.1990) ("[A] warrant affidavit [need not contain] an averment of previous reliability, the appropriate inquiry always being whether the informant's present information is truthful or reliable."). The court in Cochrane explained that "an important indicia of reliability is the fact that the informant's knowledge was based upon personal observation rather than hearsay." Cochrane, 896 F.2d at 641. In the present case, Robinson's information was the product of what a police officer could have reasonably believed was direct personal observation.
In addition, under Massachusetts law, no previous "track record" demonstration is required. Rather, a controlled buy, in and of itself, imbues an informant's statements with adequate reliability for the purposes of establishing probable cause. See Commonwealth v. Desper, 419 Mass. 163, 168, 643 N.E.2d 1008 (1994) (two "controlled buys" satisfied "veracity" requirement of Massachusetts law and established probable cause even when there were arguable defects in the controlled buy.); Commonwealth v. Warren, 418 Mass. 86, 89, 635 N.E.2d 240 (1994) ("[a] controlled purchase of narcotics, supervised by the police, provides probable cause to issue a search warrant.").
Plaintiffs claim that a Floyd probable cause analysis neglects an essential element of their constitutional claim; namely, that defendants fabricated the evidence put before the magistrate or, at least, proceeded with a reckless disregard for the truth in seeking an arrest warrant. Such a claim, if supported by sufficient facts, is viable under § 1983. See Krohn v. United States, 742 F.2d 24, 31-32 (1st Cir.1984); Hervey v. Estes, 65 F.3d 784, 788 (9th Cir.1995); Snell v. Tunnell, 920 F.2d 673, 698 (10th Cir.1990); Magnotti v. Kuntz, 918 F.2d 364, 368 (2nd Cir.1990). In Krohn, the Court of Appeals for the First Circuit explained:
Essentially ... [this] claim[] allege[s] the constitutional violation recognized in Franks v. Delaware, [438 U.S. 154, 98 S. Ct. 2674, 57 L. Ed. 2d 667 (1978)], where the Court held that a warrant issued upon a magistrate's finding of probable cause is nevertheless invalid, and the evidence obtained thereunder may be suppressed, if the affiant made intentional or reckless misrepresentations or misstatements which were necessary to that finding.
Krohn, 742 F.2d at 26. The court proceeded to equate the showing a criminal defendant must make under Franks to the showing a plaintiff must make in defeating qualified immunity. Id. at 31. Other courts of appeals have since done the same. See, e.g., Branch v. Tunnell, 937 F.2d 1382, 1386 (9th Cir.1991) ("[t]he Franks standard, although developed in the criminal context, `also defines the scope of qualified immunity in civil rights actions.'" (quoting Rivera v. United States, 928 F.2d 592, 604 (2nd Cir.1991)); Snell, 920 F.2d at 698.
The Court of Appeals for the First Circuit has held that "[a] Franks hearing is required only if the defendant makes a `substantial preliminary showing (1) that a false statement in the affidavit has been made knowingly and intentionally, and (2) that the false statement is necessary for the finding of probable cause.'" United States v. Scalia, 993 F.2d 984, 986-87 (1st Cir.1993) (quoting United States v. Paradis, 802 F.2d 553, 558 (1st Cir.1986)). The court went on to hold that "a comparable showing is required if the defendant would establish that technically accurate statements have been rendered misleading by material omissions." Id. at 987. An omission is not material if "even had the omitted statement been included in the affidavit, there was still probable cause to issue a warrant." United States v. Rumney, 867 F.2d 714, 720-21 (1st Cir.1989), cert. denied, 491 U.S. 908, 109 S. Ct. 3194, 105 L. Ed. 2d 702 (1989). Thus, if probable cause would have been found even in the event of full disclosure, defendants are entitled to qualified immunity.
*1290 In the present case, plaintiffs have failed to make the required "substantial preliminary showing" under either part of the Franks analysis. There is scant evidence in the record of intentional or reckless misleading of the magistrate. Indeed, plaintiffs do not point to any specific piece of information presented to the magistrate that is either a falsehood or half-truth. Of course, plaintiffs dispute the fact that Robinson ever purchased cocaine from them. However, as the Court in Franks made clear, "[t]he deliberate falsity or reckless disregard" that a court should consider "is only that of the affiant, not of any nongovernmental informant." Franks, 438 U.S. at 171, 98 S. Ct. at 2684. In short, there is no evidence that the defendants failed to accurately and completely relay to the magistrate the information and evidence which Robinson had provided to them.
The crux of plaintiffs' complaint, therefore, appears to be that the defendants demonstrated intentional or reckless disregard for the truth of Robinson's statements through their awareness of "inconsistent" evidence and through their failure to perform an adequate investigation. First, plaintiffs point to the fact that Detective Delaney was unable to corroborate Robinson's first two controlled buys. However, with regard to the first controlled buy, there are many reasonable explanations for Delaney's failure to corroborate Robinson's story. Drug transactions are typically structured to be fast, concealed, and difficult to detect, especially from the perspective of someone, like Delaney, who is required to behave like an ordinary customer at a bar.[7] Likewise, Delaney's failure to corroborate Robinson's second buy from Salamone would not have appeared suspicious to a reasonable police officer. Robinson stated that this purchase took place inside Duca's office and presumably beyond Delaney's line of sight. Similarly, Agent Murphy's failure to purchase narcotics at Jessica's on an entirely separate occasion is not inconsistent with Robinson's alleged previous successes. These matters do not, individually or cumulatively, constitute "substantial" evidence of intentional or reckless disregard for the truth.
The alleged investigative inadequacies leading up to Duca and Espanet's arrest also fall short of the "substantial" showing of intentional or reckless disregard required under Franks. The typical Franks analysis concerns itself with a deliberate or reckless withholding of exculpatory evidence from a magistrate, not a mere failure to gather such evidence. "There is no constitutional or statutory requirement that before an arrest can be made the police must conduct a trial." Gramenos v. Jewel Companies, Inc., 797 F.2d 432, 439 (7th Cir.1986) (quoting Morrison v. United States, 491 F.2d 344, 346 (8th Cir.1974)). "Moreover, a criminal suspect has no constitutional right to a perfect investigation." Tomczak v. Town of Barnstable, 901 F. Supp. 397, 403 (D.Mass.1995). Defendants' failure to track down certain evidence may arguably have been careless or unprofessional. However, "allegations of mere negligence are insufficient to sustain a § 1983 action." Id. Furthermore, the fact that the controlled buys in this case may not have been completely airtight does not suggest that plaintiffs intentionally or recklessly disregarded the truth. The basic integrity of the controlled buy technique as employed in this case remains unimpeached by the plaintiffs.
Even if all of the information alluded to by the plaintiffs had been included with defendants' application for arrest warrants, the magistrate's determination of probable cause would not have been altered. Delaney's failure to corroborate Robinson's first two buys is immaterial. Robinson's first buy was from Salamone. Presumably, it did not influence the magistrate's decision to grant an arrest warrant for Duca and Espanet. Robinson's second buy was also from Salamone and out of Delaney's view. With regard to Murphy's failure to make a controlled buy, the Court of Appeals for the First Circuit's remarks in United States v. Higgins, 995 F.2d 1 (1st Cir.1993) are also *1291 applicable to the instant case: "[T]he [unsuccessful] controlled purchase incident is not necessarily inconsistent with any of the other events recounted in the warrant affidavit. Thus, even if the affidavit had included an account of the incident, there were still ample grounds for a finding of probable cause." Id. at 4. Furthermore, almost all of the alleged investigative inadequacies (e.g., failure to corroborate Robinson's version of events, failure to maintain inside surveillance, failure to obtain search warrants) would have been evident to the magistrate (due to a lack of evidence from these sources) when the original decision to issue arrest warrants was made. An explicit explanation of these matters would have had no effect on the magistrate's decision. The alleged inadequacies that would not have been readily apparent to the magistrate (e.g., the presence at Jessica's of multiple means of ingress and egress) are not so significant that they would have overwhelmed the substantial evidence supporting probable cause. The probable cause standard concerns itself with "fair probabilit[ies]," not factual certainties. United States v. Jordan, 999 F.2d 11, 13 (1st Cir. 1993).
Despite their inability to point to any specific falsehoods or omissions which, when taken separately or together, would constitute the "substantial preliminary showing" required by Franks, plaintiffs urge the court to adopt a "conspiracy" approach to their evidence. Plaintiffs argue that the lack of corroboration, the choice not to use internal surveillance, and the decision not to investigate various sources, when considered together, suggest that the entire controlled buy operation was a device designed to produce a pre-determined result. Plaintiffs' argument is, however, not persuasive because the evidence is insufficient to permit a reasonable factfinder to infer that a willful conspiracy existed. "A party may not cry `conspiracy' and throw himself on the jury's mercy." Gramenos, 797 F.2d at 436. Nor may a jury return a verdict for a plaintiff based on mere speculation. If defendants were required to go to trial in this case on the basis of plaintiffs' conjecture, one of the primary purposes behind qualified immunity doctrine, discouraging "insubstantial suits against government officers," would be frustrated. Krohn, 742 F.2d at 31.
D. Defendant Shastany is Protected By Qualified Immunity With Respect to His February 11, 1987 Statement to the Press.
Plaintiffs claim that the statement made by Detective Shastany immediately after Duca and Espanet's arrest constitutes a violation of their rights remediable under § 1983.[8] Plaintiffs appear to rely on a constitutional defamation theory. In response, Shastany raises a qualified immunity defense.
In general, a person's charge of defamation, "standing alone and apart from any other governmental action with respect to him," does not state a claim for relief under § 1983. Paul v. Davis, 424 U.S. 693, 694, 96 S. Ct. 1155, 1157, 47 L. Ed. 2d 405 (1976). The Court of Appeals for the First Circuit has interpreted Paul to mean that, in order for a defamation claim to be actionable under § 1983, any "injury to reputation must be accompanied by a change in the injured person's status or rights (under state or federal law)." Beitzell v. Jeffrey, 643 F.2d 870, 878 (1st Cir.1981).
The question presented in this case is whether it was "clearly established" in 1987 that the arrest of Duca and Espanet would constitute the "plus" required under Paul's "defamation-plus" standard so as to defeat *1292 Shastany's defense of qualified immunity.[9] The uncertainties on this question in both Supreme Court and First Circuit caselaw compel the conclusion that plaintiffs have not proven Shastany is not entitled to qualified immunity. It appears that by 1987 only one court of appeals had specifically held that defamation accompanied by an illegal arrest could state a cause of action under § 1983. See Marrero v. City of Hialeah, 625 F.2d 499, 519 (5th Cir.1980).[10] To date, the Court of Appeals for the First Circuit has not held that defamation accompanied by an arrest, illegal or otherwise, constitutes a violation remediable under § 1983. Nor has it signaled it would likely do so.
Moreover, there are additional reasons why plaintiffs have not alleged a violation of a "clearly established" right with regard to Shastany's statement. In Paul v. Davis, the Supreme Court in 1976 considered a § 1983 claim arising from allegedly defamatory statements made in a flyer distributed by the police to local merchants. Davis, who had been previously arrested and acquitted of shoplifting charges, was depicted on the flyer as an "Active Shoplifter". In rejecting his claim, the Court stated:
If respondent's view is to prevail, a person arrested by law enforcement officers who announce that they believe such person to be responsible for a particular crime in order to calm the fears of an aroused populace, presumably obtains a claim against such officers under § 1983.... It is hard to perceive any logical stopping place to such a line of reasoning.
Paul, 424 U.S. at 698, 96 S. Ct. at 1159. It is significant that the Court chose to describe a situation analogous to the present case to illustrate a constitutionally permissible comment. This statement alone demonstrates that Shastany's remark did not in 1987 violate a "clearly established" constitutional right.
Indeed, it remains unclear today whether plaintiffs' defamation claim states a cause of action under § 1983. See Celia v. O'Malley, 918 F.2d 1017 (1st Cir.1990). In Celia, plaintiff claimed that he was injured by defamatory remarks made by prosecutors and police officers during the course of a criminal investigation. The court denied his § 1983 claim with respect to these statements, explaining that:
Celia had not alleged facts sufficient to establish a connection between the alleged constitutional violation (viz., the right not to be tried without indictment) and the prosecutors' defamatory statements.... The complaint thus fails to establish the necessary nexus between the purported independent constitutional violation and the defamatory statements, and, therefore, does not state a claim under § 1983.
Celia, 918 F.2d at 1021 (emphasis added). In Celia, the First Circuit distinguished both Marrero and Gobel, explaining that "in both of these cases, the alleged defamatory remarks were closely connected, in timing and in substance, to the independent constitutional violation." Id. (emphasis added). The language in Celia leaves the clear impression that the "plus" required under the Paul "defamation-plus" framework (at least in the non-employment law context) must be an "independent constitutional violation". In this sense, Celia appears to be inconsistent with Beitzell where the "plus" is described as merely a "change in the injured person's status or rights." Beitzell, 643 F.2d at 878.
The arguable inconsistency between Celia and Beitzell is relevant to the present case. As discussed previously, the arrest of Duca and Espanet did not for present purposes constitute an "independent constitutional violation."[11] As such, this case is distinguishable *1293 from both Marrero and Gobel. The plaintiffs in those cases asserted viable Fourth Amendment claims.[12] In Von Stein v. Brescher, 904 F.2d 572 (11th Cir.1990), the Court of Appeals for the Eleventh Circuit distinguished Marrero on this precise point. In granting summary judgment for the defendants on plaintiff's constitutional defamation claim, the court stated, in language also applicable to the instant case: "While the defamatory statement in Marrero was made in connection with an illegal seizure, and therefore was clearly actionable under Paul, we have decided in this case that the Defendants in the instant case did not act unreasonably in arresting Plaintiff ..." Von Stein, 904 F.2d at 583.
Accordingly, Shastany is entitled to qualified immunity concerning his remarks.
E. Defendant Yarosz is Protected By Qualified Immunity With Respect to His Filing of a Criminal Complaint Against Duca.
Duca asserts further constitutional violations arising out of his meetings with Detective Yarosz which led to Yarosz's application for a criminal complaint against Duca pursuant to M.G.L. ch. 138 § 63A. However, the facts presented by Duca, even if taken as true, do not demonstrate a violation of a "clearly established" constitutional right. Therefore, Yarosz is entitled to qualified immunity.
First, in 1987, it was not clearly established that Duca's Fourth Amendment rights were implicated as a result of a summons to appear in court to defend himself against criminal charges. Compare Bacon v. Patera, 772 F.2d 259, 265 (6th Cir.1985) (plaintiff who "was never arrested" was nonetheless "seized" under the Fourth Amendment when he was summoned to court on five occasions to defend himself against criminal charges) with Nesmith v. Taylor, 715 F.2d 194, 196 (5th Cir.1983) (declining to "decide whether a summons backed by threat of arrest could ever constitute a deprivation of liberty or a seizure").
Moreover, even if such a Fourth Amendment right were "clearly established," plaintiff has not offered evidence sufficient to prove that Yarosz behaved in an objectively unreasonable manner. It is "at least arguable" that probable cause supported Yarosz's application for a complaint. Floyd, 765 F.2d at 5. M.G.L. ch. 138 § 63A states, in pertinent part, that: "Any person ... who refuses to give to [a licensing] investigator, inspector *1294 or agent such information as may be required for the proper enforcement of this chapter, shall be punished ..." When Yarosz met with Duca at Jessica's, Duca followed his attorney's instructions "not to say a word" to Yarosz, despite Yarosz's direct questioning. Duca Deposition, Plaintiffs' Exhibit 10, p. 44. A reasonable person in Yarosz's position could have interpreted Duca's silence as an intentional thwarting of his investigation under § 63 and, therefore, as punishable under § 63A.
There is no indication in the record that Duca's refusal to speak to Yarosz represented an assertion of his Fifth Amendment privilege against self-incrimination. Duca did not allude to such a concern in his deposition. Nor did he present this rationale in his submissions to the court or at oral argument. Indeed, it does not appear that Duca viewed Yarosz's questioning as an attempt to implicate him in any way. Rather, he stated:
[T]hey wanted to talk to me about changing my testimony to the grand jury, saying that I did see the knife that stabbed the person, which I testified that I did not see the knife. I believe they wanted me to help them, cooperate with them and putting the person who committed the crime, Pete Hackett, away. They also wanted to me [sic] give them names of different people that might be drug dealers, which would be pure speculation on my part.
Id. at 46. The fact that Duca had been granted immunity for his testimony before the grand jury would have further alleviated any possible concerns a reasonable police officer may have had about Duca's Fifth Amendment rights. In short, Yarosz's conduct, in enforcing M.G.L. ch. 138 § 63A, was not objectively unreasonable.[13] While a fair question may exist concerning whether Yarosz acted in good faith in charging Duca, this question is not germane for the purposes of determining a police officer's qualified immunity. See Malley, 475 U.S. at 341, 106 S. Ct. at 1096 ("Under the Harlow standard ... an allegation of malice is not sufficient to defeat immunity if the defendant acted in an objectively reasonable manner."); Collins, 894 F.2d at 478 n. 6; Floyd, 765 F.2d at 4.
F. Defendants Are Entitled to Qualified Immunity With Respect to Duca's Claim Under the Massachusetts Civil Rights Act.
In Duarte v. Healy, 405 Mass. 43, 537 N.E.2d 1230 (1989), the Supreme Judicial Court of Massachusetts held that it is "consistent with the intent of the Legislature in enacting the Civil Rights Act to adopt thereunder the standard of immunity for public officials developed under § 1983." Id. at 46, 537 N.E.2d 1230. Accordingly, the court went on to hold that "public officials are not liable under the Civil Rights Act for their discretionary acts, unless they have violated a right under Federal or State constitutional or statutory law that was `clearly established' at the time." Id. at 47, 537 N.E.2d 1230. The foregoing qualified immunity analysis concerning the plaintiffs' federal claims compels the conclusion that the defendants are entitled to qualified immunity on Duca's Massachusetts Civil Rights Act claim because he has not identified the violation of any right clearly established by state law. More specifically, the Massachusetts Civil Rights Act, M.G.L. ch. 12 § 11I has been interpreted to be co-extensive with § 1983 except that it requires the involvement of "threats, intimidation or coercion." Batchelder v. Allied Stores Corp., 393 Mass. 819, 822-23, 473 N.E.2d 1128 (1985). Since defendants are entitled to qualified immunity on their federal claims, and Duca has not identified any distinct right clearly established by state law, defendants are also entitled to qualified immunity on his Massachusetts Civil Rights Act claim.
G. Plaintiffs' Tort Law Claims Are Being Dismissed Without Prejudice
While the court has the power to retain jurisdiction over plaintiffs' pendent *1295 state tort law claims, "if the federal claims are dismissed before trial, even though not insubstantial in a jurisdictional sense, the state claims should be dismissed as well." United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S. Ct. 1130, 1139, 16 L. Ed. 2d 218 (1966). See also Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350, 108 S. Ct. 614, 619, 98 L. Ed. 2d 720 (1988) ("[W]hen the federal-law claims have dropped out of the lawsuit in its early stages and only state-law claims remain, the federal court should decline the exercise of jurisdiction by dismissing the case without prejudice."). Since plaintiffs have no surviving federal claims, the court will exercise its discretion and dismiss plaintiffs' pendent state tort law claims without prejudice.[14]
III. ORDER
In view of the foregoing, it is hereby ORDERED that:
1. Defendants' motions for summary judgment on Counts I and VIII of Duca's amended complaint and on Count I of Espanet's amended complaint are ALLOWED.
2. Counts II, III, IV, V, VI, and VII of Duca and Espanet's amended complaints are dismissed without prejudice.
3. Plaintiffs' motion for a pretrial conference is DENIED.
NOTES
[1] Specifically, in Count I of their respective amended complaints, plaintiffs Duca and Espanet seek relief under 42 U.S.C. § 1983. In Count II, both plaintiffs assert a claim for false arrest. In Count III, both plaintiffs assert a claim for false imprisonment. In Count IV, both plaintiffs assert a claim for intentional infliction of emotional distress. In Count V, both plaintiffs assert a claim for defamation. In Count VI, both plaintiffs assert a claim for abuse of process. In Count VII, both plaintiffs assert a claim for malicious prosecution. Finally, in Count VIII of his amended complaint, Duca brings a claim under the Massachusetts Civil Rights Act, M.G.L. ch. 12 § 11I.
[2] Subsequent criminal charges brought against Duca did not include this event.
[3] During the course of discovery, defendants were unable to locate the affidavits which supported the February 11, 1987 warrant applications. At oral argument, however, plaintiffs agreed for the purposes of summary judgment that the information set forth in the police reports detailing the controlled buys was properly placed before the magistrate when application for the arrest warrants was made. See Defendants' Exhibits 3A-3G.
[4] In his deposition, Duca's states, in pertinent part:
So they came and my lawyer, who I called, was also present, Martin Boudreau. They came into my office, and I was instructed not to say a word, instructed by and I did Martin Boudreau not to say a word, that it was my lawyer who did all the talking, which he did, and Hill and Yarosz got very aggravated. They wanted to talk to me, but they didn't want my lawyer there. They still wanted to talk to me. I never said one word. Not one word.
Deposition of Peter Duca, Plaintiffs' Exhibit 10, p. 44. Defendant Yarosz's signed version of the incident states, in pertinent part:
We asked that Peter Duca speak to us in regards to this investigation. Peter Duca was present with us, did not reply, his attorney Martin Boudreau said that he would answer for Peter Duca and said that Peter Duca would not answer any questions about this incident. We informed Attorney Boudreau that in this investigation we were also acting as Agents of the Selectmen in regard to the licensing of this Liquor Establishment. We advised both Peter Duca and Attorney Boudreau that if they did not answer questions in regard to this investigation, we would notify the Board of Selectmen in regards to this matter. Again we asked Peter Duca and his Attorney to answer questions in regards to this investigation we were conducting. Attorney Boudreau again said they would not answer any questions.
Investigation Report of Yarosz, Plaintiffs' Exhibit 18.
[5] M.G.L. ch. 138 § 63 states, in part:
The local licensing authorities or their agents may at any time enter upon the premises of a person who is licensed by them, and the commission or its agents may enter upon the premises of any holder of a license, permit or certificate of fitness under this chapter to ascertain the manner in which he conducts the business carried on under such license, permit or certificate. ...
M.G.L. ch. 138 § 63A states, in part:
Any person who hinders or delays any authorized investigator of the commission or any investigator, inspector or authorized agent of local licensing authorities in the performance of his duties ... or who refuses to give to such investigator, inspector or agent such information as may be required for the proper enforcement of this chapter, shall be punished by a fine of not less than fifty nor more than two hundred dollars or by imprisonment for not more than two months, or both.
[6] For example, plaintiffs claim that defendants, from their surveillance position outside Jessica's, could not view all the means of ingress and egress to the establishment; that the defendants failed to obtain fingerprints from the matchbooks in which Robinson carried the cocaine; that defendants failed to obtain search warrants for Jessica's and Peter Duca's residence; that defendants failed to arrange for a body wire to be placed on Robinson or a wire tap to be placed on Jessica's telephones.
[7] Defendant Shastany explained in his deposition that "[t]hey are magicians doing slight of hand. This is a real quick way ... quick way of passing drugs back and forth designed to look like hand-shakes or almost look like somebody is just brushing by, and it is not uncommon for people not to see it." Deposition of Paul Shastany, pp. 118-19.
[8] Plaintiffs argue that Larrabee's statements on February 11, 1987 should be attributed to defendant Martins. There is no basis for this claim. As the Court of Appeals for the First Circuit has held, "[a] supervisor `may be found liable [under § 1983] only on the basis of [his] own acts or omissions' [citation omitted].... [T]here must be `an affirmative link' between the street-level misconduct and the action, or inaction, of supervisory officials [citation omitted]." Gutierrez-Rodriguez v. Cartagena, 882 F.2d 553, 562 (1st Cir.1989). Plaintiffs' evidence suggests only that Larrabee reported to Martins on a regular basis. There is no evidence in the record that Martins explicitly or implicitly authorized or approved the particular statements made by Larrabee on February 11, 1987.
[9] In accordance with the Supreme Court's two-step analysis in Siegert, 500 U.S. at 232, 111 S. Ct. at 1793, the court assumes, without deciding, that "plaintiff has asserted a violation of a constitutional right at all." Id.
[10] Since the decision in Marrero, at least one other court of appeals has held that an illegal arrest can constitute a "plus" under the "defamation-plus" framework. See Gobel v. Maricopa County, 867 F.2d 1201, 1205 (9th Cir.1989).
[11] The Court of Appeals for the First Circuit has suggested that, at least in Fourth Amendment cases where the focus is on the reasonableness of a police officer's actions, a determination that a defendant is entitled to qualified immunity is tantamount to a determination that no substantive violation has occurred. Thus, in Roy v. Inhabitants of City of Lewiston, 42 F.3d 691 (1st Cir.1994), the court explained:
In theory, substantive liability and qualified immunity are two separate questions and, indeed, may be subject to somewhat different procedural treatment. In police misconduct cases, however, the Supreme Court has used the same `objectively reasonable' standard in describing both the constitutional test of liability [citing Graham v. Connor 490 U.S. 386, 397, 109 S. Ct. 1865, 1872, 104 L. Ed. 2d 443 (1989)] and the Court's own standard for qualified immunity. [citing Anderson, 483 U.S. at 639, 107 S. Ct. at 3039].
Roy, 42 F.3d at 695. See also St. Hilaire v. City of Laconia, 71 F.3d 20, 24 n. 2 (1st Cir.1995) (citing Roy for the proposition that, "at least in police misconduct cases, the objective reasonableness standard for liability is most likely the same as that for a qualified immunity defense"). In other contexts, however, an analysis of qualified immunity and an analysis of substantive liability may diverge significantly. As demonstrated in the present section of this opinion, the typical non-Fourth Amendment qualified immunity analysis focuses on whether the particular right implicated is "clearly established." In such a situation, courts often find that a particular constitutional right may have been violated, but that this right was not "clearly established" and, therefore, the defendant is entitled to qualified immunity. See, e.g., Rodriguez-Pinto v. Tirado-Delgado, 982 F.2d 34, 38 (1st Cir.1993) (right to be free from politically motivated personnel action); Rodi v. Ventetuolo, 941 F.2d 22, 29-30 (1st Cir.1991) (inmate had right to certain procedural safeguards before being transferred); Lanier v. Fair, 876 F.2d 243, 250-54 (1st Cir.1989) (plaintiff had right to procedural safeguards with regard to reserve parole date). In contrast, the focus in the usual Fourth Amendment qualified immunity analysis is not whether it is "clearly established" that an unreasonable search and seizure would violate the Constitution but rather whether a particular search and seizure was, in fact, unreasonable.
[12] In Marrero, the court assumed that "the defamation was intimately connected with the unlawful arrest of appellants and the unlawful search and seizure of practically the entire inventory of their store." Marrero, 625 F.2d at 517. In Gobel, the court reversed the district court's dismissal of plaintiffs' Fourth Amendment claims. Gobel, 867 F.2d at 1205.
[13] Yarosz's alleged statement that Duca has "got no goddamn rights" is not actionable under § 1983. "Verbal harassment and abusive language while `unprofessional and inexcusable' are simply not sufficient to state a constitutional claim under Section 1983." Crenshaw v. City of Defuniak Springs, 891 F. Supp. 1548, 1555 (N.D.Fla.1995) (quoting Patton v. Przybylski, 822 F.2d 697, 700 (7th Cir.1987)).
[14] One of the factors a court should consider in deciding whether to dismiss pendent state law claims is whether the plaintiff would be time-barred from bringing the state law claims in state court upon their dismissal from federal court. See, e.g., Pharo v. Smith, 625 F.2d 1226, 1227 (5th Cir.1980). In the present case, the statute of limitations is not an important factor because, under the Massachusetts renewal statute, M.G.L. ch. 260 § 32, plaintiffs can pursue their state law claims in state court if they are filed within one year after their dismissal without prejudice from federal court. See Liberace v. Conway, 31 Mass. App.Ct. 40, 42-44, 574 N.E.2d 1010 review denied, 411 Mass. 1102, 579 N.E.2d 1361 (1991) (holding that M.G.L. ch. 260 § 32 applies to state law claims dismissed by federal court which had declined to exercise pendent jurisdiction.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1140761/ | 959 So. 2d 241 (2007)
THE FLORIDA BAR, Complainant,
v.
Elizabeth MARTINEZ-GENOVA, Respondent.
No. SC04-2365.
Supreme Court of Florida.
June 14, 2007.
*243 John F. Harkness, Jr., Executive Director, and Kenneth L. Marvin, Director of Lawyer Regulation, The Florida Bar, Tallahassee, FL, Barnaby Lee Min, Bar Counsel, The Florida Bar, Miami, FL, for Complainant.
Nancy C. Wear, Coral Gables, FL, and Gary S. Glasser, Miami, FL, for Respondent.
REVISED OPINION
PER CURIAM.
Upon consideration of the Bar's motion for rehearing, we withdraw our previous opinion and issue the following opinion.
We have for review a referee's report recommending that attorney Elizabeth Martinez-Genova be found guilty of professional misconduct and suspended from the practice of law. We have jurisdiction. See art. V, § 15, Fla. Const.
We approve the referee's factual findings with regard to guilt on all rule violations. However, we do not approve the referee's recommended discipline because we find that a three-year suspension is insufficient because of the serious violations that she committed. For the reasons that follow, Elizabeth Martinez-Genova is disbarred from the practice of law in the State of Florida, effective, nunc pro tunc, October 20, 2004, the date on which Martinez-Genova was suspended by order of this Court.
FACTS
On December 16, 2004, The Florida Bar filed a two-count complaint against respondent Elizabeth Martinez-Genova. In count one, the Bar alleged that Martinez-Genova intentionally misappropriated third-party funds and failed to maintain proper trust accounting procedures. In count two, the Bar alleged that Martinez-Genova's arrests for cocaine use and possession were a violation of rule 4-8.4(b) (a lawyer shall not commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects) of the Rules Regulating the Florida Bar. After conducting a hearing, the referee issued a report in which she made the following findings and recommendations.
*244 Count I
Martinez-Genova represented her client Gary Wyckle, President of Charter One Group, Inc. (Charter One), in a series of transactions with Juan Aramendia and Eduardo Solares of Nikita Investment Corporation (Nikita). Charter One and Nikita entered into a conditional loan commitment agreement under which Charter One was to assist Nikita in obtaining a loan for $35 million to fund the acquisition of a pulp plant and saw mill in Guatemala. This conditional loan commitment was signed by Solares and Wyckle. The commitment stated that the borrowers would deliver $60,000 to Charter One's attorney, to be held in trust and credited to loan fees at closing. Martinez-Genova testified that she believed that Wyckle asked her, as his attorney, to hold the funds because doing so would make Wyckle appear "more credible" to his business partners.
Martinez-Genova did not sign the conditional loan commitment. However, Martinez-Genova did approve sending, on her letterhead stationery stating that she was an attorney, two letters, dated February 11, 2004, and February 19, 2004, directing Aramendia and Solares to wire transfer their deposits to her bank account. Both letters stated that the wire transfer funds would be credited to the loan commitment fee stipulated in the loan commitment. On February 12, 2004, Solares wired $8000 to Martinez-Genova's account. On February 19, 2004, Aramendia wired an additional $52,000 to Martinez-Genova's account. Ultimately, Charter One did not obtain financing on behalf of Nikita. Charter One also failed to refund any of the $60,000 deposit.
In response, Nikita retained Richard Brenner, who filed a complaint with The Florida Bar on August 28, 2004, regarding Martinez-Genova's involvement in the failed loan transaction. A Bar staff auditor examined Martinez-Genova's sole bank account for the period of June 21, 2003, to August 23, 2004. The auditor discovered that as of February 12, 2004, Martinez-Genova had a balance of $11.04. Then, on February 13, 2004, Martinez-Genova received a wire transfer in the amount of $8000 from Solares, acting under the name Helicopteros Del Norte. In the following days, Martinez-Genova made a $7700 over-the-counter cash withdrawal and several ATM withdrawals of smaller amounts. As of February 17, 2004, only $18.82 remained in Martinez-Genova's account.
On February 20, 2004, Martinez-Genova received a wire transfer in the amount of $52,000 from Aramendia. During the following week, Martinez-Genova made four over-the-counter cash withdrawals from her account totaling $25,150. Martinez-Genova also authorized three wire transfers to Charter One and its designees totaling $26,103. Finally, Martinez-Genova made a number of debit card purchases and ATM withdraws from her account during that same week. On February 27, 2004, the balance in Martinez-Genova's operating account was $327.50. By March 8, 2004, Martinez-Genova had a balance of negative $26.96.
Martinez-Genova testified that she agreed to act as Wyckle's agent in the Nikita transaction in exchange for a fee of three percent of the $60,000 deposit. She claims to have only retained or spent her $1800 fee and to have given the balance of the cash she withdrew to Wyckle. However, Martinez-Genova did not keep any records of the above transactions or document her fee.
Martinez-Genova's pattern of receiving third-party funds and disbursing them to herself or Wyckle resumed on May 13, 2004. Beginning with a balance of $1, Martinez-Genova received wire transfers totaling $59,800 over a three-month period. *245 From these funds, Martinez-Genova transferred $53,850 to American Escrow Company, LLC,[1] which was owned by Gary Wyckle, withdrew $5811 in cash and used $139 to pay bank charges.
After a hearing, the referee found Martinez-Genova guilty of violating Rule of Professional Conduct 4-8.4(c) (a lawyer shall not engage in conduct involving dishonesty, fraud, deceit, or misrepresentation) and Rules Regulating Trust Accounts 5-1.1(a) (Nature of Money or Property Entrusted to Attorney), 5-1.1(b) (Application of Trust Funds or Property to Specific Purpose), 5-1.1(e) (Notice of Receipt of Trust Funds; Delivery; Accounting), 5-1.1(f) (Disputed Ownership of Trust Funds), 5-1.2(b) (Minimum Trust Accounting Records), 5-1.2(c) (Minimum Trust Accounting Procedures), and 5-1.2(d) (Record Retention).
Specifically, the referee found that the deposit sent to Martinez-Genova by Nikita was to be held in trust according to the loan commitment and that despite this expectation of trust, Martinez-Genova "had a pattern of receiving third-party funds and simultaneously withdrawing and disbursing from those funds." The referee found that "third-party funds were not being used for their intended purpose" and that Martinez-Genova "willfully ignored her responsibilities as an attorney during the period in which she misappropriated money from third-parties." Finally, the referee found that Martinez-Genova "knew that what she was doing was wrong" and noted that neither Martinez-Genova nor Wyckle had made restitution.
Count II
The Bar's complaint also addressed Martinez-Genova's history of drug use and repeated arrests for drug possession. Martinez-Genova was arrested three times for possession of cocaine between June 20, 2002, and June 4, 2004. After the last arrest, Martinez-Genova was incarcerated and remained in custody until she was transferred to St. Luke's Addiction Recovery Center, an in-patient drug treatment facility, in July 2004. She remained in St. Luke's until she was successfully discharged in September 2004. The referee found that Martinez-Genova's drug use and possession violated Rule of Professional Conduct 4-8.4(b) (A lawyer shall not commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects).
Applying the Florida Standards for Imposing Lawyer Sanctions, the referee found four aggravating factors: (1) Martinez-Genova acted from a selfish motivethe support of her drug habit; (2) she displayed a pattern of misconduct over a substantial period of time; (3) she was involved in a series of improper transactions, amounting to multiple offenses; and (4) she caused actual harm to third parties without payment of restitution to them.
The referee found nine mitigating factors: (1) Martinez-Genova had personal and emotional problems including a cocaine addiction and clinical depression; (2) she cooperated with the Bar during its investigation; (3) she was inexperienced in the practice of law; (4) she made a good-faith effort to rectify the misconduct set out in Count II by voluntarily entering into a three-year contract with Florida Lawyers Assistance, Inc. (FLA); (5) she presented evidence of good character; (6) she had a mental disability (cocaine addiction, clinical depression); (7) she expressed *246 remorse for her misconduct; (8) she entered into interim rehabilitation programs (three-year contract with FLA, outpatient therapy, Narcotics Anonymous); and (9) she had imposed upon her other penalties or sanctions (Martinez-Genova must attend Miami Behavioral meetings, submit to semiweekly drug tests, and attend Alcoholics Anonymous and Narcotics Anonymous meetings for a period of one year by court order; Martinez-Genova suffered negative publicity in The Miami Herald; Martinez-Genova lost visitation with her son in part due to her drug use).
Based on these factors and Florida case law, the referee recommended that Martinez-Genova be sanctioned by a three-year suspension, retroactive to the date of her emergency suspension, followed by a two-year period of probation if reinstated. During this probationary period, Martinez-Genova would be required to participate in FLA, submit to mandatory semimonthly urine tests, participate in outpatient therapy, and enroll in the Law Office Management Assistance Service (LOMAS) program regarding the operation of trust accounts. Martinez-Genova's trust transactions would be monitored by a suitable mentor during the probationary period. The referee also recommended that the Bar's costs be imposed against Martinez-Genova.
The Bar filed a petition for review with this Court, seeking disbarment rather than the recommended discipline. Martinez-Genova argues that suspension is appropriate given the referee's findings of mitigating factors.
ANALYSIS
Neither party challenges the findings of fact or recommendations as to guilt. Accordingly, we approve without further discussion the referee's recommendation that Martinez-Genova be found guilty of violating the above rules. As to the recommended discipline, the Bar argues that case law requires this Court to reject the referee's recommendation of discipline. We agree.
In reviewing a referee's recommended discipline, this Court's scope of review is broader than that afforded to the referee's findings of fact because ultimately it is the Court's responsibility to order the appropriate sanction. See Fla. Bar v. Lawless, 640 So. 2d 1098, 1100 (Fla.1994); see also art. V, § 15, Fla. Const. However, generally speaking, this Court will not second-guess the referee's recommended discipline as long as it has a reasonable basis in existing case law and the Florida Standards for Imposing Lawyer Sanctions. Fla. Bar v. McFall, 863 So. 2d 303, 307 (Fla.2003).
In this case, existing law indicates that the referee's recommendation of suspension is not sufficient discipline in accord with our case law in respect to a lawyer's misuse of client funds. Disbarment is the presumptive discipline for misuse of client funds because it is unquestionably one of the most serious offenses a lawyer can commit. Fla. Bar v. Gross, 896 So. 2d 742 (Fla.2005); Fla. Bar v. Barley, 831 So. 2d 163 (Fla.2002); Fla. Bar v. Tillman, 682 So. 2d 542 (Fla.1996); Fla. Bar v. Weinstein, 635 So. 2d 21 (Fla.1994); Fla. Bar v. Shanzer, 572 So. 2d 1382 (Fla.1991). This presumption of disbarment is "exceptionally weighty when the attorney's misuse is intentional rather than a result of neglect or inadvertence." Barley, 831 So.2d at 171.
Martinez-Genova's misuse of third-party funds was intentional. Martinez-Genova's letters to Aramendia and Solares indicated that the wire-transferred funds, totaling $60,000, would be credited to the loan commitment fee. Aramendia and Solares had *247 a right to rely upon her not misusing the funds since the funds were sent to Martinez-Genova, who had sent them letters as an attorney. The referee found the commitment fee was to be held in trust. Yet, bank records indicate that on February 23, 2004, Martinez-Genova completed a withdrawal ticket for a $4500 cashier's check and another for $8000 in cash. A few days later, on February 27, 2004, Martinez-Genova again completed two withdrawal tickets, one for a $6600 cashier's check and another for $6050 in cash. During this period, Martinez-Genova also initiated three separate wire transfers, totaling $26,103, to Charter One and its creditors. Martinez-Genova could not have inadvertently walked into her bank branch and unintentionally made these withdrawals from her account.
This Court agrees with the referee's finding that Martinez-Genova "willfully ignored her responsibilities as an attorney during the period in which she misappropriated money from third-parties." As a result, Martinez-Genova's misconduct is not analogous to negligent misappropriation cases such as Florida Bar v. Mason, 826 So. 2d 985 (Fla.2002), and Florida Bar v. Wolf, 930 So. 2d 574 (Fla.2006), where this Court has found suspension to be an adequate sanction.
In both Mason and Wolf the Court found that the attorneys' misappropriations were due to mistakes in accounting practices and that there was no evidence that any clients ultimately sustained losses. Mason, 826 So.2d at 988; Wolf, 930 So.2d at 578. In contrast, Martinez-Genova kept no bank account records at all and intentionally withdrew funds that were to be held in trust. Moreover, Martinez-Genova has not made restitution to any of the injured parties.
The Florida Standards for Imposing Lawyer Sanctions confirms that disbarment is the appropriate sanction in the present disciplinary action. Section 7.1 states:
Disbarment is appropriate when a lawyer intentionally engages in conduct that is a violation of a duty owed as a professional with the intent to obtain a benefit for the lawyer or another, and causes serious or potentially serious injury to a client, the public, or the legal system.
The referee found that Martinez-Genova knowingly caused injury to members of the public for the benefit of herself and her client Wyckle. Thus, disbarment is appropriate under the Florida Standards for Imposing Lawyer Sanctions.
Martinez-Genova argues that the circumstances surrounding her misappropriation mitigate against disbarment. This Court has considered whether an attorney's personal and emotional problems, such as drug addiction, outweigh the seriousness of the attorney's misconduct when determining what discipline to impose. However, the Court finds mitigating factors to overcome the presumption of disbarment for misappropriation only in exceptional and unusual circumstances because this Court refuses to "excuse an attorney for dipping into his trust funds as a means of solving personal problems." Fla. Bar v. Shanzer, 572 So.2d at 1384.
For example, in Florida Bar v. Shuminer, 567 So. 2d 430 (Fla.1990), the Court disbarred an attorney who misappropriated client funds despite finding the mitigating factors present in the current action, personal and emotional problems, cooperation with the Bar, inexperience in the practice of law, good reputation, mental impairment due to addiction, successful rehabilitation efforts, and remorse, plus the additional factors that Shuminer had no prior disciplinary history and he had made a good-faith effort at restitution. Notwithstanding *248 this long list of mitigating factors, the Court found that Shuminer "failed to establish that his addictions rose to a sufficient level of impairment to outweigh the seriousness of his offenses." Id. at 432.
Similarly, in Florida Bar v. Clement, 662 So. 2d 690 (Fla.1995), the Court disbarred an attorney for intentional misappropriation where the attorney was diagnosed with bipolar disorder. The Court held that Clement's psychological disorder did not outweigh the seriousness of his misconduct because the referee found that Clement could distinguish right from wrong at the time of his misconduct. Id. at 699.
Martinez-Genova makes no more showing of impairment than Shuminer or Clement. Just as Shuminer "continued to work effectively" during his struggle with alcoholism, the referee found that Martinez-Genova passed the Florida Bar Examination and handled a complex litigation case despite daily cocaine use. Shuminer, 567 So.2d at 432. And the referee found that, like Clement, Martinez-Genova was able to distinguish right from wrong at the time of the misappropriation despite the effects of her drug addiction and depression.
Furthermore, Martinez-Genova's situation is distinguishable from a case where this Court found an attorney's personal problems to outweigh the seriousness of her misconduct. In Florida Bar v. Tauler, 775 So. 2d 944, 947 (Fla.2000), the Court approved the referee's recommendation of suspension and distinguished Shuminer and Shanzer after the referee found that Tauler was "less culpable" because her misconduct was the product of personal and emotional distress. Specifically, the referee found that Tauler's husband was the "prime mover" behind her wrongdoings. Id. Yet, in Tauler, we expressly cautioned that "without the unique mitigating circumstances presented in the instant case and Tauler's clear commitment to providing legal assistance to those in need, we would not hesitate to disbar Tauler." Id. at 949.
Martinez-Genova's case does not present the same unique mitigating circumstances as Tauler. Most notably, while Martinez-Genova has made no attempt at restitution, Tauler made timely and good-faith restitution. Also, while Martinez-Genova has provided some pro bono assistance, Tauler dedicated hundreds of hours to assisting the poor prior to her suspension. Finally, Martinez-Genova has some history of misconduct, whereas the Court did not note any previous discipline in Tauler.
Martinez-Genova's struggle with drug addiction and clinical depression and her admirable progress towards rehabilitation are relevant to this Court's determination of discipline. However, this is not a case where an attorney's substance abuse and personal turmoil cast doubt on the knowing, intentional nature of his or her misconduct. Upon review of all of the facts, prior case law, and the Florida Standards for Imposing Lawyer Sanctions, we find disbarment to be the appropriate level of discipline.
Finally, the referee recommended that costs in the amount of $8,235.52 be charged to Martinez-Genova. The Bar has requested that the costs incurred in seeking appellate review of the referee's erroneous recommendation of discipline also be charged to the respondent. This Court has final discretionary authority to award costs. Fla. Bar v. Lechtner, 666 So. 2d 892 (Fla.1996); Fla. Bar v. Bosse, 609 So. 2d 1320 (Fla.1992). In Lechtner, this Court explained:
[G]enerally, when there is a finding that an attorney has been found guilty of violating a Rule Regulating the Florida *249 Bar, the Bar should be awarded its costs. Assessment of costs against a respondent who has violated the Rules of Discipline is a policy decision. The choice is between imposing the costs of discipline on those who have violated our Rules of Professional Conduct or on the membership of the Bar who have not. In these situations, it is only fair to tax those costs against the member who has violated the rules.
666 So.2d at 894 (citations omitted). In the instant case, we agree that the Bar's appellate costs were reasonable and necessary to correct the referee's erroneous recommendation of discipline for such serious misconduct. We further agree that these costs should be borne by the respondent as a matter of policy.
CONCLUSION
Based on the above, we approve the referee's findings of fact and recommendations as to guilt but reject the recommended discipline and instead order disbarment. Accordingly, Elizabeth Martinez-Genova is hereby disbarred for a period of five years, effective nunc pro tunc, October 20, 2004, the effective date of the emergency suspension in Florida Bar v. Martinez-Genova, 888 So. 2d 19 (Fla.2004) (table). Martinez-Genova may petition the Florida Board of Bar Examiners for readmission five years from the date of the suspension. Judgment is entered for The Florida Bar, 651 East Jefferson Street, Tallahassee, Florida XXXXX-XXXX, for recovery of costs from Elizabeth Martinez-Genova in the amount of $12,651.61, for which sum let execution issue.
It is so ordered.
LEWIS, C.J., and ANSTEAD, PARIENTE, and QUINCE, JJ., concur.
WELLS, J., concurs in part and dissents in part with an opinion, in which CANTERO and BELL, JJ., concur.
WELLS, J., concurring in part and dissenting in part.
I concur in the majority's decision to disbar attorney Elizabeth Martinez-Genova because of the serious violations she committed. However, I dissent from the majority's decision to grant rehearing on the issue of costs and to award the Bar over $4000 in appellate costs.
As the majority correctly notes, generally, the Bar should be awarded its costs as a matter of policy where an attorney is found guilty of violating a Rule Regulating the Florida Bar. Majority op. at 248-49 (citing Fla. Bar v. Lechtner, 666 So. 2d 892 (Fla.1996)). However, no authority dictates that a respondent must always pay the Bar's disciplinary costs. To the contrary, rule 3-7.6(q)(3) of the Rules of Regulating the Florida Bar provides that when the Bar is successful, in whole or in part, in a disciplinary proceeding, the referee may assess the Bar's costs against the respondent unless it is shown that the costs were unnecessary, excessive, or improperly authenticated. This Court has repeatedly held that we have final discretionary authority to award costs and that we may consider whether an expense is reasonable and award or refuse to award that cost as sound discretion dictates. See, e.g., Fla. Bar v. Bosse, 609 So. 2d 1320 (Fla.1992); Fla. Bar v. Davis, 419 So. 2d 325 (Fla.1982).
While I agree that the referee erred in not recommending disbarment in this case, I nevertheless believe that the Court should exercise its discretion to not impose the Bar's appellate costs on Martinez-Genova due to the unique circumstances surrounding this appeal. The referee found as mitigating factors that *250 Martinez-Genova cooperated with the Bar in these proceedings and that she was genuinely remorseful for her actions. Martinez-Genova stipulated to the factual allegations against her and admitted that she violated rule 4-8.4(b). She accepted the referee's recommendations of guilt and discipline rather than petitioning this Court for review of the referee's report. After the Bar petitioned for review, she still did not challenge the referee's findings of guilt or recommended discipline. At oral argument, Martinez-Genova's counsel, appearing pro bono on her behalf, attempted to use that opportunity to argue regarding the Bar's amended affidavit of costs before being told by this Court to focus on preventing her client from being disbarred.
Given Martinez-Genova's efforts to minimize the overall cost of these proceedings, I would exercise our discretion to not tax the Bar's significant appellate costs to her. Martinez-Genova clearly brought most of the expense of this disciplinary proceeding upon herself by violating the Rules Regulating the Florida Bar. However, it is not at all clear, in my opinion, that Martinez-Genova caused the Bar's appellate costs. I would therefore approve the referee's recommendation that judgment be entered for the Bar in the amount of $8,235.52.
Moreover, I feel that it is inappropriate for the Court to grant rehearing in this case where the issue of the Bar's appellate costs was explicitly and fully considered prior to the Bar's motion for rehearing.
CANTERO and BELL, JJ., concur.
NOTES
[1] Martinez-Genova prepared American Escrow Company's articles of incorporation and signed as its registered agent. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2428890/ | 864 S.W.2d 499 (1993)
Joe Mario TREVINO, Appellant,
v.
The STATE of Texas, Appellee.
No. 69337.
Court of Criminal Appeals of Texas, En Banc.
May 26, 1993.
Rehearing Denied September 22, 1993.
*500 Art Brender, Terry M. Casey and Frank P. Colosi, court appointed on appeal, Fort Worth, Charles Van Cleve, court appointed on appeal, Arlington, for appellant.
Tim Curry, Dist. Atty. and C. Chris Marshall, Mary Thornton Taylor & Rufus Adcock, Asst. Dist. Attys, Fort Worth, Robert Huttash, State's Atty., Austin, for the State.
Before the court en banc.
OPINION ON REMAND FROM THE UNITED STATES SUPREME COURT
CAMPBELL, Judge.
Appellant was convicted of capital murder. See Tex.Penal Code § 19.03(a)(2). On original submission, we overruled appellant's twenty-four points of error and affirmed his conviction. Trevino v. State, 815 S.W.2d 592 (Tex.Cr.App.1991). In that opinion, we concluded that appellant had failed in his second point of error to raise an equal protection claim regarding the prosecution's use of its peremptory challenges to strike black people from the venire panel. Id. at 598. The United States Supreme Court granted certiorari, concluded that appellant had preserved his equal protection claim, and remanded appellant's case to this Court. Trevino v. Texas, ___ U.S. ___, 112 S. Ct. 1547, 118 L. Ed. 2d 193 (1991). We remanded appellant's case to the trial court with instructions that a full hearing be conducted for the purpose of assessing appellant's Batson[1] contentions. Trevino v. State, 841 S.W.2d 385, 387 (Tex.Cr.App.1992). That hearing has been conducted and the record thereof is now before this Court. We will affirm appellant's conviction.
At the hearing, the trial court heard testimony from five witnesses from the prosecution concerning why peremptory challenges had been used to strike the three qualified black members of the venire, Margaret Sanders, Oscar Johnson, and Ella Hollie. Additionally, one of appellant's trial attorneys testified at the hearing. After the hearing, the trial court entered findings of fact and conclusions of law. The trial court found that the prosecution had exercised its peremptory challenges against Sanders, Johnson, and Hollie based upon race neutral reasons. We will overrule the trial court's determinations only if our review of the record reveals them to be clearly erroneous. DeBlanc v. State, 799 S.W.2d 701, 713 (Tex. Cr.App.1990), cert. denied, ___ U.S. ___, 111 S. Ct. 2912, 115 L. Ed. 2d 1075 (1991); Whitsey v. State, 796 S.W.2d 707, 721 (Tex.Cr.App. 1990) (opinion on rehearing). When the evidence in the record is susceptible to two reasonable interpretations and the trial court's decision is in accord with one of those interpretations, then the trial court's choice between those interpretations may not be deemed clearly erroneous. DeBlanc, 799 S.W.2d at 713; Whitsey, 796 S.W.2d at 721-722.
At the hearing, Judge Rufus Adcock testified. Adcock stated that he had been the lead prosecutor when appellant was tried. He testified that he had conducted the voir dire of both Sanders and Hollie. Regarding Sanders, he stated that he had struck her from the jury because she seemed indifferent to law enforcement and was not in favor of capital punishment. In support of these assertions, Judge Adcock relied on Sanders' comments that she did "not discuss politics, religion or anything to do with the law." He believed that Sanders was against the death penalty because she quoted the Bible in support of her belief "that God says thou shalt not kill [and] vengeance is mine." He also struck Sanders because she had two relatives in the penitentiary and was evasive in a number of the answers she gave.
Concerning Hollie, he was even more convinced that she was not in favor of the death penalty. Hollie admitted that she had not given much thought to capital punishment, but was "leaning closer to not being for the death penalty." Adcock was especially impressed by the fact that Hollie admitted that if she were the foreman of the jury, she would not be able to sign her name to a verdict that would result in a sentence of death. Hollie stated that her inability to *501 perform such an act stemmed from her Christian beliefs. Adcock specifically testified that he received a definite visual and aural reaction from Hollie when he asked her the question about signing the verdict. Additionally, Adcock testified that he struck Hollie because appellant had already exhausted his peremptory challenges. This allowed Adcock to seek jurors who would be better able to return a verdict of death.
Adcock did not conduct the voir dire of Johnson. Instead, an assistant district attorney named Ken Gordon questioned Johnson. Gordon testified that Johnson was struck because he was strongly biased against the death penalty. In support of this, the record of the voir dire reflects that Johnson stated that he would automatically vote against the death penalty regardless of what the facts might show. Additionally, Johnson stated that he could never be convinced that a person would probably commit future acts of criminal violence. On these grounds, the trial court granted the State's challenge for cause. The State used a peremptory challenge against Johnson in an effort to protect against error that the trial court may have committed in excusing Johnson for cause.
In addition to the testimony of Adcock and Gordon, Judge Clifford Davis testified at the hearing. Judge Davis stated that he had been the presiding judge at appellant's original trial. Davis stated that since he was a black man, he was familiar with the effects of racial discrimination and had been active for thirty to forty years in the National Association for the Advancement of Colored People. He stated that the prosecution was consistent in its treatment and interrogation of the members of the venire. Judge Davis specifically said, "There was nothing to indicate to me [that] there was any plan to eliminate either blacks or hispanics from service on that jury." Appellant's sole witness at the hearing, J.R. Molina, one of appellant's trial attorneys, could only assert that the Tarrant County District Attorney's office struck veniremembers based on race. Molina admitted, however, that he had no personal knowledge of the prosecution's motivations and could not name a specific past case where the prosecution had used its peremptory challenges in a racially discriminatory manner.
Based upon this record, the trial court's determinations can not be characterized as "clearly erroneous." All of the trial court's findings of fact and conclusions of law are amply supported in the record from the original voir dire and from the Batson hearing.[2] Appellant's point of error two which alleges a violation of Batson is overruled.
The judgment of the trial court is AFFIRMED.
MALONEY, J., dissents for the reasons heretofore stated by him in this case. Trevino v. State, 841 S.W.2d 385, 388 (Tex.Cr.App. 1992).
NOTES
[1] Batson v. Kentucky, 476 U.S. 79, 106 S. Ct. 1712, 90 L. Ed. 2d 69 (1986).
[2] The trial court also found that "in all probability, no [prosecutor's] notes [of the voir dire] existed." During the voir dire, the prosecution stated on the record that only notes physically placed on the juror questionnaires regarding such facts as jurors' places of employment, length of employment, religion, etc. had been taken. The trial court noted in its conclusions of law that "[t]here were no notes in the appellate record. [Also], [a]ppellate counsel did not object to the absence of the notes." The record amply supports the trial court's conclusion that no notes existed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2426123/ | 341 S.W.2d 401 (1960)
E. G. OMOHUNDRO, Petitioner,
v.
Frank D. MATTHEWS, Jr., et al., Respondents.
No. A-7115.
Supreme Court of Texas.
October 5, 1960.
Rehearing Denied December 31, 1960.
*402 B. F. Whitworth, Jasper, Fulbright, Crooker, Freeman, Bates & Jaworski and W. H. Vaughan, Jr., of above firm, Houston, for petitioner.
Ernest S. Fellbaum and Lloyd N. Matthews, Houston, Hart & Hart, Austin, for respondents.
GREENHILL, Justice.
Frank D. Matthews, Jr., and Ray James Thompson, Jr., brought suit against E. G. Omohundro to recover an undivided 1/3rd interest each in a 1/16th overriding royalty interest which Omohundro acquired from Slick Oil Corporation. The trial court decreed that a constructive trust existed in favor of Matthews and Thompson to the interests they claimed. The Court of Civil Appeals has affirmed that judgment. Tex. Civ.App., 317 S.W.2d 771. We here affirm those judgments.
The record shows that Omohundro learned of the possibility of obtaining an assignment (commonly called a "farmout") from Humble Oil and Refining Company of oil and gas leases in Jasper County in return for a promise of drilling operations. He contacted Matthews and Thompson in April, 1955, and inquired whether they thought the area sufficiently prospective to merit the acquisition of such interests. Matthews and Thompson were geologists who had been associated with Omohundro in previous transactions. Upon investigation of data available to them, they decided the area was promising. There is testimony that the three men orally agreed to use their efforts to obtain exploration and development of leases and to divide the profits equally.
Humble, at Omohundro's request, agreed in a letter of May 13, 1955, to assign rights in several oil and gas leases in the area to Omohundro. Humble reserved rights not important here. One of such leases was the N. B. Hughes lease. It was upon this property that the principal operations were conducted. The parties hereto then undertook to find a person who would conduct drilling operations or finance the drilling of a well.
Thompson found such a person in Mr. Frank Sharp. Thompson introduced him to Omohundro. Sharp agreed to drill a well on the Hughes lease. The leases were tentatively assigned to Sharp with an overriding royalty of 1/16th being reserved in Omohundro's name.
In June of 1955, Omohundro acknowledged the interest of Frank Matthews and Ray Thompson in a letter which read:
"Dear Ray, This letter is written evidence of the fact that you and Frank each own one third interest, and that I own a remaining third interest in the overriding royalty that is reserved to me under the terms of my letter to Frank W. Sharp under date of June 10, 1955. This letter and agreement thereunder were made under the terms of letter agreement of Humble letter to me under date of May 13, 1955. At the proper time, I will make the necessary assignments to each of you upon your request."
*403 Matthews and Thompson alleged in their petition that, "Pursuant to the wishes of Sharp and the agreement between the Plaintiffs and Defendant [Omohundro], the respective interests of the parties [in the Sharp transaction] were taken in the name of the Defendant [Omohundro], and the well drilled was known as the Omohundro Hughes No. 1 well."
The Sharp well was dry and was abandoned in July of 1955. Thereafter, Omohundro, Thompson and Matthews sought others who would explore the land. This time it was Matthews who procured a driller. He met with Mr. J. P. Owen who agreed to pay $5,000 for an assignment of the leases, to drill a well at his own expense, and to allow the reservation of a 1/16th overriding royalty in Omohundro's name. Omohundro took no part in these original negotiations.
Matthews called Omohundro who was then in New York. When the matter was explained to him by Matthews, he approved of the transaction. The $5,000 was paid by Owen to Matthews who, after paying Omohundro for his expenses, agreed to divide the balance three ways. Matthews testified that the three purchased other royalty in the area with the money, "as we had always agreed to split up the profit from getting wells drilled on that area." That royalty is not involved here, but it is relevant that Matthews actually purchased it and paid for it by his check, but had the royalty placed in Omohundro's name "to keep the group together and to show good faith."
The pleadings of Matthews and Thompson again alleged that the Humble leases had been conditionally assigned to Owen "and the partners retained a 1/16th override * * *" and that the interests of the plaintiffs and defendant were taken "in the name of E. G. Omohundro in accordance with the original agreement between the parties hereto."
On December 14, 1955, Omohundro executed a written assignment to Matthews' and to Thompson's assignee of a 1/3rd interest each in the reserved overriding royalty and in the reversionary interest in the Owen transaction and acknowledging that such royalty and reversionary interest were owned equally by the three of them.
It was Omohundro's contention that this ended his association with Matthews and Thompson, but the jury found otherwise. It found that the agreement was not terminated by mutual consent on December 14, 1955, and was in existence on March 23, 1956.
The Owen well was dry and was abandoned on December 28, 1955. Since the Sharp and Owen wells were nonproductive, interest in the area declined substantially. All of Humble's leases in this part of the farmout area were allowed to lapse, with Omohundro's consent, as their delay rental dates were reached. The Hughes lease was due to expire on March 24, 1956.
Earlier in March of 1956, prior to the expiration of Humble's lease on the Hughes tract, Omohundro and Slick Oil Corporation (hereafter called Slick) agreed that Omohundro would obtain leases in the area for Slick in return for an overriding 1/16th royalty which Omohundro was to receive. Later Slick decided to use its own landmen to obtain the leases. Omohundro agreed to assist them.
On March 24, 1956, Humble, with Omohundro's consent, allowed its Hughes lease to expire. On March 28, 1956, four days later, Slick secured a lease on the Hughes and other tracts which had been contained in the farmout assignment from Humble to Omohundro in its letter of May 13, 1955. In assisting Slick, Omohundro used information he had obtained in his association with Matthews and Thompson. He used in negotiating with Slick a copy of a well-log of the Sharp well which he borrowed from Thompson. Neither Thompson nor Matthews were informed of the negotiations between Omohundro and Slick.
*404 On June 28, 1956, Slick transferred a 1/16th overriding interest in these tracts to Omohundro. Matthews and Thompson point out that since they knew nothing of the Slick transaction until it was consummated, there could have been no agreement between them and Omohundro as to whose name such interest would be taken in. Matthews and Thompson claim in this suit that they are each entitled to a one-third of the interests thus acquired by Omohundro from Slick. Their pleadings allege, among other things, the joint venture, breach of confidential relationship, use of knowledge obtained in the joint venture to obtain a private advantage, and that the consideration paid by Omohundro for the 1/16th overriding royalty from Slick was the knowledge acquired from the joint enterprise which was the property of the joint enterprise.
The jury found, among other things, that Omohundro, Matthews and Thompson entered an agreement in April, 1955, to use their joint efforts to obtain development of the area described in the Humble farmout letter, and to share all profits and benefits equally; that they did not enter into a series of separate agreements; that the agreement was not solely to share equally in the overriding royalty interests reserved in the Sharp or Owen wells; that such agreement was to extend for such length of time as any of the parties owned interests in the Humble farmout leases; that the agreement between the parties had not been terminated by mutual agreement, had not been performed, and was in force on December 14, 1955, and on March 23, 1956; that the purpose of the joint efforts had not been fully completed when the Owen well was found to be dry and abandoned; that Omohundro allowed the Hughes lease to Humble to expire by nonpayment of rentals in order to comply with his agreement with Slick; that Omohundro used information and materials acquired in his activities with Matthews and Thompson to induce Slick to make the deal with him; and that Omohundro failed to give a full account to Matthews and Thompson of his negotiations with Slick until after March 23, 1956.
The Texas Trust Act, as applicable here, provides in § 7 that a trust in relation to, or consisting of, real property shall be invalid unless created, established or declared by a written instrument.[1] The Act in § 2 defines a trust as follows:
"`Trust' for the purpose of this Act means an express trust only, and does not include (1) resulting or constructive trusts * * *."
The Act does not define the terms express, resulting, or constructive trusts. It does provide in § 7 that express trusts may be created in six specified ways, none of which particularly fits the facts of this case.
We shall assume, however, that under the pleadings of Matthews and Thompson that an express trust was created when the parties allowed the leases (the Sharp and Owen transactions) to be placed in Omohundro's name "pursuant to their agreement." The question then arises whether that ends the matter under the Texas Trust Act which says oral express trusts shall be invalid. That Act also says that it does not apply to constructive or resulting trusts. A constructive trust is not inhibited by it. There is nothing in the Act which restricts or limits the meaning of "constructive trusts" under the law as they had previously been defined by the courts.
So the question arises whether a constructive trust may be imposed to prevent unjust enrichment of one in a confidential relationship even though such person refuses to perform an unenforceable express trust? Taking the case one step further, is it the intention of the Trust Act to prohibit the courts from declaring Omohundro a constructive trustee *405 when, had the parties not so agreed, Omohundro would have been declared to be a constructive trustee? We think that under Mills v. Gray and other authorities set out below, such is not the intention of the Act. The courts, so doing, will not be enforcing an oral contract but will be enforcing a constructive trust based upon the violation of a fiduciary duty and to prevent unjust enrichment.
A constructive trust does not, like an express trust, arise because of a manifestation of intention to create it. It is imposed by law because the person holding the title to property would profit by a wrong or would be unjustly enriched if he were permitted to keep the property.[2] It is used, among other things, to adjust rights of partners.[3] The same basic rules, in situations such as we have here, apply to joint venturers.[4]
That the allegation of, or the presence of, an agreement as to the title to the property does not prohibit the imposition of a constructive trust (if it would otherwise be imposed) is illustrated by the decision of this Court in Mills v. Gray, 1948, 147 Tex. 33, 210 S.W.2d 985. As applicable here, the facts there were these: Eva and Ben Mills had a homestead on Broadway Street. They had 3 sons and a daughter: Ben, Jr., Mabel, George, and Harry Mills. The husband died, and Eva then married J. L. Gray. Thereafter Eva and J. L. Gray had marital difficulties. They and the other three children conveyed the Broadway house, without written condition, to Eva's fourth son, Harry Mills. There was no written express trust in Harry. Eva and J. L. Gray were then divorced, but later they remarried. While they were divorced, Harry sold the house on Broadway and purchased a house on Riverside. The Riverside house was purchased in part with funds received from the sale of the Broadway house and funds furnished by Eva. The opinion of this Court then says:
"The respondents [Eva and J. L. Gray et al.] alleged, and attempted to prove, that the Broadway property was conveyed to Harry G. Mills only in accordance with the plan of settling the community affairs of Mr. and Mrs. Gray, and that it was understood by all concerned that the property would be held by him in trust for the benefit of his mother and the other children, and that after the divorce he would reconvey it to her, or if sold, he would divide the proceeds * * *
"The petitioners [Harry Mills et al.] denied the existence of a trust and alleged that the Broadway property was conveyed to Harry G. Mills under an agreement that he would support and maintain his mother * * * and furnish her a home for the remainder of her life * * *; that he was ready, able and willing to carry out his agreement * * *."
Then Harry Mills alleged that "if any trust existed the same was an express parol trust" which was void and unenforceable under § 7 of the Texas Trust Act and Statute of Frauds. In the trial before the jury Eva Gray et al. tried to prove the existence of the trust by offering evidence of the agreement and understanding "prior to and at the time of the conveyance of the Broadway property to Harry G. Mills." The testimony was excluded, and the jury found that the property *406 was conveyed to Harry Mills in return for his promise to care for his mother, Eva Gray. The opinion of this Court then states:
"The Court of Civil Appeals reversed and remanded the judgment * * * upon the theory that the excluded testimony was admissible since that court concluded that the agreement, if established, created a constructive trust and thus was not affected by the Texas Trust Act." 210 S.W.2d at page 987.
After a full discussion, this Court affirmed the judgment of the Court of Civil Appeals and said: "Ordinarily a parol agreement between a grantor and a grantee that the property conveyed shall be held in trust * * * is an express trust which cannot be enforced * * *. But that rule has its exceptions."
The Court concluded: "Under these principles [discussed in the opinion], if the purported agreement and family arrangement had been established as true, a constructive trust would have arisen by reason of the confidential relation between the parties which would not fall within the prohibition of the Statute of Frauds or the Texas Trust Act. The testimony was therefore erroneously excluded by the trial court." 210 S.W.2d 988 and 989.
The holding in Mills v. Gray is in accordance with the rules in other states. Most of them have provisions similar to § 7 of our Trust Act in § 7 of their Statute of Frauds.[5]
Section 7 of the Statute of Frauds reads in part:
"That * * * all declarations, or creations of trusts, or confidences, of any lands, tenements, or hereditaments shall be manifested and proved by some writing signed by the party who is by law enabled to declare such trust * * * or else they shall be utterly void and of none effect."
Among the authorities cited and approved by this Court in Mills v. Gray, in the light of Sections 7 of the Statute of Frauds and the Texas Trust Act, are the following:
"There are numerous cases to the effect that where at the time of the transfer the transferee was in a confidential relation to the transferor, and the transferor relied upon his oral promise to reconvey the land, he is chargeable as constructive trustee of the land for the transferor. In these cases it is held that the constructive trust will be imposed even though at the time when he acquired the property the transferee intended to perform his promise and was not therefore guilty of fraud in acquiring it; and even though the transferee did not take improper advantage of the confidential relation in procuring the transfer and was not therefore guilty of using undue influence. The abuse of the confidential relation in these cases consists merely in his failure to perform his promise." 1 Scott on Trusts 253, § 44.2
*407 The opinion also quotes 54 American Jurisprudence 178, § 233:
"A constructive trust arises where a conveyance is induced on the agreement of a fiduciary or confidant to hold in trust for a reconveyance or other purpose, where the fiduciary or confidential relationship is one upon which the grantor justifiably can and does rely and where the agreement is breached, since the breach of the agreement is an abuse of the confidence, and it is not necessary to establish such a trust to show fraud or intent not to perform the agreement when it was made. The tendency of the courts is to construe the term `confidence' or `confidential relationship' liberally in favor of the confider and against the confidant, for the purpose of raising a constructive trust on a violation or betrayal thereof."
The opinion quotes also § 44 of the Restatement of Trusts which is to the same effect.
The following from § 194, Comment d., of the Restatement of Restitution is particularly pertinent:
"Where one person orally undertakes to purchase land on behalf of another, it may be urged that the other cannot enforce a constructive trust because the undertaking is oral and there is no compliance with the provisions of the Statute of Frauds. The answer to this objection is that the other is not enforcing an oral contract, but is enforcing a constructive trust based upon the violation of fiduciary duty.
"* * * * * *
"The rule stated in this Section is applicable where one person agrees to purchase property on behalf of another, whether he undertakes to purchase it in the name of the other, or in his own name, or in their joint names." (Emphasis added.)
Illustrative of cases from other jurisdictions in cases involving similar facts are Sample v. Romine, 1942, 193 Miss. 706, 8 So. 2d 257, and Kirkpatrick v. Baker, 1928, 135 Okl. 142, 276 P. 193.
Constructive trusts have been held to apply where there have been oral promises, or in spite of oral promises, in a number of related situations.[6] Perhaps the most conspicuous of such cases are those dealing with partnership property.[7]
That a relationship of trust and confidence exists when circumstances present here is clearly established under MacDonald v. Follett, 1944, 142 Tex. 616, 180 S.W.2d 334, Fitz-Gerald v. Hull, 1951, 150 *408 Tex. 39, 237 S.W.2d 256, and Smith v. Bolin, 1954, 153 Tex. 486, 271 S.W.2d 93.
MacDonald v. Follett was decided before the enactment of the Texas Trust Act. However, that case holds that a constructive trust arises under facts which are similar and stands for the proposition that parties similarly situated are in a fiduciary status of trust and confidence. There MacDonald and Follett, as agents, negotiated for an oil and gas lease and procured for themselves an overriding royalty of 1/32nd which they agreed to share. The lease expired. Follett testified that the two agreed to work for a renewal of the lease with the same sharing of the override. MacDonald got the lease renewed but took the override in his own name. The second lease also expired. But before it did, MacDonald worked up "top leases" and procured a 1/32nd override. Justice Hickman there held for the Court:
"We experience no difficulty in arriving at the conclusion that the facts above narrated * * * establish that a relation of trust and confidence existed between Follett and MacDonald prior to the execution of the 1938 top leases." 180 S.W.2d at page 337.
The Court then held, as applicable here, that, "If a relation of trust and confidence existed between MacDonald and Follett with reference to the overriding royalty under the 1937 leases, then such relationship was carried into the 1938 leases executed during the existence of that relationship." 180 S.W.2d at page 338. The Court quoted with approval 3 Pomeroy's Equity Jurisprudence, (4th ed.) § 1050, to the effect that a person in a fiduciary relationship could not, during the existence of a lease, take a renewal thereof for his own benefit to the exclusion of his fellows, but that a lease so taken inures to the benefit of all. The Court held that the facts alleged would raise a constructive trust.
A relationship of trust and confidence and a constructive trust were also held to exist where parties went together to obtain and procure exploration of "farmout" oil and gas leases under a written agreement in Smith v. Bolin, 1954, 153 Tex. 486, 271 S.W.2d 93, which cited the leading case of Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 62 A.L.R. 1.
Omohundro's counsel contends that the result above announced was foreclosed in Fitz-Gerald v. Hull, 1951, 150 Tex. 39, 237 S.W.2d 256. We do not so construe the opinion. Because the Court there held that there was no express trust, it was unnecessary to decide the question here presented. Morever the principles set out herein are, in a large measure, the same as those relied upon in that case.
In the Fitz-Gerald case, the joint adventurers were dealing in oil and gas leases. In violation of his fiduciary duty, one of the members appropriated to himself an oil and gas lease to the exclusion of his associates. Not only that, he took the lease in his own name in violation of his promise to his associates that he would take it in their joint names. In affixing a constructive trust, this Court held:
"Under such state of facts when the petitioner took title to the property in his own name in violation of his promise, and of the original agreement made between the parties, he held the title to an undivided one-half interest for the benefit of, and in trust for, the respondents. This trust arose not because there was any agreement for the title to be taken in the name of petitioner, and the property to be held by him in trust for the respondentsas would be necessary to constitute an express trustbut, because under the facts, equity would raise the trust to protect the rights of the respondents, and to prevent the unjust enrichment of petitioner by his violation of his promise and duty to the respondents to take title in the name of the three of them, and for their mutual profit and *409 advantage." (Emphasis added.) 237 S.W.2d at page 259.
So here, the Court is not enforcing the parol agreement. It is enforcing a constructive trust arising by operation of law to prevent unjust enrichment obtained through the violation of a fiduciary relationship. The fact that much the same result may be reached is not fatal. The Texas Trust Act itself, as in the case of § 7 of the Statute of Frauds, provides that it does not apply to trusts arising by operation of law; i. e., to constructive and resulting trusts. The authorities set out above so hold. In the cases of Omohundro and Fitz-Gerald, the parties were joint adventurers and both were in a confidential relationship. The duty in each instance is that the property be acquired for mutual profit and advantage. In both instances, the one would be unjustly enriched by his own wrongful act. As stated above, "This rule stated in this Section is applicable where one person agrees to purchase property on behalf of another, whether he undertakes to purchase it in the name of the other, or in his own name, or in their joint names." Restatement of Trusts § 194.
Having decided that Omohundro holds such leases as a constructive trustee, the question arises as to the extent of the interest of Matthews and Thompson in the leases. The courts below have held that they are entitled to participate equally as partners in the joint venture. This was the result reached by this Court in MacDonald v. Follett and Fitz-Gerald v. Hull, supra, where constructive trusts were affixed in oil-and-gas-lease farmout situations. But Omohundro argues that Matthews and Thompson should be limited to restitution; i. e., to any cash they might have put into the venture and to the reasonable value of their services; and that they are entitled to none of the substantial appreciation in value of the property held in trust.
There are many situations in which restitution of assets amounts to a restoration of the status quo and does equity among the parties. And there are authorities which hold that, in any event, restitution of money advanced is the limit of the recovery permitted.[8]
Omohundro cites 1 Scott on Trusts who says at p. 248:
"A cannot enforce performance of the express trust because of the statute of frauds. But B ought not to be allowed to retain A's land thus by his breach of faith to enrich himself at the expense of A. If he will not perform the express trust, he should be made to reconvey the land to A, and to hold it until reconveyance as a constructive trustee for A. A, it is true, may by means of this constructive trust get the same relief that he would secure by the enforcement of the express trust. But this is a purely accidental coincidence. His bill is not for specific performance of the express trust, but for the restitution of the status quo."
Scott here quotes the above from an article by Ames.[9] But Ames points out that an injustice is done if the trustee is able to profit materially upon a great appreciation in value of the land. Likening the situation to that where, despite the statutes, the courts require reconveyance of land when a deed is found to be a mortgage (and not merely the credit or return of money), Ames says, "But if the grantor pays or tenders the amount due the grantee, it would be shockingly unjust for the grantee to keep the land. Equity therefore says to the grantee, `We cannot compel you to perform your promise to reconvey, but if you will not keep your word, surrender to the grantor what you received from him on the faith of your promise.' Obviously this reasoning, which justifies the *410 result in mortgage cases, is equally cogent in the cases in which A conveys to B upon an oral trust to reconvey * * *"[10]
We find it unnecessary to lay down any general rule with regard to restitution, because in this case, the status quo of the joint adventurers is that of an equal sharing. The only value given to Humble for the farmout leases was an overriding royalty retained by it and the efforts of the joint venture to obtain production. This came no more from Omohundro than it did from the others. Omohundro's knowledge of the potential value of the leases came from Thompson and Matthews. Those two obtained Sharp and Owen who did the drilling on the Hughes tract. The log of the sharp well which Omohundro showed to Slick came from Thompson. There is no evidence that any of the three put any money into the venture. Indeed Omohundro was repaid his expenses from the $5,000 the three received from the assignment by them to Owen. A fundamental concept of a constructive trust is the prevention of unjust enrichment.
Under the peculiar facts and circumstances of this case, we think upon the imposition of a constructive trust the courts below correctly adjudged the joint venturers entitled to share equally in the profits derived from such venture, an equal sharing in the overriding royalty derived from Slick. Such were the results of the imposition of constructive trusts in Fitz-Gerald v. Hull, Smith v. Bolin, and in MacDonald v. Follett, supra.
Omohundro's next objection relates to the failure of the trial court to submit special issues which he requested inquiring as to whether Matthews or Thompson used confidential information belonging to others without their consent. The argument is that Matthews and Thompson do not have "clean hands" and so cannot recover. Thompson and Matthews had been employed by companies which had investigated the area for the purpose of ascertaining its possible productivity. The Court of Civil Appeals held there was no evidence to show that any information which Thompson or Matthews acquired and used was forbidden to them at the time they made use of it. It also held that even if it were forbidden to them, Omohundro would be in no position to complain.
The latter holding of the Court of Civil Appeals properly states the law. It is true, as Omohundro asserts, that one who comes seeking equity must come with clean hands. The rule is not absolute however. As stated in 2 Pomeroy at page 99:
"The party to a suit, complaining that his opponent is in court with `unclean hands' because of the latter's conduct in the transaction out of which litigation arose, or with which it is connected, must show that he himself has been injured by such conduct, to justify the application of the principle to the case. The wrong must have been done to the defendant himself and not to some third party."[11]
Any improper use of information obtained from their employers by Matthews or Thompson aided rather than injured Omohundro and will not prevent recovery here.
Finally, it is contended by Omohundro that the jury's findings to certain special issues are not supported by clear and convincing evidence. This court has no jurisdiction of these questions. The sufficiency of the evidence, in so far as *411 measuring its weight and proponderance, is a question of fact; and this court has no jurisdiction over fact questions. The clear and convincing test is but another method of measuring the weight of the credible evidence, and thus is also a fact question. Sanders v. Harder, 148 Tex. 593, 227 S.W.2d 206.
The judgments of the courts below are affirmed.
GRIFFIN and SMITH, JJ., dissenting.
SMITH, Justice (dissenting).
The dissenting opinion delivered on October 5, 1960, is withdrawn and in lieu thereof the following dissent is respectfully filed.
The petitioner's motion to disregard the findings of the jury and for judgment non obstante veredicto should have been granted. That motion embraced the first two points now contained in petitioner's application for writ of error. The points are as follows:
"Point One.
"The trial court erred in overruling petitioner's motion for judgment non obstante veredicto and the contentions made therein that the alleged trust which respondents seek to establish and enforce is an express trust created by parol in violation of Section 7 of Article 7425b, commonly known as the Texas Trust Act, and the Court of Civil Appeals erred in not so holding.
"Point Two.
"The trial court erred in overruling petitioner's motion for judgment non obstante veredicto and the contention made therein that the undisputed evidence and admissions by each and both of respondents conclusively establish that respondents used confidential information belonging to others without the consent, permission or authority of the true owners of such information, in performing the service which they claim entitles them to the trust upon which their recovery is based, and that respondents have not come into court with clean hands and are barred from any equitable relief by virtue of the doctrine of clean hands, and the Court of Civil Appeals erred in not so holding."
The writ was granted on Point One. The pertinent parts of the Texas Trust Act, Article 7425b-2 and 7, read:
"Article 7425b-2. Definition of trust.
"`Trust' for the purpose of this Act means an express trust only, and does not include (1) resulting or constructive trusts."
"Article 7425b-7. Requisites of a trust.
"An express trust may be created by one of the following means or methods:
"A. A declaration in writing by the owner [Omohundro] of the property that he holds it as trustee for another person or persons, [Frank D. Matthews, Jr. and Ray James Thompson, Jr.] or for himself and another person or persons * * *" [Emphasis added.]
The court states that:
"* * * The question arises whether a constructive trust may be imposed to prevent unjust enrichment of one in a confidential relationship even though such person refuses to perform an unenforceable express trust?"
The court seems to attach some significance to the fact that a constructive trust is not inhibited by the Texas Trust Act. Granting that it is not, I contend that there must be evidence of probative force other than the evidence which has been rendered ineffective by the Act. The evidence simply *412 does not support the court's position. There is no evidence other than the verbal agreement. The verbal agreement is unenforceable in view of the Trust Act. There is substantial authority supporting my contention that: An unenforceable oral contract cannot be the basis for a constructive trust.
The legislature adopted a definite policy when it enacted the Texas Trust Act. The statute is clear. No doubt the legislature realized that in some cases to invoke the provisions of the Act an injustice would result. Nevertheless, the question of whether the legislature exercised good judgment in enacting the statute is not for us to decide. Chief Justice Hickman speaking for the court in the case of Upson v. Fitzgerald, 129 Tex. 211, 103 S.W.2d 147, 150, properly said:
"Generally, when a court is called upon to enforce a plain, valid statute, it gives no consideration whatever to the question of whether its enforcement appears to work an injustice in the case before it. To determine the wisdom vel non of a statute is not a judicial function. `Equity follows the law,' is a familiar maxim."
This court cannot give an equitable remedy merely because a legal remedy has been denied the respondents by this statute, and the undisputed facts in this case. A constructive trust, as an equitable remedy, is not available to the respondents for the reason that they had a clear legal remedy but for the Texas Trust Act. Principles of law can be best preserved by following prior applicable decisions of this court. Law Review articles, even though written by brilliant authors, have no precedential value. Justice dictates that it is our duty to follow the law in establishing a remedy. The rules must be declared in the light of the law and not according to our individual notion or sense of what constitutes abstract justice. "Law is the coin from the mint, with its value ascertained and fixed, with the stamp of government upon it which insures and denotes its current value. The act of moulding justice into a system of rules detracts from its capacity of abstract adaptation in each particular case; and the rules of law, when applied to each case, are most usually but an approximation of justice. Still, mankind have generally thought it better to have their rights determined by such a system of rules, than by the sense of abstract justice, as determined by any one man, or set of men, whose duty it may have been to adjudge them." Justice Oran M. RobertsDuncan v. Magette, 25 Tex. 245, 253.
The court admits that under the pleadings of Matthews and Thompson an express trust was created when the parties allowed the leases (the Sharp and Owens transactions) to be placed in petitioner's name. Respondents alleged "pursuant to the wishes of the said Sharp and the agreement between plaintiffs and defendant the respective interests of the parties were taken in the name of the defendant * * *" The respondents, however, seek to place themselves without the scope of the Texas Trust Act and the settled law established by the decisions of the courts by taking the position that even though an express trust was established in the present case,[1] a constructive trust may be imposed to prevent unjust enrichment of one in a confidential relationship regardless of the fact that the pleadings and the only evidence show that the relation of trust and confidence was established by parol evidence. This evidence established only an express trust, which is expressly forbidden by Section 7 of Article 7425b of the Texas Trust Act. The respondents seek to establish an interest in land. In order to be successful, such interest must be created or evidenced by an instrument in writing or a constructive trust must be shown. Section 7 of the *413 Texas Trust Act is in substance the same as Section 7 of the English Statute of Frauds. These statutes, as well as those of many other states, require that trusts affecting lands must be created or evidenced by a proper instrument in writing. The general rule is that where the statute of frauds requires trusts to be created or evidenced by writing, an oral agreement or promise to purchase land for another's benefit cannot be enforced as an express trust. We have here an express trust which cannot be converted into a constructive trust under the evidence in this case. There was simply no basis for any fiduciary or confidential relationship between the parties at the time petitioner made the agreement with Slick Oil Corporation to assist it in the taking of new leases in the area after the Hughes lease expired on March 24, 1956. By their pleadings and the submission of Special Issue No. 1, inquiring whether or not such (oral) agreement was made, and Special Issues Nos. 2 and 3 as to its duration, respondents conceded that the admittedly oral agreement between the parties was the only basis and foundation of their claim.
The facts in our case do not show the presence of fraud. "A constructive trust generally involves primarily a presence of fraud, in view of which equitable title or interest should be recognized in some person other than the taker or holder of the legal title." Our evidence shows and the jury found that under the original agreement, the only controlling agreement, the intent and purpose of the transaction was that petitioner should hold the legal title for the use of respondents and petitioner.
The facts present the exact type of situation that the Texas Trust Act requires to be in writing. In the situation we have here, equity does not intervene. This court has, since the enactment of the Texas Trust Act, drawn the distinction between constructive trusts and express trusts. The purpose of the Trust Act was to prevent unfounded claims to land. Therefore, the requirement that all interests in land and conveyances of such interests be evidenced by instruments in writing. In view of the plain language of Section 7, Article 7425b, supra, and the definition of a constructive trust, this court has drawn a fair and reasonable line between agreements to take title in the names of the members of a joint venture and agreements to take title in the name of one of the parties to hold it in trust for the others. See Fitz-Gerald v. Hull, 150 Tex. 39, 237 S.W.2d 256.
Petitioner, under the pleadings, evidence, and jury findings, had legal and equitable dominion over the Hughes lease at all pertinent times.
The "Owen" well was the last transaction between these parties. Respondents alleged in their petition that a subsequent deal was made with J. P. Owen, and further alleged that "The interests of plaintiffs (respondents) and defendant (petitioner) were taken in the name of E. G. Omohundro, defendant, in accordance with the original (oral) agreement between the parties hereto." Clearly, the same original, broad, oral agreement between the parties constitutes the sole basis for the claim that a joint venture was still in existence after the Owen well was abandoned. Admittedly, between the date of abandonment of the Owen well, December 28, 1955, and petitioner's transaction with Slick in March of 1956, there were no joint efforts, and not even a claimed oral agreement, that respondents were to have an interest in the Slick Oil Corporation transaction. Respondents did claim that the original oral agreement was continuous. Hence, there is no basis for any fiduciary or confidential relationship. The trial court erred in failing to grant petitioner's motion for judgment non obstante veredicto since the alleged trust was an express trust created by parol in violation of and was invalid and unenforceable by virtue of Section 7 of Article 7425b, supra. Respondents do not seek to recover the reasonable value of their services (their only investment). They do not seek restitution. They are seeking specific performance of an alleged oral *414 agreement, by the terms of which the petitioner was to take title in his name and hold it in trust for the respondents. Respondents cannot enforce performance of this express trust because of the Statute of Frauds. 1 Scott on Trusts, p. 309. See Wimberly v. Kneeland, Tex.Civ.App., 293 S.W.2d 526, wr. ref. n. r. e.
The answer to the basic question here is that the undisputed facts bring this case within the inhibition of the statute. There is no basis in fact or in law for the statement of the court in the present case:
"So, here, the Court is not enforcing the parol agreement. It is enforcing a constructive trust arising by operation of law to prevent unjust enrichment obtained through the violation of a fiduciary relationship. The fact that much the same result may be reached is not fatal." [Emphasis added.]
How, may I ask, can a constructive trust arise by operation of law under the facts in this case? It simply cannot. Under the Texas Trust Act no fiduciary relationship exists. If the unenforceable oral contract did not create the fiduciary relationship between the parties, then what did? Is the socalled partnership based upon a written contract? No. The contract is oral, and unless the fiduciary relationship has been proved by facts or circumstances other than the unenforceable oral agreement, the title to the property involved cannot be legally transferred from Omohundro to the respondents. This court has never said until the opinion was handed down in this case that the breach of an unenforceable oral contract can be the basis for a constructive trust. The court cites the case of Smith v. Bolin, 153 Tex. 486, 271 S.W.2d 93, in support of its proposition. I agree that Smith v. Bolin is good law, as applied to the facts in that case, but certainly it can have no application here. The contract in that case did not rest on parol evidence. Here, the contract rests entirely upon parol evidence. The fact that subsequent to the oral contract, transactions were entered into whereby a farmout was obtained, royalty payments were divided, and a letter of transmittal was written, does not very the rule that there must be a binding agreement made in advance of the acquisition of title. Clayton v. Ancell, 140 Tex. 441, 168 S.W.2d 230, 233. The contract must be an enforceable one. Whittenburg v. Miller, 139 Tex. 586,164 S.W.2d 497, 502. In this latter case, the court correctly declared the rule by stating:
"It is the law of this state `that trusts in lands, as well as those which are created by express contract as well as those which are implied and result by construction of law, are not within the statute of frauds, and consequently need not be evidenced in writing. However, where a contract must be proven as a basis for the alleged trust, and such contract rests on parol evidence, the claim to subject land to the trust will fail. * * *' 42 T.J. sec. 67, p. 677. In order that a trust may arise from a contract, the contract must be an enforceable one." [Emphasis added.]
This rule was well settled even before the enactment of the Texas Trust Act. See Sorrells v. Coffield, 144 Tex. 31, 187 S.W.2d 980; Miller v. Graves, Tex.Civ.App., 185 S.W.2d 745, wr. ref. Here we have an unenforceable oral contract to convey land. Under such circumstances, the alleged subsequent partial performance by Omohundro could not have possibly taken it out of the statute, nor could have any degree of performance given rise to a constructive trust. We do not have a factual situation such as contemplated by Mr. Huie when he said: "* * * in many of the situations where an oral express trust was enforced prior to the Act, the Courts will be able to reach the same result now [after passage of the Texas Trust Act] by classifying the trust as resulting or constructive." Surely, Mr. Huie did not mean that a constructive trust could ever be predicated upon an unenforceable oral contract. Not one case decided since the adoption of the Texas Trust Act supports *415 the court's decision. The case of MacDonald v. Follett, 1944, 142 Tex. 616, 180 S.W.2d 334, was decided before the enactment of the Act. There can be no doubt but that a relation of trust and confidence existed. This court so held, but it must be remembered that had the Texas Trust Act been in effect, the oral agreement would have been unenforceable. If you eliminate the verbal testimony, which the Texas Trust Act and the Statute of Frauds renders ineffective, is there any evidence to support the finding that a relation of trust and confidence existed? There was no such evidence in the Follett case. Of course, the court was not deciding the question in the light of the Texas Trust Act. In view of the holdings in the cases discussed below, it is my opinion that had the Act been in force at the time of the trial of MacDonald v. Follett, supra, the court would necessarily have held that since the agreement was oral, the constructive trust arose out of an unenforceable contract. It was unenforceable [if the Trust Act had been in effect] simply because the fiduciary relationship was proved solely by the verbal agreements between MacDonald and Follett. Partnerships and joint ventures must be based on a valid enforceable contract.
The question in MacDonald v. Follett was: Did the verbal agreement raise an issue for the jury on the question of the existence of a relationship of trust and confidence? Under the then existing law, the question was pertinent. However, in view of the provisions of the Texas Trust Act, that is not the question in the present case. Our question is: Has the fiduciary relationship, the relation of trust and confidence, been established by evidence, either direct or circumstantial, other than the unenforceable oral contract? The court has failed to point out such evidence. I repeat, there is no evidence of such character for the court to rely upon.
In the case of Tolle v. Sawtelle, Tex.Civ. App., 246 S.W.2d 916, 920, wr. ref., the court held that where the contract is oral and within the Statute of Frauds, it cannot be taken out of the state on the theory of a constructive trust based merely on the breach of the contract. This court "refused" the application for writ of error. Such action gave the opinion of the Court of Civil Appeals the status of an opinion of this court. It became the opinion of this court. This is significant all the more for the reason that this court approved the construction given the case of Fitz-Gerald v. Hull, 150 Tex. 39, 237 S.W.2d 256, 267, by the Court of Civil Appeals. In the Fitz-Gerald case, the law was clearly declared by Mr. Justice Smedley in a dissenting opinion. The court, speaking through Mr. Justice Griffin, agreed with the dissent, but held that the facts removed the case from the inhibition of the statute. Mr. Justice Smedley stated in his dissent that the court conceded "that if the agreement had been that petitioner should procure the lease for the three parties, taking title in his own name, it would have been an agreement for an express trust and not enforceable."
Omohundro contends that the court in Fitz-Gerald v. Hull held that if there is an agreement between A and B that B will buy an oil and gas lease in their joint names, and B buys the lease in his own name, a constructive trust arises at the time B acquired title because of the breach of his agreement to take it in their joint names; but no constructive trust arises if A and B agree that B will buy an oil and gas lease with his own money and agrees he will later convey to A an interest therein. This court recognized the distinction between the two situations in Fitz-Gerald, and then certainly by our refusal of the writ in the Sawtelle case we recognized such distinction. In view of these positive decisions, how can this court now say that the case of Mills v. Gray, 147 Tex. 33, 210 S.W.2d 985, is controlling? That case stands principally for the proposition that the existence of a close family relationship between the grantor and the grantee is a sufficient basis alone for finding a confidential relationship. In Mills v. Gray, Mrs. Gray the mother, *416 conveyed to her son, Harry Mills, a house and lot on Broadway Street in Fort Worth to be held by him in trust for the benefit of his mother and his brothers and sisters. The conveyance was made without consideration on a promise by Mills that he would reconvey the property to Mrs. Gray after a divorce was granted in a suit between Mr. and Mrs. Gray. Mills failed to live up to his agreement and suit by Mrs. Gray followed. This was simply not a constructive trust. It was a trust intentional in law and, therefore, a resulting trust. Mills v. Gray was a restitution case. One of the briefs filed in this case after the original opinion was delivered makes an accurate analysis of the Mills v. Gray case, and I adopt the same here. The writer says:
"* * * The situation is the same as where A gives B money to buy property and B buys the property and takes it in B's name. A having furnished the consideration is the equitable owner and B is the resulting trustee. If A conveys the property to B without consideration, A is in the same situation because in either case it is A's property and B holds the naked legal title as trustee. There are many cases like Mills v. Gray where a man recovers land that he had formerly owned and which was taken from him through breach of promise, fraud, breach of agency, or some other ground which gives rise to either a suit to cancel or a constructive trust.
"For example, we quote from Faville v. Robinson, 111 Tex. 48, 227 S.W. 938:
"`Where a grant is made on the faith and because of a promise, a breach of the promise is necessarily a fraud, not to be tolerated in equity although the promise be only verbal. In such cases, where the circumstances are such as to deny the right to a rescission, equity will impose a trust upon the property as a means of defeating a fraudulent and wrongful acquisition of the title. In the phrase of Chief Justice Gibson, equity turns the fraudulent procurer of the legal title into a trustee, to get at him. Hoge v. Hoge, 1 Watts (Pa.) 214, 26 Am.Dec. 52.'"
See also Binford v. Snyder, 144 Tex. 134, 189 S.W.2d 471; Hall v. Miller, Tex.Civ. App., 147 S.W.2d 266 (wr. d. w. o. j.); Kirkland v. Handrick, Tex.Civ.App., 173 S.W.2d 735 (wr. ref. w. o. m.); Hill v. Stampfli, Tex.Com.App., 290 S.W. 522; Dyer v. Hardin, 323 S.W.2d 119 (wr. ref.).
Mills v. Gray and the other cases cited above apply to a situation which compels a grantee to restore to the grantor that which the grantee received from the grantor, as the result of a promise which the grantee did not keep.
The court in Mills v. Gray reversed and remanded the case because of an error of the trial court in excluding certain proffered testimony. The court stressed the fact that although a parent and child relationship is not intrinsically one of confidence, it does, under circumstances, involve a confidence, and that the abuse of such confidence would give rise to a constructive trust in accordance with an agreement or promise of the grantee to hold in trust or to reconvey.
The court after discussing this and other pertinent principles, held:
"Under these principles, if the purported agreement and family arrangement had been established as true, a constructive trust would have arisen by reason of the confidential relationship between the parties which would not fall within the prohibition of the statute of frauds or the Texas Trust Act. The testimony was therefore erroneously excluded by the trial court." [147 Tex. 33, 210 S.W.2d 989]
In our case, this court has reached a result that the statute prohibits. There are no independent facts. As said in 49 Am.Jur. Sec. 535, p. 835:
"In earlier cases, courts of equity were perhaps astute in laying hold of *417 circumstances to enforce oral agreements and to take them out of the operation of the statute, but the modern adjudications indicate the opposite tendency as approving the wisdom of the statute and endeavoring to carry out the spirit and intention as well as the letter thereof.
"The modern rule is that before a court of equity will enforce an oral contract coming within the operation of the statute of frauds, such as an oral contract for the sale of an interest in land, or enforce or protect rights asserted on the basis of such an oral contract, there must be collateral circumstances constituting an independent equity, imposing an obligation in conscience upon the party who seeks to invoke the protection of the statute."
The judgments of the trial court and the Court of Civil Appeals should be reversed and judgment rendered that respondents take nothing.
GRIFFIN, J., joins in this dissent.
NOTES
[1] Article 7425b Vernon's Texas Civil Statutes Annotated.
[2] Restatement of the Law of Restitution § 160 and § 194; Restatement of Trust §§ 44, 45.
[3] Logan v. Logan, 1941, 138 Tex. 40, 156 S.W.2d 507; Murrell v. Mandlebaum, 1892, 85 Tex. 22, 19 S.W. 880; 32 Tex. Jur. 282-284, Partnership § 40; 40 Am. Jur. 200, Partnership § 103; 68 C.J.S. Partnership § 72, p. 507.
[4] Fitz-Gerald v. Hull, 150 Tex. 39, 237 S.W.2d 256, at pages 264, 265; 30 Am. Jur. 965, § 38, quoted in Fitz-Gerald v. Hull, supra.
[5] For some reason, Texas did not adopt or enact § 7 of the Statute of Frauds. Guittard, "Express Oral Trusts of Land in Texas," 21 Tex.Law Rev. 719 (1943). Since Texas did not have § 7 of the Statute of Frauds, our courts, before the enactment of its equivalent, the Texas Trust Act, did not hesitate to enforce an oral agreement of a joint venturer to hold property for the benefit of all. See, e. g., Newton v. Gardner, Tex.Civ.App.1949, 225 S.W.2d 598, (ref., n.r.e.); Thompson v. Corbin, Tex.Civ.App.1940, 137 S.W.2d 157, (no writ history); Grennan v. Forgeron, Tex.Civ.App.1937, 101 S.W.2d 885, (err. dism'd); Martin v. Texas Co., Tex. Civ.App.1935, 89 S.W.2d 260, (dism'd agr.); and Lanier v. Looney, Tex.Civ.App. 1928, 2 S.W.2d 347, (error ref'd). See also Comment, "Constructive Trust Under the Texas Trust Act," 6 Southwestern L.J. 99 (1952), and Comment, "Resulting and Constructive Trusts in Realty," 1 Baylor L.Rev. 296 (1949).
[6] See, e. g., Ames, "Constructive Trusts Based Upon the Breach of an Express Oral Trust of Land," 20 Harvard L.Rev. 549 (1907); 1 Scott on Trusts § 45.2. W. O. Huie, in discussing the influence of trust law on community property law, makes the following observations:
"Accordingly, although it was held that a gift would be presumed when the husband conveyed community land to the wife, the presumption could be rebutted and an express trust in favor of the community could be established by evidence that the wife had orally agreed at the time of the conveyance that she would hold legal title in trust for the community.
"Since 1943 the Texas Trust Act has required that express trusts of land be in writing, but the Act does not apply to resulting and constructive trusts, and in many of the situations where an oral express trust was enforced prior to the Act, the courts will be able to reach the same result now by classifying the trust as resulting or constructive." (Emphasis added.) Huie, "The Community Property Law of Texas" (appearing in Vol. 13, Vernon's Tex.Civ.Stat.Ann. 1951), p. VII, at p. XII.
[7] See, e. g., 32 Tex.Jur. 282, at 283, Partnerships § 40: "Land will be regarded as held in trust for the firm by agreement or by operation of law where it has been brought into the partnership * * though title be held by the members as cotenants or by some and not all of them." See also cases cited supra Note 3.
[8] See authorities cited in Ames, "Constructive Trusts Based Upon the Breach of an Express Oral Trust of Land," 20 Harvard L.Rev. 549 et seq. Professor Ames disagrees with this limitaion.
[9] Ibid., at 551.
[10] Ibid., p. 553. The question of restitution only of money paid into a venture is complicated where the beneficiary pays nothing. For example, A gives money to B to purchase land upon B's oral promise to convey it to C. Or A owns land and conveys it to B upon B's oral promise to convey it to C or to hold it in trust for C. The Restatement says C can enforce a constructive trust if a confidential relationship exists between A and B. Restatement of Restitution § 183.
[11] See also 19 Am.Jur. 328, Equity § 474; 30 C.J.S. Equity § 98, p. 493.
[1] In fact, an express trust was not only pleaded, but was proved and so found by the jury. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1447243/ | 979 F. Supp. 531 (1997)
Robert WINBURN, Plaintiff,
v.
Cheryl BOLOGNA, et al., Defendants.
No. 2:95-CV-0044.
United States District Court, W.D. Michigan, Northern Division.
June 12, 1997.
*532 Robert Winburn, Ionia, MI, pro se.
Christine M. Campbell, Frank J. Kelley, Atty. Gen., Corrections Div., Lansing, MI, for Defendants.
*533 OPINION AND ORDER APPROVING MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION
QUIST, District Judge.
This is a pro se prisoner's civil rights action brought under 42 U.S.C. § 1983. Plaintiff alleges violations of the Religious Freedom Restoration Act (RFRA), First Amendment, and Fourteenth Amendment. At the time of the events in question, Plaintiff was an inmate at the Chippewa Correctional Facility (CCF) in Kincheloe, Michigan. Plaintiff seeks monetary damages and injunctive relief. Defendants moved for summary judgment. In a Report and Recommendation, United States Magistrate Judge Joseph G. Scoville recommended that Defendants' motion be granted, and that the claims for injunctive relief be dismissed as moot. The Report and Recommendation also noted that the Plaintiff's complaint misspelled Defendant Belonga's name as Bologna. Now before the Court are Plaintiff's objections. The Court has reviewed the Report and Recommendation filed by the United States Magistrate Judge in this action on March 27, 1997. In accordance with 28 U.S.C. § 636(b)(1), the court has made de novo consideration of those portions of the Report and Recommendation to which objection was made.
Facts
The facts in this case are not in dispute. On December 9, 1994 and December 14, 1994, Plaintiff received packages containing books or pamphlets. Defendant Belonga reviewed these materials and found them to be racist literature violative of MDOC policy directives. On both occasions, Plaintiff received a rejection notice prepared by Defendant Belonga. Plaintiff requested a hearing regarding the rejection of these materials. On December 16, 1994, Defendant Sabin conducted an administrative hearing. He determined that the materials were prohibited under policy directive 05.03.118. Paragraph N(4) of policy directive 05.03.118 provides that "materials advocating racial supremacy or ethnic purity or attacking a racial or ethnic group are prohibited because such materials are considered to be a threat to the order and security of an institution or to the rehabilitation of prisoners." Plaintiff was advised that he had the option of mailing the materials out of CCF at his expense, sending them from the facility with a visitor, or destroying the materials. Normal procedure after the hearing would have been to forward copies of the rejected materials to the Deputy Director of Correctional Facilities for review and possible addition to the MDOC's restricted publications list. However, the envelopes and the materials at issue are now lost. Defendant Belonga claims the materials were either accidentally sent to Plaintiff inside the facility or were mailed to his home. The Court is somewhat confused by Plaintiff's complaint because Plaintiff has filed with the Court copies of the very materials he claims should not have been rejected.
Discussion
Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. The rule requires that the disputed facts be material. Material facts are facts which are defined by substantive law and are necessary to apply the law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). A dispute over trivial facts which are not necessary in order to apply the substantive law does not prevent the granting of a motion for summary judgment. Id. at 248, 106 S.Ct. at 2510. The rule also requires the dispute to be genuine. A dispute is genuine if a reasonable jury could return judgment for the non-moving party. Id. This standard requires the non-moving party to present more than a scintilla of evidence to defeat the motion. Id. at 251, 106 S.Ct. at 2511 (citing Schuylkill and Dauphin Improvement Co. v. Munson, 14 Wall. 442, 448, 20 L. Ed. 867 (1871)). The summary judgment standard mirrors the standard for a directed verdict. Id. at 250, 106 S.Ct. at 2511. The only difference between the two is procedural. Id. Summary judgment is made based on documentary evidence before trial, and directed verdict is made based on evidence submitted at trial. Id.
*534 A moving party who does not have the burden of proof at trial may properly support a motion for summary judgment by showing the court that there is no evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 324-25, 106 S. Ct. 2548, 2553-54, 91 L. Ed. 2d 265 (1986). If the motion is so supported, the party opposing the motion must then demonstrate with "concrete evidence" that there is a genuine issue of material fact for trial. Id.; Frank v. D'Ambrosi, 4 F.3d 1378, 1384 (6th Cir.1993). The court must draw all inferences in a light most favorable to the non-moving party, but may grant summary judgment when "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Agristor Financial Corp. v. Van Sickle, 967 F.2d 233, 236 (6th Cir.1992) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986)).
Dismissals of complaints filed under civil rights statutes are scrutinized with special care. Brooks v. Seiter, 779 F.2d 1177, 1180 (6th Cir.1985). Also, pro se complaints are held to less stringent standards than formal pleadings drafted by lawyers. Haines v. Kerner, 404 U.S. 519, 520, 92 S. Ct. 594, 596, 30 L. Ed. 2d 652 (1972). Liberally construing the complaint filed by Plaintiff and Plaintiff's briefs in reply to Defendant's motion for summary judgment, Plaintiff has failed to show that there is any material factual issue in dispute. Plaintiff's allegations are conclusory, and must be dismissed.
In order to prevail in a Section 1983 action, the plaintiff must prove that some conduct by a person acting under color of state law deprived the plaintiff of a right secured by the Constitution or other federal laws. Jones v. Duncan, 840 F.2d 359, 360-61 (6th Cir.1988). Plaintiff contends that rejection of the Aryan material violated his rights under the Free Exercise Clause of the First Amendment and his statutory RFRA rights.
When a prison regulation impinges on inmates' constitutional rights, the regulation is valid if it is reasonably related to a legitimate penological interest. Turner v. Safley, 482 U.S. 78, 89, 107 S. Ct. 2254, 2261, 96 L. Ed. 2d 64 (1987). In determining reasonableness, relevant factors include (a) whether there is a "valid, rational connection" between the regulation and a legitimate and neutral governmental interest put forward to justify it, which connection cannot be so remote as to render the regulation arbitrary or irrational; (b) whether there are alternative means of exercising the asserted constitutional right that remain open to inmates, which alternatives, if they exist, will require a measure of judicial deference to the corrections officials' expertise; (c) whether and the extent to which accommodation of the asserted right will have an impact on prison staff, on inmates' liberty, and on the allocation of limited prison resources, which impact, if substantial, will require particular deference to corrections officials; and (d) whether the regulation represents an "exaggerated response" to prison concerns, the existence of a ready alternative that fully accommodates the prisoner's rights at de minimis costs to valid penological interests being evidence of unreasonableness. Turner, 482 U.S. at 89-91, 107 S.Ct. at 2262.
The MDOC mail policy application in this case is reasonable and facially valid under Turner. The mail regulation is logically related to legitimate security concerns of prison officials, who are worried that such material promotes violence and racial supremacy. The mail policy does not deprive prisoners of all means of expression of religion, but simply bars material that promotes racial supremacy and violence. There is no easy alternative to barring such potential violence causing materials, since allowing such material into the prison population would cause more than a de minimis cost in terms of increasing security measures. The mail regulation is not an "exaggerated response" to security concerns with racially offensive material.
In Thornburgh v. Abbott, 490 U.S. 401, 109 S. Ct. 1874, 104 L. Ed. 2d 459 (1989) the Supreme Court emphasized the First Amendment's protection of incoming prison mail, and yet recognized that prison administrators are afforded considerable deference in regulating "relations between prisoners and the outside world." Id. at 408, 109 S.Ct. at *535 1879. In addition, the Supreme Court stated that it would not substitute its judgment on difficult and sensitive matters of institutional administration for determinations of those charged with the formidable task of running prisons. O'Lone v. Estate of Shabazz, 482 U.S. 342, 353, 107 S. Ct. 2400, 2407, 96 L. Ed. 2d 282 (1987). The MDOC's restrictions against materials that advocate violence or are so racially inflammatory as to be reasonably likely to cause violence within the prison were reasonably related to legitimate penological interests and were, therefore, valid. Murphy v. Missouri Dept. of Corr., 814 F.2d 1252, 1257 (8th Cir.1987).
Under RFRA, the government is prohibited from substantially burdening a person's exercise of religion unless doing so furthers a compelling government interest and it is the least restrictive means of furthering that interest. Abdur-Rahman v. Michigan Dep't of Corrections, 65 F.3d 489, 492 (6th Cir.1995). Under the RFRA, the inmate must make a threshold showing that government action imposes a "substantial burden" on his exercise of religion. Stefanow v. McFadden, 103 F.3d 1466 (9th Cir. 1996). The interference must be more than an inconvenience; the burden must be substantial and an interference with a tenet or belief that is central to religious doctrine. Id.
Plaintiff has failed to establish that his right to exercise his faith was substantially burdened by the rejection of his mail. Plaintiff's affidavit demonstrates, in fact, that some of the material that was rejected was available to him in the prison library. Further, even if the rejection of the mail substantially burdened his ability to exercise his faith, the interest in maintaining prison security constitutes a compelling interest which would justify the burden on Plaintiff's rights.
Plaintiff's claim that Defendants deprived him of his mail without due process is without merit. In all cases where a person stands to be deprived of his life, liberty or property, he is entitled to due process of law. The due process clause does not guarantee that the procedure will produce a correct decision. Martinez v. California, 444 U.S. 277, 284 n. 9, 100 S. Ct. 553, 558 n. 9, 62 L. Ed. 2d 481 (1980). A state's deprivation "of a constitutionally protected interest in `life, liberty or property', is not in itself unconstitutional; what is unconstitutional is the deprivation of such an interest without due process of law." Zinermon v. Burch, 494 U.S. 113, 125, 110 S. Ct. 975, 983, 108 L. Ed. 2d 100 (1990) (emphasis in original). (Stevens, J., concurring) (citing Parratt v. Taylor, 451 U.S. 527, 537, 101 S. Ct. 1908, 1913, 68 L. Ed. 2d 420 (1981)). So long as Plaintiff received that process which was due under the Constitution, no federal right is implicated by a wrong result or improper motivation. Due process rights are not created by state procedural rules. Olim v. Wakinekona, 461 U.S. 238, 250, 103 S. Ct. 1741, 1748, 75 L. Ed. 2d 813 (1983). Thus, although a state may have violated its own state procedural rules, no constitutional guarantee has been violated unless the state also failed to comply with the procedural requirements mandated by the Constitution. Walker v. Mintzes, 771 F.2d 920 (6th Cir.1985). Since the constitutional minima merely require that Plaintiff receive notice and an opportunity for a hearing, the failure of Defendants to follow their own procedural guidelines does not implicate the Fourteenth Amendment. Plaintiff was provided adequate notice and an opportunity to be heard and cannot establish that he was denied the due process guaranteed by the Constitution.
When a claim for qualified immunity is raised within the context of a motion for summary judgment, "we must first decide whether the plaintiff stated a Section 1983 claim against the individual defendants before addressing the qualified immunity question." McLaurin v. Morton, 48 F.3d 944, 947 (6th Cir.1995). Government officials performing discretionary functions "generally are shielded from liability for civil damages insofar as their conduct does not violate `clearly established' statutory or constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S. Ct. 2727, 2738, 73 L. Ed. 2d 396 (1982). A right is clearly established for purposes of qualified immunity if, at the time the right was allegedly violated, *536 its contours were "sufficiently clear that a reasonable official would understand that what he is doing violates that right." Anderson v. Creighton, 483 U.S. 635, 640, 107 S. Ct. 3034, 3039, 97 L. Ed. 2d 523 (1987). In determining whether a right was clearly established at the time the defendants acted, "the law must be clear in regard to the official's particular actions in the particular situation." Black v. Parke, 4 F.3d 442, 445 (6th Cir.1993). The question of whether qualified immunity attaches is a purely legal issue for the trial court. Elder v. Holloway, 510 U.S. 510, 516, 114 S. Ct. 1019, 1023, 127 L. Ed. 2d 344 (1994); Dominque v. Telb, 831 F.2d 673, 676 (6th Cir.1987). In this case, the fact that Plaintiff put Defendants on notice that he had RFRA rights prior to the rejection hearing, does not establish his RFRA rights.
Assuming only for the sake of argument that Plaintiff did state and support a RFRA claim, Defendants would nevertheless be entitled to qualified immunity in this case. At the time of the alleged misconduct, there was a lack of a clearly established constitutional or statutory right of which a reasonable person would have known. This Court must focus upon whether Defendants, back in December of 1994, would have reasonably known of a right "clearly established" by the decisions of the Sixth Circuit or the Supreme Court. Ohio Civil Serv. Employees Ass'n v. Seiter, 858 F.2d 1171, 1177 (6th Cir.1988). Although RFRA installed the least restrictive means test by 1994, the available case law had not clarified the application of that standard. Hicks v. Garner, 69 F.3d 22, 26 (5th Cir.1995). Moreover, the RFRA standards were not clearly established because the RFRA test is ambiguous, with both Congress and the courts sending mixed messages. Haff v. Cooke, 923 F. Supp. 1104, 1115-16 (E.D.Wis.1996).
On the date of the decision to reject the mail, it was clearly established that inmates retain their First Amendment right to receive mail, but that such right would be subject to legitimate penological interests. Thornburgh v. Abbott, 490 U.S. 401, 407-09, 109 S. Ct. 1874, 1878-79, 104 L. Ed. 2d 459 (1989). Plaintiff's RFRA rights were not obviously clear to Defendants at the time that the mail was rejected. Plaintiff admits to the complexity of the RFRA statute in his request for court appointed counsel. Further, Defendants acted consistently with Plaintiff's established First Amendment rights at the time of the mail rejection, because the mail policy was reasonably related to legitimate penological interests. Turner, 482 U.S. at 87, 107 S.Ct. at 2261. Since Defendants did not violate a clearly established statutory or constitutional right, they are entitled to qualified immunity.
Conclusion
For the foregoing reasons, Defendants' Motion for Summary Judgment is granted. Plaintiff's objections to the Report and Recommendation are overruled, and the Report and Recommendation is adopted. This case, which at least borders on the frivolous, is dismissed in its entirety.
Plaintiff is hereby warned of the possible application of Section 804 of the Prison Litigation Reform Act, Pub.L. No. 104-134, 110 Stat. 1321, codified at 28 U.S.C. § 1915(g). This statute may bar future litigation that Plaintiff may wish to bring.
Further, the Court is persuaded that an appeal of the present case would not be taken in good faith, thus barring in forma pauperis status on appeal. 28 U.S.C. § 1915(a)(3). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3355352/ | [EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] MEMORANDUM OF DECISION RE: DEFENDANT'S MOTION FOR ALIMONY PENDENTE LITE
The Court denies the defendant's motion for alimony pendente lite. The Court has considered the statutory criteria and finds that the defendant is 41 years of age and is in good health. He is skilled in carpentry and cabinetmaking, and has started a cabinetmaking business with a partner. While he has not been a cabinetmaker since his marriage to the plaintiff in 1996, he had an earning capacity of $80,000 as a cabinetmaker. He is presently capable of earning $600/wk as a carpenter. He has chosen not to work as such because he wishes to re-enter the cabinetmaking business and he requires $150,000 to start up such a business. He claims that $1000 a week as alimony pendente lite would assist him in this goal. While he shows no income on his financial affidavit, he works constantly. He barters labor for services and products but there is no indication on his financial affidavit as to what he receives and how much he works. Furthermore, he obtained $6000 from his wife's credit cards without authorization in fall 1998 and received $1500 from her for rent. In addition he CT Page 4741 does not pay $250 per week in mortgage payments. It is unclear how he pays $100 per week child support for the support of a child from an earlier marriage. The many questions arising from his financial affidavit and testimony prevent him from meeting his burden of proof.
Leheny, J. | 01-03-2023 | 07-05-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/2435292/ | 897 S.W.2d 516 (1995)
GENERAL FINANCIAL SERVICES, INC., Appellant,
v.
PRACTICE PLACE, INC., Plaintiff; and Meacham 820 Joint Venture, Intervenor, Appellees.
No. 2-94-259-CV.
Court of Appeals of Texas, Fort Worth.
April 13, 1995.
*517 John A. Fietz, Dallas, for appellant.
Hill, Gilstrap, Moorhead, White, Bodoin & Webster, and Frank Gilstrap and Larry L. Fowler, Jr. Arlington, for appellees.
*518 Before CAYCE, C.J., LIVINGSTON, J., and PATRICE M. BARRON, J. (Former Justice) (Sitting by Assignment).
OPINION ON REHEARING
CAYCE, Chief Justice.
The appellees' motion for rehearing is granted. Our prior opinion and judgment of March 7, 1995, are withdrawn and the following opinion is substituted therefor.
This is an interlocutory appeal of an order granting a temporary injunction. General Financial Services, Inc. ("GFS") owns a promissory note secured by a deed of trust against a 23.591-acre tract of land. Meacham 820 Joint Venture ("Meacham") owns the land and Practice Place, Inc. ("Practice Place") leases the land from Meacham. After GFS posted the land for foreclosure, Meacham and Practice Place obtained a temporary injunction in the 352nd District Court, Tarrant County, Texas, to stop the foreclosure. GFS appeals from the order granting the temporary injunction. We affirm.
Background Facts
On January 9, 1985, M.A. Blubaugh, trustee, gave a $730,000 promissory note to MBank, Fort Worth. The Blubaugh note was payable in quarterly installments, with a balloon payment due on July 9, 1986, and was secured by a deed of trust against a 23.591-acre tract of land located on Loop 820 in north Fort Worth. Over the next two years, the note was renewed and extended three times. The third extension matured on January 9, 1989.[1]
In March 1989, the FDIC was appointed receiver of the assets of MBank, Fort Worth and simultaneously transferred the Blubaugh note to Deposit Insurance Bridge Bank N.A., Dallas, Texas ("DIBB").[2] DIBB subsequently became Bank One Texas, N.A. ("Bank One"). Thereafter, on July 14, 1993, Bank One entered into a "Loan Sale Agreement" to sell the note to GFS along with other loans. The FDIC was a third-party beneficiary to the agreement.
At some point, Meacham became the owner of the 23.591-acre tract. Meacham then leased the land to Practice Place, which is now operating a golf driving range on the land.
On June 13, 1994, GFS gave written notice of its intent to foreclose on the property on July 5. Six days prior to the scheduled foreclosure, Practice Place filed suit seeking temporary injunctive relief and a declaration that GFS's right to foreclose under the deed of trust is unenforceable, because the Blubaugh note is conclusively presumed paid pursuant to provisions of Texas Civil Practices and Remedies Code section 16.035, which provide a four-year limitations period for debt actions. Meacham later intervened seeking the same relief.
After the evidentiary hearing on Meacham and Practice Place's requests for temporary injunctive relief, the trial court granted the applications for temporary injunction by entry of an order containing the following findings:
Came on to be heard the Petition for Temporary Injunction requested by Practice Place, Inc., Plaintiff, and Meacham 820Joint Venture, Intervenor, due notice having been given. Plaintiff and Intervenor appeared in person, and by and through their attorney of record, and Defendant appeared by and through its attorney of record. The Court, having considered the pleadings, evidence and argument of counsel, finds that Plaintiff and Intervenor will probably prevail on the trial of this cause; that Intervenor is the owner of certain real property located in Tarrant County, Texas, more particularly described on Exhibit "A" attached hereto (the "Property"); that Defendant is claiming a deed of trust lien on such Property and intends to foreclose its lien on such Property by *519 conducting a trustee's sale for such Property as soon as possible and before the Court can render judgment in this cause; that Defendant is claiming that it is entitled to enforce its deed of trust lien on such Property by virtue of default on the payment of a promissory note executed by M.A. Blubaugh Trustee, dated July 9, 1985, originally payable to Mbank Fort Worth, N.A., which note matured on January 9, 1989; that the subject promissory note matured more than four years prior to the date hereof; therefore, such note is conclusively presumed to have been paid as of January 9, 1993, pursuant to Texas Civil Practices & Remedies Code § 16.035; that if Defendant carries through with its intention to foreclose its security interest in the Property, that Defendant will alter the status quo and tend to make ineffectual a judgment in favor of Plaintiff and Intervenor; and that Intervenor and Plaintiff will be without any adequate remedy at law and will be irreparably harmed if Defendant is allowed to conduct its trustee's sale, since Intervenor will lose the ownership of the subject Property, and will also lose the rental incomes which are being generated by the operation of a business by Plaintiff on such Property; and, the loss and harm which would be caused to Plaintiff and Intervenor if the foreclosure were allowed to go forward is irreparable and incapable of precise calculation. [Emphasis supplied.]
Standard Of Review
Because an appeal of an order granting or denying a temporary injunction is an appeal from an interlocutory order, the merits of the movant's case are not presented for appellate review. Car Wash Sys. v. Brigance, 856 S.W.2d 853, 857 (Tex.App.Fort Worth 1993, no writ); Manufacturers Hanover Trust Co. v. Kingston Investors Corp., 819 S.W.2d 607, 610 (Tex.App.Houston [1st Dist.] 1991, no writ). Our review is strictly limited to whether the trial court clearly abused its discretion. Iranian Muslim Org. v. City of San Antonio, 615 S.W.2d 202, 208 (Tex.1981). An abuse of discretion occurs only when the evidence upon which the injunction is granted fails to furnish any reasonable basis for concluding that the applicant has a probable defense or right to recover. Camp v. Shannon, 162 Tex. 515, 518, 348 S.W.2d 517, 519 (1961); Murphy v. Tribune Oil Corp., 656 S.W.2d 587, 589 (Tex.App. Fort Worth 1983, writ dism'd). An abuse of discretion may also occur when the trial court misapplies the law to established facts. State v. Southwestern Bell Tel. Co., 526 S.W.2d 526, 528 (Tex.1975); Car Wash Sys., 856 S.W.2d at 857.
Holding
Applying the above standard of review to the undisputed facts of this case, we hold that the trial court did not abuse its discretion in temporarily enjoining GFS's foreclosure on the basis that the lien debt may be subject to the four-year statute of limitations contained in section 16.035 of the Texas Civil Practices & Remedies Code.[3] Under the rationale of the Supreme Court of Texas in Jackson v. Thweatt, 883 S.W.2d 171 (Tex.), cert. denied sub nom. Weatherly v. Federal Debt Mgt., Inc., ___ U.S. ___, 115 S. Ct. 196, 130 L. Ed. 2d 127 (1994), and Cadle Co. v. Estate of Weaver, 883 S.W.2d 179 (Tex.1994) (per curiam), it was reasonable for the trial court to conclude that GFS was not entitled to the six-year statute of limitations provided by 12 U.S.C.A. § 1821(d)(14) (West 1989) because that right was expressly retained by *520 Bank One in the loan sale agreement with GFS.
Jackson v. Thweatt
Jackson involved two consolidated cases in which purchasers of notes from the FDIC and a transferee of the FDIC filed suit to collect on the notes more than four years after the notes matured or defaulted. The issue presented in the consolidated cases was whether purchasers of such notes from the FDIC, or successors of the FDIC's successors in interest, obtained the benefit of the federal limitations period of 12 U.S.C.A. § 1821(d)(14),[4] which gives the FDIC six years to bring suit on delinquent notes acquired from a failed bank. This limitations provision was enacted in 1989 as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA").[5]
In an opinion written by Chief Justice Phillips in which all sitting justices joined,[6] the Supreme Court of Texas held that section 1821(d)(14) applies to actions brought by purchasers of assets from the FDIC and its successors in interest to recover on those purchased assets pursuant to the common-law maxim that "[a]n assignee stands in the shoes of his assignor." Jackson, 883 S.W.2d at 174; see FDIC v. Bledsoe, 989 F.2d 805, 810 (5th Cir.1993).
In Cadle, a companion case, the supreme court, without hearing oral argument, reversed the judgment of the Dallas Court of Appeals granting summary judgment for a borrower on the ground that the FDIC's assignee, the Cadle Company ("Cadle"), did not receive the benefit of the FDIC's special six-year statute of limitations for suing on two notes. The court, however, remanded the case to the court of appeals for consideration of the borrower's argument that, "even if [Cadle] generally receives the benefit of [the FDIC's six-year limitations period], Cadle expressly waived that right ... pursuant to a contractual provision in the assignment [from FDIC]." Cadle, 883 S.W.2d at 179 n. 2.[7]
Bank One Is The FDIC's Successor In Interest
Meacham and Practice Place first contend that the trial court did not abuse its discretion in temporarily enjoining the foreclosure because there was no evidence that the FDIC ever owned the debt. They assert that, based on the evidence before the trial court, it could have easily concluded that neither DIBB nor Bank One was a successor in interest to the FDIC and, therefore, GFS could not have acquired the six-year limitations period from Bank One. We find, however, that the evidence conclusively establishes that the FDIC did own the Blubaugh note prior to its transfer to DIBB and Bank One.
In its sworn petition in intervention, Meacham made the following judicial admissions:
In March of 1989, the FDIC was appointed receiver of the assets of MBank Fort Worth, N.A., Fort Worth, Texas. Simultaneously, *521 on March 29, 1989, the FDIC transferred certain assets, including the aforereferenced Note, to the Deposit Insurance Bridge Bank, N.A., Dallas, Texas. The Deposit Insurance Bridge Bank, thereafter became Bank One, Texas, N.A. [Emphasis supplied.]
It is a well-settled rule that assertions of fact in the live pleadings of a party are judicial admissions and are binding on the party making them. Houston First Am. Sav. v. Musick, 650 S.W.2d 764, 769 (Tex. 1983); Beta Supply, Inc. v. G.E.A. Power Cooling Sys., Inc., 748 S.W.2d 541, 542 (Tex. App.Houston [1st Dist.] 1988, writ denied). Admissions are equally binding on co-parties where there is privity or a joint interest between them, they are represented by the same counsel and assert the same rights and defenses. See Freestone County Title & Abstract Co. v. Johnson, 594 S.W.2d 817, 818 (Tex.Civ.App.Dallas 1980, no writ); accord Munday v. Austin, 358 Mo. 959, 218 S.W.2d 624, 628-29 (1949). See generally 2 STEVEN GOODE, OLIN G. WELLBORN III, & M. MICHAEL SHARLOT, GUIDE TO THE TEXAS RULES OF EVIDENCE: CIVIL AND CRIMINAL § 801.13 (Texas Practice 1993).
Meacham's verified pleadings conclusively established that the Blubaugh note did, in fact, pass through the hands of the FDIC and DIBB prior to its acquisition by GFS from Bank One. Both Meacham and Practice Place are bound by this admission. Practice Place, as Meacham's lessee, is in privity with Meacham, it is acting together with Meacham in the litigation and it is represented by the same counsel as Meacham. Therefore, Meacham's judicial admission conclusively establishes that Bank One was a successor in interest of the FDIC.[8] Since there is no evidence in the record indicating that the FDIC retained its limitation rights when it transferred the Blubaugh note and deed of trust to DIBB, the trial court would have had discretion to enjoin GFS's foreclosure on state limitations grounds only if Bank One did not acquire the extended limitations period from DIBB or sell it to GFS. See Cadle, 883 S.W.2d at 179 n. 2; Jackson, 883 S.W.2d at 176.
There Is No Evidence That DIBB Reserved Or Waived The Benefits Of Section 1821(d)(14)
Meacham and Practice Place contend that neither Bank One nor GFS are entitled to the benefit of section 1821(d)(14), because DIBB allegedly entered into a new extension agreement with Blubaugh that had the effect of extinguishing DIBB's rights under the statute. However, this alleged extension agreement was not introduced in the trial court, and there is no other evidence in the record indicating that DIBB reserved or waived the benefits of section 1821(d)(14) prior to or upon the assumption of the Blubaugh note and deed of trust by Bank One. Consequently, there was no reasonable basis in the evidence or applicable law for the trial court to conclude that the six-year limitations period did not pass from DIBB to Bank One when Bank One assumed the Blubaugh note and deed of trust.
We now turn to the question of whether Bank One transferred to GFS its right to the extended limitations period.
Bank One Retained The Benefits Of Section 1821(d)(14)
Meacham and Practice Place contend that the seller of the Blubaugh note and deed of trust, Bank One (f/k/a DIBB), retained the right to sue on the note under the federal six-year statute of limitations in paragraph 31 of the loan sale agreement. Paragraph 31 of the agreement provides, in pertinent part, as follows:
Retained Rights and Claims. Notwithstanding anything to the contrary contained in any covenant, term or provision of this Agreement, Seller does not assign, transfer and convey to Purchaser those rights and claims which are hereby reserved and retained for the benefit of (a) the FDIC, either in its corporate capacity *522 or as receiver for the Former Banks being more particularly described in subparagraph (i) herein below, and (b) Seller any and all right, title and interest in and to any liens or other rights pertaining to Other Collateral, being more particularly described in subparagraph (ii) hereinbelow (such matters being hereinafter collectively referred to as "Retained Rights"):
. . . .
(ii) All of Seller's Retained Rights which shall mean: (1) any rights, causes of action or defenses of Seller which are peculiar to it as a transferee of the FDIC under applicable federal statues or rule of law; and (2) any and all right, title, and interest in and to any liens or other rights pertaining to other collateral ("Other Collateral"), other than the properties specifically securing payment of the Loans, which properties securing the Loans include the property described on Exhibit "B" attached to the Assignment, which Other Collateral may have been heretofore pledged by any of the Debtors to secure payment of other indebtedness ("Other Indebtedness") owed to the Seller and which arise under or pursuant to "cross default", "cross collateralization" or "other indebtedness" provisions contained in any of the Collateral Documents. Purchaser agrees not to enforce or otherwise exercise any rights or remedies available to Purchaser under any "cross default", "cross collateralization" and "other indebtedness" provisions contained in the Collateral Documents to the extent such provisions apply to Other Collateral or Other Indebtedness.
The foregoing provisions shall be binding upon Purchaser and any successors or assignees of Purchaser and shall inure to the benefit of the Seller and the Federal Deposit Insurance Corporation, either in its corporate capacity or as receiver for the Former Banks, as applicable. It is understood and agreed that the Federal Deposit Insurance Corporation is intended to be a third party beneficiary under this paragraph 31 and all such provisions shall expressly survive Closing. [Emphasis supplied.]
Meacham and Practice Place urge that this language may be reasonably interpreted to mean that the parties to the agreement did not intend that Bank One sell and GFS purchase Bank One's right to sue under the federal six-year limitations. GFS contends that Bank One only intended to retain this right as it pertains to "other collateral" securing "other indebtedness" owned by Bank One.
A cardinal rule of contract construction is that courts are required to construe contracts in a manner that would give effect to the parties' intentions as revealed by the language used in the contract. Jim Walter Homes, Inc. v. Schuenemann, 668 S.W.2d 324, 330 (Tex.1984); R & P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.1980). The language of a contract should be given its plain, ordinary, and commonly accepted meaning. E.g., Reilly v. Rangers Mgt., Inc., 727 S.W.2d 527, 529 (Tex.1987); Jim Walter Homes, Inc., 668 S.W.2d at 330. Courts are required to follow elemental rules of grammar for a reasonable application of the legal rules of construction. Zephyr Oil Co. v. Cunningham, 265 S.W.2d 169, 173 (Tex.Civ.App.Fort Worth 1954, writ ref'd n.r.e.).
Generally, an assignment carries with it all rights, remedies, and benefits that are incidental to the thing assigned. 6A C.J.S. Assignments § 76 (1975); see Jackson, 883 S.W.2d at 176. However, "[t]he operation and effect of an assignment may be limited by exceptions, reservations, conditions, or restrictions contained therein." 6A C.J.S. Assignments § 78 (1975); see Jackson, 883 S.W.2d at 176.
Applying these rules to the "Seller's Retained Rights" clause in paragraph 31 of the Loan Sale Agreement, we hold that the trial court could have reasonably interpreted the clause as expressing an intent that Bank One retain its right to the extended limitation period with respect to the Blubaugh note and deed of trust, rather than merely the other collateral and indebtedness of Bank One. The clause unmistakably indicates that, for whatever reason, Bank One did not intend to sell and GFS did not intend to purchase "any rights, causes of action or defenses" which *523 are "peculiar to it as a transferee of the FDIC under applicable federal statutes or rule of law." It is certainly reasonable to conclude that the federal six-year limitation period is a "right" which is "peculiar" to Bank One as a successor in interest of the FDIC. See Jackson, 883 S.W.2d at 174. Based on the record before the trial court at the time of the temporary injunction hearing, we believe it was within the trial court's discretion to temporarily enjoin GFS's foreclosure proceedings on the theory the "Seller's Retained Rights" clause includes the six-year statute of limitations pertaining to the Blubaugh note and deed of trust. Cf. Cadle, 883 S.W.2d at 179 n. 2 (recognizing possibility that seller may have reserved extended limitations period in loan sale agreement).
Therefore, to the extent that the trial court issued the injunction on the basis that Bank One may have retained in the loan sale agreement its rights under section 1821(d)(14), as they pertain to the note and deed of trust sold to GFS, we hold that the trial court did not abuse its discretion because this interpretation of the agreement provides a reasonable basis for concluding that Meacham and Practice Place have a probable limitations defense to GFS's collection efforts under the state limitations statute.
For the reasons stated above, we affirm the order of the court granting Meacham and Practice Place's prayer for injunctive relief and temporary injunction.
NOTES
[1] Meacham and Practice Place allege a fourth extension was granted by the Deposit Insurance Bridge Bank "dated effective January 9, 1989." However, the alleged agreement is not in evidence and both parties agree that January 9, 1989 is the date of maturity of the note.
[2] The FDIC is authorized to create "bridge banks" to maintain the functions of a failed bank and facilitate the return of assets owned by the failed bank to the private sector. See 12 U.S.C.A. § 1821(n) (West 1989).
[3] Section 16.035 provides as follows:
(b) A sale of real property under a power of sale in a mortgage or deed of trust that secures a lien debt must be made not later than four years after the day the cause of action accrues.
. . . .
(d) On the expiration of the four-year limitations period, it is conclusively presumed that a lien debt has been paid and the lien debt and a power of sale to enforce the lien become void at that time.
. . . .
(f) In this section, "lien debt" means:
. . . .
(2) a vendor's lien, a mortgage, a deed of trust, a voluntary mechanic's lien, or a voluntary materialman's lien on real estate, securing a note or other written obligation.
TEX.CIV.PRAC. & REM.CODE ANN. § 16.035 (Vernon 1986) (emphasis supplied).
[4] 12 U.S.C.A. § 1821(d)(14) provides as follows:
(A) In general
Notwithstanding any provision of any contract, the applicable statute of limitations with regard to any action brought by the Corporation as conservator or receiver shall be
(i) in the case of any contract claim, the longer of
(I) the 6-year period beginning on the date the claim accrues; or
(II) the period applicable under state law....
(B) Determination of the date on which a claim accrues
For purposes of subparagraph (A), the date on which the statute of limitation begins to run on any claim described in such subparagraph shall be the later of
(i) the date of the appointment of the Corporation as conservator or receiver; or
(ii) the date on which the cause of action accrues.
Id.
[5] Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. No. 101-73, § 212(d)(14), 103 Stat. 183, 232-33 (1989).
[6] Justice Enoch did not sit.
[7] On remand, the Dallas Court of Appeals held that the state statute of limitations barred Cadle's recovery because Cadle waived its right to the extended limitations period in its agreement with the FDIC. Cadle Co. v. Estate of Weaver, 897 S.W.2d 814, 817 (Tex.App.Dallas 1994, writ denied).
[8] In oral argument, counsel for Meacham and Practice Place asserted that the trial court had the discretion to ignore Meacham's admissions. We disagree. A trial court has no discretion to disregard conclusive evidence. See Boucher v. Wissman, 206 S.W.2d 101, 104 (Tex.Civ.App. Dallas 1947, writ ref'd n.r.e.). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1471191/ | 851 S.W.2d 173 (1992)
Carolyn GREATHOUSE, Independent Executrix of the Estate of Clyde R. Greathouse, Deceased, Petitioner,
v.
CHARTER NATIONAL BANK-SOUTHWEST, Respondent.
No. D-0296.
Supreme Court of Texas.
July 1, 1992.
Rehearing Overruled December 22, 1992.
Supplemental Opinion on Rehearing December 22, 1992.
Gary L. McConnell, Angleton, for petitioner.
Larry Huelbig, Audrey Seldon, Houston, for respondent.
OPINION
HECHT, Justice.
Section 9.504 of the Uniform Commercial Code, TEX.BUS. & COM.CODE § 9.504, requires that collateral must be disposed of in a commercially reasonable manner. The Code, however, does not allocate the burden of pleading and proving whether this requirement has been met in an action by a creditor against a debtor for the deficiency due after disposition of the collateral. We granted writ of error to resolve a split among Texas courts of appeals over this procedural issue.
Forrest Allen & Associates, Inc. defaulted on a note payable to Charter National Bank-Southwest, guaranteed by Clyde R. Greathouse, and secured by an assignment of insurance expirations, commissions, accounts receivable, furniture and fixtures. Charter took the pledged collateral and sold it for $100,000, leaving a principal balance due on the note of $151,014.95. Charter then sued Forrest Allen and Greathouse for the deficiency, interest and attorney fees. Greathouse died during the pendency of the suit, and the independent executrix of his estate was substituted as a defendant.
Charter did not plead that it had disposed of the collateral in a commercially reasonable manner, but it did plead generally that: "All conditions precedent have been performed or have occurred. All just and lawful credits, payments and offsets have been allowed." Defendants answered with a general denial. At trial before the court without a jury, Charter's sole witness established the amount due on the note after foreclosure, and Charter rested its case. Greathouse then moved for judgment on the grounds that Charter had failed to plead or prove an element of its cause of action, namely, a commercially reasonable disposition of the pledged collateral. Charter responded that it had satisfied its pleading *174 obligation by alleging generally the performance of all conditions precedent, and that it was not required to prove the commercial reasonableness of the foreclosure absent a specific denial by Greathouse. Charter relied upon Rule 54, Tex. R.Civ.P., which states:
In pleading the performance or occurrence of conditions precedent, it shall be sufficient to aver generally that all conditions precedent have been performed or have occurred. When such performances or occurrences have been so plead, the party so pleading same shall be required to prove only such of them as are specifically denied by the opposite party.
Charter also requested a continuance to procure evidence of the commercial reasonableness of the foreclosure sale. The trial court denied both Charter's request for a continuance and Greathouse's motion for judgment, and Greathouse rested its case without offering any evidence. After taking the case under submission, the trial court rendered judgment for Charter in the amount of $252,858.28.
Only Greathouse appealed.[1] The court of appeals affirmed, holding "that the burden of specifically pleading a lack of commercial reasonableness or notice in a deficiency action under section 9.504 ... rests with the debtor." 795 S.W.2d 1, 3. Once the debtor has specifically raised the issue, the court held, the burden of proof is upon the creditor. The court reasoned: "Such an approach informs a creditor which areas (if any) are disputed and which items of proof must be produced; it does not allow a creditor to avoid proving its case.... Without indication of a debtor's objections, a creditor is prejudiced in the preparation of its case." Id. at 2.
On the procedural issue before us, the Uniform Commercial Code has not achieved its purposes of simplification and uniformity of commercial law. Texas courts are severely split on the subject. Many of them indicate that the creditor must plead and prove a commercially reasonable disposition of the collateral,[2] while others have treated commercial unreasonableness as a defense which the debtor must raise in order to shift the burden of proof to the creditor.[3] Our sister states are equally divided. Some states place the burden on the creditor in a deficiency suit to both plead and prove compliance with the notice and commercial reasonableness requirements of section 9.504.[4] In other states, the debtor raises the issue in pleadings as a *175 counterclaim or a defense in order to put the creditor to proof on the matters so challenged, and the secured creditor then bears the burden of proving compliance.[5] A few states treat the issue as an affirmative defense.[6]
This division of authority illustrates the difficulty which attends an allocation of the burdens of pleading and proof. In discussing whether a matter should be considered an affirmative defense, Professor McDonald has observed:
the allocation of an element to the plaintiff's case or to the defendant's affirmative pleading is not determined by abstract logic. There is no reason in logic, *176 for instance, why a plaintiff should not be compelled as an element of his case to establish that he was free of contributory negligence or did not induce a particular contract by fraud; or that an assertedly subsisting claim has not been paid or released. Considerations of fairness and convenience, of the ease or difficulty of making proof, of the comparative likelihood that a particular defensive situation may exist in a reasonable proportion of the cases presented in court, and even of handicapping disfavored contentions, have contributed to the shaping of the concept of an "affirmative" defense.
2 ROY W. McDONALD, TEXAS CIVIL PRACTICE IN DISTRICT AND COUNTY COURTS § 7.34.1. C, at 221 (Frank W. Elliott ed., 1982 rev.). We employed one of these considerations in Eckman v. Centennial Sav. Bank, 784 S.W.2d 672, 675 (Tex.1990), to assign the burden of pleading and proving whether a plaintiff has assets of $25 million or more and thus is excepted from the definition of business consumer under the Deceptive Trade PracticesConsumer Protection Act, TEX.BUS. & COM.CODE § 17.45(4). In assigning that burden to the defendant, we reasoned:
The comparative likelihood that a certain situation may occur in a reasonable percentage of cases should be considered when determining whether a fact should be allocated as an element of the plaintiff's case or to the defendant as an affirmative defense.... Obviously, most litigants do not have assets of $25,000,000 or more. Requiring every DTPA plaintiff to prove that he is not a multimillionaire would be an inefficient and uneconomical use of judicial resources.
As Professor McDonald observed, logic alone does not dictate the assignment of the burden of pleading and proof. The division of authority throughout the country on the issue now before us demonstrates this. There is simply no clear answer to whether a creditor should be required to plead and prove that collateral has been disposed of in a commercially reasonable manner as an element of a claim for the amount due on the debt, or whether a debtor should be required to allege and show that collateral has not been so disposed of as a defense to the creditor's demand for payment. To resolve the issue, we consider factors like those Professor McDonald mentions.
A commercially reasonable disposition of collateral is in the nature of a condition to a creditor's recovery in a deficiency suit. We suggested this in Tanenbaum v. Economics Laboratory, Inc., 628 S.W.2d 769, 771 (Tex.1982), where we said: "The only limits on the creditor's disposition of the collateral is that it must be commercially reasonable, and must be made only after notification to the debtor if required by section 9.504. Then and only then is he entitled to sue for a deficiency." (Emphasis added.)[7] Evidence on the issue will ordinarily be more readily available to the creditor, who takes the collateral and arranges for its disposition, than to the debtor, who ordinarily plays no role in the disposition and is absent when it occurs. In general, it is easier for a creditor to prove that a disposition of collateral was commercially reasonable than for a debtor to prove it was not. Furthermore, the creditor controls the disposition of the collateral, and the debtor often has little or no say in how it is done. Accordingly, the creditor bears greater responsibility to demonstrate that the disposition met the requirements of law. However, the commercial reasonableness of a disposition of collateral is not in dispute in most deficiency suits. To require proof of this issue in every case, even if it is not disputed, would be an unreasonable burden on the judicial process.
Based upon these considerations, we conclude that a creditor in a deficiency suit must plead that disposition of the collateral *177 was commercially reasonable.[8] This may be pleaded specifically or by averring generally that all conditions precedent have been performed or have occurred. If pleaded generally, the creditor is required to prove that the disposition of collateral was commercially reasonable only if the debtor specifically denies it in his answer. Should the creditor plead specifically, then it must, of course, prove the allegation in order to obtain a favorable judgment.[9]
In this case, Charter met its burden of pleading by its general allegation that all conditions precedent had been performed. In answer, Greathouse did not specifically deny that Charter's disposition of the collateral was commercially unreasonable. Consequently, Charter was not required to prove commercial reasonableness at trial. The trial court did not err in rendering judgment for Charter. Therefore, the judgment of the court of appeals is
Affirmed.
DOGGETT, J., concurs in separate opinion in which MAUZY, J., joins.
DOGGETT, Justice, concurring.
Although joining in today's judgment, I write separately to express once again my concern regarding the unjustified delay in deciding this case. While a split of legal authority regarding even the single, narrow issue presented here necessitates careful review, the rather modest record together with briefing provided by the parties suggest that the sixteen-month lapse between argument and release of an opinion is too long. Such delay has a detrimental effect on both the parties and the process, as I noted in Delaney v. University of Houston, 835 S.W.2d 56, 61-62 (Tex.1992) (Doggett, J., concurring). I continue to assert that "justice delayed [has been] justice denied."[1]
A dilatory resolution of the issue presented injects prolonged uncertainty into commercial litigation, with resulting unfairness to businesses instituting suits to enforce debts, as well as to debtors who seek to ensure the proper calculation of any claimed deficiency. The delay also "breaches the public's trust in performing the duties of the judiciary in a timely and responsible manner." Id. at 61.
As judges, our commitment should be to a legal system that provides litigants a just and timely resolution of their disputes. See Texas Supreme Court, Code of Judicial Conduct, Canon 3, pt. A(7) ("[a] judge should dispose promptly of the business of the court."); Texas Lawyer's CreedA Mandate for Professionalism (adopted November 7, 1989) (a judge owes the public the same "diligence, candor [and] punctuality" that this Creed demands of lawyers"). Today these obligations take second place to the majority's professed "traditions." 835 S.W.2d at 61. As I wrote in Delaney:
In defense of this indefensible situation, it is urged that the "traditions" of this court are more important than the people to whom it is supposed to afford justice. 835 S.W.2d 56, 61 (per curiam).... When the "traditions" of this court cannot produce expeditious and fair resolution of litigation, they must be changed.... Everyone would be better *178 served by fewer excuses and more leadership in getting the important work of this court accomplished.
835 S.W.2d at 61.
What is unfortunate today is not my writing, nor even the majority's defensive indignation, but the regrettable state of affairs when the court cannot perform its duties in a timely fashion.
MAUZY, J., joins in this concurring opinion.
PER CURIAM CONCURRING OPINION
We write separately, once again, to answer the charge of the concurring justice that this Court has unduly delayed reaching and pronouncing a decision. The charge is unfair and wrong. We reiterate the concerns we expressed in the Court's per curiam concurring opinion in Delaney v. University of Houston, 835 S.W.2d 56, 64-65 (Tex.1992):
To assist in realizing our purpose, this institution, like other deliberative bodies, has developed traditions which engender mutual tolerance and respect and enable its members to work together to accomplish their required tasks. These traditions wisely counsel civility and fairness in our opinions.... In leveling accusations against members of the Court to which they cannot ethically respond, the concurring opinion assaults these traditions, violating the spirit of professionalism....
Only the Members of this Court and our employees who have access to our deliberations can accurately assess who among us is diligent in his work. The public must hold the Court as a whole responsible for the quality and timeliness of our decisions. Every Justice is and should be concerned about the prompt and orderly disposition of our cases, which is accomplished by working together, not by personal posturing. The concurring opinion harms the entire Court and, we are confident, benefits no one. We therefore disassociate the Court not only from the content, but also from the spirit, of that writing.
SUPPLEMENTAL OPINION ON REHEARING
DOGGETT, Justice.
The injustice addressed in my earlier concurring opinion has only been compounded. The decision in this case, not announced for sixteen months after oral argument, has now been deferred an additional four and a half months. The delay in issuing opinions in this court continues uncorrected. See Schick v. Wm. H. McGee & Co., 843 S.W.2d 473, 475 (Tex.1992) (Doggett, J., concurring opinion on order granting motion to dismiss) ("When this court delays nearly two years in deciding a case ..., no one wins and everybody loses."); Hines v. Hash, 843 S.W.2d 464, 470 (Tex.1992) (Doggett, J., concurring) (prevailing attitude here "indicates that Texans can expect more delays from a justice system that is not functioning in a proper manner.").
MAUZY, J., joins in this supplemental opinion on rehearing.
NOTES
[1] Charter does not challenge Greathouse's right to complain as a guarantor that the debtor's collateral was not disposed of in a commercially reasonable manner. We therefore assume, without deciding, that a guarantor may complain, in defense to a deficiency suit, that a creditor has failed to comply with section 9.504. See Adams v. Waldrop, 740 S.W.2d 32 (Tex. App.-El Paso 1987, no writ); Carroll v. General Elec. Credit Corp., 734 S.W.2d 153 (Tex.App.-Houston [1st Dist.] 1987, no writ); Hernandez v. Bexar County Nat'l Bank, 710 S.W.2d 684 (Tex. App.-Corpus Christi, writ ref'd n.r.e.), 716 S.W.2d 938 (Tex.1986) (per curiam); Peck v. Mack Trucks, Inc., 704 S.W.2d 583 (Tex.App.-Austin 1986, no writ).
[2] Molyneaux v. MBank Corpus Christi, 776 S.W.2d 744 (Tex.App.-Corpus Christi 1989, no writ); Plato v. Alvin State Bank, 775 S.W.2d 861 (Tex.App.-Houston [1st Dist.] 1989, no writ); Chase Commercial Corp. v. Datapoint Corp., 774 S.W.2d 359 (Tex.App.-Dallas 1989, no writ); Boles v. Texas Nat'l Bank, 750 S.W.2d 879 (Tex. App.-Waco 1988, no writ), overruled on other grounds, 813 S.W.2d 492, 495 (Tex.1991); Whirlybirds Leasing Co. v. Aerospatiale Helicopter Corp., 749 S.W.2d 915 (Tex.App.-Dallas 1988, no writ); Carroll v. General Elec. Credit Corp., 734 S.W.2d 153 (Tex.App.-Houston [1st Dist.] 1987, no writ); Peck v. Mack Trucks Inc., 704 S.W.2d 583 (Tex.App.-Austin 1986, no writ); Commercial Credit Equip. Corp. v. West, 677 S.W.2d 669 (Tex.App.-Amarillo 1984, writ ref'd n.r.e.); Gentry v. Highlands State Bank, 633 S.W.2d 590 (Tex.App.-Tyler 1982, writ ref'd).
[3] Smith v. FDIC, 800 S.W.2d 648 (Tex.App.- Houston [14th Dist.] 1990, writ dism'd by agr.); Stra, Inc. v. Seafirst Commercial Corp., 727 S.W.2d 591 (Tex.App.-Houston [1st Dist.] 1987, no writ); Sunjet, Inc. v. Ford Motor Credit Corp., 703 S.W.2d 285 (Tex.App.-Dallas 1986, no writ); Ward v. First State Bank, 605 S.W.2d 404 (Tex.Civ.App.-Amarillo 1980, writ ref'd n.r.e.); McCollum v. Parkdale State Bank, 566 S.W.2d 670 (Tex.Civ.App.-Corpus Christi 1978, no writ); Pruske v. National Bank of Commerce, 533 S.W.2d 931 (Tex.Civ.App.-San Antonio 1976, no writ).
[4] American Nat'l Bank v. Perma-Tile Roof Co., 200 Cal.App.3d 889, 246 Cal.Rptr. 381 (1988); Clark Equip. Co. v. Mastelotto, Inc., 87 Cal. App.3d 88, 150 Cal.Rptr. 797 (1978); Barber v. Leroy, 40 Cal.App.3d 336, 115 Cal.Rptr. 272 (1974); Herman Ford-Mercury, Inc. v. Betts, 251 N.W.2d 492 (Iowa 1977) (creditor required to plead and prove notification of debtor); Twin Bridges Truck City, Inc. v. Halling, 205 N.W.2d 736 (Iowa 1973) (as a condition precedent to recovering a deficiency, creditor was required to plead and prove notice of sale); Bailey v. Navistar Fin. Corp., 709 S.W.2d 841 (Ky.Ct.App.1986); Rexing v. Doug Evans Auto Sales, 703 S.W.2d 491 (Ky.Ct. App.1986); First Nat'l Bank v. Rose, 188 Neb. 362, 196 N.W.2d 507 (1972) (secured creditor bears the burden of proof regardless of whether debtor raises the issue as an affirmative defense); Bank of Burwell v. Kelley, 233 Neb. 396, 445 N.W.2d 871 (1989) (commercial reasonableness is a condition precedent to a secured creditor's right to recover); First Nat'l Bank v. Ruttle, 108 N.M. 687, 778 P.2d 434 (1989); Clark Leasing Corp. v. White Sands Forest Prod., Inc., 87 N.M. 451, 535 P.2d 1077 (1975); Chittenden Trust Co. v. Maryanski, 415 A.2d 206 (Vt.1980). Cf. Vic Hansen & Sons v. Crowley, 57 Wis.2d 106, 203 N.W.2d 728 (1973) (creditor seeking a deficiency has the burden of proving commercial reasonableness).
[5] Kobuk Eng'g & Contracting Serv., Inc. v. Superior Tank & Constr. Co., 568 P.2d 1007 (Alaska 1977); (debtor actually raised the issue; the court held that creditor had the burden of proof); Thrower v. Union Lincoln-Mercury, Inc., 282 Ark. 585, 670 S.W.2d 430 (1984) (dicta); Universal C.I.T. Credit Co. v. Rone, 248 Ark. 665, 453 S.W.2d 37, 40 (1970); Conn. Bank & Trust v. Incendy, 207 Conn. 15, 540 A.2d 32, 38 (1988); Savings Bank v. Booze, 34 Conn.Supp. 632, 382 A.2d 226 (1977); Branch v. Charlie Pike Chevrolet-Buick, Inc., 198 Ga.App. 672, 402 S.E.2d 544 (1991); McEntire v. Indiana Nat'l Bank, 471 N.E.2d 1216 (Ind.Ct.App.1984) (dicta); Shawmut Worcester County Bank v. Miller, 398 Mass. 273, 496 N.E.2d 625 (1986) (guarantors raised issue as a defense; waiver of "defense" ineffective); First Missouri Bank & Trust v. Newman, 680 S.W.2d 767 (Mo.Ct.App.1984) (secured creditor bears the burden of proving commercial reasonableness regardless of whether the debtor raised the issue as an affirmative defense); Jones v. Bank of Nevada, 91 Nev. 368, 535 P.2d 1279 (1975); New Jersey Bank v. Green, 145 N.J.Super. 560, 368 A.2d 431 (1976) (defendant raised issue); Franklin State Bank v. Parker, 136 N.J.Super. 476, 346 A.2d 632 (1975) (defendant raised issue); Long Island Trust Co. v. Williams, 133 Misc.2d 746, 507 N.Y.S.2d 993, 998 (1986) (once the issue was raised, the burden of proof remains with the secured party seeking a judgment; discrepancy between prices and book value evidence sufficient to raise issue); Fritts v. Selvais, 103 N.C.App. 149, 404 S.E.2d 505 (1991); Triad Bank v. Elliott, 101 N.C.App. 188, 399 S.E.2d 1 (1990); Parks Chevrolet, Inc. v. Watkins, 74 N.C.App. 719, 329 S.E.2d 728 (1985); Don Jenkins & Son Ford-Mercury, Inc. v. Catlette, 59 N.C.App. 482, 297 S.E.2d 409 (1982); Church v. Mickler, 55 N.C.App. 724, 287 S.E.2d 131 (1982); North Carolina Nat'l Bank v. Burnette, 297 N.C. 524, 256 S.E.2d 388 (1979); Allis-Chalmers Corp. v. Davis, 37 N.C.App. 114, 245 S.E.2d 566 (1978); Wachovia Bank & Trust Co. v. Murphy, 36 N.C.App. 760, 245 S.E.2d 101 (1978); American State Bank v. Hewson, 411 N.W.2d 57 (N.D.1978); Master Lease of Ohio, Inc. v. Andrews, 20 Ohio App.3d 217, 485 N.E.2d 820 (1984); Winters Nat'l Bank & Trust Co. v. Saker, 66 Ohio App.2d 31, 419 N.E.2d 890 (1979); but see, Huntington Bank v. Freeman, 53 Ohio App.3d 127, 560 N.E.2d 251 (1989) (where there is a gross discrepancy between disposed and original sale price of collateral, creditor must make some affirmative showing that sale terms were commercially reasonable); Savoy v. Beneficial Consumer Discount Ctr., 503 Pa. 74, 468 A.2d 465 (1983); Fidelity Consumer Discount Ctr. v. Clark, 333 Pa.Super. 306, 482 A.2d 580 (1984); Rotta v. Early Indus. Corp., 47 Wash. App. 21, 733 P.2d 576 (1987) (preserved issue by raising in closing argument and post-trial motion for reconsideration); Timms v. James, 28 Wash.App. 76, 621 P.2d 798 (1980) (raised in argument).
[6] Burdick v. Tucker, 780 P.2d 34 (Colo.Ct.App. 1989) (when secured party does not comply with notice provisions, a rebuttable presumption that sale price was equal to amount of outstanding debt; to rebut presumption, debtor must establish fair market value through evidence other than sale price); McKee v. Mississippi Bank & Trust Co., 366 So.2d 234 (Miss.1979); Ferrous Fin. Serv. Co. v. Wagnon, 70 Or.App. 285, 689 P.2d 974 (1984) (see quoted jury instructions); Bank of Chapmanville v. Workman, 185 W.Va. 161, 406 S.E.2d 58 (1991) (debtors raised a jury question on their "defense" and counterclaim alleging that the sale was not commercially reasonable; if the jury found that the sale was commercially unreasonable, creditor was not absolutely barred from recovering deficiency; creditor could overcome rebuttable presumption by proving debt exceeded fair market value of collateral).
[7] See Hill v. Thompson & Knight, 756 S.W.2d 824 (Tex.App.-Dallas 1988, no writ); Gill Sav. Ass'n v. International Supply, 759 S.W.2d 697 (Tex.App.-Dallas 1988, writ denied); B C & S Constr., Inc. v. Action Elec. Co., 753 S.W.2d 841 (Tex.App.-Fort Worth 1988, no writ); Texas Int'l Airlines v. Wits Air Freight, 608 S.W.2d 828 (Tex.Civ.App.-Dallas 1980, no writ); Southwestern Assoc. Tel. Co. v. City of Dalhart, 254 S.W.2d 819 (Tex.Civ.App.-Amarillo 1952, writ ref'd n.r.e.). See also United States v. Trimble, 86 F.R.D. 435, 436-437 (S.D.Fla.1980).
[8] We express no opinion on the allocation of the burdens of pleading and proof of commercial reasonableness in an action by a debtor against a creditor for wrongful foreclosure. The considerations would be different from those in deficiency actions.
[9] See Twin Bridges Truck City, Inc. v. Halling, 205 N.W.2d 736 (Iowa 1973) (as a condition precedent to maintaining suit for deficiency after repossession and sale of truck, creditor was required to plead and prove the required notice of sale). The Iowa court noted that plaintiff was not required to allege performance (the giving of notice) in detail, but was still required to allege performance of all conditions precedent entitling it to recover. Id., citing Henschel v. Hawkeye Security Ins. Co., 178 N.W.2d 409 (Iowa 1970), Rule 98 of the Iowa Rules of Civil Procedure, and its model, Rule 9(c) of the Federal Rules of Civil Procedure. Iowa's Rule 98, and Federal Rule 9(c), like our Rule 54, allow a pleader to aver generally that all conditions precedent have been met.
[1] Carrollton-Farmers Branch Indep. Sch. Dist. v. Edgewood Indep. Sch. Dist., 826 S.W.2d 489, 489-90 n. 1 (Tex.1992) (Doggett, J., dissenting) (noting failure to release opinion forcing taxpayers to pay unconstitutional property taxes until the passage of several deadlines, including that for payment of taxes). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1481734/ | 138 F.2d 972 (1943)
LEO FEIST, Inc.,
v.
YOUNG.
No. 8287.
Circuit Court of Appeals, Seventh Circuit.
December 3, 1943.
*973 E. S. Hartman, of Chicago, Ill., Louis D. Frohlich, of New York City, and Robt. A. Hess, of Milwaukee, Wis., for appellant.
Wm. B. Rubin, of Milwaukee, Wis., for appellee.
Before SPARKS, KERNER, and MINTON, Circuit Judges.
KERNER, Circuit Judge.
Plaintiff, the copyright proprietor of a musical composition entitled "The Waltz You Saved For Me," sought an injunction and damages against defendant for infringing its copyright under the Copyright Act, 17 U.S.C.A. § 25. The District Court, after a trial upon the merits, entered a decree dismissing plaintiff's complaint. To reverse the decree, plaintiff appeals.
Plaintiff is a music publisher, having its principal place of business in New York City, and is a member of the American Society of Composers, Authors, and Publishers (hereinafter referred to as "ASCAP"). There was a contract between plaintiff and ASCAP whereby the nondramatic public performing rights in the instant composition were vested in ASCAP. ASCAP undertook to protect the public performing rights from unlawful appropriation and was also authorized to license its rendition to those desiring to use it in public performances for profit. Defendant operates a place of public entertainment known as "The Allis House" in West Allis, Wisconsin, where music is provided for the entertainment of patrons and otherwise to promote defendant's operations and for the profit of defendant. During a period of several months prior to the institution of suit, various inspections of defendant's operations were made, disclosing that defendant had infringed and was infringing plaintiff's copyright by giving public performances of its musical composition for profit. Thereupon a communication was addressed to him calling his attention to the infringement and suggesting that he obtain a license to render plaintiff's composition. Thus he was fully informed that failure to do so would bring infringement proceedings.
Defendant concedes that he infringed plaintiff's copyright, but contends, and the District Court adopted his contention, that because plaintiff failed to comply with the provisions of a certain Wisconsin statute[1] (hereinafter referred to as the "Wisconsin statute"), it was deprived of its right to maintain this suit. The statute, which is captioned "Music brokers," provides that no person, association or corporation other than the "true or original composer" shall directly or indirectly issue licenses or other agreements for the public rendition of copyrighted musical numbers by persons within Wisconsin, unless said person, association or corporation shall first obtain a license from the Secretary of State to transact such business; that any applicant desiring such license, shall file with the Secretary of State certain information, and at the time of the filing shall pay a franchise tax equivalent to twenty-five per cent of his or its gross receipts from persons within Wisconsin for or on account of licenses or other agreements for the public rendition of copyrighted musical numbers within Wisconsin for the preceding year. The license is required to be renewed annually, and the Secretary of State, acting solely as a ministerial officer, is required to issue the license upon compliance with the foregoing provisions.
The statute further provides that those who shall, without first obtaining a license, "attempt, by threats of suit, or other means, * * * to compel persons in this state to purchase licenses for the rendition of musical numbers * * *" shall be *974 guilty of a misdemeanor. The penalty is restricted to such an infraction. No penalty is provided for issuing licenses without having complied with the statute; neither is there any provision in the statute making contracts void or barring access to the courts by those who have failed to comply with the statute.
One further provision of the statute is that no one shall act as an investigator of the rendition of copyrighted music without paying an annual license fee of $20.
Plaintiff concedes that neither it nor ASCAP qualified to do business under the statute, and it does not contest the District Court's finding that ASCAP was the agent of plaintiff.
Since plaintiff is not the true and original composer, and violation of the statute is conceded, the only issue we must decide is whether plaintiff's failure to comply with the statute deprived it of its right to maintain a suit for infringement.
The Copyright Act gives the federal District Courts jurisdiction and prescribes the venue of actions for infringement of copyright, and provides certain remedies for its violation. 17 U.S.C.A. §§ 25, 34, 35.
In answer to defendant's contention that plaintiff may not maintain this action because it is not the real party in interest, we think the Copyright Act gives the right to sue for infringement to the copyright proprietor, 17 U.S.C.A. § 25, and since plaintiff is the proprietor, it may sue. M. Witmark & Sons v. Pastime Amusement Co., D.C., 298 F. 470, 474, 475, affirmed 4 Cir., 2 F.2d 1020; cf. Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24, 40, 43 S.Ct. 254, 67 L.Ed. 516. Even if the Copyright Act did not provide that such actions may be brought by the copyright proprietor, plaintiff is the principal and ASCAP is the agent so that under elementary principles, in an action against a stranger, the principal is the proper party plaintiff.
The trial judge was of the opinion that plaintiff came into court with unclean hands because it had not complied with the Wisconsin statute. Thus, in effect, compliance with that statute was made a condition precedent to the institution of suit under the Federal Copyright Act. We do not believe that the Wisconsin statute should be permitted to prohibit the bringing of a federal suit. The Federal Copyright Act lays down a prohibition against the appropriation of the proprietor's copyrighted composition unless consent is given. And it is familiar doctrine that the prohibition of a federal statute may not be set at naught by a state statute. Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 176, 63 S.Ct. 172, 87 L.Ed. ___. Therefore, since a right would not long be respected if it could be violated with impunity, the remedy of an infringement action in the federal courts must still be open to plaintiff. Correlatively, the benefits of a federal statute may not be denied by a state statute, Sola Electric Co. v. Jefferson Electric Co., supra; see Orlando Candy Co. v. New Hampshire Fire Ins. Co., D.C., 51 F.2d 392, 393.
In bringing its infringement action, the plaintiff was following the course of conduct prescribed by the federal statute, and thus was seeking to enforce its rights in a wholly legal manner. As the court said in Leo Feist, Inc. v. Demarie, D.C., 16 F. Supp. 827, where a Louisiana statute was under consideration and non-compliance with that law by the plaintiff was pleaded as a defense, "* * * the action is one for the violation of a copyright granted by the federal government, and it will not be assumed that the Legislature meant to deny a litigant the right to go into a federal court for the protection of the property right granted by federal laws except upon conditions prescribed by the state Legislature, in the absence of clear language indicating such purpose." 16 F. Supp. at page 828.
Here, there is no language indicating a purpose to deprive plaintiff of its federal rights.
By refusing to grant plaintiff's prayer, the District Court not only deprived plaintiff of its copyright, but in effect gave judicial blessing to defendant's confiscation of it. Since equity seeks above all else to do justice, we cannot agree that a court should supinely sit by while such unlawful appropriation occurs. It is an elementary maxim of equity jurisprudence that there is no wrong without a remedy, and certainly plaintiff chose the proper forum and followed the statutorily prescribed procedure by which to assert that remedy. The District Court stated that a court of equity "will not permit itself to be used as an instrumentality by which a party may effectuate a violation of positive law or for the evasion of the requirements *975 of ethics and morality,"[2] citing many authorities therefor.[3] But by the court's inaction, defendant's violation of the copyright statute was sanctioned and the unethical appropriation was approved. The authorities cited by the District Court are not controlling here because the conduct of the plaintiff in them was fraudulent and directly connected with the issues being litigated, whereas here plaintiff has not been guilty of any inequity, unconscionable act, or wrongdoing towards the defendant. Neither has it misrepresented its musical work, which forms the basis of this action, or the copyright thereof, either to the defendant, or to the public.
In our view, a rule of equity should never be applied if its application results in injustice, which would result here if plaintiff were not allowed to enforce its congressionally bestowed right to prevent unauthorized use of its copyright. True, plaintiff failed to comply with the Wisconsin statute. But the rule is not inexorable that a plaintiff who comes into court with unclean hands is always to be denied relief, regardless of other circumstances in the case; for, if the defendant has been guilty of conduct more unconscionable and unworthy than that of the plaintiff, the rule may be relaxed. Goodyear Tire & Rubber Co. v. Overman Cushion Tire Co., 6 Cir., 95 F.2d 978, 983.
In our case, plaintiff has a valid copyright, and under general equitable principles and the Copyright Act it is entitled to protection against infringement. Defendant infringed plaintiff's copyright after repeatedly being informed that he had no right to do so, and no excuse is now[4] offered for such unconscionable illegal conduct. Although plaintiff has not "led a blameless life" if the Wisconsin statute is constitutional, its refusal to comply with the statute has at least some color of justification by virtue of its belief that the statute is unconstitutional. And plaintiff further asserts as foundation for its belief the fact that no attempt has been made by the proper Wisconsin officials to collect the franchise tax or enforce the other statutory provisions.
Since infringement is a tort, Browne Music Co. v. Fowler, 2 Cir., 290 F. 751, 754; Dreamland Ball Room v. Shapiro, Bernstein & Co., 7 Cir., 36 F.2d 354, 355; Buck v. Crescent Gardens Operating Co., D.C., 28 F.Supp. 576, 578, the instant action is ex delicto, and failure to comply with a state licensing statute does not bar recovery in an ex delicto action. Vitagraph Co. v. Twentieth Century Optiscope Co., C.C., 157 F. 699; Buckingham Radio Corp. v. Persion Furniture Co., 191 Wis. 391, 394, 211 N.W. 269; Johnson v. City of St. Louis, 8 Cir., 172 F. 31, 41, 18 Ann.Cas. 949; Sterling Products Corp. v. Sterling Products, D.C., 43 F.Supp. 548. We do not think that plaintiff's failure to obtain a license to do business in Wisconsin placed it outside the protection of the law so that a resident of Wisconsin could take its property without any legal right to do so. To so hold would be to sanction the confiscation of the plaintiff's property.
Although he cited the well-settled rule that the motive which impels a litigant to seek the court's assistance is not important so long as the litigant has a legal and moral right upon which to sue, Connolly v. Union Sewer Pipe Co., 184 U.S. 540, 22 S.Ct. 431, 46 L.Ed. 679, the trial judge found something objectionable in the fact that the prime objective of plaintiff's action was to enable ASCAP to force the defendant in Wisconsin to sign a license agreement with ASCAP so as to maintain the respect for rights given by the copyright law. We see nothing objectionable in such motive, for it is the only way in *976 which the copyright owner's rights could be protected. It has long been the policy of the federal courts to encourage adjustment of controversies arising under the copyright statute without litigation, and a license agreement is a fitting method of adjustment. Consequently, calling to the attention of an infringer the fact that he is unlawfully appropriating its property and that unless he desists or obtains proper authorization for its use suit will be instituted, is permissible. The Wisconsin statute is not to be interpreted as precluding enforcement of rights bestowed by federal law in the federal court. This is not to say that plaintiff may not be held responsible to the State of Wisconsin for violation of its duly enacted statute. But the statute is not relevant or material to the issue as presented by the complaint. The complaint charges infringement, and since infringement is admitted, relief should be granted.
The instant case is somewhat similar to Bentley v. Tibbals, 2 Cir., 223 F. 247, which was an action for copyright infringement. The defense of "unclean hands" was predicated upon the admitted fact that plaintiff had imported his English publication in violation of an Act of Congress requiring foreign works copyrighted in the United States to be printed here. The violation of such provision was made a penal offense. In disposing of this defense, the court said: "It is not sufficient to debar a suitor for relief that he has committed an unlawful act, unless that unlawful act affects the matter in litigation. The offense which Bentley committed in wrongfully importing the work was not a wrong done to this defendant, or one which in any wise prejudiced him. It was an offense committed against the United States, and one of which it alone could take cognizance." 223 F. at page 252.
Compare, also, Finchley, Inc., v. Finchley Co., D.C., 40 F.2d 736, 739. So here, plaintiff's failure to secure a license was an offense against Wisconsin of which it alone could take cognizance; and plaintiff's dereliction in this regard in no wise prejudiced the defendant or justified him in confiscating plaintiff's property. We think the clean hands maxim should be applied only where it promotes right and justice, not by way of punishment for extraneous transgressions. See Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 245, 54 S.Ct. 146, 78 L.Ed. 293; Ohio Oil Co. v. Sharp, 10 Cir., 135 F.2d 303, 307; Chicago v. Union Stock Yards & Transit Co., 164 Ill. 224, 238, 45 N.E. 430, 35 L.R.A. 281.
In reaching our conclusion we have not overlooked the fact that the Supreme Court has recently stated that courts of equity may appropriately withhold their aid where the plaintiff is using the right asserted contrary to the public interest, Morton Salt Co. v. Suppiger, 314 U.S. 488, 492, 62 S.Ct. 402, 86 L.Ed. 363, or the many cases which hold that equity will not aid a law violator,[5] or the fact that the maxim is applied, not to favor a defendant, but because of the interest of the public.[6] But in most of these authorities the plaintiff was seeking to extend the scope of his lawful patent monopoly beyond the scope of the grant or was seeking equity's aid against the very statute which he had violated. Thus the illegal action, which warranted the application of the clean hands doctrine to preclude relief, was inextricably intermingled and connected with the cause of action or at least directly related to it, whereas here the violation of the Wisconsin statute was collateral to the cause of action and certainly not directly related to it. Since the right against unauthorized rendition was expressly conferred on plaintiff by Congress through its copyright, its vindication can not be said to be inimical to the public welfare.[7] To induce denial of relief under the clean hands doctrine, the plaintiff's conduct must be such that the prosecution of its rights will of itself involve the protection of the wrongdoing. We are not approving plaintiff's noncompliance with the Wisconsin statute, and we think Wisconsin may hold plaintiff accountable for the tax required by the statute as well as punishing it for not obtaining the required licenses. But orderly administration of justice requires that, on issues properly framed, the question be relegated for determination to the Wisconsin courts.
*977 Nothing we have said in any part of this opinion is to be interpreted as intimating our views on the constitutionality of the Wisconsin statute here under consideration. The Wisconsin Supreme Court has never passed upon the statute now before us; and it is highly desirable that that court should have the opportunity to construe the meaning of this statute. Watson v. Buck, 313 U.S. 387, 61 S.Ct. 962, 85 L.Ed. 1416. If the State of Wisconsin brings an action for violation of the statute against the present plaintiff, or its agent ASCAP, the question of constitutionality will no doubt be considered. It seems to us that such an action should be promptly brought.
For the reasons above set forth, the judgment of the District Court is reversed and the cause remanded for further proceedings in conformity with this opinion.
NOTES
[1] See footnote 1 in 46 F.Supp. 622, 626. A new section was added in 1941, as follows:
"(8) The secretary of state shall enforce the provisions of this section to the end that all persons, firms and corporations affected by this section shall secure the required licenses and otherwise comply with its provisions. The secretary of state on his own initiative or upon complaint may investigate suspected or reported violations of this section and shall report the facts in connection therewith to the proper enforcement officers for prosecution." Wis. Stat.1941, § 177.01, p. 1994.
[2] Feist v. Young, D.C., 46 F.Supp. 622, 628.
[3] Mitchell v. Board of Commissioners of Leavenworth County, 91 U.S. 206, 208, 23 L.Ed. 302; Bell & Howell Co. v. Bliss, 7 Cir., 262 F. 131, 134; Memphis Keeley Institute v. Keeley, 6 Cir., 155 F. 964, 16 L.R.A.,N.S., 921; Weeghman v. Killifer, 6 Cir., 215 F. 289, L.R.A.1915A, 820; Larscheid v. Kittell, 142 Wis. 172, 125 N.W. 442, 20 Ann.Cas. 576; Worden v. California Fig Syrup Co., 187 U.S. 516, 519, 23 S.Ct. 161, 47 L.Ed. 282; California Fig Syrup Co. v. Stearns, 6 Cir., 73 F. 812, 817, 33 L.R.A. 56.
[4] Defendant contended before the District Court that his violation was justified because if he had complied with the Federal Copyright Law he would have violated a state conspiracy statute by conspiring with ASCAP to defraud Wisconsin of its franchise tax. The District Court said of this contention: "I cannot accept this contention. It is inconceivable to me that the court should hold that a person is justified in violating a Federal statute because of fear that if he complies with it he will violate a State statute." We heartily agree with the District Court on this point.
[5] For example, see Carolene Products Co. v. Evaporated Milk Ass'n, 7 Cir., 93 F.2d 202, and Whittington v. Smith, D.C., 16 F.Supp. 448.
[6] Bell & Howell Co. v. Bliss, 7 Cir., 262 F. 131, 135; General Electric Co. v. Hygrade Sylvania Corp., D.C., 45 F.Supp. 714, 718.
[7] Hence Maltz v. Sax, 7 Cir., 134 F.2d 2, 5, is not controlling. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1569447/ | 985 F. Supp. 402 (1997)
In the Matter of the APPLICATION OF MEDWAY POWER LIMITED for an Order under 28 U.S.C. § 1782 to Conduct Discovery of General Electric Company for use in an Arbitration pending in the United Kingdom against TBV Power Limited and Marubeni Europower Limited
No. M19-96.
United States District Court, S.D. New York.
November 20, 1997.
Davis Polk & Wardwell, New York City (Frank S. Moseley, David B. Anders, of counsel), for Petitioner.
Debevoise & Plimpton, New York City (David W. Rivkin, Barton Legum, of counsel) for Respondent.
MEMORANDUM & ORDER
KEVIN THOMAS DUFFY, District Judge.
I.
Petitioner Medway Power Limited ("Medway") moves for an order pursuant to 28 *403 U.S.C. § 1782 ("Section 1782") requiring General Electric Company ("GE") to produce documents for use in an arbitration pending in the United Kingdom entitled "In the Matter of an Arbitration under the Arbitration Act of 1996 between Medway Power Limited and TBV Power Limited and Marubeni Europower Limited" (the "Arbitration"). The Arbitration, to which GE is not a party, is scheduled to begin December 1, 1997. Though the papers submitted by Plaintiff's counsel are thorough, the petition is denied.
A full recitation of the background of the Arbitration is unnecessary as the issue here has little to do with those facts. The arbitrator, in a letter dated September 12, 1997, "direct[ed that GE's documents] are relevant and necessary for the fair determination of the dispute" in the Arbitration. (Campbell Aff.Ex. 4 at 2). This letter, however, is neither an order nor letters rogatory. Whether this Court should approve a petition under Section 1782 based upon an English arbitrator's request seeking discovery from an entitylocated in the Southern District and not a party to the arbitrationappears to be one of first impression.
II.
Petitioner argues that an unofficial, private arbitration constitutes a "proceeding in a foreign or international tribunal" under Section 1782. At first glance, what adjudicatory bodies fall within the term "tribunal" may appear to be an exercise in semantics better left to a lexicographer than a district court judge. There are, however, distinctions that are important to this discussion. One dictionary defines "tribunal" as "a seat or bench upon which a judge or judges sit in a court" or "a court of justice." WEBSTER'S NEW WORLD DICTIONARY 1427 (3d College Ed.1986). At oral arguments, I asked petitioner's counsel a series of hypotheticals concerning what weight he would give to rulings of tribunals, such as a feudal patriarch or a Bet Din (Jewish religious court). A feudal patriarch and a Bet Din may be referred to colloquially as tribunals, but are not tribunals in a formal sense. If they were tribunals under Section 1782, the potential discovery problems would be fascinating.
A private arbitration generally has not been referred to as a tribunal. It is true that Section 1(a) of the English Arbitration Act of 1996 states, "the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense." Arbitration Act of 1996, Ch. 23 § 1(a) (Eng.), reprinted in INTL. HANDBOOK ON COMM.ARB.SUPPL. 23, Eng.: Annex I (Mar. 1997). That, however, does not make an arbitration a tribunal in the formal sense.
III.
I find that an arbitration is not a tribunal for the purposes of Section 1782. Congress intended this statute to assist official, governmental bodies exercising an adjudicatory function. The legislative history of Section 1782 does not suggest an intent to encompass unofficial, private arbitrationswhich Congress and the courts have consistently treated as creatures of a contract which a court should enforce just like any other obligation imposed by private agreement.
Arbitration differs critically from litigation in that arbitrators are not officials of foreign sovereign governments, but private persons tested with their decision-making authority most commonly as a result of private parties' entering into contractual arrangements for the private resolution of disputes.
Lawrence W. Newman & Rafael Castilla, Production of Evidence through U.S. Courts for Use in International Arbitration, 9 J. INT'L ARB. 61, 69 (June 1992).
Respondent's counsel aptly notes that the United States Code's consistent distinction between "tribunals" and "arbitrations" provides evidence that the ordinary understanding of "tribunal" does not encompass private arbitrations. (Resp.Mem. at 7-8); see, e.g., 5 U.S.C. § 552b(c)(10) (1997) (agency not required to disclose information concerning "the agency's participation in a civil action or proceeding, an action in a foreign court or international tribunal, or an arbitration").
Furthermore, the legislative history of Section 1782 confirms Congress' intent in adding the term "tribunal" was to extend the statute to public, official adjudicatory proceedings. *404 In 1964, the statute was amended to apply to a "proceeding in a foreign or international tribunal" rather than only to a "judicial proceeding," as the statute had previously provided. This change in language was intended to make the statute available to foreign governmental agencies exercising a judicial or quasi-judicial function as well as to "conventional courts:"
The word "tribunal" is used to make it clear that assistance is not confined to proceedings before conventional courts. For example, it is intended that the court have discretion to grant assistance when proceedings are pending before investigating magistrates in foreign countries. In view of the constant growth of administrative and quasi-judicial proceedings all over the world, the necessity for obtaining evidence in the United States may be as impelling in proceedings before a foreign administrative or quasi-judicial agency as in the proceedings before a conventional foreign court. Subsection (a) therefore provides the possibility of U.S. judicial assistance in connection with all such proceedings.
H.R.Rep. 1052, 88th Cong., 1st Sess. 9 (1963) (citation omitted), reprinted in 1964 U.S.CODE, CONG. & ADMIN. NEWS 3782, 3788. Congress chose not to include "arbitration" in Section 1782. Nor did Congress insert a term or terms more inclusive than "foreign and international tribunals."
I have been referred to one case as being on point. In re Application of Technostroyexport, 853 F. Supp. 695, 697 (S.D.N.Y.1994), involved a Russian seller of minerals to a New York corporation which filed a petition seeking discovery in aid of arbitration proceedings commenced in Moscow and Stockholm. Having reviewed Russian and Swedish law, Judge Griesa said:
The court is of the view that an arbitrator or arbitration panel is a "tribunal" under § 1782. The court further believes that, if [the party] had obtained a ruling from a foreign arbitrator that discovery should take place, the court would be empowered under § 1782 to enforce that ruling in the United States.
Judge Griesa, however, cited no authority to support this view. I must reject his dicta as precedent binding on this Court.
IV.
In any event, Technostroyexport is clearly distinguishable from the present petition, because that case involved a discovery dispute between parties that had formally agreed to submit their controversy to arbitration. Here, GE is not a party to the Medway arbitration, has not consented to arbitrate any dispute with Medway, and has never agreed to abide by any decision of the English attorney selected as an arbitrator in the Medway matter.
Petitioner's counsel does not cite to any authoritative declarations by English judicial, executive, or legislative bodies explaining whether the English Arbitration Act of 1996 enables a British arbitrator to bind a non-party to comply with discovery requests.[1] In a case dealing with the delicacies of international comity, I am loath to approve a petition under Section 1782 that would empower arbitrators with authority they would not have in the United States or, to my knowledge, in the United Kingdom.
The Federal Arbitration Act (the "Act") specifically addresses the circumstances in which the powers of a federal district court may be invoked to assist arbitrators in obtaining evidence. 9 U.S.C. § 7 (1997). Section 7 of the Act empowers a district court to compel non-parties to produce documents or testimony for an arbitration hearingbut the power granted is limited to witnesses situated in the district in which the arbitration is being held. Medway's construction of the statute would result in assistance to foreign arbitrations throughout the territory of the United States under Section 1782, but assistance for domestic arbitrations only within the district where the arbitration is being held pursuant to the federal statute that *405 specifically addresses judicial assistance to arbitrations.
Petitioner's counsel responds that "Medway has no choice but to seek the assistance of this Court, because neither the Arbitrator nor an English court has jurisdiction over GE." (Reply.Mem. at 4). Letters rogatory may be the proper alternative for Medway if a court in England first so decided.
Unlike a formal tribunal, the arbitrator has no power whatsoever to order persons who have not agreed to his authority to do anything. In England, as in the United States, arbitrators can obtain evidence from non-parties only by commencing proceedings for an order of compulsion before a real "tribunal." "Pursuant to Article 43 of the Arbitration Act, if the arbitrator so authorizes or if the other parties to the arbitration agreement so stipulate, a party to the arbitration may make an application to an English court for assistance in compelling witnesses to appear in an arbitration." (Decl. of Arthur L. Marriott, QC, ¶ 8).
V.
It is the British court, and not the arbitrator or the parties to the arbitration, that has the power and the discretion to impose on a non-party the burden of providing evidence for the arbitration. Section 1782 was not enacted to create an end run for arbitrators. Because a private arbitration is not a tribunal within the meaning of Section 1782 and an arbitrator has no authority to bind non-parties to obey his or her recommendations, I must deny the petition.
SO ORDERED.
NOTES
[1] I have not addressed whether Section 1782 contains an implicit discoverability requirement. See Euromepa S.A. v. Esmerian, Inc., 51 F.3d 1095 (2d Cir.1995); Peter Metis, International Judicial Assistance: Does 28 U.S.C. § 1782 Contain an Implicit Discoverability Requirement?, 18 FORDHAM INT'L L.J. 332 (Nov.1994). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1773673/ | 573 S.W.2d 299 (1978)
In the Matter of the MARRIAGE OF Kenneth RUTHERFORD and Nancy Lee Rutherford.
No. 8956.
Court of Civil Appeals of Texas, Amarillo.
October 30, 1978.
Rehearing Denied November 27, 1978.
*300 Bill A. Davis, Lubbock, for appellants.
Brock, Waters & Pigg, Ralph Brock, Brown & Harding, Ray Fargason and Ralph H. Brock, Larry E. Glazner, Lubbock, for appellees.
DODSON, Justice.
M. S. Craig and Harold P. Brown, Jr., appeal from an order temporarily enjoining them from conducting a trustee's sale under terms of a deed of trust securing a promissory note owned by Craig and covering certain real community property owned by appellees Kenneth and Nancy Rutherford. We determine that the trial court did not abuse its discretion by issuing the temporary injunction. The order of the trial court is affirmed.
In 1970 Kenneth Rutherford and Dave Anderson, partners, purchased the property which is the subject of this suit from Mrs. Ethel Stokes for $35,000. The partners made a $5,000 down payment and executed a promissory note secured by a deed of trust on the property for the balance. Kenneth Rutherford subsequently purchased his partner's interest for $6,000.
In 1975 Kenneth sued for divorce[1] and Nancy Rutherford was appointed receiver of the property. Thereafter, Nancy regularly made late payments on the note which were accepted by Mrs. Stokes.
On January 16, 1978, Mrs. Stokes sought to foreclose on the property and notice of a trustee's sale was posted by Brown, the substitute trustee. Prior to foreclosure, Mrs. Stokes discounted the note to Craig, who purchased with notice of the default. When the first monthly installment to Craig was in default, Craig collected the rents from the property, deducted the monthly installment and placed the balance in an escrow account. Craig continued to collect these rents during the following two months and sought to foreclose, relying on *301 the default in making timely payments and the notice of trustee's sale posted by Mrs. Stokes which set the sale date for March 7, 1978. On March 6, 1978, the Rutherfords obtained a temporary restraining order. Following a hearing on March 22, the temporary injunction was granted.
Our Supreme Court addressed the general principles governing the issuance of a temporary injunction in Transport Co. of Texas v. Robertson Transports, Inc., 152 Tex. 551, 556, 261 S.W.2d 549, 552 (1953). Justice Calvert, writing for the Court, stated:
In a hearing on an application for a temporary injunction the only question before the court is the right of the applicant to a preservation of the status quo of the subject matter of the suit pending a final trial of the case on its merits. To warrant the issuance of the writ, the applicant need only show a probable right and a probable injury; he is not required to establish that he will finally prevail in the litigation.... Where the pleadings and the evidence present a case of probable right and probable injury, the trial court is clothed with broad discretion in determining whether to issue the writ and its order will be reversed only on a showing of a clear abuse of discretion. There is no abuse of discretion in the issuance of a writ if the petition alleges a cause of action and the evidence adduced tends to sustain it (citations omitted) (emphasis added).
These principles govern our consideration of appellants' points of error.
Appellants maintain that the Rutherfords' petition failed to state a cause of action because no probable injury was alleged. The petition alleges, in part, that: (1) the Rutherfords own certain real property which is the subject of a trustee's sale set for March 7, 1978; (2) Craig is the current owner and holder of a promissory note which is secured by a deed of trust on the property; (3) Brown is the substitute trustee under the deed of trust; (4) Mrs. Ethel Stokes, the previous owner of the promissory note, instituted the foreclosure action prior to the date that she sold the note to Craig; (5) the Rutherfords have made regular, although untimely, payments which have been accepted by Mrs. Stokes without complaint or other notice that such untimely payments were unsatisfactory for the last seven months; (6) the Rutherfords made a valid tender of past due payments which was refused without reason; and (7) immediate and irreparable harm will result to the Rutherfords if the injunction does not issue because they will "lose these Gray building complexes and all rents and revenues received therefrom and all of the money previously invested therein without having a fair opportunity to protect their investment." We conclude that the petition alleges a probable injury.
Appellants also contend the Rutherfords failed to present sufficient evidence to discharge their burden of proof. Nancy testified that she regularly made late payments to Mrs. Stokes which were accepted. Copies of Nancy's cancelled checks for note payments, one of which indicates that three payments were made in a single check, were admitted into evidence. Both Kenneth and Nancy testified to individual conversations with Mrs. Stokes in which she agreed to work with them to avoid foreclosure after the proceedings had been instituted. Mr. Craig testified that he purchased the note with knowledge of the defaults.
The holder of a note may waive the right to foreclose as to past defaults where late payments have been regularly accepted and notice has not been given that future defaults will provide the basis for foreclosure proceedings. See Vaughan v. Crown Plumbing & Sewer Service, Inc., 523 S.W.2d 72 (Tex.Civ.App.Houston [1st Dist.] 1975, writ ref'd n. r. e.). The purchaser of a note with knowledge of a default does not qualify as a holder in due course. Tex.Bus. & Com.Code Ann. § 3.302 (Vernon 1968). Thus, Craig as the holder of the note is subject to any defenses which the Rutherfords had against Mrs. Stokes on the note, including waiver. Tex.Bus. & Com.Code Ann. § 3.306 (Vernon 1968).
*302 The record is also replete with testimony concerning the harm which would result to the Rutherfords if the injunction did not issue. Nancy testified that she had made nine or ten monthly payments of $253.17 in 1977 and that 80 or 90 payments had been made on the property since its purchase. Kenneth testified that he had $11,000 equity in the property plus what had been paid on the note since 1970. Additionally, Kenneth detailed improvements to the property totalling approximately $4,100. These improvements would be lost if the injunction did not issue.
We conclude the trial court was justified in believing that the evidence adduced at the hearing tends to support the existence of a probable right and a probable injury. The Rutherfords are not required to establish that they will prevail in the litigation. Transport Co. of Texas v. Robertson Transports, Inc., supra.
Appellants also contend that the trial court erred in granting relief in excess of that prayed for by the Rutherfords. Appellants complain of the trial court's action in ordering Craig to collect rents and revenues from the property and authorizing Craig to use these revenues to make immediate and necessary repairs to the buildings. Further complaint is made that the injunction enjoins foreclosure of future breaches for an indefinite period of time. The evidence established that Craig had already begun collecting rents from the property when this injunction proceeding was instituted. Craig was deducting the monthly payment of $253.17 from rents totalling $600 a month and placing the balance in an escrow account which he established. Thus, the order merely requires Craig to continue a course of action which he began. Furthermore, we are persuaded that the order is designed to protect Craig's interest and is calculated to maintain the status quo of the subject matter of the action pending final disposition. There is no indication in the record that the trial court will not proceed forthwith to dispose of the matters now pending before it.
Appellants complain in their final point of error that the trial court abused its discretion in setting the injunction bond at only $1,000. Appellants argue that this sum is insufficient security for the monetary damages, in addition to costs, which they will sustain if the injunction is dissolved because wrongfully issued. We have already detailed the provisions of the temporary injunction which operate to protect Craig from sustaining further damages. Furthermore, the temporary injunction does not purport to enjoin the collection of a debt, but only enjoins foreclosure under the deed of trust. Under these circumstances, we are persuaded that the trial court did not abuse its discretion in setting the amount of the bond.
In summary, we conclude that the trial court did not abuse its discretion by issuing the temporary injunction. The appellants' points of error are overruled and the order of the trial court is affirmed.
NOTES
[1] The trial court granted the divorce and awarded the property in question to Nancy. On appeal, this court reversed and remanded as to the division of the estate. Rutherford v. Rutherford, 554 S.W.2d 829 (Tex.Civ.App. Amarillo 1977, no writ). The final division of the estate is pending. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1774363/ | 654 So. 2d 735 (1995)
PINE TREE ASSOCIATES
v.
DOCTORS' ASSOCIATES, INC.
No. 94 CA 1193.
Court of Appeal of Louisiana, First Circuit.
April 7, 1995.
Rehearing Denied May 25, 1995.
*736 James E. Moorman, Mandeville, for plaintiff-appellant Pine Tree Associates.
Daniel K. Rester, Baton Rouge, for defendant-appellee Doctors' Associates, Inc.
Before FOIL, WHIPPLE and KUHN, JJ.
KUHN, Judge.
Plaintiff-appellant, Pine Tree Associates ("Pine Tree"), appeals the judgment of the trial court which granted the motion for summary judgment filed by defendant-appellee, Doctors' Associates, Inc. ("Doctors"). We reverse.
I. FACTS
Pine Tree, a Louisiana partnership, through its legal representative, MBI Management, filed suit naming Doctors as defendant. Pine Tree alleges that: 1) Doctors is a Florida corporation doing business in Louisiana as Subway Equipment Leasing Incorporated; Subway Sandwich Shops, Inc.; Subway Systems, Incorporated; Subway Management Incorporated; Subway International Incorporated; Subway Worldwide, Incorporated; Subway, Incorporated; Subway Restaurants, Incorporated ("SRI"); and Subway Real Estate Corporation; 2) on December 20, of 1988, Pine Tree, through its then legal representative, The Mitchell Company, entered into a contract of lease with Doctors, d/b/a Subway Restaurants, Incorporated, for a certain premises; 3) Doctors has breached its obligations under the lease by its failure to timely pay rent and by vacating the premises; and 4) the defendant owes rental payments and other charges under the terms of the lease totalling $148,846.96. Pine Tree also maintains in its petition that amicable demand was made to no avail, that a default judgment was subsequently obtained by Pine Tree against Subway Restaurants, Inc., in the matter captioned "Mitchell Company versus Subway Restaurants, Inc., 22nd JDC No. 64447 Division F," but that Subway Restaurants, Inc., has "refused to fulfill its obligation under the judgment."
Pine Tree also sets forth the following pertinent allegations in its petition:
VIII.
Petitioner avers that [Doctors] regularly conducts business in this State, through one of the above named entities. The purpose of disguise is to shield [Doctors] from any and all liability.
IX.
Petitioner avers that [Doctors] routinely enters into business transactions utilizing the name of one of the foregoing entitles [sic] and then should it decide not to live *737 up to its contractual obligation, it routinely defaults on its obligations and shields itself behind one of these shell corporations.
X.
Petitioner avers that [Doctors] regularly satisfies the obligations of Subway Restaurants, Inc.
XI.
Petitioner avers that Subway Equipment Leasing, Inc., Subway Management, Inc., Subway International, Inc., Subway Worldwide, Inc., Subway, Inc., Subway Restaurants, Inc. and Subway Real Estate Corp. are the alteregos (sic) of [Doctors].
Doctors filed a motion for summary judgment claiming it was not a party to the lease agreement, which was executed between Pine Tree and SRI. Doctors represented that it is a corporate franchisor which issues franchises for Subway Sandwich Shops. Doctors also asserted that SRI was the company that actually negotiated and executed the lease with Pine Tree's representative, The Mitchell Company, and further argued that a provision within the lease clearly provided for a sublease to a licensee of Doctors. Based on this lease provision, Doctors argued, it was clear that SRI and Doctors were two separate corporations. Doctors claimed that the alter ego theory should not be applied in this case since it involves a contractual dispute. In the absence of fraud allegations in a case involving a contractual dispute, Doctors contended that the parties are bound by the terms of the contract and cannot invoke the alter ego doctrine.
In support of its motion, Doctors filed the articles of incorporation for both Doctors and SRI; various reports from both Doctors and SRI, dated during 1988 through 1992, and entitled "Unanimous Consent of Shareholders In Lieu of Annual Meeting," pursuant to which the companies elected officers and directors and conducted other corporate business; tax returns for SRI and Doctors for the years 1988 through 1991; the Management Agreement entered into between Mitchell Company and Pine Tree; and the lease agreement executed between SRI and Pine Tree.
In response to Doctors' motion for summary judgment, Pine Tree argued that the law does not require that allegations of fraud be made in a case involving a contractual dispute in order to apply the alter ego doctrine. Pine Tree contended that based on the totality of the circumstances, the court could find that SRI is the alter ego of Doctors and pierce the corporate veil to impose liability for SRI's obligations on Doctors and that, therefore, there is a genuine issue of material fact as to whether Subway is the alter ego of Doctors.
In oral reasons for judgment, the trial court found that Pine Tree, The Mitchell Company and SRI were represented by sophisticated businessmen. The trial court determined that the record established that the original lessee in the case was not financially strong and that Pine Tree could have obtained information from SRI regarding its financial status. The court concluded that this apparently was not done or if it was done, the financial information was not closely reviewed. Based on this reasoning, Doctors' motion for summary judgment was granted.[1] Pine Tree appealed. Its sole assignment of error is that the trial court erred in granting Doctors' motion for summary judgment since the pleadings and discovery filed readily demonstrate that there exists a genuine issue of material fact as to whether Subway is the alter ego of Doctors.
II. ANALYSIS
Corporations are generally recognized as distinct legal entities, separate from the individuals who comprise them. Riggins v. Dixie Shoring Co., Inc., 590 So. 2d 1164, 1167 (La.1991). The legal fiction of a distinct corporate entity may be disregarded when a corporation is so organized and controlled as to make it a mere instrumentality or adjunct *738 of another corporation. If one corporation is wholly controlled by another, the fact that it is a separate entity does not relieve the latter from liability. In that situation, the former corporation is considered to be the alter ego or business conduit of the latter. Courts can pierce the veil of a corporation in order to reach the "alter egos" of the corporate defendant. Green v. Champion Ins. Co., 577 So. 2d 249, 257 (La.App. 1st Cir.), writ denied, 580 So. 2d 668 (La.1991).
Where two or more corporations operate a single business, the courts have been unwilling to allow affiliated corporations that are not directly involved to escape liability simply because of the business fragmentation. Id.; Lucey Manufacturing Corporation v. Oil City Iron Works, 15 La.App. 12, 131 So. 57, 61 (2d Cir.1930). In addition to using a "piercing the veil" theory to disregard a corporate identity, the "single business enterprise" or "instrumentality" theory has been employed to extend liability beyond a separate entity. Green v. Champion Ins. Co., 577 So.2d at 257.
In Green, this court found that an insurance company and several related entities were a "single business enterprise," thereby allowing the liquidator to assert control over the assets of the affiliated entities during the liquidation proceedings of the insurance company. The court used the following pertinent analysis:
When determining whether a corporation is an alter ego, agent, tool or instrumentality of another corporation, the court is required to look to the substance of the corporate structure rather than its form. The following factors have been used to support an argument that a group of entities constitute a "single business enterprise":
1. corporations with identity or substantial identity of ownership, that is, ownership of sufficient stock to give actual working control;
2. common directors or officers;
3. unified administrative control of corporations whose business functions are similar or supplementary;
4. directors and officers of one corporation act independently in the interest of that corporation;
5. corporation financing another corporation;
6. inadequate capitalization ("thin incorporation");
7. corporation causing the incorporation of another affiliated corporation;
8. corporation paying the salaries and other expenses or losses of another corporation;
9. receiving no business other than that given to it by its affiliated corporations;
10. corporation using the property of another corporation as its own;
11. noncompliance with corporate formalities;
12. common employees;
13. services rendered by the employees of one corporation on behalf of another corporation;
14. common offices;
15. centralized accounting;
16. undocumented transfers of funds between corporations;
17. unclear allocation of profits and losses between corporations; and
18. excessive fragmentation of a single enterprise into separate corporations.
These factors are similar to factors that have been used in Louisiana "piercing the veil" cases. This list is illustrative and is not intended as an exhaustive list of relevant factors. No one factor is dispositive of the issue of "single business enterprise."
Green v. Champion Ins. Co., 577 So.2d at 257-258.
With respect to the concept of "piercing the corporate veil" to reach the alter ego, factors courts consider when determining whether to apply the alter ego doctrine include, but are not limited to:
1. commingling of corporate and shareholder funds;
2. failure to follow statutory formalities for incorporating and transacting corporate affairs;
3. under-capitalization;
*739 4. failure to provide separate bank accounts and bookkeeping records; and
5. failure to hold regular shareholder and director meetings.
Riggins v. Dixie Shoring Co., Inc., 590 So.2d at 1168.
In Riggins, the plaintiffs were homeowners who brought suit for damages arising out of the deficient performance of a contract to jack and level their home. When Dixie Shoring Company, Inc., the corporation which executed the contract with the plaintiffs, filed for bankruptcy, the plaintiffs attempted to impose liability on the shareholders of the corporation by piercing the corporate veil. In determining whether shareholder liability would be imposed, the court recognized that one of the primary components which justifies piercing the corporate veil is the use of the corporate form in the defrauding of creditors. Riggins v. Dixie Shoring Co., Inc., 590 So.2d at 1169. The court determined that the fraud element was not present and noted that there were no allegations of fraud in the pleadings. A consideration was then made of the above enumerated factors and the court instructed that when a party seeks to pierce the corporate veil, the totality of the circumstances is determinative. Id. After analyzing these factors in light of the evidence pertaining to the corporation's operations, the court concluded that the corporate veil should not be pierced, thereby protecting the shareholders from liability.
In the present case, Doctors asserts that since this case involves a contractual dispute rather than a dispute involving tortious conduct, the issue of whether the corporate veil should be pierced is not reached unless fraud is established. Doctors contends that in the absence of fraud allegations, the alter ego doctrine cannot be invoked to preclude summary judgment. Doctors' contention is not supported by Louisiana jurisprudence. The Riggins case establishes that even in situations where there has been no proof of fraud, or allegations of fraud, a court may still apply the "totality of the circumstances" test to determine whether the corporate veil should be pierced. See also Harris v. Best of America, Inc., 466 So. 2d 1309, 1315-1317 (La.App. 1st Cir.), writ denied, 470 So. 2d 121 (La.1985), wherein the court, in the absence of allegations of fraud, applied the "totality of the circumstances" test in determining whether the corporate veil should be pierced in a dispute involving a construction contract. Accordingly, we find this court must consider the alter ego doctrine in determining whether Doctors is entitled to summary judgment.
In this case, Pine Tree has alleged that Doctors conducts business in this state in the name of SRI, uses SRI as a shield for liability and that SRI is the alter ego of Doctors. In order for Doctors to prevail on its motion for summary judgment, it must establish that there are no material issues of fact regarding the numerous factors to be considered in determining whether the alter ego doctrine should be applied pursuant to either the "single business enterprise" theory or the "piercing the corporate veil" theory as addressed in Green and Riggins, respectively. A genuine issue of fact exists where factual allegations are made and are not answered by the mover for summary judgment. Giddings v. John Hearnsberger Company, 403 So. 2d 849, 850 (La.App. 2d Cir.1981). Based on the record, we find that Doctors has not met its burden in responding to the factual allegations raised by Pine Tree and that numerous issues of material fact exist.
Although the articles of incorporation and other corporate reports filed by Doctors evidence that Doctors and SRI apparently complied with corporate statutory formalities during the time period in question, the corporate reports also establish that regular shareholder and director meetings were not held. The tax returns of SRI, which reflect that SRI reported it owned no assets during 1989 and 1990, raise the question of whether SRI was in fact undercapitalized. The record establishes that the shareholders of Doctors and SRI are the same two people and that Doctors and SRI have many common officers and directors. However, the record does not contain evidence addressing whether the administrative controls of the corporations are unified, whether Doctors caused the incorporation of SRI, whether Doctors pays the salaries and other expenses or losses of *740 SRI, whether SRI receives business from companies other than Doctors, whether SRI and Doctors use each other's properties, whether they share common offices, employees and other business services, or whether the corporations have centralized accounting. We find that the absence of this information creates numerous material issues of fact regarding whether, in terms of structure, finance, and operations, these corporations were operated as separate entities.
For the above reasons, we find that the trial court erred in granting Doctors' motion for summary judgment. We reverse the judgment of the trial court and remand this matter for further proceedings consistent with this opinion. All costs of this appeal are to be paid by appellee, Doctors' Associates, Inc.
REVERSED AND REMANDED.
NOTES
[1] A motion to strike filed by Doctors, requesting that the allegations in Pine Tree's petition which demand treble damages pursuant to the Unfair Trade Practices and Consumer Protection Law, La.R.S. 51:1401 et seq., be struck was also granted. Plaintiff has not assigned error to this ruling. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1860728/ | 609 So. 2d 789 (1992)
STATE of Louisiana
v.
Glenn HARRISON.
No. 91-K-2743.
Supreme Court of Louisiana.
November 30, 1992.
Elizabeth W. Cole, New Orleans, for applicant.
Richard P. Ieyoub, Atty. Gen., Harry F. Connick, Dist. Atty., Valentin M. Solino, and Jack Peebles, Asst. Dist. Attys., for respondent.
WATSON, Justice.
A jury found defendant, Glenn Harrison, guilty of: unauthorized entry of an inhabited dwelling (LSA-R.S. 14:62.3); first degree robbery (LSA-R.S. 14:64.1); aggravated rape (LSA-R.S. 14:42); and aggravated crime against nature (LSA-R.S. 14:89.1). The court of appeal affirmed the convictions. A writ was granted to consider whether the trial error in charging the jury contributed to the jury's verdict. The jury was instructed that a reasonable doubt was "such a doubt as would give rise to a grave uncertainty" in violation of Cage v. Louisiana, 498 U.S. 39, 111 S. Ct. 328, 112 L. Ed. 2d 339 (1990).
The record reflects that Harrison's counsel objected timely to the court's defining reasonable doubt for the jury.
On September 20, 1988, about 5:00 p.m., the victim noticed a man talking to her neighbor. Later, the same man asked for a drink of water. When she went inside to get the water, he followed her, threatened her with a screw driver, forced her to perform oral sex, and then raped her vaginally. He demanded money and was given fifteen or twenty dollars. The victim was forced to douche herself. After the man left, the victim went to her boyfriend's apartment a few doors away. Her boyfriend called the police. The police found a bankbook and a passport bearing Harrison's name in the victim's apartment. The victim was described by the examining doctor as very fearful and anxious. No seminal fluid, abrasions or bruises were present. The victim identified Harrison from a photographic lineup. He was arrested approximately a year later in California.
The instruction in Cage went beyond this one by including other terms: "moral certainty" and "actual substantial doubt." However, Cage stated that the word "grave" suggested a higher degree of doubt than that required for acquittal under *790 a reasonable doubt standard. 498 U.S. at 39-41, 111 S.Ct. at 329-330. On remand, the trial error in Cage was found to be harmless because the evidence of guilt was so overwhelming. State v. Cage, 583 So. 2d 1125 (La.1991), cert. denied, ___ U.S. ___, 112 S. Ct. 211, 116 L. Ed. 2d 170.
The court of appeal concluded that the jury instruction to Harrison's jury, which included only part of the language in Cage, did not violate defendant's rights. However, any erroneous explanation of reasonable doubt may constitute reversible error. See State v. Vessell, 450 So. 2d 938 (La.1984). Compare State v. Sullivan, 596 So. 2d 177 (La.1992), cert. granted, ___ U.S. ___, 113 S. Ct. 373, ___ L.Ed.2d ___ (1992).
Defense counsel argued that Harrison's encounter with the victim was consensual. The rape accusation was allegedly fabricated for the victim's boyfriend. Since there was no physical evidence of trauma and Harrison had carelessly abandoned identifying documents, there was evidence supporting that story. The jury deliberated over four hours, which indicates some doubt about Harrison's guilt. The jury might have had a reasonable doubt, but not a "grave uncertainty". Under these circumstances, the trial error cannot be described as harmless.
For the foregoing reasons, the convictions and sentences are reversed and the case is remanded for further proceedings.
REVERSED AND REMANDED.
DENNIS, J., concurs.
MARCUS and LEMMON, JJ., concur and assign reasons.
COLE, J., respectfully dissents. Within the factual context of this case, the error was harmless.
MARCUS, Justice (concurring).
Since the jury instruction uses only one of the three phrases found offending in Cage v. Louisiana, 498 U.S. 39, 111 S. Ct. 328, 112 L. Ed. 2d 339 (1990), I feel the Cage error, if any, is minimal. However, the record shows that in his closing argument, the prosecutor told the jury: "if you can sit in these chairs right now and say, `I am reasonably satisfied that he did it. That's it.' It's not all doubt, it's not the shadow of any doubt." Defendant objected to this statement, but the trial judge did not admonish the jury. The prosecutor then continued: "if you think he reasonably did it, that you're reasonably satisfied that he did it, then under the law, you should, you must convict." The prosecutor's statements when combined with the jury instruction defining reasonable doubt as "such a doubt as would give rise to grave uncertainty" was enough to confuse the jury as to the reasonable doubt standard.
Accordingly, I respectfully concur.
LEMMON, Justice, concurring.
The prosecutor in closing argument told the jurors that they could convict defendant if they were "reasonably satisfied" he was guilty. The trial judge did not correct the prosecutor's significant misstatement of law, but told the jurors he would take care of this in the general charge. Thus, the erroneous jury instruction, although containing only part of the language condemned in Cage v. Louisiana, 498 U.S. 39, 111 S. Ct. 328, 112 L. Ed. 2d 339 (1990), was worsened by the prosecutor's irresponsible conduct, and reversal is required. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1173899/ | 658 P.2d 499 (1983)
Jerry WILLIAMS, Appellant,
v.
The STATE of Oklahoma, Appellee.
No. F-80-705.
Court of Criminal Appeals of Oklahoma.
February 8, 1983.
Mark Barrett, Asst. Appellate Public Defender, Norman, for appellant.
Jan Eric Cartwright, Atty. Gen., Susan Talbot, Asst. Atty. Gen., Chief, Appellate Criminal Div., Oklahoma City, for appellee.
*500 OPINION
CORNISH, Judge:
The appellant, Jerry Williams, was convicted of Rape in the First Degree in Johnson County District Court. He received a sentence of life imprisonment.
The dispositive issue on appeal is whether improper arguments by the prosecuting attorney denied Williams a fair and impartial trial. We find that due to the numerous instances of prosecutorial misconduct the appellant must be afforded a new trial.
First, during the voir dire examination the prosecutor attempted to define "reasonable doubt" to the jury. The prosecutor argued:
"... Anybody seen Perry Mason? I always get amazed because they've got their own law and one of them is that you've got to prove beyond a shadow of a doubt or beyond any doubt. Can you agree with me that that's not the State's burden? That's the State's burden is beyond a reasonable doubt and the other two statements are a much [heavier] burden."
This Court has previously held that it is error for the trial court or the prosecution to attempt to define reasonable doubt to the jury. Jones v. State, 554 P.2d 830 (Okl.Cr. 1976); Lorenz v. State, 406 P.2d 278 (Okl.Cr. 1965); Gresham v. State, 396 P.2d 374 (Okl.Cr. 1964). Further, the prosecution should refrain from any attempt to define the law to the jury. Instructing the jury on the applicable law is solely the duty of the trial court. Frazier v. State, 607 P.2d 709 (Okl.Cr. 1980).
Second, the prosecutor volunterred his opinion as to the veracity of William's testimony. The prosecutor in his statement, "I submit to you, ladies and gentlemen, that that man [Williams] lied, that's just all there is down to it...", unmistakably referred to the appellant as a liar. This comment was improper and wholly unprofessional. Cobbs v. State, 629 P.2d 368 (Okl. Cr. 1981).
Third, the prosecution informed the jury that several elements of the crime were uncontested and established facts. The prosecution argued, "the act of sexual intercourse, forcibly ... has never been contested in this courtroom, that is an established fact, that intercourse was accomplished, penetration was accomplished, it was accomplished by force." Though the State's evidence may have been uncontroverted in regard to these elements, they were certainly not "established facts," but instead were questions of fact to be determined by the jury based upon all the evidence presented at trial. The implication by the prosecutor that the jury was not required to determine whether there was forcible intercourse was clearly improper. The State's attorney "has no right in the area of argument to supply the lack of evidence or make greater the weight of the evidence." Gossett v. State, 373 P.2d 285, 290 (Okl.Cr. 1962).
Fourth, in closing argument the prosecutor also argued that Williams was no longer presumed innocent. Prosecutor Worthen stated:
... Counsel said something about the defendant being presumed innocent. We all started out with that this morning, I think, probably I'm probably the first person to mention that the defendant in this case is presumed to be innocent, just like every defendant in the State of Oklahoma. I think every one of us agree to that, and that was true this morning, ladies and gentlemen, but that presumption of innocence, ladies and gentlemen, just like the veil in the temple, that presumption of innocence will leak, and it's not there any more.
*501 This line of argument constituted error. Cobbs v. State, 629 P.2d 368, 369 (Okl.Cr. 1981).
Fifth, the prosecution asked the jurors to sympathize with the victim during their deliberations. The prosecution remarked:
... because of her belief, her religious belief, her personal belief, that's the most tragic thing that could ever happen in her life, enough that she would want to go away, break off the relationship she had with her fiancee, break contact with the community, get away from everything. I submit to you that the act of rape is emotional shock, emotional trauma, that absolutely it makes you want to hide, that the act itself makes you feel filthy, dirty, scrubby, slimy, and you don't want anybody to see you...
He further commented:
... Nothing that happens in this courtroom wipes out that, nothing in this courtroom that we do, gives that girl back the pride that she had that she wanted to take from a marriage. Nothing, absolutely nothing, that's what's taken away. The pride, the feeling of worth something, the feeling of honor, that's what was taken away. Taken, deliberately by force from another human being... . [I]t's short of murder, when you take somebody's life, the other thing that you can take away from them that's most, most precious, is there dignity, their human being, and that's what this man tried to take away from that girl, that's what he took away from that girl.
These comments were in direct disregard of the trial court's instruction for the jury not to allow sympathy, sentiment, or prejudice to influence its decision.
Although the comments in this case were not accompanied by contemporaneous objections, we find that their combined effect deprived Williams of his fundamental right to a fair and impartial trial. Therefore, we hold that the improper comments require reversal. See Tart v. State, 634 P.2d 750 (Okl.Cr. 1981); Cobbs v. State, supra; and Lewis v. State, 569 P.2d 486 (Okl.Cr. 1977).
The judgment and sentence is REVERSED and REMANDED for a new trial.
BRETT, J., concurs.
BUSSEY, P.J., dissents.
BUSSEY, Presiding Judge, dissenting:
I must respectfully dissent for the reason that the errors now complained of were not objected to at trial nor were they properly preserved for review in the motion for new trial, rather, they were raised for the first time on appeal. See, Turman v. State, 522 P.2d 247 (Okl.Cr. 1974), and cases cited therein. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1446645/ | 48 Wash. App. 471 (1987)
740 P.2d 319
TRANSPORT INDEMNITY COMPANY, Appellant,
v.
SKY-KRAFT, INC., ET AL, Respondents.
No. 9052-0-II.
The Court of Appeals of Washington, Division Two.
July 14, 1987.
Barbara J. Gazeley, for appellant.
Susan A. Schmid and Richards & Kinerk, for respondents.
*473 UTTER, J.[*]
Transport Indemnity Company appeals a summary judgment in favor of the estate of Robert Leon Schaefer, holding that an Aircraft Hull and Liability Policy (Hull policy) provided coverage for Schaefer's death. Schaefer's estate cross-appeals from a summary judgment in favor of Transport, holding that coverage did not exist under an Airport/Fixed Based Operator's Liability Policy (FBO policy). We affirm the judgment in favor of Transport, but reverse the judgment in favor of Schaefer's estate, and remand for trial on the issue of whether coverage exists under the Hull policy.
On July 1, 1981, Robert Schaefer was issued a private pilot certificate by the Federal Aviation Administration (FAA). Schaefer received instruction, supervision and examination from Sky-Kraft, a fixed base operator, located at Pearson Airpark in Vancouver, Washington. The FAA ratings granted by Schaefer's certificate were limited to "airplane single engine land", and did not include an instrument flight rules (IFR) rating. As a result, Schaefer was required to comply with visual flight rules (VFR) under the FAA visibility regulations.[1]
On August 13, 1981, Schaefer rented an aircraft from *474 Sky-Kraft for a flight to Klamath Falls, Oregon. The aircraft was owned by several third parties who leased the plane to Sky-Kraft. Schaefer took off from Pearson Airpark at 6:11 a.m. and crashed approximately 4 minutes after takeoff in a wooded area 3.5 miles from the Airpark. An eyewitness observed Schaefer's aircraft plummet out of the clouds before it crashed.
Prior to takeoff, at 5:50 a.m., Schaefer obtained a weather report from the Portland flight service station, indicating that the weather at Portland International Airport was "marginal VFR." Based on this information, Schaefer filed a VFR flight plan.[2] By the time Schaefer actually departed at 6:11 a.m., however, the Portland flight service station reported IFR weather conditions existing at Portland International Airport, located across the Columbia River and approximately 4 miles from Pearson Airpark. There is no showing that Schaefer ever was aware of this, however.
On June 14, 1983, Sandra Schaefer, personal representative of Schaefer's estate, filed a wrongful death action against Sky-Kraft. The wrongful death complaint alleged that Schaefer's death was caused by the negligent entrustment and instruction by Sky-Kraft in operation of its flight school business.
At the time of the accident, Sky-Kraft possessed two *475 insurance policies, a Hull policy and an FBO policy. Both policies were issued by Transport. On June 22, 1984, Transport commenced a declaratory judgment action claiming that neither the Hull policy nor the FBO policy provided coverage for the claims asserted by Schaefer's estate in the wrongful death action.
In May and June 1985, Transport and Schaefer filed cross motions for summary judgment, seeking a determination of whether there was coverage under either policy. The trial court ruled that the Hull policy provided coverage for the allegations of negligence made by Schaefer's estate against Sky-Kraft and granted the estate's motion for summary judgment. The court, however, concluded that there was no coverage under the FBO policy and granted summary judgment in favor of Transport. Transport appeals the summary judgment pertaining to the Hull policy and Schaefer's estate cross-appeals the summary judgment concerning the FBO policy.
Four issues are raised on appeal: (1) whether Schaefer was "properly rated for the flight" within the meaning of the Hull policy's pilot declaration clause; (2) whether under the Hull policy Schaefer's death was an occurrence "arising out of the ... use of the aircraft"; (3) whether Schaefer's death was caused by an accident arising "in or about the premises" or "elsewhere in the course of any work or of the performance of any duties carried out by the insured" within the meaning of the premises liability clause in the FBO policy; and (4) whether Schaefer's death was caused by an accident "arising out of the possession, use, consumption or handling of any goods ... supplied or distributed by the insured or his employees after such goods or products have ceased to be in the possession or under the control of the insured" within the meaning of the FBO policy's completed operations and products liability clause.
A motion for summary judgment will be granted only when the pleadings, affidavits, depositions, and admissions on file demonstrate that there is no genuine issue as to any material fact and that the moving party is entitled to judgment *476 as a matter of law. CR 56(c); Hartley v. State, 103 Wash. 2d 768, 774, 698 P.2d 77 (1985). An appellate court reviews a summary judgment by engaging in the same inquiry as the trial court, assuming facts most favorable to the nonmoving party. Hartley, at 774. With this standard in mind, we proceed to the issues before this court.
I
Under the liability portion of the Hull policy, Transport agreed:
to pay on behalf of the Insured all sums which the Insured [Sky-Kraft] shall become legally obligated to pay as damages because of ... bodily injury [defined to include death] sustained by any person .. . caused by an occurrence and arising out of the ownership, maintenance or use of the aircraft ...
Clerk's Papers, at 20. The declarations page of the policy provided in pertinent part:
Item 7. Pilots: The coverage afforded by this policy shall not apply while the aircraft is operated in flight by other than the following pilots who hold a current and valid medical certificate from the Federal Aviation Administration and who are properly rated for the flight involved.
(Italics ours.) Clerk's Papers, at 18.
Transport contends that Schaefer did not have the rating required "for the flight involved" because the flight was an instrument flight rules (IFR) flight, while Schaefer held only a visual flight rules (VFR) rating. Therefore, according to Transport, Schaefer was not properly rated for the flight involved and thus was not covered by the Hull policy. Schaefer's estate claims that Schaefer was properly rated for the flight involved because he had filed a VFR flight plan, and because the weather briefing he received and weather at the field at the time he took off permitted a VFR flight.
The trial court agreed with Schaefer's estate and held that the Hull policy provided coverage for Schaefer's death. Nevertheless, in its memorandum opinion, the trial court *477 found that a question of fact existed as to whether Schaefer was properly rated for the flight. The court concluded that this was a factual dispute and that it would not rule as a matter of law whether Schaefer was properly rated for the conditions existing at the time of the crash. However, a week later, the trial judge wrote to counsel to clarify his reference to a "question of fact." The judge stated that his reference to Schaefer's rating was surplusage. The judge determined that "[t]he fact that Mr. Schaefer may not have been properly rated to fly the aircraft at that time and place may be an issue in the negligence action, but has no bearing on my determination that the liability policy does apply." Clerk's Papers, at 309.
In this case, the parties do not contest the meaning of "properly rated for the flight involved" as described in the Hull policy. Both parties assume that this language refers to the FAA ratings characterized above. The parties also do not dispute Schaefer's authorization to fly the aircraft or his VFR rating. Therefore, the dispositive issue is whether the fatal flight should be characterized as a VFR flight or an IFR flight.
The two leading cases for purposes of characterizing a flight as VFR or IFR are National Ins. Underwriters v. King Craft Custom Prods., Inc., 368 F. Supp. 476 (N.D. Ala. 1973), aff'd, 488 F.2d 1393 (5th Cir.1974); and Glover v. National Ins. Underwriters, 545 S.W.2d 755 (Tex. 1977). In King Craft, a pilot, holding only a VFR rating, began his flight under VFR conditions, but later flew into IFR weather and crashed while attempting an instrument landing. King Craft, at 477-78. The pilot's insurer denied coverage based on a pilot declaration clause similar to the one at issue in the instant case, which required the pilot to be "properly rated for the flight" involved. The insurer argued that the pilot was not properly rated because he crashed in the IFR weather conditions, but the trial court disagreed.
Initially, the court noted that the pilot at most violated the FAA regulations by attempting to land under IFR conditions. King Craft, at 478. The court then determined that *478 the words "the flight" used in the pilot clause referred to the entire time the aircraft was in flight. King Craft, at 478. The court rejected the insurer's attempt to break the flight into segments which would require different ratings for each segment. King Craft, at 478-79. The King Craft court reasoned that the segmented flight analysis would result in coverage "flickering on and off" as the aircraft entered differing weather conditions and therefore such an interpretation should be avoided unless the policy required it. King Craft, at 479.
Similarly, in Glover, a pilot holding a VFR rating began his flight under VFR conditions, but subsequently encountered IFR conditions and crashed. The same insurer involved in King Craft sought denial of coverage based on the pilot clause which required a pilot to be "properly rated for the flight." Glover, at 757. As in King Craft, the insurer in Glover urged the court to adopt the segmented flight analysis. The Glover court rejected the insurer's argument and agreed with the analysis in King Craft. Glover, at 762. The Glover court, however, further clarified King Craft by articulating a 2-step analysis for characterizing a flight as IFR or VFR. First, the flight should be looked at as a whole, rather than in segments. Glover, at 762. Second, the flight is to be characterized as a whole according to the weather conditions existing at the inception of the flight. Glover, at 762. Accord, Northwestern Flyers, Inc. v. Olson Bros. Mfg. Co., 679 F.2d 1264 (8th Cir.1982); United States Fire Ins. Co. v. Marr's Short Stop of Tex., Inc., 680 S.W.2d 3 (Tex. 1984); Ideal Mut. Ins. Co. v. Myers, 789 F.2d 1196 (5th Cir.1986).
The analysis in King Craft and Glover provides the court with a means to determine the character of a flight without resort to speculation or conjecture. The adoption of a "segmented flight" analysis, on the other hand, would require the court to examine every brief segment of a flight to determine whether a pilot was properly rated for that portion of the flight. Generally, in aviation accidents there is very little, if any, physical evidence or eyewitnesses to *479 assist the court in making a segmented analysis. Thus, a court would be forced into a process of formulating conclusions founded upon mere probabilities.
Moreover, to follow the "segmented flight" analysis would ignore the reality of unreliable weather forecasting and of sudden changes in weather conditions. The capricious nature of aviation weather and forecasts is well recognized. In a handbook for pilots studying aviation weather, J. Nelson, Practical Guide to Aviation Weather (2d ed. 1984), the author notes:
Reliability of Forecasts
The meteorologist understands certain principles of atmospheric behavior and has watched its behavior long enough to know how incomplete our knowledge really is. Weather, as a science, is in its infancy despite spectacular progress in recent years. It is not as exact as many other sciences and much less exact than anyone would like.
It is almost as bad for the pilot to have complete faith in weather forecasts as it is for him to have none at all. Pilots who understand the limitations of observations and forecasts are usually the ones who make the most effective use of the weather forecast service. The knowledgeable pilot continually views aviation forecasts with an open mind. He knows that weather always is changing and consequently that the older the forecast, the greater chance that some part of it will be wrong. The weatherwise pilot looks upon a forecast as professional advice rather than as the absolute truth.
J. Nelson, at 94.
In National Union Fire Ins. Co. v. Zuver, 47 Wash. App. 540, 736 P.2d 675 (1987), however, the Court of Appeals, Division One, rejected the analysis in King Craft and Glover. In Zuver, a pilot and several passengers were killed when their plane crashed into a mountain. The flight at its inception was a VFR flight, but thereafter the pilot flew into IFR conditions for which he was not rated and crashed. The pilot's insurer sought denial of coverage based on a policy exclusion which provided that the "policy does not apply ... to any insured while the aircraft is in flight ... if piloted by a pilot not properly certificated, qualified *480 and rated ... for the operation involved". (Italics ours.) Zuver, at 543. The policy also contained a pilot warranty endorsement which referred to the same "for the flight involved" language at issue in this case.[3] The insurer argued that the words "operation involved" referred to that particular segment of the flight when the accident occurred as opposed to the conduct of the entire flight of the aircraft. Therefore, because IFR conditions existed during the segment when the accident occurred, the insurer argued that the pilot was not properly rated for the "operation involved." The trial court agreed and held that the pilot's death was excluded from coverage. Zuver, at 542. The Court of Appeals affirmed.
Initially, the Court of Appeals distinguished the words "operation involved" from "flight". The court determined that because the policy exclusion contained both of these terms it would be redundant to construe "operation involved" to mean the same as "flight". Zuver, at 544. The Zuver court further found that the words "operation involved" were plain and unambiguous. Zuver, at 544. The court, relying on the dictionary definition of the word "operation,"[4] construed the words "operation involved" to mean the "driving" of the plane, rather than the conduct of the entire flight of the aircraft. Zuver, at 544. In short, the court's interpretation narrowly restricted the meaning of "operation involved" to encompass that specific segment of the flight which led to the accident. The court then found that the pilot purposefully flew into the clouds and thus *481 was operating under IFR conditions in violation of his VFR rating. Zuver, at 545. Consequently, the court held that the exclusionary clause precluded coverage for the pilot's death because he was not properly rated for the "operation involved". Zuver, at 545. In reaching this conclusion, the court distinguished Glover and King Craft on the basis of policy language. The Zuver court reasoned that the policies involved in each of those cases contained wording regarding pilot ratings "for the flight" as opposed to "for the operation involved" and thus were inapplicable. Zuver, at 545.
[1] The analysis and result in Zuver is unpersuasive. While the Zuver court correctly concluded that the term "operation involved" has a different meaning than "flight", the court's interpretation of the meaning of "operation involved" is misplaced. The dictionary definition of the term "operation" is subject to two reasonable interpretations: one would support a "segmented flight" analysis and the other would support the "inception of the flight" rule. Contrary to the court's conclusion in Zuver, we find that the words "operation involved" are ambiguous and must be construed against the insurer. See Farmers Ins. Group v. Johnson, 43 Wash. App. 39, 715 P.2d 144 (1986) (exclusionary clause will be construed against insurer when the language of the exclusion is ambiguous). Consequently, we decline to limit the term "operation involved" to a particular segment of the flight; instead we construe it to include the manner by which the entire flight of the aircraft was conducted. See Zuver, at 548-49 (Riley, J., dissenting). This conclusion avoids the problems discussed earlier, concerning the "segmented flight" analysis. For these reasons, we reject the result in Zuver and instead hold, like the courts in Glover and King Craft, that a flight is to be characterized as a whole, according to the weather conditions existing at the inception of the flight.
Additionally, Transport, relying on United States Fire Ins. Co. v. Marr's Short Stop of Tex., Inc., supra, urges this court to characterize the flight as IFR or VFR, depending on the pilot's knowledge of weather conditions existing *482 along his flight path or at his destination. Transport then argues that because Schaefer allegedly knew at his departure that IFR conditions existed along his flight path and at his destination in Klamath Falls, Oregon, the flight should be characterized as IFR. We disagree.
In Glover, the court held that the pilot's knowledge of weather conditions along his flight plan or at his destination was not controlling in characterizing the flight at IFR or VFR. The court refused to consider the pilot's knowledge because "very few pilots actually know when they take off what weather conditions they will encounter over two hours later." Glover, 545 S.W.2d at 763. The court noted that when a flight begins a pilot has only an expectation of what weather conditions will exist along the flight path, and that this expectation is based primarily upon the pilot's knowledge of the available weather conditions existing at departure. Glover, at 763. As a result, the court reasoned that an inquiry into a pilot's knowledge would involve questions as to the pilot's expectations and the reasonableness of those expectations. The court concluded that:
Inquiries into the reasonableness of a person's actions might best be ignored in determining the coverage of an insurance policy designed to protect one from the consequences of one's own negligence, especially where the language of the policy does not clearly dictate such an inquiry.
Glover, at 763. Interestingly, the court, in dicta, determined that if the pilot's knowledge is important, the knowledge that he will be flying in IFR weather must exist at the flight's inception. Glover, at 763.
In Marr's, the Texas Supreme Court, seizing upon the dicta in Glover, held that the pilot's knowledge of weather conditions was a determinative factor in characterizing a flight. The court reasoned that, if the pilot knew from the weather information received that he would have to fly through IFR weather to reach his destination, then the flight was an IFR flight and would preclude recovery under the policy. Marr's, at 6.
*483 The pilot knowledge test articulated by the majority in Marr's is misplaced. Such a test would require this court to adopt the precepts of negligence law for a cause of action arising out of contract construction, without any showing of causation between the pilot's knowledge or lack of knowledge and the crash. Marr's, at 11 (Ray, J., dissenting). Therefore, we agree with the analysis and result in Glover that a flight is characterized solely by the weather conditions existing at the point of departure.
Here, considering all of the facts and reasonable inferences in favor of the nonmoving party, a genuine issue of material fact exists as to the weather conditions existing at the inception of Schaefer's flight. The evidence presented by both parties suggests that reasonable persons would differ as to the meaning and interpretation of the weather information.
Transport presented evidence which indicated that at 6:11 a.m., when Schaefer departed from Pearson Airpark, the weather at Portland was IFR. Clerk's Papers, at 166. The record, however, only indicates that Schaefer knew that the weather at 5:50 a.m. was marginal VFR. The record does not demonstrate that Schaefer received any weather information describing the weather conditions at Portland as IFR. Transport also presented evidence from an eyewitness who observed the aircraft emerge from the clouds immediately after takeoff and just before the crash. (Affidavit of Donald Hoover, Clerk's Papers, at 180-81).
On the other hand, Schaefer's estate presented evidence indicating that when Schaefer departed from Pearson Airpark, the weather was VFR. Schaefer cites the National Transportation Safety Board report which determined that the weather was "marginal VFR." Moreover, the weather information Schaefer received at 5:50 a.m., prior to his departure, indicated VFR weather conditions in the Portland area.
The record fails to establish whether VFR or IFR weather conditions prevailed at Pearson Airpark at the time of Schaefer's departure. A genuine issue of material *484 fact remains as to the weather conditions existing at the inception of his flight. Summary judgment in favor of Schaefer's estate on the issue of coverage under the Hull policy was improper. The trial court's decision is reversed and remanded for trial on the issue of whether the weather conditions existing at the point of departure were IFR or VFR.
II
Transport agreed to pay on behalf of Sky-Kraft all sums which Sky-Kraft was required to pay as damages because of bodily injury, including death, sustained by any person "caused by an occurrence and arising out of the ownership, maintenance or use of the aircraft ..." (Italics ours.) Clerk's Papers, at 20.
Initially, Transport, in its opening brief, argued that Schaefer's death did not arise out of the use of the aircraft but rather out of the negligent entrustment and instruction by Sky-Kraft in operation of its flight school business, independent from the use of the aircraft. At oral argument, however, Transport alerted this court to Farmers Ins. Group v. Johnson, 43 Wash. App. 39, 715 P.2d 144 (1986), a case decided after the briefs were filed, as authority contrary to its position regarding negligent entrustment. Nevertheless, Transport still maintains that Schaefer's claim for negligent instruction was unrelated and independent from the use of the aircraft because the instruction occurred 1 month prior to the crash. We agree that Farmers Ins. Group disposes of Transport's contention pertaining to negligent entrustment; however, we reject Transport's argument concerning negligent instruction.
In Farmers Ins. Group, the primary issue was whether a homeowners policy which excluded coverage for injuries "arising out of the ownership, maintenance, operation [or] use ..." of a watercraft also precluded coverage for injuries arising out of the negligent entrustment of a watercraft to another. The appellants argued that the exclusion was inapplicable because negligent entrustment was unrelated *485 to an injury "arising out of the ownership, maintenance, operation [or] use ..." of a watercraft. Farmers Ins. Group, at 42. The Court of Appeals, however, rejected this argument and precluded coverage, thus following the majority view that a cause of action for negligent entrustment is indivisibly related to the ownership, maintenance, operation, or use of an instrumentality. Farmers Ins. Group, at 42-44.
[2] Although Farmers Ins. Group addressed only negligent entrustment, there is no reason to distinguish between negligent entrustment or negligent instruction for purposes of this analysis. Moreover, while the question in Farmers Ins. Group involved "use" of a watercraft, the reasoning is equally applicable to the use of the aircraft in this case. Consequently, Farmers Ins. Group is persuasive authority for resolution of the issue in this case. Schaefer's estate's claims based on negligent entrustment and instruction are indivisibly related to the use of the aircraft and thus part I of the liability portion of the Hull policy is applicable.
III
Under the FBO policy, Transport agreed, subject to the limits of liability, exclusions, conditions and other terms of the policy: "[T]o pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay ... (a) for bodily injury including death ... caused by accident ... arising out of the hazards set forth in Section I, II, and III following." Clerk's Papers, at 64. Section I provides in pertinent part:
SECTION I PREMISES LIABILITY
Bodily injury ...
(a) in or about the premises specified in the Declarations, as direct result of services granted by the Insured
(b) elsewhere in the course of any work or of the performance of any duties carried out by the Insured his employees in connection with the business or operations specified in the Declarations ...
This section is subject to the following exclusions:
...
*486 2. Bodily injury ... caused by
...
(b) any ... aircraft owned, chartered, used or operated by or on account of the Insured ...
(Italics ours.) Clerk's Papers, at 64.
The trial court found that the FBO policy was intended to afford coverage in the areas not covered by the liability policy. The court concluded that because exclusion 2(b) precluded coverage for Schaefer's allegations against Sky-Kraft, the FBO policy was inapplicable in this case. Although the trial court focused on exclusion 2(b), we find there is no coverage under section I, subsection (a) or (b), and, therefore, we need not consider whether coverage is excluded under 2(b).
Initially, Schaefer's estate argues that coverage exists under subsection I(a). Schaefer's estate claims that the words "in or about" are not defined in the policy and, therefore, must be given their ordinary and popular meanings. See, e.g., Phil Schroeder, Inc. v. Royal Globe Ins. Co., 99 Wash. 2d 65, 659 P.2d 509 (1983), modified, 101 Wash. 2d 830, 683 P.2d 186 (1984); McDonald Indus., Inc. v. Rollins Leasing Corp., 26 Wash. App. 376, 613 P.2d 800 (1980), aff'd, 95 Wash. 2d 909, 631 P.2d 947 (1981). Schaefer's estate defines "about" as meaning "in the vicinity" or "near", see, e.g., Webster's New Collegiate Dictionary 3 (1981). Because Schaefer's plane crashed "near" or "in the vicinity" of Pearson Airpark, Schaefer's estate argues that the death occurred "in or about" the insured's premises.
[3] Schaefer's estate inaccurately defines the ordinary meaning of the term "about." Its definition includes an unlimited area surrounding the insured's premises. "About" is a term of limitation which protects the insurer from unreasonable claims arising beyond the premises of the insured. Therefore, the ordinary meaning of the term "about" does not include a broad interpretation as urged by *487 Schaefer, but rather should reflect a strict interpretation limiting the scope of coverage to areas within the immediate vicinity of the premises. This conclusion is consistent with the general definitions of "about." Webster's Third New International Dictionary 5 (1976) defines "about" as "in the immediate neighborhood" or "near." "Near" is defined as "at, within or to a short distance" or "direct, short." Webster's Third New International Dictionary, at 1510.
Here, it can hardly be said that the accident was "in or about" the premises as defined above. The plane crashed 3.5 miles east of Pearson Airpark in David Douglas City Park. Clerk's Papers, at 232. The accident did not occur within the immediate neighborhood or near the premises. We conclude there is no coverage under section I(a).
Alternatively, Schaefer's estate argues that subsection (b) provides coverage for Schaefer's death. Schaefer's estate contends that Sky-Kraft negligently dispatched or entrusted the keys of the aircraft to Schaefer the night before his flight. Schaefer's estate claims that the entrustment was a continuation of the performance of duties by Sky-Kraft, which led to Schaefer's death. Therefore, according to Schaefer's estate, the decedent died "in the course of any work or of the performance of any duties." We disagree.
[4] The policy fails to define "in the course of any work or of the performance of any duties." Undefined terms in an insurance policy must be given their ordinary and popular meaning. Phil Schroeder, Inc. v. Royal Globe Ins. Co., supra. "In the course of" is defined as: "in the progress or process of; during." Webster's New World Dictionary 326 (2d College ed. 1978). "Performance" is defined as "the act of performing". Webster's New World Dictionary 1056 (2d College ed. 1978). These terms relate to the time, place, and circumstances under which the accident causing the injury must take place in order for coverage to apply. Therefore, *488 the accident causing the injury must have occurred during the ongoing performance of work or duties carried out by the insured.
[5] Here, Sky-Kraft was not performing any ongoing work or duties at the time of the accident. After Schaefer obtained the keys to the aircraft, Sky-Kraft ceased performing any work in connection with its business. While Transport's allegation based on negligent entrustment is indivisibly derived from the performance of work, Schaefer's death did not occur "during" the performance of work. Transport's contention focuses on the causal relationship between the injury and the performance of duties, rather than the time, place, and circumstances under which the injury occurred. Accordingly, Schaefer's death did not occur "in the course of any work or of the performance of any duties carried out by the Insured". Thus, we conclude section I, subsection (b) does not apply.
Because there is no coverage under section I, subsection (a) or (b) we need not consider whether coverage is excluded under section I, 2(b).
IV
Having concluded that there is no coverage under subsection I(a) or (b) of the FBO policy, we must consider whether coverage exists under section II.[5] Schaefer's estate contends that because none of the coverage terms in section II are defined, they must be given their ordinary and popular meanings. According to Schaefer's estate, a plain reading of the policy favors coverage because Schaefer died while in possession of and using the aircraft supplied by *489 Sky-Kraft. Transport, on the other hand, argues that section II affords typical products liability coverage and was not intended to provide coverage for Sky-Kraft's negligence in operation of its flight school.[6] Transport's contention is the better view.
Products liability insurance is designed to protect the producer or manufacturer of goods against loss by reason of injury to the person or property of others caused by the use of a product after the product is no longer in the possession of the insured. 1 G. Couch, Insurance § 190 (2d rev. ed. 1984); Annot., 91 A.L.R. 3d 921 (1979); see also 43 Am.Jur.2d Insurance § 728 (1982); Annot., 45 A.L.R. 2d 994 (1956). Such policies represent the application of products liability coverage to persons who in the course of their business are exposed to claims by third persons on the ground that their products caused injuries or damages after they were no longer in the possession of the insured. 1 G. Couch, Insurance § 1:90 (2d rev. ed. 1984).
[6] Here, Schaefer's estate does not allege any products liability claim against Sky-Kraft. On the contrary, Schaefer's estate claims only that Schaefer died as a result of the negligent operation of Sky-Kraft's flight school. Although the use of the aircraft was indivisibly related to the accident, the aircraft itself was not the cause in fact of the injury. Therefore, as Transport correctly noted, section II was not intended to provide coverage for Sky-Kraft's negligent operation of its flight school, but rather was designed to provide coverage for injuries or damages caused by defects in goods or products. Accordingly, we find no coverage under section II.
We affirm the judgment in favor of Transport, holding coverage does not exist under the FBO policy and reverse the judgment in favor of Schaefer's estate, but remand for *490 trial on the issue of whether coverage exists under the Hull policy.
Cox and MEINER, JJ. Pro Tem., concur.
NOTES
[*] This appeal was heard by a Supreme Court Justice and two Superior Court Judges sitting as Court of Appeals Judges Pro Tempore in Division Two.
[1] The minimum visibility requirements for pilots with a visual flight rating are set forth in 14 C.F.R. § 91.105(a) (1984), which provides:
Except as provided in § 91.107, no person may operate an aircraft under VFR when the flight visibility is less, or at a distance from clouds that is less, than that prescribed for the corresponding altitude in the following table:
Altitude Flight Visibility Distance From Clouds
1,200 feet or less above
the surface (regardless of
MSL altitude)
Within controlled 3 statute miles 500 feet below
airspace 1,000 feet above
2,000 feet horizontal
Outside controlled 1 statute mile Clear of clouds
airspace except as provided
in § 91.105(b)
More than 1,200 feet above
the surface but less than
10,000 feet MSL
Within controlled 3 statute miles 500 feet below
airspace 1,000 feet above
2,000 feet horizontal
Outside controlled 1 statute mile 500 feet below
airspace 1,000 feet above
2,000 feet horizontal
More than 1,200 feet above 5 statute miles 1,000 feet below
the surface and at or above 1,000 feet above
10,000 feet MSL 1 mile horizontal
[2] When Schaefer filed his flight plan, he stated that he knew the weather conditions were marginal VFR but that he had to get out. Clerk's Papers, at 233.
[3] The pilot warranty clause in Zuver provided: "Insurance will be effective only when the operation of the insured aircraft in motion is by a pilot designated below who possess [sic] a current and valid pilot certificate of the kind specified with appropriate ratings, and a current medical certificate; all as required by the Federal Aviation Administration for the flight involved and who meets the additional qualifications set forth below." Zuver, at 541.
[4] The court defined "operation" as follows: "Operation. Exertion of power; the process of operating or mode of action; an effect brought about in accordance with a definite plan; action; activity.... Black's Law Dictionary 984 (5th ed. 1979)." Zuver, at 544.
[5] SECTION II COMPLETED OPERATIONS & PRODUCTS LIABILITY Bodily injury ... arising out of the possession, use, consumption or handling of any goods or products manufactured, constructed, altered, repaired, serviced, treated, sold, supplied or distributed by the Insured or his employees after such goods or products have ceased to be in the possession or under the control of the Insured.' Clerk's Papers, at 64.
[6] It is undisputed that the terms "goods or products" include the term "aircraft." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1667778/ | 950 S.W.2d 371 (1997)
GREAT AMERICAN INSURANCE COMPANY, Petitioner,
v.
NORTH AUSTIN MUNICIPAL UTILITY DISTRICT NO. 1, Respondent.
No. 97-0081.
Supreme Court of Texas.
July 31, 1997.
*372 Arthur F. Selander, Dallas, for Petitioner.
Scott R. Kidd, Austin, for Respondent.
OPINION
PER CURIAM.
This suit arises out of a construction project for a municipal wastewater lift station in which Great American Insurance Company ("Great American") issued payment, performance, and maintenance bonds in favor of the North Austin Municipal Utility District No. 1 ("MUD"). MUD contracted with Underground Utilities Company ("Underground") to refurbish and relocate an existing dry well. When Underground refused to correct allegedly defective work performed on the well, MUD sued Underground, Great American, an engineering firm, and a subcontractor.
MUD alleged violations of the Deceptive Trade Practices Act, Insurance Code, and breach of contract against Great American, as the surety on the performance bond. Following a jury trial, the trial court rendered judgment for MUD based on liability findings against all the defendants. Regarding Great American, the jury found that it had knowingly committed deceptive acts in violation of article 21.21 of the Insurance Code and had breached a common law duty of good faith and fair dealing. The trial court rendered judgment against Great American for $2,338,207.20, including attorney's fees and prejudgment interest. Great American alone appealed the trial court's judgment, and the court of appeals affirmed. 850 S.W.2d 285, 902 S.W.2d 488. On the first appeal to this Court, we affirmed the court of appeals judgment in part and reversed in part, holding that Great American was liable to MUD only for breach of contract in the amount of $397,503.20, plus attorney's fees and prejudgment interest. Great Am. Ins. Co. v. North Austin Mun. Util. Dist. No. 1, 908 S.W.2d 415 (Tex.1995). We then remanded the case to the trial court for a calculation of prejudgment interest due to MUD. Id. at 428-29.
On remand, Great American asserted that MUD was entitled to only six percent per annum prejudgment interest, pursuant to Texas Revised Civil Statutes article 5069 1.03. The trial court, instead, awarded equitable prejudgment interest of ten percent per annum, the rate provided in article 5069 1.05. The court of appeals affirmed. 933 S.W.2d 737.
In this appeal, Great American contends that the court of appeals erred in holding that article 50691.03 does not apply when extrinsic evidence is needed to ascertain the damages arising out of the contract. More specifically, Great American claims that the performance bond and the construction contract between MUD and Underground, read together, meet the requirements of article 50691.03, which mandates prejudgment interest at six percent per annum.
Article 50691.03 provides:
When no specified rate of interest is agreed upon by the parties, interest at the rate of six percent per annum shall be allowed on all accounts and contracts ascertaining the sum payable, commencing on the thirtieth (30th) day from and after the time when the sum is due and payable.
TEX.REV.CIV. STAT. ANN. art. 50691.03 (Vernon 1987) (emphasis added). A contract is one "ascertaining the sum payable" when it *373 (1) "provides the conditions upon which liability depends," and (2) "fixes a measure by which the sum payable can be ascertained with reasonable certainty, in the light of the attending circumstances." Federal Life Ins. Co. v. Kriton, 112 Tex. 532, 249 S.W. 193, 195 (1923); see also Perry Roofing Co. v. Olcott, 744 S.W.2d 929, 930 (Tex.1988); La Sara Grain Co. v. First Nat'l Bank, 673 S.W.2d 558, 567 (Tex.1984). The statute is to be given a liberal interpretation. See Kriton, 249 S.W. at 195; La Sara Grain, 673 S.W.2d at 567.
Relying on three recent decisions from this Court, the court of appeals opined that we have "significantly narrowed" those instances in which article 50691.03 applies. 933 S.W.2d at 738 (citing Cavnar v. Quality Control Parking, Inc., 696 S.W.2d 549 (Tex. 1985); Perry Roofing, 744 S.W.2d 929; Rio Grande Land & Cattle Co. v. Light, 758 S.W.2d 747 (Tex.1988) (per curiam)). For example, the court of appeals cited Light for the rule that when the amount of damages for breach of the contract at issue "could not be ascertained by reference to the face of the contract," article 50691.03 did not govern prejudgment interest. See Light, 758 S.W.2d at 748. Concluding that the damages for breach in this case "were not ascertainable from the face of the contract" because the parties had to resort to extrinsic evidence to determine the actual amount of damages, the court held that article 50691.03 does not apply. 933 S.W.2d 737, 739.
Other courts of appeals have also interpreted Light similarly. In concluding that article 50691.03 was inapplicable, these decisions relied on the fact that the damages in each case could only be determined by resorting to extrinsic evidence. See, e.g., Graco Robotics, Inc. v. Oaklawn Bank, 914 S.W.2d 633, 646 (Tex.App.Texarkana 1995, no writ); International Piping Sys., Ltd. v. M.M. White & Assocs., Inc., 831 S.W.2d 444, 453 (Tex.App.Houston [14th Dist.] 1992, writ denied); Sage Street Assocs. v. Northdale Constr. Co., 809 S.W.2d 775, 778 (Tex. App.Houston [14th Dist.] 1991), aff'd in part & rev'd in part, 863 S.W.2d 438 (Tex. 1993); Phillips v. Phillips, 792 S.W.2d 269, 272-73 (Tex.App.Tyler 1990), aff'd, 820 S.W.2d 785 (Tex.1991); Winograd v. Willis, 789 S.W.2d 307, 312 (Tex.App.Houston [14th Dist.] 1990, writ denied); General Life & Acc. Ins. Co. v. Handy, 766 S.W.2d 370, 374 (Tex.App.El Paso 1989, no writ).
We are not persuaded. Neither Perry Roofing nor Light actually hold that article 50691.03 is inapplicable when extrinsic evidence is required to calculate damages under the contract. The contract in Perry Roofing did not prescribe any method or means for calculating damages in the event of breach. See Perry Roofing, 744 S.W.2d at 930 ("The contract ... contains no measure by which a sum payable could be ascertained for damages resulting from Perry Roofing's failure to properly install the roof."). And we noted in Light that "[w]hile the relationship between Light and Rio Grande arose under a contract, the damages suffered by Light could not be ascertained by reference to that contract.... The contract did not contain provisions to determine damages from overcharging for costs expended" for the services Rio Grande performed. Light, 758 S.W.2d at 748. Thus, the reason that article 50691.03 did not apply in either case was not because extrinsic evidence was needed to quantify damages, but because there was no measure in either contract by which damages could be determined.
We accordingly hold that article 50691.03 applies when calculating prejudgment interest even if extrinsic evidence is needed to quantify contract damages so long as the contract fixes a measure by which the sum payable can be ascertained with reasonable certainty in light of the attending circumstances. We disapprove of those court of appeals opinions holding that 50691.03 cannot be applied when resort to extrinsic evidence to determine damages is necessary. For additional reasons discussed below, we also hold that article 50691.03 applies to this case.
To determine whether article 50691.03 applies, we consider the language of two contracts. The first contract is the performance bond on which Great American is liable. The second is the construction contract between MUD and the general contractor, Underground. The performance bond *374 provides that whenever Underground defaults under the construction contract, Great American may either remedy the default or shall "make available ... sufficient funds to pay the cost of completion less the balance of the contract price," but not exceeding the amount of the bond.
The construction contract also provides a measure for the funds that would be necessary to remedy any default by Underground. The relevant language provides:
13.12.... If Contractor does not promptly comply with the terms of [MUD's] instructions [to correct defective work], ... [MUD] may have the defective work corrected or the rejected work removed and replaced, and all direct, indirect and consequential costs of such removal and replacement (including but not limited to fees and charges of engineers, architects, attorneys and other professions) will be paid by [Underground] ....
. . . . .
13.14.... All direct, indirect and consequential costs of [MUD] in exercising [its right to correct defective work] will be charged against [Underground] in an amount approved as to reasonableness by ENGINEER, and a Change Order will be issued incorporating the necessary revisions in the Contract Documents with respect to the Work; and [MUD] shall be entitled to an appropriate decrease in the Contract Price, and, if the parties are unable to agree as to the amount thereof, [MUD] may make a claim therefor as provided in Article 11. Such direct, indirect and consequential costs will include but not be limited to fees and charges of engineers, architects, attorneys and other professions, all court and arbitration costs and all costs of repair and replacement of work of others destroyed or damaged by correction, removal or replacement of [Underground's] defective work.
(emphasis added). The construction contract clearly provides a method for determining the extent of Underground's, and thus Great American's, liability in the event of Underground's default. Thus, it is a contract "ascertaining the sum payable," and article 50691.03 dictates the amount of prejudgment interest owed by Great American. Therefore, it was error to award equitable prejudgment interest at ten percent per annum, the rate contained in article 50691.05.
Consequently, pursuant to Texas Rules of Appellate Procedure 170, without hearing oral argument, we grant Great American's application for writ of error and reverse the judgment of the court of appeals. We hereby render judgment that MUD receive prejudgment interest as provided by Texas Revised Civil Statutes article 50691.03, and remand this cause to the trial court for the computation of that amount and rendition of judgment consistent with this opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1822913/ | 96 B.R. 707 (1989)
In re TERRACE GARDENS PARK PARTNERSHIP f/d/b/a Terrace Gardens Office Park, Debtor.
Bankruptcy No. 87-30855.
United States Bankruptcy Court, W.D. Texas, El Paso Division.
January 6, 1989.
*708 Leslie M. Luttrell, Hagans Ginnings Birkelbach Keith & Delgado, El Paso, Tex., for debtor.
Harrel L. Davis, III, Grambling & Mounce, El Paso, Tex., for El Paso Federal Sav. & Loan Ass'n.
Jeanette James, Hardie, Hallmark, Sergent, Hardie & Langford, El Paso, Tex., for Texas Nat. Bank.
MEMORANDUM OF OPINION
LEIF M. CLARK, Bankruptcy Judge.
At El Paso, Texas came on for hearing the Motion of El Paso Federal Savings & Loan Association ("EPF") for Relief from Stay and the Applications of the Debtor to sell two of the six office buildings comprising Terrace Gardens Office Park. EPF holds an uncontested first lien on the office park to secure an original construction loan of $2,200,000, and filed objections to both applications to sell. Texas National Bank ("TNB") holds a second lien to secure a loan of $400,000. The debtor had exhausted the construction loan from EPF but the buildings were not yet completed, necessitating the second loan from TNB. As EPF had already committed to permanent financing on the project, but would not (or could not) loan anything beyond the original $2.2 million, it consented to the second lien (waiving that provision in its construction loan agreement and deed of trust). What is more, it granted TNB the right to recover its $400,000 out of first proceeds from the sale or refinancing of all of the project or any one building thereof.
EPF and TNB mightily dispute the parameters of this voluntary partial subordination. TNB contends that any sale, even one to TNB, should result in its receipt of $400,000, relying on the testimony of TNB's president, George Elias, the letter agreement of June 2, 1986 (TNB Exhibit 1) and the acknowledgement letter of October 30, 1987 from counsel for EPF (TNB Exhibit 2). EPF contends that only sales to third parties qualify TNB to receive its proceeds, per the original letter agreement of June 2, 1986 (TNB Exhibit 1). EPF argues that the proposed exception which would have allowed TNB to purchase Building Four in the fall of 1987 (TNB Exhibit 2) for a variety of reasons evaporated, either because of a failure of a condition precedent (e.g., closing before November 3, 1987) or because of a failure to reach a meeting of the minds (see Petitioner's Exhibit 10, a letter from TNB's counsel contesting EPF's counsel's characterization of one of the material terms).
The debtor proposes to sell Building Four to Texas National Bank for $545,000, $145,000 in cash and the balance by way of a credit on the TNB debt. The other building is to be sold to Western Energy, Inc. for $567,324. The debtor contends that the sales afford adequate protection to EPF and render nugatory EPF's motion to lift stay. EPF objects to the sale of Building *709 Four to TNB unless the entire $545,000 is paid in cash. TNB responds that it will not buy Building Four unless it can use its debt cancellation as part of the consideration. EPF has withdrawn its objection to the sale of Building Six on condition it receive all of the proceeds. TNB has no objection to the sale of Building Six on the conditions EPF has imposed provided it is permitted to buy Building Four on its terms. Otherwise, it wants the first $400,000 of any proceeds received from the sale of Building Six.
An obvious solution to the conundrum presented is to authorize both sales, overruling both objections and recognizing TNB's entitlement to payment out of first proceeds of a sale from a third party. In this way, TNB would receive $400,000 cash from the sale of Building Six which it would then apply to the purchase of Building Four, ending up in the same economic position without this court's having to decide all of the issues raised in the dispute outlined above.
EPF legitimately argues that, while it contracted to a release price of $545,000 on Building Four, the release price on Building Six was to be $630,000, so it would not be placed in the same economic position. However, EPF was willing to sell Building Six for $567,324 if it got all the proceeds. If a third party other than TNB offered to buy Building Four for precisely what TNB is offering, the first $400,000 would undoubtedly go to TNB. Thus, EPF would also be placed in the same economic position for which it had contracted, with only the technicality of the name of the purchaser of Building Four about which to complain.
By agreement of the parties, the Motion and the two Applications were heard together, as the issues are integrally related. This opinion constitutes the court's findings of fact and conclusions of law.
FINDINGS OF FACT
1. Terrace Gardens Park Partnership, the debtor in this case, filed for bankruptcy under Chapter 11 of Title 11 of the United States Code on or about November 3, 1987, forestalling foreclosure by EPF.
2. EPF has a valid first lien upon the property the subject of its Motion for Relief from Stay, securing an uncontested indebtedness of $2,336,016 as of filing.
3. TNB has a valid second lien on the same property, securing an indebtedness of approximately $418,000.
4. The property has a value, for purposes of this hearing, of $2,500,000.00. The only appraisal testimony was that of EPF's expert, Charles Duke.[1] He valued the entire complex at between $2,150,000 and $2,350,000 (or approximately $86.00 per square foot). However, his income approach was flawed by a reliance on the actual leases in place as opposed to the leases which a prospective purchaser could reasonably expect to obtain. See In Re Cool, Bankr. (Bankr.D.Mont.1987). Further, his market data apparently failed to adequately account for the construction of an upscale mall nearby, nor did it include the contract TNB had placed on one of the office park's buildings amongst its comparable sales.
The debtor's general partner predictably valued the project at more than $3,000,000. However, the same witness also solemnly testified that he could achieve 90% occupancy *710 by the end of this year and submitted projections of future performance which could only be charitably characterized as wishful. An appraisal obtained by the debtor more than a year ago placed the value at about $2,580,000.[2]
If TNB had not advanced the additional $400,000 to finish the buildings, they would be worth considerably less than $2.2 million. Their value is further enhanced by their being sold individually than as a single office park.
The business of valuation has been described as as much art as technique. While valuation is a necessary component of the bankruptcy process, its utility has too often been overstated. Certainly it helps a court with risk allocation in the context of evaluating sales, plans, and requests for relief from stay. But it is sheer arrogance for any bankruptcy court to maintain that it can, in the space of a few hours of hearing testimony, actually set values with binding collateral estoppel or res judicata effect. This "valuation" is made with a full appreciation of the limitations inherent in the valuation process. It will here function as a guidepost, a tool for the larger task of risk allocation which stands at the root of Bankruptcy Code.
5. On June 2, 1987, TNB and EPF agreed that TNB would loan the debtor the additional $400,000 to complete construction of the Terrace Gardens Office Park, in consideration of EPF's commitment "that your loan shall be repaid from the first funds available from the Project as provided in this letter, and that you will secure this loan, in part, by placing a second lien on the entire Project, subject only to our first lien position." (TNB Exhibit 1).
6. The letter agreement of June 2, 1987 contemplated the repayment from first funds upon either the sale of the buildings in the project to a third party or refinancing by another lender, at preset release prices ($630,000 for Buildings 1, 5 or 6 and $545,000 for Buildings 2, 3 or 4).
7. But for the loan from TNB, the project could not have been finished, to the substantial detriment of EPF and the value of its collateral.
8. EPF has consented to the piecemeal sale of its collateral. Its deed of trust contemplated release prices from the very beginning. Its agreement with TNB contemplated the sales of one or more buildings. Its agreement with the borrower, attached as an exhibit to its objection to the sale of Building Six, notes a renegotiated release price formula and a procedure for selling off buildings individually. This court fails to be persuaded by EPF's strenuous remonstrations that office park must be sold in bulk. This is not a finding that EPF has consented to the sale of its collateral within the meaning of Section 363(f)(2), however.
9. EPF has consented to the sale of Building Six provided it receives all of the proceeds from that sale.
10. TNB has consented to the sale of Building Four provided it does not have to pay more than $145,000 of its own cash for it.
11. Based upon the total square footage of 29,835 square feet specified in EPF's documents, the ratio of the original construction loan to the square footage of the office park was $73.73 per square foot. When EPF agreed to TNB's new loan of $400,000, it developed a new release price which assumed a sale of one of the buildings per its letter agreement with TNB dated July 2, 1987. This new release price comes out to $84.29 per square foot. The original deed of trust received and recorded by EPF from the debtor specified a release price of $99.38 per square foot. See Petitioner's Exhibit 3 at page 10 (paragraph 30(d)).
12. The sale price of Building Six includes a credit to the buyer for $36,000 worth of finish-out to be completed by the buyer. The sales price is $102.00 per square foot.
13. The sales price of Building Four is consistent with the sales price specified in the letter agreement of June 2, 1987. The *711 price will yield in excess of $125.00 per square foot.
14. The debtor should be able to promulgate a plan of reorganization within a reasonable period of time.
15. The plan proposes a controlled liquidation over approximately one year. In the interim, net rentals from the office complex would be applied toward the amortization of EPF's loan.
16. If these sales are consummated, EPF's remaining indebtedness would be approximately $1,780,000.00.
17. The current market for office buildings is soft and flat. However, these office buildings are well-situated in a scenic area and will soon have an upscale shopping mall as a new neighbor.
18. The debtor has a number of unsecured creditors in addition to the secured creditors participating in this proceeding.
19. The debtor is current on both insurance and property taxes.
20. The two buildings proposed to be sold represent one-third of the debtor's total assets.
21. If Building Six is not sold, the debtor will lose not only a buyer but a tenant, to the detriment of the estate.
22. The proposed sale price for Building Six exceeds the value of the building and the liens against the building.
23. If the stay is lifted and EPF forecloses, TNB's rights under the letter agreement of June 2, 1987 will be eliminated.
CONCLUSIONS OF LAW
1. This court has jurisdiction over this core proceeding pursuant to 28 U.S.C. § 157(b).
2. EPF has successfully established that there is no equity in the subject property for purposes of 11 U.S.C. § 362(d)(2)(A). As this court has noted above, valuations serve principally to guide the court in the process of risk allocation. They should not be taken either by this or any other court to be binding determinations of actual value so much as indications of value for purposes of evaluating the relative merits of a proposed course of action under the Bankruptcy Code, such as granting or denying a creditor relief from stay or authorizing a debtor's sale of some of its property.
3. The debtor has established a reasonable likelihood of reorganization within a reasonable time. The debtor proposes a liquidation plan on a time frame consistent with the holding period to be expected for a project of this type. The application of net operating income toward amortization of the secured debt in the interim is consistent with Section 1129(b)(2)(A)(ii), assuming sufficient income and an acceptable discount rate.
This court has previously held that it is appropriate for a bankruptcy court to rule on the merits of a debtor's potential for reorganization very early in a case. Anderson Oaks (Phase I) Limited Partnership, 77 B.R. 108, 110 (Bankr.W.D.Tex. 1987); see United Savings Association of Texas v. Timbers of Inwood Forest Associates, 484 U.S. 365, 108 S. Ct. 626, 633, 98 L. Ed. 2d 740 (1988). In Anderson Oaks, this court concluded that a plan which contemplated negative amortization for at least six years, forcing an involuntary loan out of an already undersecured creditor, could not be confirmed because it would not pass muster under the feasibility test of Section 1129(a)(11). More importantly, confirmation could never be achieved because the debtor lacked a class of unimpaired creditors and so could not satisfy the requirements of Section 1129(a)(10).
That case does not depart from the standard espoused by numerous other courts and most recently picked up by the Supreme Court in the Timbers case. Section 362(d)(2) obligates the debtor to make, in the words of the Supreme Court, "not merely a showing that if there is conceivably to be an effective reorganization, this property will be needed for it; but that the property is essential for an reorganization that is in prospect. This means, as many lower courts, including the en banc in this case, have properly said, that there must be `a reasonable possibility of a successful reorganization within a reasonable time.' *712 [In re Timbers of Inwood Forest Associates Ltd.] 808 F.2d at [363] 370-371, and nn. 12-13 [5th Cir.1987], and cases cited therein." United Savings Association of Texas v. Timbers of Inwood Forest Associates, 108 S.Ct. at 632 (emphasis in original).
In Anderson Oaks, there was no reorganization in prospect. In this case, there is, though it is slim. Courts should be somewhat disinclined to conduct fullblown confirmation hearings in the context of stay litigation, lest the inherently interim function of Section 362 be overlooked. There are indeed situations in which a fully developed hearing on likelihood of reorganization will require the equivalent of confirmation evidence, and courts should not be shy about entertaining such evidence where appropriate, especially in light of the Supreme Court's directive. At the same time, determining a reasonable possibility of reorganization of an effective reorganization within a reasonable period of time in general requires a lower quantum of evidence than does actual confirmation under Section 1129(a). So long as that reasonable possibility has been established, the stay should remain in place (though perhaps its continuation should be conditioned on the debtor's confirming a plan by a court-set deadline).
4. The sale of these two buildings free of liens is authorized under Section 363(f)(3) of the Bankruptcy Code.[3] There is a split of authority over the interpretation of the phrase ". . . greater than the aggregate value of all liens on such property" found in subsection (f)(3). Some courts have held that, to fall within the provision, a proposed sale must yield something more than the aggregate of the debts asserted to be secured by the liens. See, e.g., Matter of Stroud Wholesale, Inc., 47 B.R. 999 (E.D.N.C.1985), aff'd sub nom., Richardson v. Pitt County, No. 85-1422 (4th Cir. Jan. 21, 1986); In re Red Oak Farms, Inc., 36 B.R. 856 (Bankr.W.D.Mo.1984); In re Bobroff, 40 B.R. 526 (Bankr.E.D.Pa.1984); In re Murphy, 34 B.R. 78 (Bankr.D.Md. 1983); Matter of Riverside Investment Partnership, 674 F.2d 634 (7th Cir.1982). Other courts, along with Collier, maintain that a sale price need only exceed the value of the property, relying on the definition of a secured claim in Section 506(a), which equates such a claim to the value of the collateral securing the claim. In re Beker Industries Corp., 63 B.R. 474 (Bankr.S.D. N.Y.1986); Matter of Rouse, 54 B.R. 31 (Bankr.W.D.Mo.1985); In re Hatfield Homes, Inc., 30 B.R. 353 (Bankr.E.D.Pa. 1983); 11 U.S.C. § 506(a) ("an allowed claim of a creditor secured by a lien on property . . . is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property . . ."); see also 2 Collier on Bankruptcy para. 363.07 at pp. 363-31 et seq. (15th ed. 1987); cf. United Savings Association of Texas v. Timbers of Inwood Forest Associates, 484 U.S. 365, 108 S. Ct. 626, 630-31, 98 L. Ed. 2d 740 (1988); Wright v. Union Central Life Insurance Co., 311 U.S. 273, 61 S. Ct. 196, 85 L. Ed. 184 (1940).
There are problems with both interpretations. Focusing solely on the amount of the debt securing the liens as does Red Oak Farms ignores the Code's focus on protecting the value of collateral, thereby allowing an undersecured creditor to obstinately block an otherwise sensible sale. That result is also inconsistent with Section 363(k), which allows a secured creditor to bid in the amount of its debt anyway, to prevent a sale over its objection for less than what it is owed.[4] By the same token, *713 allowing a sale for the value of the collateral, as suggested in Beker, fails to give effect to the express language of the statute, which calls for the price to exceed the aggregate value of all liens on the property. See 11 U.S.C. § 363(f)(3); see also Matter of Stroud Wholesale, Inc., 47 B.R. at 1001-02; but see International Union v. Morse Tool, Inc., 85 B.R. 666 (D.Mass. 1988). Moreover, the generally held view is that sales out of the ordinary course of business should not be permitted unless the sale will produce equity. Matter of Riverside Investment Partnership, 674 F.2d at 640; see 2 Collier on Bankruptcy, para. 363.07 at pp. 363-32, 363-33 (15th ed. 1987).
This court believes that Beker is the better reasoned view. Sections 361-364 all address the treatment of secured claims in a bankruptcy case. All four sections employ the common concept of adequate protection as the touchstone for whether a debtor's proposed action should be approved. Adequate protection in turn focuses on the value of the collateral securing the claim.[5] So long as a creditor's interest is adequately protected, the debtor is permitted to sell property of the estate. 11 U.S.C. § 363(e). It makes no sense to read into Section 363(f)(3) a restriction inconsistent with the adequate protection scheme which pervades both Section 363 and the rest of the Code, just because the sale is free of liens, especially as the commonly accepted method for adequately protecting a secured creditor when a sale is authorized under Section 363(f) is to order the liens to attach to the proceeds of the sale. H.R.Rep. No. 595, 95th Cong, 1st Sess 345 (1977), U.S.Code Cong. & Admin.News 1978, p. 5787; see 2 Collier on Bankruptcy, para. 363.07 at p. 363-31 (15th ed. 1987).[6] In any event, a secured creditor who disagrees with the proposed price has recourse to Section 363(k), which permits it to bid in its lien (just as it might at a foreclosure sale) to head off the sale.
The two buildings in question here are each proposed to be sold for a value per square foot considerably in excess of the value found by the court. Building Six, to be sold for $567,324.00, will generate $102 per square foot. Building Four, to be sold for $545,000, will generate $124.15 per square foot. The total value of $2,500,000 found by the court comes out to $83.79 per square foot. Even considering the caution with which this court approaches the valuation process (see discussion supra), the sales here proposed satisfy the requirements of Section 363(f)(3).
5. Even though a sale will yield a price equal to or exceeding the value of the property, it may only be approved after examination of the surrounding circumstances and a finding by the court that those circumstances justify the sale. As the Beker court noted:
Because of the vagaries of the valuation process . . . the proper exercise of discretion would require that those circumstances be compelling and that it be found . . . that "the proposed sales price is the best price obtainable under the circumstances of a particular case . . ." 30 B.R. at 355.
In re Beker Industries Corp., 63 B.R. 474, 477 (Bankr.S.D.N.Y.1986). Whether the circumstances in question will justify a sale will turn at least in part on what chapter the case is filed under. Where a trustee in a chapter 7 case may have no justification whatsoever for selling rather than abandoning fully encumbered property, see, e.g., In re K.C. Machine & Tool Co., 816 F.2d 238, 246 (6th Cir.1987), the debtor-in-possession in a chapter 11 proceeding might need to sell off some of its assets to "slim down" as part of the reorganization process preliminary to a plan. See In re Lionel *714 Corp., 722 F.2d 1063, 1071 (2d Cir.1983); In re Continental Air Lines, Inc., 780 F.2d 1223, 1226 (5th Cir.1986); see also Matter of Baldwin United Corp., 43 B.R. 888, 905-06 (Bankr.S.D.Ohio 1984). In the words of the court in Continental, "there must be some articulated business justification for using, selling, or leasing the property outside the ordinary course of business." In re Continental Air Lines, Inc., 780 F.2d at 1226.
Of course, in evaluating the business justification for a debtor's proposed sale outside the ordinary course of business, the court must be mindful of the potential for evasion of the formal requirements for approval of plans of reorganization. To the extent that piecemeal sales of the debtor's assets may represent a "creeping plan of reorganization," creditors' rights under the various Code sections associated with the promulgation of plans might become meaningless. The Continental decision offers some guidance:
"Undertaking reorganization piecemeal pursuant to § 363(b) should not deny creditors the protection they would receive if the proposals were first raised in the reorganization plan. See In re Allison, 39 B.R. 300, 303 (Bankr.D.N.M. 1984). At the same time, we fully appreciate that post-petition, pre-confirmation transactions outside the ordinary course of business may be required and that each hearing on a § 363(b) transaction cannot become a mini-hearing on plan confirmation. Balancing these considerations, we hold that when an objector to a proposed transaction under § 363(b) claims that it is being denied certain protection because approval is sought pursuant to § 363(b) instead of as part of a reorganization plan, the objector must specify exactly what protection is being denied. If the court concludes that there has in actuality been such a denial, it may then consider fashioning appropriate protective measures modeled on those which would attend a reorganization plan.
In re Continental Air Lines, Inc., 780 F.2d at 1227-28.
At trial, EPF raised this issue, but failed to particularize what protections were being denied, other than that the sales if approved would eliminate any realistic possibility of selling the balance of the buildings as a unit. As noted above, the evidence and the exhibits attached to EPF's pleadings indicate that EPF has already restructured the financing in express contemplation of piecemeal sales of the buildings. The appraiser testified that the total collateral package would probably fetch more if sold individually, all other things being equal. No further sales are contemplated prior to approval of a plan, though the proposed plan will feature liquidation of the balance of the collateral. While the sales are expected to complement a proposed plan, the transactions do not specify particular terms for adopting a reorganization plan. See In re Continental Air Lines, Inc., supra at 1226. EPF has failed to carry the burden imposed in the Continental case.
In any event, there are legitimate business justifications for the sales in question. The sales will eliminate one secured creditor and substantially reduce the claim of another, easing the interim debt service required under the debtor's proposed plan. As the plan contemplates orderly liquidation in any event, taking advantage of immediate sales at favorable prices aids that process. What is more, in a "soft and flat" real estate market such as El Paso's (as the appraiser described it in his testimony), sales such as these are "birds in the hand" which prudent business judgment dictates be preferred to the two in the bush on the other side of confirmation. Considering "all salient factors pertaining to the proceeding and, accordingly, [acting] to further the diverse interests of the debtor, creditors and equity holders, alike," this court is satisfied that the sales in question are justified. In re Lionel Corp., 722 F.2d 1063, 1071 (2d Cir.1983); Matter of Baldwin-United Corp., 43 B.R. 888, 906 (Bankr.S.D.Ohio 1983).
Arguably, a somewhat stricter standard should be applied to sales under Section 363(b) when they also fall under Section 363(f). After all, it is one thing simply to sell some of an estate's assets. It is quite another to sell those same assets free of the liens which encumber them. The Beker *715 court required a showing of special or compelling circumstances to authorize such a sale, commenting that "[since] property in which there is no equity for the general estate `in practical essence . . . belongs[s] to the secured creditors,' [citation omitted], they, absent compelling circumstances, should sell it themselves if they object to the sale." In re Beker Industries Corp., 63 B.R. at 477-78. The difficulty with this test is that it tends to ignore the difference between chapter 7 and chapter 11 proceedings. Simply put, fully encumbered property in a chapter 11 proceeding does not in practical essence belong to the secured creditors. During the pendency of the case, the debtor-in-possession is afforded the right to operate its business, and to make the difficult management decisions associated with rehabilitating the debtor preliminary to the promulgation of a plan. See 11 U.S.C. § 1107(a). Greater flexibility should be afforded debtors in chapter 11 cases to effectuate the reorganization goals of that chapter. See H.R.Rep. No. 595, 95th Cong, 1st Sess 220, 224 (1977):
The purpose of a business reorganization case, unlike a liquidation case, is to restructure a business's finances so that it may continue to operate, provide its employees with jobs, pay its creditors, and produce a return for its stockholders. The premise of a business reorganization is that the assets that are used for production in the industry for which they were designed are more valuable than those same assets sold for scrap. . . . If the business can extend or reduce its debts, it often can be returned to a viable state. . . .
Id. at 220, U.S.Code Cong. & Admin.News 1978, p. 6179.[7]
A court in evaluating a proposed sale free and clear of liens must balance the need for flexibility with the competing concern of the affected creditors for adequate protection. Obviously, there is potential for abuse concerning which the court must be mindful. For example, a debtor should not be permitted to use Section 363(f) to "cash out" a creditor, depriving the creditor of its election rights under Section 1111(b), without a showing of compelling circumstances. Nor should a debtor be permitted to avoid the obligation to make full disclosure and to pass muster under Section 1129(a) by way of a "creeping plan" via a series of sales, abandonments, or the like. Collusive sales should also receive closer scrutiny, because of the substantial potential for abuse. By the same token, a creditor, intent on foreclosure may have little about which to complain if the proposed sale achieves results comparable to what the creditor could expect to achieve, assuming it is the successful bidder at the foreclosure and subsequently sells the property for its own account.
These are all merely some of the factors which a court might desire to consider. Each case will turn on its facts. However, core considerations will include determining whether, after evaluating the relative risks (including the risk that the appraisal testimony may be flawed, skewed, or otherwise suspect), the value of the creditor's lien rights in the property are adequately protected. In re Beker Industries Corp., 63 B.R. 474, 477-78 (Bankr.S.D.N.Y.1986). Also, of course the court will have to satisfy itself that the price offered is "the best price obtainable under the circumstances of a particular case." In re Hatfield Homes, Inc., 30 B.R. 353, 355 (Bankr.E.D.Pa.1983). *716 Finally, if the objecting party raises specific concerns relating to the manner in which the proposed sale tends to deprive it of rights to which it would otherwise be entitled as part of the reorganization process, the court should carefully examine those concerns and, if appropriate, fashion appropriate protections. In re Continental Air Lines Corp., 780 F.2d 1223, 1228 (5th Cir. 1986).
6. In evaluating the offer of TNB to purchase Building Four, the court must give effect to the subordination agreement between TNB and EPF. 11 U.S.C. § 510(a).[8] EPF did in fact agree to subordinate its entitlement to the proceeds of sale if it received at least $545,000 on Building Four. TNB Exhibit One. All other things being equal, such subordination agreements, where found, are enforceable in bankruptcy as between the parties to the agreement as contractual obligations, regardless whether the subordination in question has been memorialized by a filing giving notice to third parties. In re Smith, 77 B.R. 624, 627 (Bankr.N.D.Ohio 1987) and cases cited therein. The court finds that the expression "sale to a third party" in the original letter agreement of June 2, 1987 was not a critical term designed to exclude TNB.[9] Even if it were, EPF agreed to waive insistence on that term in its letter of October 30, 1987. TNB Exhibit 2. It is true that the parties commenced to dicker over who would pay the closing costs. In fact, it was no doubt that disagreement which prevented the sale from closing prior to the bankruptcy filing (over which TNB had no control). The petition was filed the day before the scheduled foreclosure, so we will never know whether, absent the filing, the differences might have been worked out and the sale consummated. The bankruptcy filing at the very least excused TNB from further performance under the agreement Alabama Football, Inc. v. Wright, 452 F. Supp. 182 (N.D.Tex. 1977), aff'd, 607 F.2d 1004 (5th Cir.1979).
The case at hand bears some of the factual characteristics of a recent Fifth Circuit decision affirming the applicability of Section 510(a) to pre-bankruptcy subordination agreements, both written and oral. Matter of Bobby Boggs, Inc., 819 F.2d 574 (5th Cir.1987). There, a lender agreed to subordinate its first lien position to a bonding company to assure the completion of construction of a hotel which the bank was financing. Some question was raised over whether the various writings of the parties amounted to an enforceable contract, but the court was not deterred by such niceties. Said the court:
We discern no clear error in the bankruptcy court's conclusion that a binding agreement existed. Even if no bilateral contract existed, the result below is nevertheless supported by the Bankruptcy Code's equitable subordination provision as well as by the recognition of promissory estoppel in Texas law and the applicability of that doctrine to the facts of this case.
* * * * * *
[footnote 7] We also believe that even if there were technically no contract, section 510(a) can be understood to extend to a promise which is made enforceable by the doctrine of promissory estoppel, at least to the extent necessary to prevent reliance losses of the kind involved *717 here. See Wheeler v. White, 398 S.W.2d 93 (Tex.1965); [Preload Technology v. A.B. & J. Construction Co., Inc., 696 F.2d 1080, 1094-95 (5th Cir.1983)]
Matter of Bobby Boggs, Inc., 819 F.2d at 579, 579 n. 7. Here too, there are facts which tend to raise not only the written agreement found by the court, but also an oral agreement, and a promissory estoppel. Texas National Bank was induced into lending this money principally on its belief that it would get its money out of first proceeds of sale. Now, because of the bankruptcy, EPF is in a position to take advantage of the situation, perhaps hoping to obtain relief from the stay in order to foreclose TNB's second lien, but at the very least hoping to prevent its ever having to honor its original subordination agreement. TNB on the other hand realizes that, unless it can somehow trigger the subordination agreement, it may well be left out in the cold, having lent $400,000 in good faith only to lose it to a technicality. The subordination agreement must be given effect. If it is not, then TNB will certainly seek equitable subordination under Section 510(c)(1) in any event. Bobby Boggs suggests that even that formality may not be necessary. "Even if we were to conclude the bankruptcy court erred in finding a binding subordination agreement existed, which we do not, the result reached by that court nevertheless would be proper under the equitable subordination principle, rendering any such error harmless." Matter of Bobby Boggs, Inc., 819 F.2d at 579; see also In re Smith, 77 B.R. 624, 626-27 (Bankr.N.D.Ohio 1987) (court gave effect to subordination agreement in awarding proceeds from the sale of crops during the bankruptcy case).[10]
7. The parties have already agreed that reasonable expenses may be paid out of the proceeds of sale, including the brokerage commission of four percent which this court has previously approved. That agreement resolves the only issue which apparently prevented the parties from promptly closing this very transaction in November 1987. The court finds it appropriate to give effect to the extent possible to the intentions of the parties.
The foregoing constitute this court's findings of fact and conclusions of law. Findings may be treated as conclusions and vice-versa. An Order has been entered consistent with this opinion.
NOTES
[1] Mr. Duke had not prepared a formal written appraisal in time for the hearing. However, he did have an informal memorandum which contained most of the information necessary for him to have formed an opinion as to value. This procedure conforms with the most recent enactment of the Code of Ethics promulgated by the Society of Real Estate Appraisers. It is also less expensive to the clients and facially easier for a court familiar with appraisal technique to digest. The only defect in the memorandum was the lack of any description of the assumptions upon which the appraiser relied. Mr. Duke testified at the hearing that the appraisal assumed a sale of the complex in bulk, as opposed to a piecemeal sale of the buildings. That assumption was not detailed in his memorandum, though it could reasonably have been divined. The memorandum also said nothing about the fact that office park was subject to a condominium regime, or that a new upscale mall is currently under construction nearby. In the opinion of this court, this memorandum just barely complies with the requirements of the ethical rules.
[2] Neither this appraisal nor its author were produced at the hearing.
[3] Section 363(f)(3) reads as follows:
(f) The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if
(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;
11 U.S.C. § 363(f)(3).
[4] Section 363(k) reads as follows:
(k) At a sale under subsection (b) of this section [which authorizes sales out of the ordinary course of business on notice and hearing] of property that is subject to a lien that secures an allowed claim, unless the court for cause orders otherwise the holder of such claim may bid at such sale, and, if the holder of such claim purchases such property, such holder may offset such claim against the purchase price of such property.
11 U.S.C. § 363(k).
[5]
The phrase "value of such creditor's interest" in § 506(a) means "the value of the collateral." [citations omitted]. We think the phrase "value of such entity's interest" in § 361(1) and (2), when applied to secured creditors, means the same.
United Savings Association of Texas v. Timbers of Inwood Forest Associates, 484 U.S. 365, 108 S. Ct. 626, 630, 98 L. Ed. 2d 740 (1988). This analysis suggests that the Supreme Court would apply a similar interpretation to the expression "value of all liens on the property" found in Section 363(f)(3).
[6] The proceeds are in turn buffered by the restrictions of Section 363(c) on the debtor's use of cash collateral. 11 U.S.C. § 363(c).
[7] In the proposed draft bankruptcy law submitted along with the Report of the Commission on the Bankruptcy Laws of the United States in 1973, two separate statutes were proposed relating to sales free of liens. Report of the Commission on the Bankruptcy Laws of the United States, H.R.Doc. No. 93-137, 93rd Cong., 1st Sess., Pt. II (1973), reprinted in Collier on Bankruptcy, Appendix Volume 2 (15th ed. 1987). Section 5-203(b) authorized sales free of liens by a trustee in the liquidation of a case only if "(1) there is an apparent equity of (2) the validity of the lien or other interest encumbering the property is in dispute." Id., Section 5-203 at p. 191. Section 7-205 authorized sales of all or substantially all of the estate's assets if approved by the administrator of a reorganization case. Id., Section 7-205 at p. 239. In the accompanying note, the Commission commented that "there is a split of authority in the case law presently, with some courts allowing this type of sale, but others requiring some showing of emergency. This section makes it clear that a showing of emergency is not necessary." Id. The Commission recognized the varying policy considerations with respect to sales of property in liquidation and reorganization settings.
[8] Section 510(a) provides as follows:
(a) A subordination agreement is enforceable in a case under this title to the same extent that such an agreement is enforceable under applicable nonbankruptcy law.
11 U.S.C. § 510(a).
[9] This finding is supported by a fair reading of the contract itself. It makes no practical difference vis-a-vis the impact of the subordination agreement whether TNB or someone else offers $545,000 for Building Four, as the result to EPF is the sameit receives $145,000 net in cash and the balance is paid over to TNB. The court can discern no peculiar economic benefit which EPF might be expected to realize from preventing TNB from itself paying the price specified in the agreement, unless the price structure was set up in a manner designed to exclude the possibility that EPF would ever have to honor the agreement (i.e., no third party in its right mind would think of paying $125.00 per square foot for any of the buildings in question). Such a reading is at variance with the testimony which indicated that TNB made the loan without an appraisal in reliance on the letter agreement and the accompanying conversations between officers of TNB and EPF. If this was EPF's intent, it should not in equity be given effect.
[10] In Smith, the proceeds in question were escrowed pending a determination of entitlement based upon the court's interpretation of the subordination agreement. The situation presented in this case does not afford the court that luxury. Only $145,000 in cash is being tendered by TNB. The balance is being paid via a "tender" of its claim to be paid $400,000. Should the court approve the sale only to subsequently overturn TNB's asserted rights under the subordination agreement, then the "consideration" received by EPF would only be $145,000 (the release of a second lien is of no value to EPF). EPF will not under such circumstances have been adequately protected, but the sale will already have been consummated. TNB will not tender $545,000 in cash. The court is thus left with only two choices. It can reject the offer out of hand as too speculative because it requires the court to determine the subordination issue in order to evaluate whether the sale affords EPF adequate protection. Or it can proceed to evaluate the subordination agreement, and so rule on the sale itself as well. Considerations of judicial economy encourage the latter course of action, as the issue was developed at trial. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1952723/ | 269 B.R. 181 (2001)
In re Herbert Russell FARRELL, Jr. Lucy Elizabeth Farrell, Debtors.
Clyde Hardesty, Trustee, Plaintiff,
v.
Equity One Credit Corp., et al., Defendants.
Bankruptcy No. 99-56846. Adversary No. 00-110.
United States Bankruptcy Court, S.D. Ohio, Eastern Division.
September 4, 2001.
*182 Brent A. Stubbins, Graham & Graham, Stubbins Lewis Watson & Erhard Co. LPA, Zanesville, OH, for Plaintiff.
David A. Wallace, Zeiger & Carpenter, Columbus, OH, for Defendant Equity One Credit Corporation.
Paul J. Borowitz, Assistant Muskingum County Prosecuting Attorney, Zanesville, OH, for Plaintiff.
Clyde Hardesty, Newark, OH, Chapter 7 Trustee.
Alexander G. Barkan, Columbus, OH, Assistant United States Trustee.
MEMORANDUM OPINION AND ORDER
CHARLES M. CALDWELL, Bankruptcy Judge.
This Memorandum Opinion and Order constitutes the findings of fact and conclusions of law for the adversary proceeding commenced by Clyde Hardesty, Chapter 7 Trustee ("Plaintiff"). The Plaintiff seeks to invalidate the mortgage interests of Equity One Credit Corp. ("Defendant") in the residential real estate of Herbert Russell Farrell, Jr. and Lucy Elizabeth Farrell ("Debtors"). The Court has concluded that the Defendant's lien rights cannot be avoided. A brief history of this case will illustrate the bases for this decision.
*183 The Debtors own a home at 5680 Twin Hills Drive, Zanesville, Ohio ("Twin Hills"). Twin Hills includes three parcels, as follows: 1.12 acres, 1.81 acres, and 0.69 acres. The Debtors acquired the 1.12 acre parcel on April 15, 1980, and the 1.81 acre and 0.69 acre parcels on November 23, 1981. The Debtors' home is located on the 1.12 acre parcel, but a detached three-and-a-half car garage built by the Debtors in 1987 is located on the 0.69 acre parcel west of the home. Both the home and the garage are accessed by a driveway through the 1.12 acre parcel. The 1.81 acre parcel is a fenced vacant lot on the curve of Twin Hills Drive east of the home. On September 3, 1997, the Debtors quit-claimed to their son, John L. Farrell ("John Farrell"), a fourth and adjacent 1.38 acre parcel with a pole barn, to build a home. There was no consideration for this transfer.
On July 2, 1998, the Debtors executed an Open-End Mortgage ("Mortgage") with the Defendant in the amount of $261,000.00 at the Elby's Restaurant on Route 40, west of Zanesville. The Mortgage was recorded on July 8, 1998. On the face of the Mortgage, the Twin Hills address, which includes the three parcels, is referred to as the address for the property that is mortgaged by the Debtors. The Mortgage also refers to an "Exhibit A" for the description of the property mortgaged. Exhibit A includes a metes and bounds description for the 1.12 acre parcel and permanent parcel numbers for the 1.12 and 1.81 acre parcels. There is no metes and bounds description or permanent parcel number for the 0.69 acres on Exhibit A.
The loan appraisal for the mortgage transaction at issue, however, references the 1.12, 0.69 and 1.81 parcels, and assigned an estimated market value of $330,000.00 as of June 25, 1998. In addition, on July 8, 1998, the bulk of the Mortgage proceeds were used to pay preexisting mortgages held by Ameriquest Mortgage ("Ameriquest") in the amount of $198,427.10 and National City Bank ("National City") in the amount of $56,934.32. Both Ameriquest and National City held mortgages on the 1.38 and 1.81 acre parcels. National City also held a mortgage on the 0.69 and 1.12 acre parcels.
Approximately a year later, on July 30, 1999, the Debtors filed the instant chapter 7 bankruptcy proceeding. On Schedule A-Real Property, the Debtors listed Twin Hills and assigned a value of $260,000.00. On Schedule D-Creditors Holding Secured Claims, the Debtors listed the Defendant as holding the Mortgage on Twin Hills in the amount of $260,000.00. On August 11, 1999, a Chapter 7 Individual Debtor's Statement of Intention was filed, in which the Debtors indicated that they planned, at that time, to retain Twin Hills and reaffirm the Mortgage.
Shortly after filing, Larry J. McClatchey ("Mr. McClatchey") was appointed as the interim trustee, and the creditors' meeting was conducted on September 8, 1999. Subsequently, on October 4, 1999, Mr. McClatchey filed an Application to Employ Counsel. In this Application, Mr. McClatchey did not mention Twin Hills as a potential asset. Indeed, in his Interim Report of Trustee, filed on October 5, 1999, Mr. McClatchey indicated that there was no net value to the estate after liens, exemptions and costs of sale, and that Twin Hills would be deemed abandoned pursuant to section 554(c) of the United States Bankruptcy Code ("Code"). Mr. McClatchey, however, resigned on October 13, 1999, because of conflicts discovered subsequent to the creditors' meeting and his review of the Debtors' records.
The Plaintiff was appointed as successor trustee on October 22, 1999, and on December *184 7, 1999, an Application of Trustee to Employ Counsel was filed on behalf of the Plaintiff. This Application used almost identical language employed by Mr. McClatchey in describing the assets that would be pursued. On February 1, 2000, the Interim Report of Trustee was filed by the Plaintiff. In that report, the Plaintiff indicates that Twin Hills had an unknown net value after liens, exemptions and costs. The Plaintiff further detailed that Twin Hills may be affirmatively abandoned, pursuant to section 554(a) of the Code.
This approach to the administration of Twin Hills changed around the time the Debtors were questioned on behalf of the Plaintiff at a Bankruptcy Rule 2004 examination conducted on March 20, 2000 ("Examination"). During the Examination, the Debtors were questioned about potential assets, including Twin Hills, the 1.38 acre parcel conveyed to John Farrell, and their interests in bank accounts and oil and gas wells, etc. Regarding Twin Hills, the Debtors were questioned on topics critical to the instant litigation; i.e., whether the Mortgage was properly witnessed by two persons, and whether all three parcels that comprise Twin Hills were intended to be subject to the Mortgage.
During the Examination, there appears to have been some discussion on possible ways to settle any potential fraudulent conveyance claim against John Farrell, depending on the outcome of the instant dispute. Also during the Examination, it was indicated for the first time that the Debtors no longer had the ability to reaffirm their scheduled Mortgage and retain Twin Hills. A review of the transcript of the Examination reveals that the Debtors were somewhat unsure on their recollections, but that they testified they thought there were two witnesses at the time the Mortgage was executed. In addition, the Debtor, Mr. Farrell, clearly testified during the Examination, that it was the Debtors' intent to have all three parcels that comprise Twin Hills subject to the Defendant's Mortgage. During the Examination, the significance of the witness issue was explained, and the Debtors were asked to be sure and to provide any supplemental information to the Plaintiff.
Approximately three weeks after the conclusion of the Examination, the instant adversary proceeding was commenced on April 13, 2000. Attached to the complaint were affidavits dated April 5, 2000. According to the language in each affidavit, they were prepared, ". . . to clarify those circumstances involving the execution of the mortgage on July 2, 1998, at Elby's Restaurant." The Debtors indicated in each affidavit, contrary to their testimony given approximately two weeks earlier, that there was only one witness to the execution of the Mortgage.
Based upon the affidavits and other attached documents, the Plaintiff alleges that the Mortgage should be avoided pursuant to section 544(a) of the Code because it was not witnessed by two individuals, as required by section 5301.01 of the Ohio Revised Code. In the alternative, the Plaintiff asserts that the Mortgage should apply only to the 1.12 acre parcel with the home that is described by metes and bounds on the Exhibit A. The Plaintiff also requests that access be granted over the 1.12 acre parcel to allow for the beneficial use and marketing of the 0.69 acre and 1.81 acre parcels. The Plaintiff's goal is to sell Twin Hills free and clear of liens. The instant litigation presents essentially two legal issues that are dispositive of all others; i.e., was the mortgage properly witnessed by two individuals, and if so, does the Defendant have a valid lien on all three of the parcels that comprise Twin Hills by virtue of the Mortgage and/or as a goodfaith *185 transferee pursuant to section 550(e)(1) of the Code.[1]
On the first issue of proper execution of the Mortgage, the Court has considered the testimony of the Debtors during the Examination and during the trial. The Court has also considered the trial testimony of Joseph L. Marhefka, III ("Mr. Marhefka"), the closing agent. Unfortunately, neither the Plaintiff nor the Defendant called the best witness on this issue, Crissy Begley, whose name appears on the Mortgage as the second witness. As a result, the Court has been required to assess the relative credibility of the recollections of the Debtors and Mr. Marhefka.
There are at least two possible versions of the events: a) Crissy Begley did attend the closing with Mr. Marhefka and at that time signed as the witness, or b) Crissy Begley did not attend the closing and later signed as a witness at the time she processed the documents for recording. As noted above, during the Examination, the Debtors testified that while their recollections were somewhat vague, they thought there was a second witness. Approximately two weeks later in their affidavits, and approximately a year later at trial, the Debtors now "clearly" recall that there was only one witness. This inconsistency is very damaging to the credibility of the Debtors. At best, it indicates that the events are so distant in time that their recollections are inherently unreliable, or at worst, it suggests that their recollections are based upon the perceived advantage of a particular outcome.
On the other hand, the strength of the testimony of Mr. Marhefka is diminished for at least four reasons. First, Mr. Marhefka testified that he recalls there were three people with him the day of the closing. They were all on their way to an annual weekend camping trip over the July 4th holiday. Yet, he cannot recall the names of any of the individuals or even their genders or ages-except for Crissy Begley. Second, Mr. Marhefka cannot be characterized as a totally disinterested party. At the time, he worked as a closing agent for Prospect Title, which issued the title policy in this case, and he closed this transaction. To the extent the Mortgage is avoidable, a claim could be asserted against Prospect Title and its agents and employees. Third, on cross examination, Mr. Marhefka indicated that Crissy Begley is in Texas, and that he talked to her earlier this year. Inexplicably, she was not presented as a corroborating witness. Fourth, as is the case with the Debtors, the events occurred approximately three years ago. Undoubtedly, Mr. Marhefka has performed numerous closings before and since the transaction at issue.
On balance, however, Mr. Marhefka has been consistent in his testimony, unlike the Debtors, and his interest in this litigation is less significant, compared to the Debtors. In the absence of further, more credible evidence, the Court finds and concludes that the Defendant's version of the events is more credible than the Debtors. On this basis, the Court finds and concludes that the Mortgage was properly witnessed.[2]
*186 On the second issue of whether all three parcels are subject to the Mortgage, the Court has considered essentially three factors: a) whether the Debtors intended to mortgage all three parcels; b) does the Mortgage contain enough information under applicable standards; and c) whether the Defendant should be shielded from the avoidance powers as a good-faith transferee, pursuant to section 550(e)(1) of the Code. First, the Debtor, Mr. Farrell, clearly testified during the Examination that it was the Debtors' intention to have all three parcels subject to the Mortgage, but that the 1.38 parcel was to be excluded so John Farrell could build a home. Specifically, the Debtor, Mr. Farrell, recollected at the Examination that he initially approached Ameriquest about releasing its lien on the 1.38 parcel, but it declined. The Debtor, Mr. Farrell, however, recollected at the Examination that he was able to convince the Defendant to exclude the 1.38 parcel from the refinancing.
Inexplicably, a year later at trial, this recollection changed. The Debtor, Mr. Farrell, testified that only the 1.12 acre parcel was to be subject to the Mortgage. The Court does not find this later version of the events credible. It is inconsistent with earlier testimony and the bankruptcy pleadings filed on behalf of the Debtors. The Mortgage was scheduled without any limitations or qualifications, and initially was subject to reaffirmation. This version is also inconsistent with the loan appraisal that includes all three parcels. The Court also finds it difficult to understand the logic of the Debtors' current position that they intended to grant a mortgage on only their home, thereby not only excluding the 1.81 parcel, but the 0.69 acre parcel on which the detached garage is located. This is the same garage that, according to the testimony of the Debtor, Mr. Farrell, can only be utilized from the driveway on the 1.12 acre parcel. All these factors, lead the Court to conclude that it was the true intent of Debtors to grant the Defendant a mortgage on all three parcels that comprise Twin Hills.
Second, on the issue of the efficacy of the property description, a review of the precedent and treatises reveals that absolute certainty is not required, and that there is significant flexibility on how much information a property description must contain in a wide variety of documents. It is sufficient that the subject property can be identified based upon the contents of the document and other available information.[3]Roebuck v. Columbia Gas Transmission Corp., 57 Ohio App. 2d 217, 219-220, 386 N.E.2d 1363, 1365-1366 (Oh.Ct.Appeals, 1977) (discussed requisite description for pipeline easement); Grimm Iron Works Co. v. Frederick, et al., 1941 WL 3358 (Ohio Com.Pl., 1941) (discussed requisite description in an affidavit for a mechanic's lien); Quarto Mining Co. v. Litman, 42 Ohio St. 2d 73, 86, 326 N.E.2d *187 676, 685 (S.Ct.Oh.1975), cert. denied 423 U.S. 866, 96 S. Ct. 128, 46 L. Ed. 2d 96 (S.Ct. 1975) (discussed requisite description of property covered by mining options contained in deed); Yoss v. Markley, 68 N.E.2d 399 (Oh.Com.Pl., 1946) (discussed requisite description in deeds); Lloyd v. Scamp Realty, 1981 WL 4735 (Oh.Ct.App., 1981) (discussed requisite description of property in real estate contract); Walkana v. Hanna, 1988 WL 117988 (Oh.Ct.App., 1988) (involved purchase agreement that identified property by address); Lessee of Eggleston v. Bradford, 10 Ohio 312, 1840 WL 58 (S.Ct.Oh., 1840) (discussed requisite description of property in deed where there are mistakes in the description); 35 O.Jur.3d Deeds sec. 41 at 271-272 (describes flexible standard and use of other information to supplement descriptions in deeds); Conveyances, Oh. Real Est. L. & Prac. T31.18 (2d ed.2000) (discusses flexible standard and whether there is enough information in the deed to locate the property).
While the expert witness presented by the Plaintiff, Mary Ann Schenk ("Ms. Schenk"), effectively pointed out the deficiencies in the Mortgage, she was not able to cite any authority that would support the proposition that the use of a metes and bounds description is the only way to a obtain a valid mortgage. Further, Ms. Schenk testified on cross examination that she had no idea what the Debtors intended to mortgage, and that there was no indication on the Mortgage that there was an intention to grant a mortgage on the 1.12 acre parcel fully described but not the 1.81 acre parcel described by only a permanent parcel number.
Exhibit A to the Mortgage not only includes a metes and bounds description for the 1.12 acre parcel but also includes a permanent parcel number for the 1.81 parcel. Ms. Schenk indeed testified that she was able to locate the 1.81 acre parcel by using the permanent parcel number. While there is no mention of the 0.69 acre parcel on Exhibit A to the Mortgage, the face of the Mortgage document refers to the mortgaged property as having the Twin Hills address. The Debtor, Mr. Farrell, acknowledged during the Examination that Twin Hills includes all three parcels. In view of this acknowledgment, the true intent of the Debtors, and the flexible standard that has been employed, the Court finds and concludes that there is enough information to locate all three parcels, and that they should all be subject to the Mortgage.
Third, the Court finds that the Defendant acted reasonably and in good faith, and has as a result paid pre-existing mortgages subsequent to the execution of the Mortgage. Roger Baker, who is a Senior Vice President for Operations for the Defendant ("Mr. Baker"), testified that in accordance with its normal procedures, the Defendant supplied Prospect Title with an address and relied upon Prospect Title to make sure the appropriate property was included. Mr. Baker testified that routinely prior to disbursement, the Defendant would check to make sure that the documents were properly executed and recorded, and that the property described matched the title commitment. Mr. Baker testified that only after this process was completed would the Defendant wire proceeds to Prospect Title for distribution.
The Court is concerned with the lack of clarity in the description, and a better job should have been done. The deficiencies, however, do not emanate from the Defendant, and the Defendant should not be penalized where it has acted reasonably and in good faith based upon the incomplete information supplied by Prospect Title. On this basis, the Court finds and concludes that the Defendant is deemed a *188 good-faith transferee, and is also entitled to a lien on the three parcels under section 550(e)(1) of the Code, to the extent its loan proceeds were used to pay Ameriquest and National City. In re Krueger, 2000 WL 895601 (Bankr.N.D.Oh.2000); In re Lepelley, 233 B.R. 802, 807-809 (Bankr.N.D.Oh. 1999).[4] To do otherwise, would provide a windfall to unsecured creditors at the expense of the Defendant that refinanced the property and paid pre-existing mortgages.
In sum, the Court finds and concludes that the Mortgage is valid, as it was properly witnessed by two individuals. The Court finds and concludes that in view of the true intent of the Debtors, the acknowledgment that Twin Hills includes all three parcels, and the flexible standard that has been employed in evaluating the efficacy of property descriptions, that the Mortgage contains sufficient information to constitute an encumbrance on all three parcels. In addition, the Court finds and concludes that to the extent to which the Defendant has paid pre-existing mortgages on the parcels, it is entitled to a lien under section 550(e)(1) of the Code.
The Court notes that in its post-trial brief, the Plaintiff raised for the first time the issue of a surcharge for administrative expenses associated with this litigation. In view of the complex issues appropriately raised by the Plaintiff, the Court may authorize a reasonable award upon the filing and service of a separate request.
IT IS SO ORDERED.
NOTES
[1] In view of the scope of the Court's ruling, a discussion of the access issue is unnecessary. The Plaintiff also sought to invalidate the Mortgage based upon the failure to notify the Debtors of their rescission rights. No evidence on this point was presented at trial, and this issue has not been addressed by the Court.
[2] Although not necessary to the conclusion reached in this case, the Court reiterates that O.R.C. § 5301.234, that creates an irrebuttable presumption, cannot be retroactively applied to the instant case where the Mortgage was executed prior to the effective date. In re Caldwell, 257 B.R. 241, 244-245 (Bankr. S.D.Ohio 2000), contra In re Stewart, 256 B.R. 259, 260 (Bankr.S.D.Ohio 2000) (In this decision the date of the bankruptcy filing was viewed as the critical date rather than the date of the execution of the mortgage). The Defendant's citation to the case of In re Zaptocky, 250 F.3d 1020, 1028, n. 5 (6th Cir. 2001), rehearing en banc denied (August 9, 2001) is not persuasive. The issue of retroactive application does not appear to have been litigated, and the majority and dissenting opinions offer two different versions of why the new provision was not applicable. In re Zaptocky, at 1030. Most recently it has been held that the irrebuttable presumption provision violates the "one subject" rule, and is unconstitutional under Ohio law. In re Barkley, 263 B.R. 553 (Bankr.N.D.Ohio 2001).
[3] In addition to the flexible standard in Ohio, mortgages that have been properly executed and recorded, but contain erroneous legal descriptions, may be reformed in line with the intent of the parties. In re Kildow, 232 B.R. 686, 694 (Bankr.S.D.Ohio 1999).
[4] The Plaintiff raises the issue of the date of the transfer in its brief. This Court is persuaded by the reasoning contained in In re Lepelley at 809 that the date of the execution of the mortgage is the proper date compared to the date of recordation used by the court in In re Krueger, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2351598/ | 448 F. Supp. 58 (1978)
David WEST, Plaintiff,
v.
Charles ROWE, Director of the Illinois Department of Corrections, David Brierton, Warden, Assistant Warden Kapture, Major Cartwright, and Captain Shiefflet, Defendants.
No. 77 C 3783.
United States District Court, N. D. Illinois, E. D.
February 23, 1978.
*59 Carol Manzoni, Pope, Ballard, Shepard & Fowle, Chicago, Ill., for plaintiff.
Charles W. Pulliam, Ill. Dept. of Corrections, Chicago, Ill., for David Brierton, Warden, and Asst. Warden Kapture.
Michael Santow, Chicago, Ill., for Charles Rowe.
MEMORANDUM OPINION
WILL, District Judge.
This action is brought pro se and in forma pauperis by David West, a former inmate of Stateville Correctional Center, Joliet, Illinois, alleging violations of his civil rights pursuant to 42 U.S.C. § 1983 by several employees of the Illinois Correctional System and the Stateville prison.[1] Jurisdiction is invoked pursuant to 28 U.S.C. § 1343. Two of the defendants, Charles Rowe, Director of the Illinois Department of Corrections, and Captain Shiefflet, a guard at Stateville, have moved for dismissal of plaintiff's complaint for failure to state a claim upon which relief can be granted. For the reasons herein stated, we grant in part and deny in part these motions to dismiss.
I. ISSUES AND FACTS
The United States Supreme Court in Haines v. Kerner, 404 U.S. 519, 92 S. Ct. 594, 30 L. Ed. 2d 652 (1972), held that a pro se complaint is subject to "less stringent standards than formal pleadings drafted by lawyers" and can only be dismissed for failure to state a claim if it appears "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief," 404 U.S. at 520-21, 92 S.Ct. at 596. Accordingly, we construe plaintiff's § 1983 complaint as alleging two claims of constitutional violations. The facts relevant to the first claim state that while in protective custody at Stateville, plaintiff wrote several letters to Corrections Director Rowe, Warden David Brierton and Assistant Warden Kapture indicating his fears that his life was in danger. None of these letters was answered. On May 16, 1977, plaintiff states he was stabbed twice, once above the heart and once in his upper left arm. He was sent to St. Joseph's Hospital, Joliet, Illinois, where his condition was diagnosed as critical. He was placed in intensive care for approximately two and one-half weeks. By these allegations we find that plaintiff has stated a claim against defendants Rowe, Brierton and Kapture for unreasonably failing adequately to protect him from violent assault by another inmate after notice of that danger in violation of his constitutional right to be free from cruel and unusual punishment under the Eighth Amendment.
Plaintiff's second set of allegations are less clearly defined but appear to involve his dissatisfaction with administrative responses to his inter and intra institutional *60 transfers. After plaintiff's release from the hospital, Captain Shiefflet ordered him to return to his assignment which was in the same area in which the assault occurred. When plaintiff refused this order, he was placed in segregation. Inquiries made by plaintiff to Assistant Warden Kapture regarding a transfer for plaintiff's protection to the Joliet Correctional Center (J.C.C.) were never answered. On July 8, 1977, Captain Shiefflet visited plaintiff in segregation and told him that his prior approved transfer to the J.C.C. was an error but that he, Captain Shiefflet, would approve plaintiff's transfer to the J.C.C. provided plaintiff would return to the cell house where he was stabbed. The justification Captain Shiefflet gave was that plaintiff could not be transferred to the J.C.C. directly from segregation. Plaintiff was taken to the cell house in safekeeping that provided 24-hour lock-up. On August 5, 1977, almost one month later, plaintiff was transferred to the J.C.C. where he is presently incarcerated. Accordingly, we construe plaintiff's complaint to allege a violation of his civil rights because (1) his inquiries regarding his transfer to the J.C.C. were never answered by Assistant Warden Kapture and (2) after his release from the hospital, Captain Shiefflet twice ordered his return to the area of the assault.
II. CRUEL AND UNUSUAL PUNISHMENT CLAIM
Allegations charging prison officials with failure to respond to a inmate's letters are not per se cognizable under § 1983. Similarly, allegations of supervisory negligence without personal involvement, McDonald v. Illinois, 557 F.2d 596 (7th Cir. 1977), and charges of negligent failure to protect inmates from physically attacking each other are insufficient without more to state a claim under § 1983. Bonner v. Coughlin, 517 F.2d 1311 (7th Cir. 1975). However, when successive letters are sent to numerous supervisory officials by an inmate in an effort to enlist their assistance in protecting him from a life endangering situation, thereby placing them on notice of such situation, administrative negligence can rise to the level of deliberate indifference to or reckless disregard for that prisoner's safety. Jamison v. McCurrie, 565 F.2d 483 (7th Cir. 1977). We entirely agree with the Seventh Circuit's statement in Little v. Walker, 552 F.2d 193 (7th Cir. 1977) that "[W]hile mere inadvertence or negligence cannot support a § 1983 action raising Eighth Amendment issues, deliberate indifference `[r]egardless of how evidenced'either by actual intent or recklessnesswill provide a sufficient foundation." Id. at 198 n. 8, quoting from Estelle v. Gamble, 429 U.S. 97, 105, 97 S. Ct. 285, 50 L. Ed. 2d 251 (1976).
In the landmark case of Holt v. Sarver, 442 F.2d 304, 308 (8th Cir. 1971), the Eighth Circuit held that under the Eighth Amendment prisoners are entitled to protection from assaults by other prisoners. See also, Kish v. County of Milwaukee, 441 F.2d 901 (7th Cir. 1971):
"It has been both a settled and first principle of the Eighth Amendment . . . that penal measures are constitutionally repugnant if they `are incompatible with "the evolving standards of decency that mark the progress of a maturing society," or [if they] "involve the unnecessary and unwanton infliction of pain."' Estelle v. Gamble, 429 U.S. 97, [97 S. Ct. 285, 50 L. Ed. 2d 251] (1976) [citations omitted] . . . Violent attacks . . . by inmates upon the plaintiff while in protective segregation are manifestly `inconsistent with contemporary standards of decency.' Id. `Deliberate indifference' to these happenings `constitutes the "unnecessary and wanton infliction of pain" proscribed by the Eighth Amendment.'"
Little v. Walker, supra at 197.
Accordingly, we hold that when an inmate's repeated requests for help place the appropriate officials on notice of a life endangering situation, a constitutional duty of care arises, binding such officials to take reasonable measures to ensure that inmate's safety. Whether the evidence will establish that the officials, thus notified, failed to take such measures and grievous *61 bodily harm resulted to the inmate, the allegations of the complaint are adequate under § 1983. See also, Kish, supra.
We reject defendant Rowe's argument that the doctrine of respondeat superior immunizes him in this situation. Certainly, absent a showing of good faith, "it is clear that, unlike judges or members of the legislature, state executive officials do not enjoy an absolute immunity from personal liability as to all acts performed within the scope of their official duties [citations omitted]." Knell v. Bensinger, 522 F.2d 720, 723 (7th Cir. 1975). We construe plaintiff's complaint to allege that through his letters, defendant Rowe had or should have had actual prior knowledge of the possibility of a violent attack and should have taken action accordingly. Wood v. Strickland, 420 U.S. 308, 321-22, 95 S. Ct. 992, 43 L. Ed. 2d 214 (1975). Rowe's failure to respond to these letters raises the question of whether by deliberate indifference to or reckless disregard of these warnings he violated plaintiff's right to be free from cruel and unusual punishment. Knell, supra. Because these allegations relate to Rowe's action or lack thereof, they suggest more than mere respondeat superior theory and are therefore sufficient under § 1983. Black v. Brown, 513 F.2d 652, 654 n. 3 (7th Cir. 1975). Accordingly, we deny defendant Rowe's motion to dismiss.
III. TRANSFER CLAIMS
Plaintiff's complaint states that Assistant Warden Kapture failed to respond to his inquiries regarding his transfer to the J.C.C. and that he was twice ordered by Captain Shiefflet to return to the area where the assault occurred as a condition precedent to his transfer to the J.C.C. Since we find in these facts no constitutional violations, we must defer to the prison administration's determination as to the appropriate placement of its inmates. We, therefore, grant defendant Shiefflet's motion to dismiss the complaint as to him.
In conclusion, we deny defendant Rowe's motion to dismiss. We grant defendant Shiefflet's motion to dismiss as to the transfer claims. Because summons to them were returned unexecuted, we order that service again be attempted on defendants Brierton and Kapture.
An appropriate order will enter.
NOTES
[1] Service was not successfully executed on three other defendants. Although we will reorder service as to two of them, former Warden David Brierton and former Assistant Warden Kapture, we recognize that the instant ruling is not binding on them. Plaintiff has also joined as a defendant a Major Cartwright, whom he alleges was in charge of security at Stateville. Summons was never successfully served on Cartwright and we will not reorder its service because plaintiff's complaint fails to allege any facts against Cartwright upon which relief could be granted. Plaintiff's mere allegation that as security supervisor Cartwright was responsible for his safety would be inadequate to withstand a respondeat superior defense. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1308285/ | 304 S.E.2d 184 (1983)
STATE of North Carolina
v.
Freddie Lee STOKES.
No. 448A82.
Supreme Court of North Carolina.
July 7, 1983.
*189 Rufus L. Edmisten, Atty. Gen. by Joan H. Byers, Asst. Atty. Gen., Raleigh, for the State.
Arnold Smith, Wilmington, for defendant-appellant.
BRANCH, Chief Justice.
I
GUILT-INNOCENCE PHASE
Defendant assigns as error the trial judge's denial of his motion to permit individual voir dire of the jury venire, to sequester the jury venire during the voir dire proceedings, and to sequester the trial jury after selection was completed. This motion was apparently addressed to the trial judge after the jury selection process had been under way for one day.
In support of this assignment of error, defendant first takes the position that the trial judge was bound by a pretrial order entered by Judge Llewellyn, which provided for individual voir dire of the prospective jurors.
The general rule in this jurisdiction is that ordinarily a trial judge may not review the orders, judgments, or actions of another judge of coordinate jurisdiction. In such cases, a defendant's remedy is to perfect his appeal to the appellate division. Thornburg v. Lancaster, 303 N.C. 89, 277 S.E.2d 423 (1981); State v. McClure, 280 N.C. 288, 185 S.E.2d 693 (1972); Price v. Ins. Co., 201 N.C. 376, 160 S.E. 367 (1931). To permit one superior court judge to overrule the final order or judgment of another would result in the disruption of the orderly process of a trial and the usurpation of the reviewing function of appellate courts. State v. Duvall, 304 N.C. 557, 284 S.E.2d 495 (1981).
This rule does not apply, however, to interlocutory orders given during the progress of an action which affect the procedure and conduct of the trial. Carr v. Carbon Corp., 49 N.C.App. 631, 272 S.E.2d 374 (1980), disc. review denied, 302 N.C. 217, 276 S.E.2d 914 (1981); see also Calloway v. *190 Motor Co., 281 N.C. 496, 189 S.E.2d 484 (1972). An interlocutory order or judgment does not determine the issues in the cause but directs further proceedings preliminary to the final decree. Carr v. Carbon Corp., supra; In re Blalock, 233 N.C. 493, 64 S.E.2d 848 (1951). Such order or judgment is subject to change during the pendency of the action to meet the exigencies of the case. Skidmore v. Austin, 261 N.C. 713, 136 S.E.2d 99 (1964).
In Oxendine v. Dept. of Social Services, 303 N.C. 699, 281 S.E.2d 370 (1981), we recently held that a pretrial ruling by a superior court judge consolidating claims for trial was not binding on the superior court judge who tried the case. We note that a motion for individual jury selection and jury segregation are matters addressed to the trial judge's discretion. State v. Oliver, 302 N.C. 28, 274 S.E.2d 183 (1981); State v. Taylor, 298 N.C. 405, 259 S.E.2d 502 (1979). G.S. 15A-1214(j), in part, provides:
In capital cases the trial judge for good cause shown may direct that jurors be selected one at a time, ... (emphasis added).
We interpret the above-quoted statute as placing this discretionary power in the trial judge who actually tries the case. Judge Stevens, who denied defendant's motion, was the judge who actually tried this case and, accordingly, the motion for individual jury selection and jury sequestration was directed to his discretion. His exercise of discretion will not be disturbed absent a showing of an abuse of discretion. State v. Oliver, supra.
We find no merit in defendant's argument that his motion should have been allowed because of pretrial publicity concerning this "sensitive" case. Defendant completely failed to produce any evidence tending to show the existence of inflammatory, nonfactual reporting by the news media or that any seated juror was affected by pretrial publicity. Neither is there substance in his contention that the denial of his motion constituted prejudicial error because it permitted jurors to be "educated" by other jurors' answers to questions posed on the voir dire so as to enable them to escape jury service. We have rejected similar arguments in State v. Barfield, 298 N.C. 306, 259 S.E.2d 510 (1979), cert denied, 448 U.S. 907, 100 S. Ct. 3050, 65 L. Ed. 2d 1137, reh. denied, 448 U.S. 918, 101 S. Ct. 41, 65 L. Ed. 2d 1181 (1980); and State v. Oliver, supra, as being speculative and unpersuasive. We elect to follow the holdings of these recent cases.
We hold that defendant has failed to show that Judge Stevens abused his discretion in denying the motion for individual voir dire in jury selection, to sequester the jury venire during voir dire proceedings, and to sequester the trial jury after selection was completed.
Defendant assigns as error the denial of his motion that he be permitted, at State expense, to retain an expert in psychology experienced in jury selection in criminal cases. He relies upon the arguments in the preceding assignments of error to support this contention. The relevance of these arguments to the assignment here considered is nebulous and of no force in view of our disposition of the contentions in the previous assignment of error.
Although not relied upon or brought to our attention by defendant's brief, we believe that the disposition of this assignment of error turns upon the provisions of G.S. 7A-450(b) and our interpretation of that statute. This statute provides:
Whenever a person, under the standards and procedures set out in this Subchapter, is determined to be an indigent person entitled to counsel, it is the responsibility of the State to provide him with counsel and the other necessary expenses of representation. The professional relationship of counsel so provided to the indigent person he represents is the same as if counsel had been privately retained by the indigent person.
It is well established by our decisions that in order for an indigent defendant to be furnished an expert witness at State expense, the defendant must make a *191 showing that there is a reasonable likelihood that he will be materially assisted in the preparation of his defense or that without the expert's services it is probable that the defendant will not receive a fair trial. State v. Williams, 305 N.C. 656, 292 S.E.2d 243, cert. denied,___ U.S. ___, 103 S. Ct. 474, 74 L. Ed. 2d 622 (1982), reh. denied, ___ U.S. ___, 103 S. Ct. 839, 74 L. Ed. 2d 1031 (1983); State v. Gray, 292 N.C. 270, 233 S.E.2d 905 (1977); State v. Tatum, 291 N.C. 73, 229 S.E.2d 562 (1976). The appointment of an expert for an indigent defendant is a matter addressed to the trial judge's discretion and such appointment should be made with caution. State v. Tatum, supra.
Defendant has not shown that the failure of the trial judge to grant his motion deprived him of a fair trial or that he would have been materially assisted in the preparation of his defense had the motion been granted. To the contrary, this record shows that defense counsel diligently and adequately explored the question of whether each juror seated could give defendant an impartial and fair trial.
We hold that defendant has failed to show any abuse of discretion on the part of the trial judge. Accordingly, this assignment of error is overruled.
Defendant next assigns as error the denial of his motion to suppress a written inculpatory statement made by him to police officers.
At the hearing held pursuant to defendant's motion to suppress, the State offered evidence tending to show that defendant was questioned by police officers at the law enforcement center on 28 January 1982. He was advised of his rights, stated that he understood them and at that time signed a written waiver, including a waiver of the right to counsel. He was specifically asked if he wanted a lawyer and replied in the negative. Defendant stated that he had completed the tenth grade and, upon request, read to the officers from a Miranda form. The officers testified that there was no physical abuse, threats or promises made to defendant and specifically denied making any statements to defendant concerning the death penalty. Defendant originally made an oral statement which was reduced to writing. Defendant read the statement and signed it. He then stated that he felt better and that he had a lot off his mind.
On cross-examination it was established that before defendant made the inculpatory statement, he was shown statements implicating him in the crimes under investigation and was told that he had been seen driving the victim's automobile shortly after the crime occurred.
Defendant offered evidence tending to show that the police officers told him that he was going to get the gas chamber unless he admitted his participation in the crimes under investigation.
At the conclusion of the hearing, the trial judge found and concluded in relevant part the following:
... that the Court further finds that the defendantat the time that the statements were takenwas not under the influence of alcohol or drugsthat he was coherent and responded understandablythat at no time were any promises or threats or offers of rewardor there was no violence or threat of violencemade to persuade or induce the defendant to make a statement or eitherthat the defendant was given the Miranda warningsand rightswhich were taken from the Miranda cardand included the right to remain silent and the other provisions which the Court has found thein fact from thefrom the document itselfwhich was submitted and entered into evidencewhich the Court has now found as a factthat all rights contained in the Miranda card were read to the defendantwho signed a waiver of these rightsincluding the right to have a lawyer presentwhich he indicated that he did not wantthat the interrogation took placeat which time that only the two officers at any one time were presentthatbased upon the foregoing facts the Court concludes that none of the defendant's constitutional rightseither federal or state were violated by reason *192 of his arrest, detention, interrogation or confession. That the statements made that are by the defendant to the officers on the 28th January, 1982, were freely, knowingly, voluntarily, and underunderstandably madethat the defendant was in full understanding of his constitutional rights to remain silent, right to counsel, and all the other rights which he freely, knowingly, intelligently and voluntarily waived.
The trial judge thereupon overruled defendant's motion to suppress and ruled that the statement was admissible into evidence.
Defendant contends that his statement was involuntary and inadmissible into evidence because (1) he was confronted with statements which implicated him in the crime, (2) he was threatened with the death penalty, and (3) he had a low I.Q. which, considered with the other matters surrounding his confession, rendered the confession involuntary. We consider these contentions seriatim.
It is well settled in this jurisdiction that the confrontation of an accused with inculpatory evidence does not render an ensuing confession inadmissible absent trickery, coercion or other improper inducements. State v. Mitchell, 265 N.C. 584, 144 S.E.2d 646 (1965), cert. denied 384 U.S. 1024, 86 S. Ct. 1972, 16 L. Ed. 2d 1029 (1966); State v. Smith, 213 N.C. 299, 195 S.E. 819 (1938). See also State v. Booker, 306 N.C. 302, 293 S.E.2d 78 (1982). It is not the disclosure of the evidence to an accused, but an impermissible use of such evidence which may affect the admissibility of a confession. State v. Booker, supra. More specifically, we have held that confronting an accused with statements of his co-defendants which implicate him in a crime does not, standing alone, render an ensuing confession involuntary. State v. McNeil, 263 N.C. 260, 139 S.E.2d 667 (1965). See also State v. Hines, 266 N.C. 1, 145 S.E.2d 363 (1965). We find the rule stated in McNeil to be consistent with other jurisdictions. Williams v. Ohio, 547 F.2d 40 (6th Cir.1976), cert. denied, 435 U.S. 998, 98 S. Ct. 1654, 56 L. Ed. 2d 88 (1978); Degler v. State, 257 Ark. 388, 517 S.W.2d 515 (1974); Gibson v. State, 347 So. 2d 576 (Ala.Cr.App.1977); People v. Smith, 93 Ill.App.3d 1133, 49 Ill. Dec. 528, 418 N.E.2d 172 (1981).
Defendant's contention that he was coerced into confessing by threats that he would go to the gas chamber unless he admitted to his participation in the charged crimes will not support this assignment of error.
The evidence on this point was in sharp conflict. The court heard the evidence of the State and the evidence of defendant and resolved this conflict by finding that "at no time were any promises or threats... made to persuade or induce the defendant to make a statement ..." When the court's findings are supported by competent evidence such findings are binding on the appellate court. State v. Easterling, 300 N.C. 594, 268 S.E.2d 800 (1980); State v. Jackson, 292 N.C. 203, 232 S.E.2d 407, cert. denied, 434 U.S. 850, 98 S. Ct. 160, 54 L. Ed. 2d 118 (1977).
Defendant finally seeks to support this assignment of error on the theory that the above-discussed matters in combination with his low I.Q. (63), rendered his confession involuntary.
A subnormal mental condition standing alone will not render an otherwise voluntary confession inadmissible. State v. White, 291 N.C. 118, 229 S.E.2d 152 (1976); State v. Thompson, 287 N.C. 303, 214 S.E.2d 742 (1975), death sentence vacated 428 U.S. 908, 96 S. Ct. 3215, 49 L. Ed. 2d 1213 (1976). Thus, defendant's argument becomes feckless since we have found no merit in the other matters which defendant contends tended to render his confession involuntary. It appears from the record that defendant could read and write and that he had completed the tenth grade in school. Further, the trial judge who observed defendant and heard the testimony presented concluded that defendant "knowingly, voluntarily, and... understandably" made the inculpatory statement.
There is ample evidence to support the trial judge's findings of fact. These findings, *193 in turn, support the conclusions of law and the trial judge's ruling denying defendant's motion to suppress.
Defendant next contends that the trial judge erred by failing to grant his motions for judgment as of nonsuit at the close of the State's evidence and at the completion of all the evidence.
When we consider the evidence in the light most favorable to the State, allow the State the benefit of every inference of fact that may reasonably be drawn therefrom, and disregard all discrepancies and contradictions in the evidence, as we must, we conclude that there was ample evidence to repel defendant's motions. State v. Dollar, 292 N.C. 344, 233 S.E.2d 521 (1977); State v. Witherspoon, 293 N.C. 321, 237 S.E.2d 822 (1977).
The evidence tended to show that defendant clubbed the victim to the ground and took his automobile and other property. There was medical evidence that the victim died as a result of blows to the head from a blunt instrument. There was further evidence tending to show that defendant was seen in the victim's stolen automobile shortly after the killing took place and articles taken from the victim were found in defendant's possession.
This evidence was sufficient to permit the jury to reasonably infer that the crimes charged were committed and that defendant was the perpetrator of the crimes. This assignment of error is overruled.
II
SENTENCING PHASE
Defendant argues that in light of the evidence that he was only the lookout the court should have instructed the jurors that in order to impose the death penalty, they would have to find that defendant killed, attempted to kill, or intended or contemplated that Mr. Lehto would be killed. We agree, and for reasons hereinafter stated, this cause is remanded for a new sentencing hearing.
The landmark case on this question is Enmund v. Florida, ___ U.S. ___, 102 S. Ct. 3368, 73 L. Ed. 2d 1140 (1982). We note that the able trial judge did not have the benefit of this decision when this case was tried. In Enmund, Sampson and Jeanette Armstrong went to the home of an elderly couple and robbed and killed them. Enmund drove the getaway car. There was no evidence that Enmund had actually participated in the killing of the couple or that he attempted to kill or intended that they be killed. Under the then existing Florida law, Enmund was convicted of felony murder as a principal in the second degree and was sentence to death. The Supreme Court of Florida found no error in the trial but the United States Supreme Court reversed the death sentence. In so holding, the Court pointed out that the death sentence was excessive punishment for an armed robber who, as such, did not take human life. The Court also emphasized that in determining whether the death penalty is an appropriate punishment, the focus of the inquiry must be on the individual conduct of an accused and not on the conduct of others. Mr. Justice White, speaking for the Court, stated:
Here the robbers did commit murder; but they were subjected to the death penalty only because they killed as well as robbed. The question before us is not the disproportionality of death as a penalty for murder, but rather the validity of capital punishment for Enmund's own conduct. The focus must be on his culpability, not on that of those who committed the robbery and shot the victims, for we insist on "individualized consideration as a constitutional requirement in imposing the death sentence," Lockett v. Ohio, 438 U.S. 586, 605, 98 S. Ct. 2954, 2965, 57 L. Ed. 2d 973 [990] (1978) (footnote omitted), which means that we must focus on "relevant facets of the character and record of the individual offender." Woodson v. North Carolina, 428 U.S. 280, 304, 96 S. Ct. 2978, 2991, 49 L. Ed. 2d 944, [961] (1976). *194 ___ U.S. at ___, 102 S.Ct. at 3377, 73 L.Ed.2d at 1152.
The Court concluded:
Because the Florida Supreme Court affirmed the death penalty in this case in the absence of proof that Enmund killed or attempted to kill, and regardless of whether Enmund intended or contemplated that life would be taken, we reverse the judgment upholding the death penalty and remand for further proceedings not inconsistent with this opinion.
___ U.S. at ___, 102 S.Ct. at 3379, 73 L.Ed.2d at 1154.
The case before us differs from Enmund in that here there was strong evidence that defendant himself robbed the victim and delivered the fatal blows. This evidence would have permitted conviction of felony murder and would have supported the imposition of the death penalty. However, the State offered defendant's confession which, in part, stated that defendant participated in the crime only as a lookout, and that he did not deliver the fatal blows. We quote from that confession:
When we reached the Pace Setter Tie and Shirt factoryRicky and Lorenzo crossed the street headed toward the Bondthe Bonded Warehouse. I crossed over the street with themI went to the Hanover Work Shop which is across from the Wilmington Bonded Warehouse and stood beside the work shop building and a fence. Ricky and Lorenzo went up on the concrete ramp located at the Wilmington Bonded Warehouse. They stood in the corner behind the door located on the ramp. I was still standing beside the warehousecorrectionbeside the work shopwaiting on themwas watching out for them. I then saw an old man correctionsaw an old white man come out of the door located at the top of the concrete ramp. The old man had a brief case in his hand. It looked like he was getting ready to lock the door when Lorenzo struck him with the stick that he was carrying. When the old man was hit with the stickhe turned toward Lorenzo and Ricky who was still in the corner
Lorenzo then hit the old man again. The old man then fell back onto the concrete ramp. Lorenzo and Ricky then started going through the old man's pockets. While Lorenzo and Ricky were going through the old man's pocketsthe old man was throwing up blood from his mouth. Lorenzo and Ricky then came down the ramp and went to a car located in front of the Wilmington Bonded Warehouse next to a light pole. I then crossed over the dirt road and went to where Lorenzo and Ricky was atwhen I approached them they were taking money of a black wallet. They started passing out the money. Lorenzo gave me one hundred and fifty dollarswhich was a hundred dollar bill, two twenty dollar bills and one ten dollar bill. Lorenzo then stuck a brown long wallet in his pocket. Lorenzo then gave Ricky some money also. Lorenzo had some car keys in his hand. I took the car keys from himI unlocked the driver's side of the doordriver's side door of the carI started the car up and left. Lorenzo and Ricky did not get into the car. I left them at the Bonded Warehouse....
When several persons aid and abet each other in an armed robbery in the course of which the victim is fatally wounded, all being present, each person is guilty of murder in the first degree. State v. Peplinski, 290 N.C. 236, 225 S.E.2d 568, cert. denied, 429 U.S. 932, 97 S. Ct. 339, 50 L. Ed. 301 (1976). Nevertheless, we must decide whether the sentencing jury correctly recommended the death penalty.
At the guilt phase of the trial, the trial judge correctly instructed the jury that defendant could be found guilty of felony murder under the theory that defendant was the actual perpetrator of the crime and struck the fatal blows during the course of the robbery. He also instructed that defendant could be convicted upon the theory that although not the actual perpetrator, he was present and aided and abetted in the commission of the robbery and the resultant felony murder actually committed by another.
*195 The verdict of the jury was guilty of first-degree murder. There was no indication as to the theory upon which defendant was convicted.[1]
Enmund dictates that absent proof that a defendant killed or attempted to kill or intended or contemplated that life would be taken, the death penalty cannot be imposed. The facts of this case require a resolution of whether this case comes within the purview of that holding.
We hold that failure to give the instruction required by Enmund was prejudicial error requiring remand to the Superior Court of New Hanover County for proceedings consistent with this opinion.
Therefore, in instant case, at the new sentencing hearing and before the sentencing jury begins its consideration of aggravating and mitigating circumstances toward returning its recommendation as to punishment, the trial judge should submit to and the jury answer issues as follows:
1. Did defendant deliver the fatal blows which caused the victim's death?
2. If not, did defendant, while acting as an aider and abettor, attempt to kill, intend to kill, or contemplate that life would be taken during the commission of the felony?
Of course, defendant and the State will be permitted to offer competent evidence pertinent to the resolution of these issues.
If the jury should answer either of the above-stated questions "yes", then the jury would proceed to hear competent evidence concerning the aggravating and mitigating circumstances and return its recommendation as to whether defendant's punishment should be imprisonment for life or the death sentence. However, if the jury should answer both issues "no", it would return a recommendation of life imprisonment.
We wish to make it clear that the additional procedure herein set out is only necessary when the Enmund question is presented.
Although we have held that there must be a new sentencing hearing in light of the Enmund decision, we find it necessary to consider the refusal of the trial judge to instruct the jury that it could consider certain mitigating circumstances which were specifically requested by defendant since these questions may recur at the next sentencing hearing. In this connection, we deem it appropriate to summarize certain established guidelines.
The trial judge should submit to the jury in writing any mitigating circumstance listed in G.S. 15A-2000(f)(1), (2), (3), (4), (5), (6), (7) and (8) which is supported by the evidence. Further, pursuant to G.S. 15A-2000(f)(9), the trial judge should submit in writing any other relevant circumstance proffered by and specifically requested by a defendant which is supported by the evidence and from which the jury might reasonably find mitigating value.
The burden of persuading the jury as to the existence of any mitigating circumstance is upon the defendant to so prove by a preponderance of the evidence, and when all the evidence tends to show the existence of a particular mitigating circumstance, a defendant is entitled to a peremptory instruction on that issue. State v. Johnson, 298 N.C. 47, 257 S.E.2d 597 (1979). Even when a defendant offers no evidence to support the existence of a mitigating circumstance, the mitigating circumstance must be submitted when the State offers or elicits evidence from which a jury could reasonably infer that the circumstance exists. *196 See State v. Hutchins, 303 N.C. 321, 279 S.E.2d 788 (1981).
The trial judge's determination of whether a mitigating circumstance should be submitted to the sentencing jury should be guided by our statement in State v. Pinch, 306 N.C. 1, 292 S.E.2d 203, cert. denied, ___ U.S. ___, 103 S. Ct. 474, 74 L. Ed. 2d 622 (1982), reh. denied, ___ U.S.___, 103 S. Ct. 839, 74 L. Ed. 2d 1031 (1983). There Justice Copeland speaking for the Court, stated:
Moreover, we must also point out that common sense, fundamental fairness and judicial economy dictate that any reasonable doubt concerning the submission of a statutory or requested mitigating factor be resolved in the defendant's favor to ensure the accomplishment of complete justice at the first sentencing hearing. 306 N.C. at 27, 292 S.E.2d at 223.
Here the trial judge denied defendant's request that the jury be instructed on four of the mitigating circumstances listed in G.S. 15A-2000(f) and three mitigating circumstances pursuant to the provisions of G.S. 15A-2000(f)(9). The specifically enumerated mitigating circumstances listed in G.S. 15A-2000(f) are deemed to have mitigating value since they are specifically set out in the statute. State v. Pinch, supra. Therefore, our inquiry as to the statutorily enumerated mitigating circumstances is limited to the question of whether there was sufficient evidence from which the jury could reasonably infer that these mitigating circumstances existed.
We first consider the question of whether the trial judge erred by refusing, upon defendant's request, to submit as a mitigating circumstance that defendant had no significant history of prior criminal activity. G.S. 15A-2000(f)(1).
Defendant failed to present any evidence of his lack of prior criminal history. However, upon cross-examination of defendant, the State elicited evidence of numerous past criminal activities. This evidence disclosed that on 10 February 1974 defendant broke into and stole property from a van. On 17 February 1974, defendant broke into and stole property from a vending machine. On 1 January 1975, defendant broke into a car and stole some tapes. On 18 June 1979, he assaulted a female. On 18 July 1979, he stole an air conditioning unit from the Houston-Moore Community Center and sold it. On 15 August 1979, he stole an air conditioning unit from the Lake Forest School. On 30 November 1981, he broke and entered the home of Gloria Robinson. He admitted that he sold marijuana on numerous occasions and that he possessed marijuana on many occasions for his own personal use. Finally, defendant testified that he had stolen marijuana from other drug dealers.
We cannot perceive how a jury could, in the face of this evidence, reasonably find defendant's criminal history to be other than significant. We therefore hold that the trial judge correctly refused to submit the mitigating circumstance of no significant history of prior criminal activity.
Defendant next assigns as error the trial court's denial of his request that the jury be instructed that the capital felony was committed while he was under the influence of a mental or emotional disturbance. G.S. 15A-2000(f)(2).
At the sentencing hearing, defendant's sister testified that at a young age defendant had been treated by Dr. Fisscher, a psychiatrist at a Mental Health Center, for mental problems. Pursuant to a stipulation between the State and defense counsel, a report was admitted into evidence which showed that Dr. Mary M. Rood, a forensic psychiatrist at Dorothea Dix Hospital in Raleigh, examined defendant to determine whether he was competent to stand trial and whether he was able to distinguish right from wrong at the time the offenses were committed. This report indicated that defendant had an I.Q. of 63 and a reading level of 2.9. His social history contained in the report indicated that by age ten, defendant was being treated at a mental health center where he was diagnosed as having an unsocialized aggressive behavior and borderline mental retardation. The report *197 also indicated that these conditions had been unsuccessfully treated with medication. Dr. Rood's own diagnosis was that defendant was mildly mentally retarded and had an antisocial personality disorder. However, she concluded that defendant was competent to stand trial and that he was capable of distinguishing right from wrong at the time the offenses were committed.
Although it was not an issue in that case, we note that in State v. Smith, 305 N.C. 691, 292 S.E.2d 264, cert. denied, ___ U.S. ___, 103 S. Ct. 474, 74 L. Ed. 2d 622 (1982), there was psychiatric testimony that the defendant suffered from "the emotional disturbance of antisocial personality." Id. at 704, 292 S.E.2d at 272. There, the trial judge submitted the mitigating factor set forth in G.S. 15A-2000(f)(2) and the jury found this factor to exist.
We believe that the evidence presented here was sufficient for the jury to reasonably find that defendant was under the influence of a mental or emotional disturbance at the time the crimes were committed. The trial judge should have submitted to the sentencing jury the mitigating factor set forth in G.S. 15A-2000(f)(2).
Relying on the same evidence set forth in the preceding assignment of error, defendant contends that the trial court erred in failing to submit to the sentencing jury the mitigating circumstance that defendant's capacity to appreciate the criminality of his conduct or to conform his conduct to the requirements of the law was impaired. G.S. 15A-2000(f)(6).
We considered the circumstances under which this mitigating circumstance could be said to exist in the case of State v. Johnson, supra. We quote the following pertinent language from that case:
This mitigating circumstance may exist even if a defendant has capacity to know right from wrong, to know that the act he committed was wrong, and to know the nature and quality of that act. It would exist even under these circumstances if the defendant's capacity to appreciate (to fully comprehend or be fully sensible of) the criminality (wrongfulness) of his conduct was impaired (lessened or diminished), or if defendant's capacity to follow the law and refrain from engaging in the illegal conduct was likewise impaired (lessened or diminished).
298 N.C. at 68, 257 S.E.2d at 613.
Here, defendant presented lay testimony that he had a long history of treatment for mental problems which began when he was ten years old. Dr. Mary M. Rood's stipulated testimony was to the effect that she had examined defendant after the commission of the charged crime and that in her opinion, defendant was mildly retarded and had an antisocial disorder. Applying this evidence to the rule set forth in State v. Johnson, supra, we conclude that there was sufficient evidence to permit, but not require, the sentencing jury to reasonably infer that defendant's capacity to fully comprehend the wrongfulness of his conduct was impaired or diminished. Thus, the trial judge should have submitted the mitigating circumstance set forth in G.S. 15A-2000(f)(6) to the sentencing jury.
We next consider defendant's argument that the trial court erred in failing to instruct the sentencing jury that it could consider as a mitigating circumstance that defendant was an accomplice in or an accessory to the capital felony committed by another person and that his participation was relatively minor. G.S. 15A-2000(f)(4).
In order to be entitled to an instruction on this mitigating circumstance, it is necessary that there be evidence tending to show (1) that defendant was an accomplice in or an accessory to the capital felony committed by another, and (2) that his participation in the capital felony was relatively minor. G.S. 15A-2000(f)(4).
In the case before us for decision, defendant testified at trial that he had no part in the crime. The State offered a purported confession which tended to show that defendant was a lookout but did not deliver the fatal blows. Also, there was evidence to the effect that defendant actually delivered the blows which caused the victim's death.
*198 This conflicting testimony created a question of fact for the sentencing jury as to whether defendant was an accomplice or accessory to the murder of Mr. Lehto and as to whether his participation in the capital felony was relatively minor. If the jury accepted defendant's confession, it could have found that defendant's role as a lookout was relatively minor when compared to the conduct of other participants in the commission of the crime. Therefore, pursuant to the admonition in State v. Pinch that "any reasonable doubt concerning the submission of a statutory or requested mitigating factor be resolved in the defendant's favor," 306 N.C. at 27, 292 S.E.2d at 223, we hold that the trial court erred by failing to submit the mitigating circumstance set forth in G.S. 15A-2000(f)(4).
Defendant contends that the court erred by denying his request to submit three non-statutory mitigating circumstances pursuant to G.S. 15A-2000(f)(9). Since defendant made a timely request that these possible mitigating circumstances be submitted to the jury, our inquiry is whether these circumstances are supported by the evidence and whether these circumstances are such that the jury could reasonably deem them to have mitigating value. State v. Johnson, supra.
The three circumstances for our consideration are as follows:
(9) The defendant in his formative years was subjected to cruelty and physical abuse by his parents.
(11) The defendant in his formative years was subjected to mental abuse by his parents.
(15) The defendant is an illegitimate child and has never experienced a relationship with his natural father.
We are of the opinion that the jury could have reasonably found each of these circumstances to have mitigating value. Accordingly, the trial judge should have granted defendant's request to submit these circumstances if they were supported by the evidence.
We hold that the trial court did not err in refusing to submit Nos. (9) and (11) as mitigating circumstances because there is absolutely no evidentiary support for either in the record.
The trial court's refusal to submit to the sentencing jury the mitigating circumstance that defendant was an illegitimate child and never experienced a relationship with his natural father presents a more difficult question.
The undisputed evidence established that defendant was an illegitimate child. The evidence further showed that defendant's natural father was Frank Myers. A marriage was never consummated between defendant's mother and Myers, but Myers lived with her "off and on" in the past. Defendant knew that Myers was his natural father.
Defendant's older sister testified that she had the responsibility of rearing defendant since his mother was often away working to help support the family. She was specifically asked to describe the relationship between defendant and his natural father. She responded that defendant's father had left the household when defendant was about five or six years old. At about that time, defendant was in an accident and sustained a serious injury to his leg. On occasion, defendant's father would come to the home to check on him and see how he was progressing. The witness was also asked if defendant's father had ever taken him to the hospital or to see a doctor. She replied that although the father was not in the home, defendant's mother would "call him and tell him that Freddie had to go to the hospital or something like that and he could come out there."
We are of the opinion that although this evidence indicates that the best relationship did not exist between defendant and his father, it was insufficient to show that he never experienced a relationship with his natural father.
We therefore hold that the trial judge correctly refused to submit this possible mitigating circumstance to the jury.
*199 In the guilt-innocence phase of the trial we find no error.
For the reasons stated, the verdict rendered at the sentencing phase of defendant's trial and the judgment sentencing defendant to death are vacated and this cause is remanded to the Superior Court of New Hanover County for a new trial on the sentencing phase.
NO ERROR IN THE GUILT-INNOCENCE PHASE OF THE TRIAL.
NEW TRIAL ON SENTENCING PHASE OF THE TRIAL.
NOTES
[1] Judicial economy requires that when first-degree murder is submitted to the jury on more than one theory at the guilt-innocence phase of the trial, the trial judge should submit the issues so as to require the jury to indicate the theory upon which their verdict is returned. See State v. Goodman, 298 N.C. 1, 257 S.E.2d 569 (1979). This requirement would, in many instances, obviate the necessity of considering the Enmund holding at the sentencing phase of a trial. For instance, if accused is convicted of first-degree murder on the theory of premeditated and deliberated murder, the Enmund holding would have no application. Likewise, Enmund would not apply in a felony murder case if all the evidence discloses that the accused was the actual perpetrator of the crime who delivered the fatal blows. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2436063/ | 924 S.W.2d 711 (1996)
Gloria Renee WATSON, Appellant,
v.
The STATE of Texas, Appellee.
No. 1287-94, 1288-94.
Court of Criminal Appeals of Texas, En Banc.
May 29, 1996.
*712 Ross Teter, Dallas, for appellant.
Kimberly Schaefer, Asst. Dist. Atty., Dallas, Robert A. Huttash, State's Atty., Austin, for the State.
Before the court en banc.
OPINION ON STATE'S PETITION FOR DISCRETIONARY REVIEW
MEYERS, Judge.
On April 15, 1987, in exchange for a recommendation from the prosecuting attorney that the trial judge "defer further proceedings without entering an adjudication of guilt, and place [her] on probation," appellant pled guilty to an indictment charging her with forgery. Tex.Code Crim.Proc. art. 42.12, § 3d(a), as amended through the 69th Legislature. Finding that the evidence substantiated appellant's guilt and that the best interests of society and appellant would be served thereby, the trial judge then placed appellant on probation, as recommended by the prosecutor, without adjudicating her guilty of the charged offense. But within a year, appellant violated the conditions of her probation, and the prosecutor filed a motion with the court to proceed with an adjudication of guilt. For reasons which are not entirely clear from the record, appellant was not brought before the court to answer this motion until more than four years later. When she finally did appear, she pled true to the allegations, this time without securing any recommendation from the prosecuting attorney concerning disposition of the case. On the basis of this plea the trial judge then proceeded to adjudicate her guilty of the original forgery charge and sentenced her to confinement in the penitentiary for ten years.
On appeal appellant complained that she was punished without due course of law because the trial judge decided to give her a ten-year sentence before even adjudicating her guilty. Tex. Const. art. I, § 19. The State argued, however, that the appellate court should dismiss the appeal for want of jurisdiction on the ground that appellant's notice of appeal did not comply with Texas Rule of Appellate Procedure 40 because it failed to recite that "the trial judge granted permission to appeal" or that the errors assigned on appeal "were raised by written motion and ruled on before trial." Tex. R.App.Proc. 40(b)(1). The Eighth Court of Appeals, relying on our opinion in Ex parte Hernandez, 705 S.W.2d 700 (Tex.Crim.App. 1986), overruled the State's jurisdictional claim, holding that because "the order deferring *713 adjudication did not assess punishment and Appellant did not enter into a plea bargain as to the punishment ultimately assessed upon adjudication," the scope of her appeal was not limited by Rule 40(b)(1). Watson v. State, 884 S.W.2d 836, 837 (Tex. Crim.App.1994). With respect to the merits of appellant's due-course-of-law complaint, the Court of Appeals then reversed the trial court's judgment and remanded for a new punishment hearing. Id. at 838-39.
On discretionary review the State now contests only the first of these decisions, insisting that the Eighth Court of Appeals erred to exercise its jurisdiction in this case absent a legally acceptable notice of appeal. Specifically, the State argues that, because a defendant may now appeal from a deferred adjudication order, and because it is clear that the legislature now regards deferred adjudication as a form of punishment in the context of negotiated pleas, the relevant statutory conditions under which Hernandez was decided have materially changed. We granted review to reconsider Hernandez in light of these changes.
Deferred adjudication has long been the subject of plea bargaining in Texas. Prosecutors and defense lawyers have found that they can settle more cases without the necessity of a trial if they consider conditioning a defendant's plea of guilty or nolo contendere on a recommendation that he be placed on probation without an adjudication of guilt. But, although the availability of this option has been useful during plea negotiations, it has raised difficult problems at later stages of the criminal prosecution.
When the Legislature first implemented deferred adjudication it did not expressly authorize the appeal of orders placing defendants on probation without an adjudication of guilt. This was a significant omission, since the right to appeal does not exist at all unless authorized by statute. Ex parte Paprskar, 573 S.W.2d 525, 528 (Tex.Crim.App.1978). Of course, the legislature has long expressly permitted appeals from convictions in criminal cases. Tex.Code Crim.Proc. art. 44.02. But, because a deferred adjudication order was, by its very terms, not a conviction, it could not be appealed under authority of that general statute. See McDougal v. State, 610 S.W.2d 509 (Tex.Crim.App.1981). Accordingly, a defendant who pled guilty in exchange for a recommendation that he be allowed to avoid conviction altogether by successfully completing a period of community supervision effectively lost the right to complain on appeal about errors affecting the legality of the order deferring an adjudication of his guilt and placing him on probation.
If, however, he was later found to have violated the conditions of his probation and the trial court decided to proceed immediately with an adjudication of his guilt, he could then appeal his conviction under the general statutory right to appeal in criminal cases. But, because deferred adjudication is only available to defendants who plead guilty or nolo contendere, there are certain statutory restrictions on the right of appeal from a conviction which necessarily affect all persons who fail successfully to complete their probationary period under a deferred adjudication order. Any defendant who has been convicted on his plea of guilty or nolo contendere and whose punishment has been assessed by the trial judge in accordance with a recommendation of the prosecuting attorney may only complain on appeal of those matters allowed by the trial judge or "raised by written motion filed prior to trial." Tex. Code Crim.Proc. art. 44.02, as amended through the 69th Legislature. See now Tex. R.App.Proc. 40(b)(1).
The question therefore soon arose whether a defendant's right to appeal from a criminal conviction might be restricted on account of an earlier recommendation by the prosecutor that he be placed on probation without an adjudication of guilt. In 1986 we held that, because "an order conforming with plea bargain for deferred adjudication is not an appealable order and does not assess punishment," any appeal from a subsequent judgment of conviction in the case is not restricted by the prosecutor's earlier recommendation of deferred adjudication. Hernandez, 705 S.W.2d at 703. In 1987, however, the conditions upon which we based that conclusion changed when the legislature added *714 article 44.01(j) to the Code of Criminal Procedure, providing in part that an appeal "may be prosecuted by the defendant where the punishment assessed is in accordance with Subsection (a), Section 3d, Article 42.12 of this code," the deferred adjudication statute. See Acts 1987, 70th Leg., ch. 382, § 1. We have held that the effect of this statute is to make deferred adjudication orders appealable and, by implication, to restrict such appeals as prescribed by Rule 40(b)(1). Dillehey v. State, 815 S.W.2d 623 (Tex.Crim.App. 1991).
Thus, the basic rationale of our opinion in Hernandez has been undercut by subsequent changes in the statutory law, and there is every reason to believe that it was undercut deliberately. A significant advantage of plea bargaining, at least in Texas, is that appellate review of disputed legal issues can be expedited by exchanging a plea of guilty for a punishment recommendation. Substantial judicial resources are thereby conserved because the State can secure an acceptable disposition of pending criminal cases and the defendant can obtain expeditious appellate review of contested legal matters without the necessity of a full adversarial trial.
The law in effect when Hernandez was decided reduced the desirability of deferred adjudication as a plea bargaining option in this process because appellate review was necessarily delayed in such cases until the trial court proceeded with an adjudication of guilt, often many years later. By providing that an order of deferred adjudication may henceforth be regarded as punishment for purposes of plea negotiations and by authorizing immediate appeal from deferred adjudication orders, the legislature opted to make the consequences of plea bargains for deferred adjudication equal to those involving other punishment recommendations. Attorneys for the defendant and for the State may now bargain for deferred adjudication, just as for any other disposition, confident on the one hand that an appeal may be taken immediately from any ensuing order or judgment in the case, and on the other hand that any such appeal will be limited to matters which the trial judge allows, to pretrial motions, and to jurisdictional defects.
By the express terms of rule 40(b)(1) (formerly article 44.02), these restrictions on the right to appeal apply only "if the judgment was rendered upon [a] plea of guilty or nolo contendere and the punishment assessed does not exceed the punishment recommended by the prosecutor and agreed to by the defendant and his attorney[.]" Because it is clear that the judgment of conviction against appellant in the instant cause was rendered upon her plea of guilty and that the punishment recommended in exchange for her plea was a deferred adjudication order placing her on probation, the only remaining question is whether the assessment of ten years confinement following her conviction exceeded the punishment to which she, her attorney, and the prosecutor agreed. We hold that it did not.
Although the term of years ultimately assessed against appellant in this case may not have been fixed by the plea bargain, we think it to be a reasonable interpretation of plea agreements such as the one involved here that, when a prosecutor recommends deferred adjudication in exchange for a defendant's plea of guilty or nolo contendere, the trial judge does not exceed that recommendation if, upon proceeding to an adjudication of guilt, he later assesses any punishment within the range allowed by law. That is because a defendant who trades a plea of guilty or nolo contendere for a recommendation by the prosecutor that a judgment of guilt be delayed while he serves a period of community supervision necessarily accepts, at least in the absence of some express agreement to the contrary, that the prosecutor is making no recommendation at all concerning the term of years he may be required to serve if his probation is later revoked and the trial court proceeds to adjudicate him guilty of the charged offense.
In the instant cause, while it is true that the prosecutor did not recommend appellant be punished with ten years in the penitentiary should the trial court later enter a judgment of conviction in her case, the punishment of ten years actually assessed against her when her probation was revoked did not amount to refusal by the trial judge to implement the plea bargain. What the prosecutor *715 recommended, and what appellant did in fact receive, was probation under a deferred adjudication order. Only if the prosecutor had also recommended that a period of incarceration less that ten years be imposed upon conviction could it reasonably be said that the ten-year term ultimately assessed in this case exceeded the punishment recommendation given in exchange for appellant's guilty plea.
For these reasons, the Eighth Court of Appeals erred to reach the merits of nonjurisdictional complaints raised by appellant without permission of the trial judge or benefit of a written motion filed before trial. Lyon v. State, 872 S.W.2d 732 (Tex.Crim. App.1994); Davis v. State, 870 S.W.2d 43 (Tex.Crim.App.1994). Accordingly, the State's ground for review is sustained, the judgment of the lower appellate court is reversed, and the appeal in this cause is ordered to be dismissed.
CLINTON, Judge, dissenting on state's petition for discretionary review.
The majority represents that in Dillehey v. State, 815 S.W.2d 623 (Tex.Cr.App.1991), we held that the effect of promulgation of Article 44.01(j), V.A.C.C.P. was "to make deferred adjudication orders appealable and, by implication, to restrict such appeals as prescribed by [Tex.R.App.Pro.,] Rule 40(b)(1)." Slip op. at 4. It is clearly accurate to say that Dillehey held that an order placing a defendant on deferred adjudication under current Article 42.12, § 5, V.A.C.C.P. is now appealable,[1] though we had previously held it was not. See McDougal v. State, 610 S.W.2d 509 (Tex. Cr.App.1981). But if the majority is suggesting there is some "implication" in Dillehey that an appeal of an order placing the defendant on deferred adjudication is subject to the restrictions of the proviso in Rule 40(b)(1), I cannot agree. The notion, advanced by the State and uncritically accepted today by the majority, is that in light of Article 44.01(j), a prosecutorial recommendation of deferred adjudication made in exchange for a plea of guilty or nolo contendere now constitutes "punishment recommended" by the prosecutor for purposes of the proviso of Rule 40(b)(1), notwithstanding our holding to the contrary in Ex parte Hernandez, 705 S.W.2d 700 (Tex.Cr.App.1986). But Article 44.01(j) does not clearly say so, and I believe that to read that "implication" into it creates conflict with other statutory provisions governing deferred adjudication, and threatens the constitutionality of the entire deferred adjudication scheme. I dissent.
In Ex parte Hernandez, supra, we were presented with essentially the same issue we face today, viz: whether the fact that an accused obtains a recommendation of deferred adjudication in exchange for a plea of guilty or nolo contendere subjects him to the requirements of the proviso of former Article 44.02, V.A.C.C.P., now recodified in Rule 40(b)(1). The convicting court had made a recommended conclusion of law that because Hernandez had bargained for deferred adjudication, but had not obtained the permission of the court to appeal, he had no right to appeal when his deferred adjudication probation was revoked and he was subsequently convicted. We rejected this legal conclusion. First we noted that, in the express contemplation of former Article 42.12, § 3d(b), now § 5(b), any "assessment of punishment" in deferred adjudication can occur only "[a]fter an adjudication of guilt." Id., at 702. We held that a trial court that places an accused on deferred adjudication probation does not "assess punishment" under the terms of former Article 44.02 because the trial court has not yet "convicted" him. Moreover, the trial court does not assess punishment, consistent with Article 37.07, § 3, V.A.C.C.P., until "after a finding of guilty." Of course, an accused who has been placed on deferred adjudication *716 probation has been neither convicted nor found guilty. Accordingly, we concluded:
"Article 44.02 contemplates an appeal after assessment of punishment and `sentencing.' The proviso bars a defendant from prosecuting an appeal `who has been convicted [upon plea of guilty or nolo contendere before the court] and the court assesses punishment [that] does not exceed [what is] recommended by the prosecutor and agreed to by the defendant and his attorney'except as provided. Since an order conforming with plea bargain for deferred adjudication is not an appealable order and does not assess punishment within the meaning of Article 37.07, § 3(a) and (d), and within contemplation of Article 44.02, it follows that a defendant is not precluded from prosecuting an appeal after adjudication of guilt, judgment and sentencing merely because he initially bargained for deferred adjudication...."
Id., at 703 (emphasis supplied in Hernandez). For all these reasons we determined that placing an accused on deferred adjudication probation does not constitute "punishing" him, and his having bargained for that disposition does not later subject him, upon revocation of deferred adjudication probation and subsequent conviction, to the limitations on appeal contained in the proviso to former Article 44.02.
The State argues that two subsequent events have combined to make our conclusion in Hernandez obsolete. First, of course, our opinion in Dillehey ruled that an accused may appeal an order placing him on deferred adjudication. Therefore, to the extent that the rationale in Hernandez is grounded upon the fact that "an order conforming with plea bargain for deferred adjudication is not an appealable order[,]" it is no longer viable.
Second, and more to the point, the State argues that with the promulgation of Article 44.01(j), we cannot fairly adhere to our conclusion that deferred adjudication probation is not "punishment." After all, Article 44.01(j) expressly permits an appeal "where the punishment assessed is in accordance with" the deferred adjudication provisions of Article 42.12.[2] The suggestion is that the Legislature now considers an order placing an accused on deferred adjudication probation to comprise an "assessment of punishment," and that any appeal from that order should therefore be subject to the strictures of the Rule 40(b)(1) proviso if it was bargained for. That the Legislature regards deferred adjudication probation as a species of "punishment" is underscored, the State maintains, by the fact that in 1993 it amended Article 42.12, § 5(a) so that it now expressly permits, contrary to prior decisional law, see Ex parte Shillings, 641 S.W.2d 538 (Tex.Cr.App.1982), the assessment of a term of confinement as a condition of deferred adjudication probation. Acts 1993, 73rd Leg., ch. 900, § 4.01, p. 3719, eff. Sept. 1, 1993.
Neither of these events convinces me that we should abandon the holding of Hernandez. It is true that after Dillehey an order of deferred adjudication probation is now itself appealable. This only means that the question now arises whether the proviso in Rule 40(b)(1) will apply to such an interlocutory appeal. But it does not answer that question either way,[3] much less does it resolve the related question whether an appeal following revocation of deferred adjudication probation and entry of a judgment of conviction is also subject to the Rule 40(b)(1) proviso. Only if the State is correct in its assertion *717 that deferred adjudication probation now constitutes "punishment assessed" can we conclude that the proviso applies, and to that issue I accordingly turn.
True enough, Article 44.01(j) now grants the accused the right to immediately prosecute an appeal "where the punishment assessed is in accordance with" the provision of Article 42.12 that authorizes deferred adjudication probation. But I regard this as no more than an unfortunate and misleading conveyance of the relatively simple notion that an accused may take an interlocutory appeal from an order placing him on deferred adjudication probation, notwithstanding the fact that he has not actually suffered a judgment of conviction against him, and hence has not had any "punishment assessed." See Dillehey, supra, at 624-25. I cannot imagine the Legislature meant somehow to abrogate other bedrock provisions of the Code of Criminal Procedure, invoked in Ex parte Hernandez, supra, that clearly indicate "punishment" is not imposed under any circumstances until "after a finding of guilty[,]" Article 37.07, §§ 2(b) & 3, supra, and, specifically in the context of deferred adjudication, until "[a]fter an adjudication of guilt[,]" Article 42.12, § 5(b), supra. We should not construe the Legislature's error in describing deferred adjudication as "punishment assessed" in Article 44.01(j) to undo the import of the overall statutory scheme in one fell swoop.
Moreover, if we regard deferred adjudication probation to be a form of "punishment," we call into question the constitutionality of the entire deferred adjudication scheme. After all, it has been called "axiomatic" that to punish an accused before a formal adjudication of guilt violates the Due Process Clause of the Fourteenth Amendment to the United States Constitution. Ex parte Green, 688 S.W.2d 555 (Tex.Cr.App.1985), quoting Schall v. Martin, 467 U.S. 253, 269, 104 S. Ct. 2403, 2412, 81 L. Ed. 2d 207, 220 (1984), which relied in turn upon Bell v. Wolfish, 441 U.S. 520, 535, n. 16, 99 S. Ct. 1861, 1872, n. 16, 60 L. Ed. 2d 447, 466, n. 16 (1979). I have no doubt we would hold it also violates due course of law under Article I, § 19 of the Texas Constitution. To the extent that the 1993 amendment to Article 42.12, § 5(a), now allowing confinement as a condition of deferred adjudication probation, was specifically meant to render it "punitive," it suffers the same constitutional deficiencies.
The Court prefers to glean a legislative intent from the unfortunate choice of language in Article 44.01(j) that is seriously, and in all likelihood, fatally, at odds with an otherwise integral, and historically functional, scheme for implementing deferred adjudication in Texas. Rather than risk such disruption in the law, I would adhere to our opinion in Hernandez, and continue to hold that an appeal from a conviction following revocation of deferred adjudication probation is not subject to the proviso in Rule 40(b)(1), leastwise not on account of the fact that the deferred adjudication probation itself was the product of a plea bargain. Because the Court insists on holding otherwise, I dissent.
BAIRD and MALONEY, JJ., join.
OVERSTREET, Judge, dissenting on state's petitions for discretionary review.
Appellant was convicted of two counts of forgery in two separate indictments and the trial court assessed punishment at ten years confinement and a $500 fine for each offense. The Court of Appeals reversed and remanded for a new punishment hearing. Watson v. State, 884 S.W.2d 836 (Tex.App.El Paso 1994) and Watson v. State, No. 08-92-00224-CR (Tex.App.El Paso 1994). We granted the State's petitions for discretionary review to consider whether a general notice of appeal confers jurisdiction upon a court of appeals to review a conviction based upon a plea agreement in which a defendant received deferred adjudication probation and was later adjudicated and sentenced upon that initial plea of guilty.
Appellant entered a plea of guilty to two charges of passing a forged check in violation of V.T.C.A. Penal Code, § 32.21(a)(1)(B). Pursuant to a plea agreement, the trial court deferred adjudication and placed Appellant on three years probation. The State filed a motion to adjudicate. In March, 1992, Appellant entered a plea of true to the State's allegations and was sentenced by the trial *718 court. Appellant appealed the sentence imposed, contending that the trial court violated her right to due course of law by prejudging her sentence. The State responded that the Court of Appeals was without jurisdiction to even consider Appellant's appeal because she did not file a notice of appeal which complied with Tex.R.App.Pro. 40(b)(1). The Court of Appeals rejected the State's argument and determined that the trial court assessed Appellant's punishment, not based upon the evidence adduced at the adjudication hearing or after considering the full range of punishment, but rather with a prejudged sentence. The Court of Appeals concluded that this violated Appellant's right to due course of law, reversed the decision of the trial court and remanded for a new punishment hearing.
Pivotal in the Court of Appeals' decision was its conclusion that the notice requirements of Tex.R.App.Pro. 40(b)(1) did not apply.[1] The Court of Appeals reached this conclusion by finding that the original order deferring adjudication did not assess punishment. The Court of Appeals also noted no plea bargain existed at the time guilt was adjudicated, when punishment was actually assessed. Watson, 884 S.W.2d at 837; and Watson, slip op. at 2. Relying on this Court's opinion in Ex parte Hernandez, 705 S.W.2d 700 (Tex.Cr.App.1986), the court concluded that Appellant's appeal was not governed by Rule 40(b)(1), but rather by the rule announced in Helms v. State, 484 S.W.2d 925 (Tex.Cr.App.1972) (declaring all non-jurisdictional defects are waived where the conviction is obtained by a voluntarily entered guilty plea). The Court of Appeals then reasoned that Appellant's complaint referred to the manner in which punishment was assessed, which occurred after adjudication of guilt. Therefore, her appeal was not barred by the Helms rule. Watson, 884 S.W.2d at 838, citing Jack v. State, 871 S.W.2d 741 (Tex.Cr.App.1994) (holding plea of guilty without an agreed recommendation on punishment does not waive right to appellate review of non-jurisdictional issues arising subsequent to entry of the guilty plea); and Watson, slip op. at 2.
The State's question for review asks:
Whether a general notice of appeal invests the court of appeals with jurisdiction to review a conviction based upon a plea agreement pursuant to which the defendant received deferred adjudication probation, but who was later adjudicated and sentenced upon that plea of guilty to a term of years without plea agreement[?]
The majority agrees with the State's contention that continued reliance upon Hernandez is in error. The State notes that this Court held in Hernandez that Rule 40(b)(1) did not apply to an appeal from a negotiated plea which resulted in deferred adjudication because an order deferring adjudication was not appealable and was not considered punishment. The State observes that a defendant now has the right to appeal from an order deferring adjudication at the time the order is entered. Article 44.01(j), V.A.C.C.P.;[2]Dillehey v. State, 815 S.W.2d 623 (Tex.Cr.App.1991). The State points out, *719 and the majority agrees[3], that Art. 44.01(j) refers to adjudication as punishment, and that this Court's holding in Dillehey implicitly holds that deferred adjudication is punishment by holding that such orders are appealable, thus undermining the rationale used in Hernandez. It adds that when Hernandez was decided, confinement was not one of the permitted probationary conditions of deferred adjudication, but in 1989, Article 42.12, § 5, V.A.C.C.P.,[4] was amended to allow confinement as a condition of deferred adjudication. The State argues that these three events abrogate the rule announced in Hernandez, and that Tex.R.App.Pro. 40(b)(1) applies in the instant case. The State therefore concludes that because Appellant failed to comply with the notice requirements of Rule 40(b)(1), the Eighth Court of Appeals was authorized to consider jurisdictional defects only. See Lyon v. State, 872 S.W.2d 732 (Tex.Cr.App.1994); and Davis v. State, 870 S.W.2d 43 (Tex.Cr.App.1994).
The majority holds that the Eighth Court of Appeals erred in reaching the merits of nonjurisdictional complaints raised by appellant. See majority opinion at 715. The majority is mistaken that Hernandez has no continued use or effect on appeals arising from proceedings occurring after adjudication of guilt. Despite the enactment of Art. 44.01(j) and amendments to Art. 42.12, which refer to deferred adjudication as punishment and allow confinement as a condition thereof, the "punishment" in a deferred adjudication order is still different than that imposed by a regular order of probation after a plea of guilty or nolo contendere. When a defendant is placed on deferred adjudication probation, a judgment of guilt is not entered and sentence is not imposed. Rather,
[t]he course of developments in a criminal action has been temporarily stilled and the accused has been permitted an opportunity to demonstrate his capacity for prescribed good behavior during a specified period. If he succeeds the movement is reversed and disappears; however, should he fail, the movement in a criminal action continues with the normal incidents of trial.
Hernandez, 705 S.W.2d at 702, citing McIntyre v. State, 587 S.W.2d 413 (Tex.Cr.App. 1979); see also Art. 42.12, § 5(c). Thus, the distinction made between punishment imposed after a plea of guilty where probation is ordered, and the "punishment" imposed where probation is ordered but adjudication of guilt is deferred is still significant.
With the enactment of Art. 44.01(j), defendants were given the right to appeal from an order deferring adjudication. Dillehey, 815 S.W.2d at 626. At first glance, this too seems to undermine the rationale of Hernandez. However, even a cursory reading of Dillehey reveals that its scope is limited to an inspection of the legislative intent enacting 44.01(j), and the Legislature's design to allow defendants placed on deferred adjudication probation the opportunity to immediately appeal rulings on pretrial motions which were filed and appealed in compliance with Art. 44.02 [now Rule 40(b)(1) ]. Id., at 624-626. Dillehey does not purport to limit or otherwise speak to a defendant's right to complain of errors which occur after adjudication of guilt; nor does the express language of Rule 40(b)(1).
The notice requirement of Rule 40(b)(1) applies to non-jurisdictional defects which occurred prior to entry of a plea if permission is granted by the trial court, or if the matters were raised by written motion and ruled upon before entry of the plea. This language has not changed, and Hernandez is still sound. A defendant is not precluded from prosecuting an appeal after adjudication of guilt, judgment and sentencing, merely because he initially bargained for deferred adjudication *720 some time earlier. As such, the Court of Appeals did not err in relying upon this Court's decision in Hernandez.
Furthermore, because there was no plea agreement entered when the trial court proceeded to adjudication of guilt, Appellant was not required to comply with Rule 40(b)(1).[5] Therefore, the Court of Appeals did not exceed its jurisdiction in considering Appellant's appeal and denying the State's motion to dismiss the appeal. The decision of the Court of Appeals should therefore be affirmed.[6] Because the majority does not do so I respectfully dissent.
BAIRD, J., joins.
NOTES
[1] Of course, strictly speaking, it is not the order itself placing an accused on deferred adjudication probation that is appealable under Article 44.01(j), but rulings on some "legitimate pretrial issue where ... the court has ruled on the admissibility of some evidence or some other matter that either or both parties feels may have been dispositive of the case[.]" Dillehey v. State, supra, at 625, quoting Senator Washington on the Senate Floor advocating adoption of an amendment to Senate Bill 762 that ultimately became Article 44.01(j). What Article 44.01(j) essentially provides is an interlocutory appeal of such matters upon the entry of an order placing the accused on deferred adjudication probation.
[2] All emphasis supplied unless otherwise indicated.
[3] I am inclined to think an appeal from an order imposing deferred adjudication probation is not subject to the Rule 40(b)(1) proviso, at least on the basis of the language of the proviso itself. The rule states that notice of appeal shall be sufficient if it demonstrates the accused's desire to appeal from "the judgment or other appealable order." By contrast, the proviso begins: "but if the judgment was rendered...." Naturally, when an accused takes his (essentially interlocutory) appeal from an order imposing deferred adjudication probation pursuant to Article 44.01(j), there is only an "appealable order," not a judgment. Because on its face the proviso does not embrace a mere "appealable order," I presume the notice of appeal requirements contained therein do not apply to any "appealable order" less than a full-blown judgment. This is true whether or not the Legislature considers deferred adjudication probation to be "punishment assessed."
[1] Tex.R.App.Pro. 40(b)(1) provides in pertinent part:
(1) Appeal is perfected in a criminal case by giving timely notice of appeal.... Notice of appeal shall be given in writing with the clerk of the trial court. Such notice shall be sufficient if it shows the desire of the defendant to appeal from the judgment or other appealable order, but if the judgment was rendered upon his plea of guilty or nolo contendere pursuant to Article 1.15, Code of Criminal Procedure, and the punishment assessed does not exceed the punishment recommended by the prosecutor and agreed to by the defendant and his attorney, in order to prosecute an appeal for a nonjurisdictional defect or error that occurred prior to entry of the plea the notice shall state that the trial court granted permission to appeal or shall specify that those matters were raised by written motion and ruled on before trial.
[2] Art. 44.01(j) provides:
Nothing in this article is to interfere with the defendant's right to appeal under the procedures of Article 44.02 [now Tex.R.App.Pro. 40(b)(1)] of this code. The defendant's right to appeal under Article 44.02 may be prosecuted by the defendant where the punishment assessed is in accordance with Subsection (a), Section 3d [now Section 5], Article 42.12 of this code, as well as any other punishment assessed in compliance with Article 44.02 of this code.
[3] See majority opinion at 714.
[4] Tex.Code Crim.Pro. Article, 42.12, § 5(b) provides in pertinent 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. After an adjudication of guilt, all proceedings including assessment of punishment, pronouncement of sentence, granting of community supervision, and defendant's appeal continue as if the adjudication of guilt had not been deferred.
[5] I note that the existence of a second plea agreement after adjudication of guilt with respect to punishment to be assessed may result in the application of Rule 40(b)(1) and the imposition of its notice requirements. See Hernandez, 705 S.W.2d at 703. As there is no indication of a second plea agreement, we need not address that issue today.
[6] The State did not raise the issue of whether Appellant received a prejudged sentence upon adjudication, therefore we can not reach that issue here. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2372371/ | 661 F. Supp. 281 (1987)
UNITED STATES of America and National Credit Union Administration, Plaintiffs,
v.
Bartholomew RIVIECCIO, et al., Defendants.
CHEMICAL BANK, Plaintiff,
v.
434 12TH STREET CORP., et al., Defendants.
MARAL FUNDING CORP., et al., Plaintiffs,
v.
CORAL REALTY CORP., et al., Defendants.
Nos. CV-86-1441, CV-86-1702 and CV-86-2715.
United States District Court, E.D. New York.
May 13, 1987.
*282 *283 *284 Anne E. Stanley, Jeffrey A. Coryell, Asst. U.S. Attys., E.D.N.Y., for the U.S. and the National Credit Union Admin.
Edward C. Kesselman, Kostelanetz & Ritholz, New York City, for Bartholomew Rivieccio.
Alan L. Fuchsberg, The Jacob D. Fuchsberg Law Firm, New York City, for Bartholomew Rivieccio.
Edward S. Rudofsky, Zane & Rudofsky, New York City for Demetrios Karelas.
Murray L. Skala, Feder Kaszovitz Isaacson Weber & Skala, New York City, for John Villanella.
Andrew J. Levander, Shereff, Friedman, Hoffman & Goodman, New York City, for Bart Development & Const. Corp., 434 12th Street Corp., 440 12 Street Realty Corp., 444 12th Street Realty Corp., Klem Realty Associates, Inc., Cinema Realty Corp., Amber Realty Corp., 914 Eighth Avenue Realty Corp., Bid Realty Corp., Coral Realty Corp., 1113 8th Avenue Realty Corp., 83 Seventh Avenue Realty Corp., 512 Henry Street Associates, Inc., Rosebud Realty Corp., Alpha Berkeley Corp., Beta Berkeley Corp., 437 16th Street Realty Corp.
Henry H. Korn, Roth & Korn, New York City, for Isaac Erlich.
Donald I. Strauber, Chadbourne & Parke, Salon, Morrow & Dyckman, New York City, for Chemical Bank.
Christopher J. Panny, Brooklyn, N.Y., for Maral Funding Corp., Stanley Gallant, Walco Corp. Pension Plan, Mijal Equities Pension Plan.
Harvey Herbert, Ryba & Herbert, Brooklyn, N.Y., for Midtown Elevator, Inc.
J. Christopher Jensen, Cowan, Liebowitz & Latman, New York City, for Friends Realty Corp.
Gary Greenwald, Greenwald, Graubard & Cohen, Wurtsboro, N.Y., for Angelo D'Acunto.
Judd Burstein, New York City, for Edmund Lee.
*285 Robert E. Katzberg, Kaplan & Katzberg, New York City, for Ian Grossfield.
Milton Morganstern, Brooklyn, N.Y., pro se.
Martin R. Sobel, James Robert Fauci, P.C., New York City, for Petri Maintenance Co.
Maria T. Jones, Sp. Asst. Corp. Counsel, New York City, for the City of New York.
Robert Abrams, Atty. Gen., New York City, for the State of N.Y.
Wendy S. Imber, Floral Park, N.Y., for Skyline Architects, P.C.
MEMORANDUM AND ORDER
GLASSER, District Judge:
I. Introduction
These three actions stem from an alleged conspiracy to defraud the HYFIN Credit Union ("HYFIN"). In CV-86-1441 ("the United States action"), the government alleges that beginning on or before 1982 and continuing up to April 9, 1986, funds were directly and indirectly transferred from HYFIN to the defendants and used to purchase and develop numerous real properties. The government contends that more than $12 million was fraudulently transferred from HYFIN and never repaid.
HYFIN is an acronym for "Help Your Friend In Need." The credit union was chartered in 1955 to serve members of the HYFIN Society. On April 9, 1986, the New York State Superintendent of Banks took possession of HYFIN because of its unsound condition and irregularities in its accounts. The government alleges that a major reason for HYFIN's difficulties was the $12 million fraudulently funneled into real estate.
The National Credit Union Administration ("NCUA"), a co-plaintiff with the United States in the United States action, is an independent federal agency under 12 U.S.C. § 1752a(a). It supervises and regulates credit unions and insures accounts in state and federally chartered credit unions for up to $100,000. Id. § 1787.
On the night of April 9, 1986, when HYFIN was taken over by the Superintendent of Banks, it was merged into the Municipal Credit Union ("Municipal"). A predicate to the merger was the NCUA's guarantee to Municipal, pursuant to id. § 1788(a)(2), that it would guarantee Municipal against losses it sustained as a result of assuming HYFIN's liabilities. The NCUA agreed to bear all losses resulting from the real estate scheme and reserved the right to assert the claims that Municipal would have had, as HYFIN's successor, against the participants in the scheme.
The government represents that the NCUA has paid Municipal approximately $20 million because of HYFIN's losses and that further payments will likely be necessary. The United States action was commenced in an attempt to recoup the NCUA's losses to the extent they were caused by the alleged real estate conspiracy.
Three of the defendants in the United States action were members of HYFIN's Board of Directors who have pleaded guilty to conspiracy and mail fraud charges in connection with the real estate scheme. They are Edmund Lee, who was HYFIN's secretary and treasurer, Ian Grossfield, who was HYFIN's vice president, and Milton Morganstern, who was an attorney for HYFIN. Other defendants include Bartholomew Rivieccio, Demetrios Karelas, Isaac Erlich, and John Villanella, who are real estate developers and managers, as well as officers and directors of realty corporations in whose names the subject properties allegedly were acquired. The government alleges that Rivieccio controls defendant Bart Development & Construction Corp. ("Bart Development") and that it performed construction and development work on the properties.
The supplemental and amended complaint in the United States action alleges eight claims. Count I of the complaint seeks a constructive trust in favor of the government over the subject properties. Count II seeks at least $12 million, plus interest, on a conversion theory. Count III seeks a like amount on an unjust enrichment theory. Count IV seeks an accounting. Count V seeks the same amount as *286 counts II and III, this time on a theory of breach of fiduciary duty. Count VI seeks a like amount on a fraud theory. Count VII alleges that Lee, Grossfield, and Morganstern are required, under section 468-a(2) of the New York Banking Law, to account for their official conduct. The count also seeks an order setting aside their assignment and transfer of HYFIN's assets as contrary to law. Finally, Count VIII charges that Lee, Grossfield, and Morganstern are liable for amounts illegally lent to non-members of HYFIN, pursuant to section 478 of the New York Banking Law. In addition to the damages specifically requested in each count, the government seeks, in the ad damnum clause of the complaint, punitive damages, costs, and attorneys' fees.
In the second action listed in the caption above, CV-86-1702 ("the Chemical action"), Chemical Bank seeks foreclosure of the mortgages on three properties as to which the government has sought imposition of a constructive trust. Chemical named the United States as a defendant and brought its action in federal court under the Quiet Title Act, which provides in part that "[t]he United States may be named as a party defendant in a civil action ... to adjudicate a disputed title to real property in which the United States claims an interest ...," 28 U.S.C. § 2409a(a). The federal district courts have exclusive original jurisdiction of actions under the Quiet Title Act. Id. § 1346(f).
Plaintiffs in CV-86-2715 ("the Maral Funding action") also seek foreclosure of a mortgage. That action was commenced in the Supreme Court of the State of New York, County of Kings, but was removed to this court by defendant United States of America.
The motions in these three actions were argued together. Ruling from the bench, the court:
(1) granted the government's motion for leave to file an answer out of time, Fed.R. Civ.P. 6(b), in the Maral Funding action; and
(2) denied Maral Funding's motion for appointment of a temporary receiver for the property that is the subject of the Maral Funding action, with leave to renew the motion in the event circumstances change.
Shortly after oral argument, the court granted the NCUA's motion to be added as a plaintiff in the United States action. The opinion that follows treats the remaining motions, on which decision had been reserved.
II. Standing
A. United States
The moving defendants in the United States action Rivieccio, Karelas, Erlich, Villanella, and the realty corporations contend that the United States lacks standing and that the action, therefore, should be dismissed. The court is not persuaded by defendants' argument.
The United States action was commenced by the government on behalf of the NCUA. According to the defendants, the government may not sue for the NCUA in the absence of statutory authority or the need to further a vital national interest or an integral attribute of sovereignty. It is true that no statute specifically authorizes the United States to sue on behalf of the NCUA, which has the power to sue and be sued in its own right, 12 U.S.C. § 1789. But the defendants' argument founders when they maintain that the NCUA and the United States "are not one." For purposes of commencing this action, the NCUA and the United States are sufficiently identical that the latter may sue on behalf of the former.
The court is aware of only one case in which the United States has sued on behalf of the NCUA. The first sentence of the opinion in that case commences: "This is a suit on behalf of the Administrator of the National Credit Union Administration (NCUA) by the United States. ..." United States v. Alabama, 434 F. Supp. 64, 65 (M.D.Ala.1977) (Johnson, C.J.). There are no further references to the government's right to sue on behalf of the NCUA. Apparently, the government's standing was not litigated, thus reducing the precedential value of the case on this point.
*287 The government correctly argues that subject matter jurisdiction is conferred by 28 U.S.C. § 1345, which provides:
Except as otherwise provided by Act of Congress, the district courts shall have original jurisdiction of all civil actions, suits or proceedings commenced by the United States, or by any agency or officer thereof expressly authorized to sue by Act of Congress.
The undeniable presence of subject matter jurisdiction, see United States v. Hill, 694 F.2d 258, 268 (D.C.Cir.1982) (government does not require specific statutory authorization for particular action because section 1345 confers general jurisdiction), does not close the court's inquiry, because the question of standing is separate, see Marshall v. Gibson's Products, Inc., 584 F.2d 668, 676 n. 10 (5th Cir.1978) (section 1345 provides subject matter jurisdiction over action by Secretary of Labor, but United States still must show standing to litigate); United States v. County of Hawaii, 473 F. Supp. 261, 263-64 (D.Haw.1979) (section 1345's grant of jurisdiction is sufficient to permit court to entertain suit, provided United States has standing).
On the standing question, the defendants emphasize that the NCUA operates independently and in a proprietary fashion. While the NCUA does, among other things, collect insurance premiums, 12 U.S.C. § 1782(c), and deposit the premiums into the National Credit Union Share Insurance Fund, id. § 1783(b), the NCUA is not the independent entity that the defendants perceive it to be. For one thing, the Insurance Fund is part of the Treasury of the United States. Id. § 1783(a). For another, the NCUA performs an important governmental function. In its report on the legislation that brought the NCUA into existence, the Senate Banking and Currency Committee stated its belief "that Federal credit unions have become such a significant component of our society that they need and deserve a more responsive and independent regulatory agency." S.Rep. No. 518, 91st Cong., 2d Sess., reprinted in 1970 U.S. Code Cong. & Admin.News 2479, 2480. The committee added:
There are less [sic] banks in the United States than credit unions. Yet there are three separate and distinct Federal instrumentalities which deal with the regulation of the banks under their respective jurisdictions. There are less [sic] federally chartered savings and loan associations than there are federally chartered credit unions. Yet the Federal savings and loan asociations are under the independent regulation of the Federal Home Loan Bank Board.
Id.; accord H.R.Rep. No. 1457, 91st Cong., 2d Sess., reprinted in 1970 U.S.Code Cong. & Admin.News 4166, 4167 ("Credit unions are the only federally chartered financial institutions that do not have a Federal program of savings or deposit insurance.").
The defendants are pleased to equate the NCUA with other federal agencies that insure financial institutions, such as the Federal Deposit Insurance Corporation ("FDIC"). In Lapadula & Villani, Inc. v. United States, 563 F. Supp. 782, 784 (S.D. N.Y.1983), the court held that "the FDIC is not an integral part of the governmental mechanism but is rather a separate legal entity serving essentially a proprietary rather than a sovereign function." According to the defendants, the NCUA is in the same position as the FDIC, thus depriving the government of standing to pursue this action.
Lapadula analyzed the role of the FDIC in a markedly different context. The question before the court was not whether the United States could sue on behalf of the FDIC, but whether the FDIC could claim an absolute priority over other creditors of liquidated corporations, pursuant to 31 U.S.C. § 191. In holding that the FDIC, unlike the Internal Revenue Service, was not "an integral part of the governmental mechanism" within the meaning of section 191, the court noted:
The FDIC's profits do not inure to the benefit of the United States and its losses are not borne by the United States. Thus, the public treasury will be unaffected by the FDIC's success or failure in recovering the debts owed it as successor *288 in interest to the claims of the Franklin National Bank.
563 F.Supp. at 784.
Unlike the FDIC in Lapadula, the NCUA does not seek to jump to the front of a line of creditors of HYFIN. The NCUA does not seek any advantage based on its status as a governmental agency. Instead, the government hopes to recoup funds that one of its agencies the NCUA has obligated itself to expend. The NCUA's obligation was incurred when it performed an important governmental function insuring credit union deposits. For purposes of the government's ability to sue on its behalf, the NCUA is "an agency selected by Government to accomplish purely governmental purposes," Cherry Cotton Mills, Inc. v. United States, 327 U.S. 536, 539, 66 S. Ct. 729, 730, 90 L. Ed. 835 (1946), and the court concludes that the United States has standing to assert the present claims for the NCUA. Cf. United States v. City of Pittsburgh, 757 F.2d 43, 45 (3d Cir.1985) (despite lack of immediate pecuniary interest in outcome of litigation, government had standing to bring action contending that city business privilege tax interfered with operation of federal judicial system).
The court's conclusion that the United States has standing implies that the government is also the real party in interest under rule 17(a) of the Federal Rules of Civil Procedure. The court sees no harm, however, in adhering to its prior ruling permitting joinder of the NCUA as a plaintiff, and that ruling will not be disturbed, in light of the court's decision, infra, to defer ruling on the NCUA's standing.
B. NCUA
The question of the NCUA's standing arises in a context different from the question of United States standing. The standing question with regard to the United States was: "May the United States sue on behalf of its agency, the NCUA?" That question has been answered affirmatively, supra. The standing question with regard to the NCUA is: "Have HYFIN's claims against the defendants been assigned effectively to the NCUA?" The first question presented a legal issue readily answerable on a motion to dismiss. The second question is fact-intensive and requires an analysis of what happened and what was intended when HYFIN was taken over by the Superintendent of Banks and merged into Municipal on the night of April 9, 1986.
The complaint alleges that the assignment took place on April 9 and August 8:
7. On April 9, 1986, in order to facilitate the merger of Hyfin into Municipal, the NCUA guaranteed Municipal against all losses sustained by Hyfin as a result, inter alia, of defendants' fraudulent and dishonest acts. This guarantee contemplated the purchase by the NCUA of certain of Hyfin's assets and liabilities and encompassed the assignment to the NCUA of all of Municipal's claims and causes of action against defendants.
8. On August 8, 1986, the NCUA and Municipal entered into a written assignment of Municipal's claims and causes of action against the defendants.
The complaint's factual allegations regarding the NCUA's standing suffice to withstand a motion to dismiss. Both sides have gone beyond the face of the complaint in an attempt to parse the documents that purport to effect an assignment and to analyze who promised what to whom at or about the time of the Hyfin-Municipal merger. Although both sides have briefed the issue in depth, the court is reluctant to convert the motion to dismiss into one for summary judgment, see Fed.R.Civ.P. 12(b), because there has yet to be discovery on the question. During oral argument, counsel for defendant Demetrios Karelas, speaking for all the defendants, agreed to the court's suggestion, Transcript of Oral Argument at 54, that discovery come first, to be followed by a possible motion for summary judgment, id. at 68-69. Therefore, insofar as the defendants seek dismissal of the action on the ground that the NCUA lacks standing, the motion is denied. Following discovery, the defendants will be permitted to move for summary judgment on this theory. The questions of how discovery should be scheduled or limited, and *289 when the motion for summary judgment should be made, will be addressed at the status conference discussed at the close of this memorandum and order.
III. Sufficiency of the Complaint
Part II of this memorandum and order dealt with the sufficiency of the complaint in the United States action to demonstrate standing by the United States and the NCUA. Part III deals with the sufficiency of the complaint under rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. The defendants have moved to dismiss the complaint on the theory that it does not (1) plead fraud with particularity, as required by rule 9(b) and (2) state a claim upon which relief can be granted, as required by rule 12(b)(6).
A. Rule 9(b)
Rule 9(b) provides:
In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.
The explication of these words has occupied countless pages in the federal reports. The cases provide ample material for both sides of a hypothetical debate between pleaders of fraud and those accused of fraud.
Plaintiff: "Since the rule is a special pleading requirement and contrary to the general approach of simplified pleading adopted by the federal rules, its scope of application should be construed narrowly and not extended to other legal theories or defenses." 5 C. Wright & A. Miller, Federal Practice and Procedure § 1297, at 405 (1969) (footnote omitted).
Defendant: Nevertheless, "the complaint must allege with some specificity the acts or statements constituting the fraud," because "[m]ere conclusory allegations that the defendant's conduct was fraudulent are not enough." Bresson v. Thomson McKinnon Securities, Inc., 641 F. Supp. 338, 346 (S.D.N.Y.1986) (citing Ross v. A.H. Robins Co., 607 F.2d 545, 557 (2d Cir.1979), cert. denied, 446 U.S. 946, 100 S. Ct. 2175, 64 L. Ed. 2d 802 (1980), and Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 114 (2d Cir.1982)).
Plaintiff: That may be so, but "Rule 9(b) does not require a plaintiff to recite or plead detailed evidentiary matter, and was not intended to make pleading fraud a throwback to code pleading." Cohen v. Goodfriend, 642 F. Supp. 95, 102 (E.D.N.Y. 1986) (citation omitted).
Defendant: "Some tension undoubtedly exists between the liberal pleading rules of Fed.R.Civ.P. 8, which encourages `short and concise' pleadings, and the particularity requirement of Rule 9(b)," Merrit v. Libby, McNeill & Libby, 510 F. Supp. 366, 373 (S.D.N.Y.1981), but rule 9(b) is "an exception to the generally liberal scope of pleadings allowed by Rule 8," Luce v. Edelstein, 802 F.2d 49, 54 (2d Cir.1986).
Plaintiff: The ideals of rule 8 still apply, because rule 9(b) requires no more than giving the "defendant notice of precisely what he is charged with," Goldman v. Belden, 754 F.2d 1059, 1070 (2d Cir.1985).
Defendant: In order to let the defendant know what he is charged with, the plaintiff must specify the time, place, speaker, and content of the alleged misrepresentations. Luce, supra, 802 F.2d at 54.
Plaintiff: On the other hand, "[w]here plaintiff pleads as to matters peculiarly within the adverse party's knowledge, he is entitled to rely on information and belief in support of his allegations." Somerville v. Major Exploration, Inc., 576 F. Supp. 902, 910 (S.D.N.Y.1983); accord Segal v. Gordon, 467 F.2d 602, 608 (2d Cir.1972); FDIC v. Kerr, 637 F. Supp. 828, 834 (W.D.N.C. 1986); Rich-Taubman Associates v. Stamford Restaurant Operating Co., 587 F. Supp. 875, 880 (S.D.N.Y.1984); Merrit, supra, 510 F.Supp. at 373; Green v. Hamilton International Corp., 437 F. Supp. 723, 729 (S.D.N.Y.1977).
Defendant: Nevertheless, "[a] complaint alleging fraud should be filed only after a wrong is reasonably believed to have occurred; it should serve to seek redress for *290 a wrong, not to find one." Segal, supra, 467 F.2d at 607-08.
That this hypothetical dialogue is inexhaustible does not mean that there are no real standards under rule 9(b) or that a court may resolve a 9(b) problem simply by citing the cases from one side or the other of the debate. Instead, 9(b) particularity is much like obscenity, legally speaking: "I know it when I see it," Jacobellis v. Ohio, 378 U.S. 184, 197, 84 S. Ct. 1676, 1683, 12 L. Ed. 2d 793 (1964) (Stewart, J., concurring).
The necessary legal judgment, although somewhat impressionistic, is informed by the purposes behind rule 9(b). The threefold basis for the rule lies in the need "to provide a defendant with fair notice on the basis of a plaintiff's claim, to protect a defendant's reputation from groundless accusations of fraud, and to prevent strike suits brought for settlement value." Cohen, supra, 642 F.Supp. at 102; accord Bresson, supra, 641 F.Supp. at 346 n. 6. It should be emphasized that the fair notice requirement applies to each defendant when multiple defendants have been named. See Luce, supra, 802 F.2d at 54 (discussing need to connect particular representations to particular defendants); Bosio v. Norbay Securities, Inc., 599 F. Supp. 1563, 1570 (E.D.N.Y.1985) (each defendant is entitled to know circumstances surrounding fraud with which he stands charged).
Additionally, the court notes that its 9(b) analysis does not apply to every claim made by the government against the moving defendants. This court has previously held that 9(b)'s particularity requirement covers allegations of fraud and mistake, and does not extend to claims of breach of fiduciary duty, Bosio, supra, 599 F.Supp. at 1570, or conversion, id. at 1571. The same applies to the unjust enrichment claim of count III. The 9(b) analysis is relevant only to the claims sounding in fraud.
Against this background, the court considers whether the pending complaint satisfies the strictures of rule 9(b). The first question is: Do the defendants know what the United States is claiming? In other words, are they on notice of the accusations against them? See Goldman, supra, 754 F.2d at 1070; Morris v. Gilbert, 649 F. Supp. 1491, 1495 (E.D.N.Y.1986). Reading the complaint "as a whole, drawing all inferences favorable to the pleader," Yoder v. Orthomolecular Nutrition Institute, Inc., 751 F.2d 555, 562 (2d Cir.1985), and recognizing that "less particularity should be required" when the pleader aserts that third persons were defrauded, Segal, supra, 467 F.2d at 607 (quoting 5 C. Wright & A. Miller, Federal Practice and Procedure § 1298, at 413 (1969)), the court is satisfied that these defendants have fair notice of the government's claim. The complaint identifies the relationship among the individual moving defendants Rivieccio, Karelas, Erlich, and Villanella in its allegation that they were engaged in the acquisition, development, and management of real property and that the latter three were associated with Rivieccio. The complaint identifies the defendant realty corporations and the properties they own, and alleges the relationships Rivieccio, Karelas, Erlich, and Villanella had with those corporations.
As to the nature of the fraud that is alleged, the government has alleged the period of the fraud, the fraudulent scheme, and its purpose, means, and result. The complaint charges that there were direct and indirect transfers from HYFIN's general account at Manufacturers Hanover Trust Company to the defendant realty corporations with the purpose of enabling the corporations to purchase certain specified properties. The government further alleges that the fraud was effected by charging the transfers of funds to dormant HYFIN accounts and by creating loan applications in the names of fictitious individuals. According to the complaint, Rivieccio, Karelas, Villanella, and Erlich received HYFIN funds on behalf of the realty corporations.
Given this amount of detail and the understanding that rule 9(b) does not require the recitation or pleading of detailed evidentiary matter it appears to the court that the moving defendants have been put on notice of plaintiffs' claims. Undoubtedly, *291 the defendants will have an opportunity to better prepare their defenses after they have obtained discovery. Withal, they are sufficiently on notice to satisfy rule 9(b).
Fair notice is only the first rationale for rule 9(b); the rule is designed also to protect defendants from groundless fraud accusations and to prevent strike suits. In light of the guilty pleas of defendants Lee, Grossfield, and Morganstern, and the statements made in open court during their allocutions, it is apparent that the plaintiffs have a good faith basis for charging all the defendants with fraud. This is not to prejudge the merits of the fraud claims or of any other claims in the complaint but merely to explain why the second and third rationales behind rule 9(b) do not deter the court from holding that the complaint should survive examination under that rule. Therefore, the motion to dismiss predicated on rule 9(b) is denied.
B. Rule 12(b)(6)
In addition to their claim that the United States complaint fails under rule 9(b), which the court has rejected, the moving defendants contend that the complaint fails to state a claim upon which relief can be granted, Fed.R.Civ.P. 12(b)(6). The court treats the 12(b)(6) attacks on the claims advanced in the United States complaint seriatim.
1. Constructive Trust
The first twenty-nine paragraphs of the complaint describe the parties and the alleged conspiracy. The first count of the complaint for a constructive trust appears in paragraph 30 and reads:
As a result of the foregoing fraud, conspiracy and breaches of fiduciary duty and trust and participation in breaches of fiduciary duty and trust by defendants, a constructive trust should be impressed upon the above-named real properties in favor of the United States; title to the properties should be declared to be held by defendant Realty Corporations in trust for the use and benefit of the United States; and said defendants should be directed to convey said properties to the United States by a good and sufficient deed, free of any encumbrances whatsoever. A constructive trust should also be impressed upon the proceeds and profits of such properties and the disposition thereof.
Because the court has found that the complaint survives the rigors of rule 9(b), one aspect of the moving defendants' attack on the constructive trust claim i.e., that the count fails to state a cognizable claim because its foundation is deficient must be rejected summarily. The remaining question is whether the complaint pleads a valid claim for a constructive trust under New York law, which, the parties agree, governs.
The Court of Appeals for the Second Circuit has twice reviewed New York law on constructive trusts in recent months. The court summarized the applicable law in Republic of Philippines v. Marcos, 806 F.2d 344 (2d Cir.1986), cert. dismissed, ___ U.S. ___, 107 S. Ct. 1597, 94 L. Ed. 2d 784 (1987):
As Judge Cardozo put it when he was on the New York Court of Appeals, "A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee." Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378, 380 (1919). The court "`reserves freedom to apply this remedy to whatever knavery human ingenuity can invent.'" Simonds v. Simonds, 45 N.Y.2d 233, 241, 380 N.E.2d 189, 194, 408 N.Y.S.2d 359, 363 (1978) (quoting Bogert, Trusts and Trustees § 471 at 29 (2d ed. rev. 1978)). And, "`[a] constructive trust will be erected wherever necessary to satisfy the demands of justice.... [I]ts application is limited only by the inventiveness of men who find new ways to enrich themselves unjustly by grasping what should not belong to them.'" Id. at 241, 380 N.E.2d at 194, 408 N.Y.S.2d at 363 (quoting Latham v. Father Divine, 299 *292 N.Y. 22, 27, 85 N.E.2d 168, 170 (1949)). See also Restatement of Restitution § 160 comment a (1937) (constructive trust is simply a remedy to prevent unjust enrichment and may or may not involve a fiduciary relationship); id. § 160 comment g (stating that where property is held by one person upon a constructive trust for another and the former transfers the property to a third person who is not a bona fide purchaser, the interest of the beneficiary is not cut off); id. § 168 (same).
Id. at 355.
More recently, the Second Circuit has summarized the elements of a constructive trust claim under New York law:
To be entitled to a constructive trust under New York law, a party must establish four elements: (1) a confidential or fiduciary relationship; (2) a promise, express or implied; (3) a transfer made in reliance on that promise; and (4) unjust enrichment.
Brand v. Brand, 811 F.2d 74, 77 (2d Cir. 1987) (citing Bankers Security Life Insurance Society v. Shakerdge, 49 N.Y.2d 939, 939, 406 N.E.2d 440, 440, 428 N.Y.S.2d 623, 624 (1980) (per curiam); Sharp v. Kosmalski, 40 N.Y.2d 119, 121, 351 N.E.2d 721, 723, 386 N.Y.S.2d 72, 75 (1976)).
The four elements enumerated in Brand are not talismanic. See Coco v. Coco, 107 A.D.2d 21, 24, 485 N.Y.S.2d 286, 289 (2d Dep't), appeal dismissed, 65 N.Y.2d 637 (1985); Reiner v. Reiner, 100 A.D.2d 872, 874, 474 N.Y.S.2d 538, 541 (2d Dep't 1984) (per curiam). The New York Court of Appeals has held that the factors may be "useful," but that it is possible to have a constructive trust in the absence of a confidential or fiduciary relationship. Simonds, supra, 45 N.Y.2d at 241, 380 N.E.2d at 194, 408 N.Y.S.2d at 363; cf. Coco, supra (constructive trust in absence of unjust enrichment). The rationale for the flexible rule of Simonds is the equitable nature of the remedy. See 45 N.Y.2d at 241, 380 N.E.2d at 193, 408 N.Y.S.2d at 363. "[E]quity regards as done that which should have been done." Id. at 240, 380 N.E.2d at 193, 408 N.Y.S.2d at 362 (citations omitted).
In Simonds, plaintiff was the first wife of a decedent; defendant was the decedent's second wife. Id. at 236, 380 N.E.2d at 191, 408 N.Y.S.2d at 360. Plaintiff's separation agreement with the decedent, the terms of which were incorporated into a divorce decree, provided that the decedent had to maintain at least $7,000 of life insurance of which plaintiff would be the beneficiary. Id. at 237, 380 N.E.2d at 191, 408 N.Y.S.2d at 361. At decedent's death, none of his life insurance policies named plaintiff as a beneficiary. Id. at 238, 380 N.E.2d at 191-92, 408 N.Y.S.2d at 361. The court of appeals upheld a constructive trust in favor of plaintiff, even though defendant did nothing wrong.
[T]he purpose of the constructive trust is prevention of unjust enrichment.
Unjust enrichment, however, does not require the performance of any wrongful act by the one enriched. Innocent parties may frequently be unjustly enriched. What is required, generally, is that a party hold property "under such circumstances that in equity and good conscience he ought not to retain it." A bona fide purchaser of property upon which a constructive trust would otherwise be imposed takes free of the constructive trust, but a gratuitous donee, however innocent, does not.
Id. at 242, 380 N.E.2d at 194, 408 N.E.2d at 364 (emphasis added) (citations omitted); accord, e.g., Blusal Meats, Inc. v. United States, 638 F. Supp. 824, 831 (S.D.N.Y.1986) (on unjust enrichment claim, plaintiff need show only that defendant was enriched at plaintiff's expense and that equity and good conscience required return of the money; proof of wrongful conduct not necessary), aff'd, 817 F.2d 1007, 1008 (2d Cir. 1987); see generally Bergeron v. Estate of Loeb, 777 F.2d 792, 797 (1st Cir.1985) (noting New York rule permitting constructive trust upon property transferred to innocent third party without joinder of representative of decedent who committed alleged fraud), cert. denied, ___ U.S. ___, 106 S. Ct. 1517, 89 L. Ed. 2d 915 (1986).
Against this background, the court determines that the government has *293 pleaded adequately its claim for a constructive trust. As discussed earlier, the complaint alleges a conspiracy to defraud HYFIN by diverting millions of dollars to the individual moving defendants on behalf of the realty corporations with which they were associated. It is alleged that the loans were not supported by collateral or documentation, and that upwards of $12 million has yet to be repaid. While the complaint is not phrased in terms of the four factors that New York courts consider prior to impressing a constructive trust, this is not a pleading defect that warrants dismissal. At a later stage, the court will be in a position to determine whether the government is entitled to the broad relief available at equity. For now, the government has the right to pursue such relief.
2. Unjust Enrichment
The third count of the complaint alleges that the defendants received from HYFIN funds to which they were not entitled and that they were unjustly enriched in an amount exceeding $12 million. The individual moving defendants Rivieccio, Karelas, Erlich, and Villanella, as opposed to the corporate moving defendants (the realty corporations) argue that the third count fails to state a claim, because the government has not alleged that they personally received HYFIN funds. Because the court finds the moving defendants' reading of the complaint unduly technical, the motion to dismiss the third count is denied.
To recover on a theory of unjust enrichment under New York law, a party must establish not only that there was enrichment, but that the enrichment was at the plaintiff's expense, and that the circumstances dictate that, in equity and good conscience, the defendant should be required to turn over its money to the plaintiff. Dolmetta v. Uintah National Corp., 712 F.2d 15, 20 (2d Cir.1983); see also McGrath v. Hilding, 41 N.Y.2d 625, 629, 394 N.Y.S.2d 603, 606, 363 N.E.2d 328, 330 (1977).
Universal City Studios, Inc. v. Nintendo Co., 797 F.2d 70, 79 (2d Cir.), cert. denied, ___ U.S. ___, 107 S. Ct. 578, 93 L. Ed. 2d 581 (1986); accord, e.g., Reprosystem, B.V. v. SCM Corp., 727 F.2d 257, 263 (2d Cir.), cert. denied, 469 U.S. 828, 105 S. Ct. 110, 83 L. Ed. 2d 54 (1984); Blusal Meats, Inc. v. United States, 638 F. Supp. 824, 831 (S.D. N.Y.1986), aff'd, 817 F.2d 1007, 1008 (2d Cir.1987).
The New York Court of Appeals has held:
A conclusion that one has been unjustly enriched is essentially a legal inference drawn from the circumstances surrounding the transfer of property and the relationship of the parties. It is a conclusion reached through the application of principles of equity.
Sharp v. Kosmalski, 40 N.Y.2d 119, 123, 351 N.E.2d 721, 724, 386 N.Y.S.2d 72, 76 (1976).
Here, paragraph 22 of the complaint alleges that HYFIN funds were transmitted to and received by Rivieccio, Karelas, Villanella, and Erlich on behalf of the realty corporations. The realty corporations allegedly used these funds to purchase certain real property, while the individual moving defendants covered up the scheme. Complaint paras. 25, 28. The complaint further alleges that the HYFIN funds transferred "to or for the benefit of the defendants ... have not been repaid." Id. para. 29.
The implication of the complaint is that Rivieccio, Karelas, Villanella, and Erlich received HYFIN funds and passed the money on to realty corporations that they owned or controlled, or with which they were associated. By seeking relief on a claim of unjust enrichment, the government asks only that the money be returned. The government is not concerned with who physically controls the funds; it might not be able to answer that question at this point. Because the government seeks equitable relief, the court may be obligated to pierce corporate veils or otherwise determine where the money went. At the pleading stage, at least, the government has satisfied the requirements of an unjust enrichment claim against the individual moving defendants. Their motion to dismiss the third count is therefore denied.
*294 3. Accounting
The moving defendants, both individuals and corporate, seek dismissal of the fourth count of the complaint, which seeks an accounting. They argue that an accounting is unavailable when no fiduciary relationship exists between the party seeking the accounting and the party required to account. But the government correctly responds that a person who participates with a fiduciary in a breach of trust may be held to account as a constructive trustee. Marcus v. Marcus, 92 A.D.2d 887, 887-88, 459 N.Y.S.2d 873, 874 (2d Dep't 1983) (per curiam); see Whitney v. Citibank, N.A., 782 F.2d 1106, 1115 (2d Cir.1986); Japcap Establishment, Inc. v. Trust for Cultural Resources of the City of New York, 115 A.D.2d 382, 384, 495 N.Y.S.2d 669, 671 (1st Dep't 1985) (per curiam). To the extent that the individual moving defendants contend that the HYFIN money did not come to rest in their possession, the answer is the same as it was on the unjust enrichment claim: time will tell. The motion to dismiss the accounting claim is denied.
4. Fraud
The sixth count of the United States complaint seeks money damages for an alleged fraud upon HYFIN and its members. The court's denial of the motion to dismiss under rule 9(b) necessitates rejection of the rule 12(b)(6) attack on the fraud count. The government has not attempted to plead a claim for civil conspiracy; there is no such claim under New York law. See Durante Brothers & Sons, Inc. v. Flushing National Bank, 755 F.2d 239, 251 (2d Cir.), cert. denied, 473 U.S. 906, 105 S. Ct. 3530, 87 L. Ed. 2d 654 (1985). Instead, the sixth count alleges that the defendants conspired to defraud HYFIN and its members. This form of pleading has been approved by our appellate court:
A conspiracy is alleged for the purpose of showing that a wrong was committed jointly by the conspirators and that, because of their common purpose and interest, the acts of one may be imputed to the others. Original Ballet Russe, Ltd. v. Ballet Theatre, Inc., 133 F.2d 187, 189 (2d Cir.1943). The allegation "is merely the string whereby the plaintiff seeks to tie together those who, acting in concert, may be held responsible in damages for any overt act or acts." Rutkin v. Reinfeld, ..., 229 F.2d [248,] 252 [(2d Cir.), cert. denied, 352 U.S. 844, 77 S. Ct. 50, 1 L. Ed. 2d 60 (1956)].
Grove Press, Inc. v. Angleton, 649 F.2d 121, 123 (2d Cir.1981); accord Lumbard v. Maglia, Inc., 621 F. Supp. 1529, 1537 (S.D. N.Y.1985); Valdan Sportswear v. Montgomery Ward & Co., 591 F. Supp. 1188, 1191 (S.D.N.Y.1984). For the foregoing reasons, the motion to dismiss the sixth count is denied.
5. Banking Law Claims
The seventh count of the United States complaint alleges that HYFIN insiders Lee, Grossfield, and Morganstern neglected, failed to perform, and violated their duties in the management and disposition of the credit union's assets. The government contends that all of the defendants are liable under statute, N.Y. Banking Law § 468-a(2) (McKinney 1971), to account for this conduct. Similarly, the eighth count alleges that Lee, Grossfield, and Morganstern permitted and participated in loans to non-members of HYFIN. According to the government, all defendants are liable for the amount illegally loaned, id. § 478.
The moving defendants contend that sections 468-a(2) and 478 do not apply to them. Section 468-a(1) requires directors and officers of credit unions to discharge their duties prudently and in good faith. Section 468-a(2) provides:
An action may be brought against one or more directors or officers of a credit union to procure a judgment for the following relief:
(a) To compel the defendant to account for his official conduct in the following cases:
(1) The neglect of, or failure to perform, or other violation of his duties in the management and disposition of the credit union's assets committed to his charge.
*295 (2) The acquisition by himself, transfer to others, loss or waste of the credit union's assets due to any neglect of or failure to perform, or other violation of his duties.
(b) To set aside a conveyance, assignment or transfer of the credit union's assets by one or more directors or officers, contrary to a provision of law, where the transferee knew the purpose of the transfer.
(c) To enjoin such a conveyance, assignment or transfer of the credit union's assets by one or more of the directors or officers where there is good reason to apprehend that it will be made.
On its face, at least, the reach of section 468-a(2) does not extend beyond directors and officers of credit unions. Similarly, section 478 deals only with officers, directors, and members of credit union committees. That statute provides:
Any officer, director or member of a committee of a credit union who knowingly permits a loan to be made or participates in a loan to a non-member of the corporation shall be guilty of a misdemeanor and shall be primarily liable to the corporation for the amount thus illegally loaned, and the illegality of such a loan shall be no defense in any action by the corporation to recover the amount lent.
Faced with this statuory language, the government responds by citing Laub v. Genway Corp., 60 F.R.D. 462 (S.D.N.Y. 1973). There, Judge Gurfein held:
The corporation is the victim of the fraud practiced on it by its fiduciaries. And those persons acting in concert with the fiduciaries may also be held liable for the fraud perpetrated on the corporation.
Id. at 466.
In Laub, however, the court was not concerned with a claim under section 468-a(2), under section 478, or indeed under any statute. Instead, there was a contention that plaintiff participated in a plan whereby defendant was fraudulently induced to enter into a lease. Id. Laub, therefore, is not authority for the proposition that the New York Banking Law creates a right of action against the moving defendants as conspirators or aiders and abettors. Nor is the court aware of any case that broadens the construction of sections 468-a(2) and 478 to the extent sought by the government. The rules of construction of New York statutes do not suggest that this court should be the first to read the Banking Law in the way sought by the government. For instance, in construing New York statutes, "[t]he legislative intent is to be ascertained from the words and language used, and the statutory language is generally construed according to its natural and most obvious sense, without resorting to an artificial or forced construction." 1 McKinney's Consolidated Laws of New York Annotated: Statutes § 94 (1971). Also, "[w]ords of ordinary import used in a statute are to be given their usual and commonly understood meaning, unless it is plain from the statute that a different meaning is intended." Id. § 232. Finally, "[w]ords of technical or special meaning are construed according to their technical sense, in the absence of anything to indicate a contrary legislative intent." Id. § 233.
"In matters of statutory construction ... it makes a great deal of difference whether you start with an answer or with a problem." Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum.L. Rev. 527, 529 (1947). Coming to these statutes with a question as to their reach, the court discerns no reason to construe them other than as words of ordinary meaning and concludes that they do not embrace the moving defendants. Accordingly, the seventh and eighth counts are dismissed as against the moving defendants. They remain in place as against Lee, Grossfield, and Morganstern.
6. Alpha Berkeley and Beta Berkeley
Two of the corporate defendants, Alpha Berkeley Corp. and Beta Berkeley Corp., seek dismissal of the claims against them on the ground that they were named as recipients of certain real property in the original complaint but omitted in the supplemental and amended complaint. According *296 to Alpha and Beta, this shows that the government no longer has a claim against them, and they should be dismissed under rule 12(b)(6).
The government explains that it had initially believed that Alpha and Beta purchased certain properties with HYFIN funds, and alleged as much in the original complaint. Later, it was learned that the properties had not been purchased, and the government removed the notices of pendency as to the properties as well as removing the relevant allegation from the supplemental and amended complaint. But the government still contends that Alpha and Beta received money from HYFIN and have not paid it back. This allegation remains in the amended complaint. Alpha and Beta's motion to dismiss is denied.
IV. Notices of Pendency
On the same day that the United States commenced its action by filing a complaint, May 5, 1986, it also filed a notice of pendency against certain real property owned by the defendant realty corporations. Plaintiffs in the Chemical and Maral Funding actions have also filed notices of pendency, as have plaintiffs in related actions that are not the subject of the present motions. The moving corporate defendants seek to have the notices of pendency cancelled and request, as well, that the United States be required to pay any costs and expenses occasioned by the filing and cancellation of the notices, pursuant to section 6514(c) of the New York Civil Practice Law and Rules ("The court, in an order cancelling a notice of pendency under this section, may direct the plaintiff to pay any costs and expenses occasioned by the filing and cancellation, in addition to any costs of the action.").
Much of what the defendants have said about the notices of pendency need not be discussed in light of the court's earlier holdings. That is to say, in view of the finding that the pleading requirements of rules 9(b) and 12(b)(6) have been met, the notices cannot be cancelled on the theory that they are not predicated upon valid legal claims. What is more, the court has determined that the United States has standing to pursue this action and rejects the defense argument that the government lacked standing to file a lis pendens.
There remains three arguments advanced by the defendants against the validity of the notices of pendency: (1) the government's ex parte filing of a lis pendens deprived the defendants of substantial property rights without a hearing, in violation of the fifth amendment's due process clause; (2) the lis pendens was filed in bad faith; and (3) the government's filing of a supplemental and amended complaint cannot validate the improperly filed lis pendens retroactively. For the reasons that follow, the court rejects these attacks on the lis pendens and denies the motion to cancel.
A. Due Process
To the surprise of one state court, the constitutionality of New York's lis pendens provisions has not been much scrutinized. Hercules Chemical Co. v. VCI, Inc., 118 Misc. 2d 814, 814-15, 462 N.Y.S.2d 129, 130-31 (Sup.Ct.N.Y.Co.1983). The Hercules court avoided decision on the issue by directing the completion of discovery and permitting renewal of a motion to cancel the lis pendens thereafter. Id. at 826, 462 N.Y.S.2d at 137.
The most comprehensive discussion of the due process implications of a notice of pendency appeared in the opinions of the panel in Chrysler Corp. v. Fedders Corp., 670 F.2d 1316 (3d Cir.1982). The court unanimously agreed on reversal of a district court order that held New Jersey's lis pendens statute unconstitutional, but the panel members disagreed on the reasons why the statute passed muster. Judge Sloviter's majority opinion assumed that the statutory scheme affected a sufficient taking to trigger due process analysis. Id. at 1324-25. Alone on the panel, she also assumed that the statute gave rise to state action. Id. at 1327; see id. at 1334 (Adams, J., concurring) (not reaching state action issue); id. at 1337-38 (Hunter, J., concurring) (finding no state action). Judge Sloviter concluded that the New Jersey scheme complied with due process, because it comported *297 with fundamental fairness. Id. at 1327-31. This was the ground on which Judge Adams concurred. Id. at 1334.
While this court finds much merit in Judge Sloviter's careful opinion, it is persuaded by Judge Hunter's analysis, which applies with equal effect to the New York lis pendens provisions. Indeed, both Judge Sloviter, id. at 1324, and Judge Adams, id. at 1333, recognized the force of Judge Hunter's argument that the statute did not effect a taking. This court agrees with Judge Hunter that the filing of a lis pendens does not constitute a taking for due process purposes. Cf. Batey v. Digirolamo, 418 F. Supp. 695, 697 (D.Haw.1976) (lis pendens poses only a potential cloud on title; injury to defendants is speculative).
The doctrine of lis pendens was formally recognized in New York as far back as 1815, and its roots in the common law stretch back to the early seventeenth century and beyond. See 5303 Realty Corp. v. O & Y Equity Corp., 64 N.Y.2d 313, 318, 476 N.E.2d 276, 279, 486 N.Y.S.2d 877, 880 (1984). At common law, one who took title to property that was the subject of litigation did so subject to the outcome of the action, even if he lacked actual notice. Chrysler Corp., supra, 670 F.2d at 1319. State legislatures enacted lis pendens statutes "to ameliorate the harshness of the common law doctrine." Id. at 1320. The doctrine of lis pendens also helped preserve the property in question so that a court's final judgment would be effective. Id. at 1319; accord 5303 Realty Corp., supra, 64 N.Y.2d at 319, 476 N.E.2d at 280, 486 N.Y. S.2d at 881 (doctrine was designed to assure court's ability to effect justice by preserving power over property; harsh impact on innocent purchasers was diminished by requirement that notice of pendency be filed in central registry).
New York's lis pendens statute, like the New Jersey statute considered in Chrysler Corp., does not detract from a landowner's possession, use, or enjoyment of his realty. Nor does it prevent a sale of the property. See Chrysler Corp., supra, 670 F.2d at 1335 (Hunter, J., concurring). To the extent "`something of worth' was taken, it was taken by the suit itself." Id. (emphasis added). As Judge Hunter put it:
It is no doubt true that a prospective purchaser would be made cautious by the notice of lis pendens, but that purchaser would be no more cautious than if he had obtained notice of the Chrysler suit by any other means. It is the underlying claim and not the notice that would make a buyer cautious. The statute acts only to provide a means by which a potential purchaser can be assured of actual notice of a claim. Under the traditional doctrines of notice and bona fide purchaser, a buyer with notice of Chrysler's claim would even without the lis pendens take subject to the equities Chrysler asserts. The statute merely replaced the common law fiction of constructive notice with a more realistic means of ensuring actual notice.
Id. (emphasis in original; citations omitted).
In the case at bar, had the government advertised its claim against the subject properties in every newspaper and on every television and radio station in the metropolitan area, the defendants would be hard-pressed to argue that there had been a taking. Because of the availability of the provisional remedy of lis pendens, the government was able to give more effective notice than could be achieved by the advertising hypothetical, with the expenditure of far less effort and money. This court is not persuaded that the effectiveness and efficiency of the lis pendens remedy render the remedy a taking for due process purposes. Therefore, it is not necessary for the court to reach the questions of state action and fundamental fairness. The New York lis pendens statute survives due process attack because it does not effect a taking.
B. Bad Faith
In support of their argument that the government filed its lis pendens in bad faith, the defendants point to a statement made by an assistant United States attorney to the press, which included an observation that filing of the lis pendens would ensure that the subject properties could not *298 be alienated. Section 6514(b) of the New York Civil Practice Law and Rules permits judicial cancellation of a notice of pendency "if the plaintiff has not commenced or prosecuted the action in good faith."
In seeking to vacate a lis pendens based on a claimed lack of good faith, however, the burden is upon defendants to show that plaintiffs lacked good faith in their commencement or prosecution of the action. Nor, is the burden easily met since it has been held that the presence of "any cognizable claim" is sufficient to establish good faith and there must be at least a substantial question to show the absence of good faith.
Weksler v. Yaffe, 129 Misc. 2d 633, 635, 493 N.Y.S.2d 682, 685 (Sup.Ct. Kings Co.1985) (emphasis in original).
Here, one statement by a government attorney cannot begin to overcome the numerous indicia of good faith that surround the filing of this action and the lis pendens. Most significant is the information to which this court has been exposed during the guilty plea allocutions of HYFIN insiders Lee, Grossfield, and Morganstern, as well as the testimony the court has heard in the trial of United States v. Turoff, 652 F. Supp. 707 (E.D.N.Y. 1987). The claim for a constructive trust, as well as the other claims advanced in the complaint, cannot be said to have a bad faith foundation on this record. See Shihab v. 215-217 West 108th Street Associates, 133 Misc. 2d 145, 150, 506 N.Y.S.2d 651, 654 (Civ.Ct.N.Y.Co.1986). The same goes for the lis pendens, whose filing was predicated on the allegations of the complaint. Accordingly, the court rejects the defense contention that the government's lis pendens was filed in bad faith. The court need not analyze United States v. Veon, 549 F.Sup. 274 (E.D.Cal.1982), to reach this conclusion. Although the parties discuss Veon extensively, with the defendants arguing that it controls and the government attempting to distinguish it, neither side was aware that the district court's order had been reversed in an unpublished opinion, 720 F.2d 685 (9th Cir. 1983). The parties' unawareness is understandable, because the reversal was not noted in Shepard's Citations; in any event, the district court's holding in Veon played no role in this court's examination of the bad faith issue.
C. Retroactivity
The moving defendants' last attack on the lis pendens relies on the notion that the notice of pendency, as initially filed, relied on a legally insufficient complaint. According to the defendants, the government's later filing of a supplemental and amended complaint cannot retroactively validate the lis pendens. The moving defendants also argue that the government's filing of an amended notice of pendency does nothing to remedy the problem.
The government responds, and the court agrees, that the original complaint sufficed to support a notice of pendency. Accordingly, the government did not run afoul of the pronouncement of the New York Court of Appeals that "the complaint filed with the notice of pendency must be adequate unto itself; a subsequent, amended complaint cannot be used to justify an earlier notice of pendency," 5303 Realty Corp., supra, 64 N.Y.2d at 320, 476 N.E.2d at 281, 486 N.Y.S.2d at 882.
The court's conclusion is necessitated, at a minimum, by the facial validity of the claim for a constructive trust pleaded in the original complaint. In all relevant particulars, the constructive trust claim in the original complaint is identical to the corresponding claim in the amended complaint, and suffices to support a lis pendens, since "the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property," N.Y.Civ. Prac.L. & R. 6501 (McKinney 1980). Finally, there was nothing improper in the government's amendment of its lis pendens to reflect the deletion of certain properties in accordance with a stipulation. For all the foregoing reasons, the motion to cancel the lis pendens is denied.
V. The Chemical Complaint
As discussed earlier, Chemical Bank brought an action seeking foreclosure *299 of the mortgages on three properties that are the subject of constructive trust claims by the United States. Chemical named the United States as a defendant and alleged jurisdiction under the Quiet Title Act, 28 U.S.C. § 2409a(a). Certain defendants in the Chemical action, not including the United States, have moved to dismiss on the ground that the Quiet Title Act does not confer subject matter jurisdiction over this type of dispute. The defendants acknowledged that their position was contrary to United States v. Bedford Associates, 657 F.2d 1300, 1316 (2d Cir.1981) (Quiet Title Act contemplates litigation against United States in mortgage foreclosure action where government claims interest in property), cert. denied, 456 U.S. 914, 102 S. Ct. 1767, 72 L. Ed. 2d 173 (1982). Because Bedford Associates remains the law of the circuit, the motion to dismiss must be denied. Defendants have preserved their argument for rejection of Bedford Associates, which they may present, at the appropriate time, to the court of appeals.
The moving defendants also argued that Chemical's complaint must be dismissed because the Quiet Title Act was triggered only by the United States claim against the subject properties, and the United States action must be dismissed. The court has rejected the contention that the United States action should be dismissed; the motion to dismiss the Chemical action must similarly be rejected.
The moving defendants seek dismissal of the government's cross-claim for failure to state a claim upon which relief can be granted. In light of the related pleadings in the United States action, the moving defendants are well aware of what the government alleges in its cross-claim in the Chemical action. To the extent that the motion to dismiss the United States action was denied, the motion to dismiss the government's cross-claim in the Chemical action is similarly denied. (The court did grant the moving defendant's motion to dismiss the government's Banking Law claims, Part III(B)(5), supra, so the cross-claim shall no longer include a Banking Law theory.) While the court cannot agree with the moving defendants that the government's cross-claim fails to state a claim, it is true that the cross-claim is no more than a bare bones pleading. The defendants would be well within their rights to seek a more definite statement, Fed.R.Civ.P. 12(e), and construing their motion to dismiss as a 12(e) application, it will be granted, and the government shall have twenty days from the date of this opinion to replead its cross-claim. And, for substantially the reasons discussed in connection with the government's lis pendens, Chemical's lis pendens will not be cancelled.
The moving defendants seek dismissal, under rule 9(b), of paragraph 31(c) of Chemical's amended complaint. Paragraph 31 alleges that the defendants were in default on their mortgages, and subparagraph (c) adds the allegation that financial statements and other writings of some of the realty companies were materially false and misleading. The moving defendants maintain that rule 9(b) requires more specificity, because this is an allegation of fraud. The court disagrees. As Chemical demonstrates, paragraph 31 charges a breach of contract, not a fraud. See Part III(A), supra (discussing Bosio v. Norbay Securities, Inc., 599 F. Supp. 1563, 1570-71 (E.D.N.Y.1985), and the limitation of rule 9(b) to claims of fraud and mistake). Thus, the motion to dismiss pursuant to rule 9(b) is denied.
VI. Consolidation
The United States has moved to consolidate the action it has brought with the Chemical and Maral Funding actions in which it is a defendant. The motion is opposed only by plaintiffs in the Chemical and Maral Funding actions, who argue that they have brought simple mortgage foreclosure actions and should not be caught up in a lengthy action not of their own making. While the court sympathizes with the opponents of consolidation, it finds that judicial economy would be enhanced by consolidation, and therefore grants the *300 government's motion to consolidate the three actions.
Rule 42(a) of the Federal Rules of Civil Procedure provides:
When actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated; and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.
In the context of a stockholders' suit, the Second Circuit has observed that consolidation may benefit the court and parties "by expediting pretrial proceedings, avoiding duplication and harassment of parties and witnesses, and minimizing expenditure of time and money by all persons concerned." Garber v. Randell, 477 F.2d 711, 714 (2d Cir.1973). On the other hand, when various parties' claims or defenses are substantially different, consolidation may be prejudicial. Id.
Here, the Chemical and Maral Funding actions would not exist but for the United States action and the facts underlying it. The defendants' task will be substantially eased by consolidation, and the Chemical and Maral Funding plaintiffs would not be unduly prejudiced. The trier of fact cannot determine the validity of the Chemical and Maral Funding claims without deciding the issues raised by the United States action, i.e., whether the government's claimed interest in the subject properties has merit. If it does, the Chemical and Maral Funding foreclosure claims will be bolstered. If it does not, the foreclosure claims will fail. Because the salient issues are so closely related, discovery and trial preparation will be expedited by consolidation. Thus, even the parties opposing consolidation might find themselves an an earlier trial, with less money spent on preparation therefor, after the actions are consolidated. Needless to say, a single resolution of the key issue will serve the interests of judicial economy far better than would a triptych of trials. Therefore, the government's motion is granted, and the three actions are consolidated.
VII. Conclusion
In addition to the motions previously discussed, one of the defendant realty corporations, Coral Realty Corp., had moved to dismiss the United States action on the ground that it had not been served with process. That claim was abandoned at oral argument. Transcript of Oral Argument at 85. (The court notes that, while the transcript indicates that counsel for Rivieccio abandoned the motion, the court's notes state that counsel for Coral was the actual speaker.)
The parties are directed to appear at a status conference on May 22, 1987, in courtroom 5, at 2:15 p.m. The court will prepare a separate order referring the three consolidated actions to one magistrate for pretrial purposes.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/105051/ | 344 U.S. 171 (1952)
BAILESS, COUNTY TREASURER, ET AL.
v.
PAUKUNE.
No. 242.
Supreme Court of United States.
Submitted November 10, 1952.
Decided December 8, 1952.
CERTIORARI TO THE SUPREME COURT OF OKLAHOMA.
R. L. Lawrence and R. F. Barry submitted on brief for petitioners.
Reford Bond, Jr. submitted on brief for respondent.
Acting Solicitor General Stern filed a memorandum for the United States, as amicus curiae, supporting petitioners.
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
In 1901 an Apache Indian, Paukune, was issued a trust patent to land in Caddo County, Oklahoma. This allotment was made under the General Allotment Act of February *172 8, 1887, 24 Stat. 388, 389.[1] Paukune died testate in 1919, leaving a wife Juana and a son Jose. By his will he devised an undivided one-third interest in the allotment to his widow and an undivided two-thirds interest to his son. No fee patent to the land has issued to Paukune, to his widow, or to the son. The trust period of twenty-five years has from time to time been extended. In other words, the United States still holds the land in trust for Paukune and his heirs.
In 1947 Juana's undivided one-third interest was assessed for ad valorem taxes in the amount of $21.33 and was advertised for sale for failure to pay. She thereupon instituted this suit in the Oklahoma courts to enjoin the sale and any further levy of ad valorem taxes on the theory that the land was exempt from state taxation. The petitioners answered, alleging that Juana was a non-Indian and therefore not exempt from the taxes. The *173 trial court, without determining whether the widow was an Indian, held her interest nontaxable by the state; and the Supreme Court of Oklahoma affirmed, 206 Okla. 527, 244 P.2d 1137, saying it mattered not under federal law whether the widow was Indian or non-Indian. The case is here on certiorari. 344 U.S. 812.
Levindale Lead Co. v. Coleman, 241 U.S. 432, dealt with restrictions on alienation attached to land under the Osage Indian Allotment Act of June 28, 1906, 34 Stat. 539. The Court held that the policy of that Act did not embrace persons who were not Indians, since the Congress sought to protect only those toward whom it owed the duties of a guardian. The same answer must be given here. If Juana is not an Indian, the United States has no interest of hers in the land to protect.[2] True, the United States holds the legal title to the land. But nothing in the Act prevents the devolution of the equitable interest to the widow. If she is not within the class whom Congress sought to protect, the trust is a dry and passive one; there remains only a ministerial act for the trustee to perform, namely the issuance of a fee patent to the cestui.
The judgment of the Supreme Court of Oklahoma is reversed and the cause is remanded to that court for proceedings not inconsistent with this opinion.
So ordered.
NOTES
[1] Section 5 of the Act provides in part as follows: "That upon the approval of the allotments provided for in this act by the Secretary of the Interior, he shall cause patents to issue therefor in the name of the allottees, which patents shall be of the legal effect, and declare that the United States does and will hold the land thus allotted, for the period of twenty-five years, in trust for the sole use and benefit of the Indian to whom such allotment shall have been made, or, in case of his decease, of his heirs according to the laws of the State or Territory where such land is located, and that at the expiration of said period the United States will convey the same by patent to said Indian, or his heirs as aforesaid, in fee, discharged of said trust and free of all charge or incumbrance whatsoever: Provided, That the President of the United States may in any case in his discretion extend the period. And if any conveyance shall be made of the lands set apart and allotted as herein provided, or any contract made touching the same, before the expiration of the time above mentioned, such conveyance or contract shall be absolutely null and void: Provided, That the law of descent and partition in force in the State or Territory where such lands are situate shall apply thereto after patents therefor have been executed and delivered, except as herein otherwise provided . . . ."
[2] And see Mixon v. Littleton, 265 F. 603; Unkle v. Wills, 281 F. 29, 35. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/105056/ | 344 U.S. 206 (1952)
FEDERAL TRADE COMMISSION
v.
MINNEAPOLIS-HONEYWELL REGULATOR CO.
No. 11.
Supreme Court of United States.
Argued October 15-16, 1952.
Decided December 22, 1952.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT.
*207 Acting Solicitor General Stern argued the cause for petitioner. With him on the brief were Acting Assistant Attorney General Clapp, Daniel M. Friedman, W. T. Kelley and Robert B. Dawkins.
Albert R. Connelly argued the cause for respondent. With him on the brief was Will Freeman.
MR. CHIEF JUSTICE VINSON delivered the opinion of the Court.
The initial question in this case is one of jurisdiction whether the petition for certiorari was filed within the period allowed by law.[1] We hold that it was not.
The cause grows out of a proceeding initiated by petitioner, the Federal Trade Commission, in 1943. At that time, the Commission issued a three-count complaint against respondent. Count I charged a violation of § 5 of the Federal Trade Commission Act;[2] Count II charged a violation of § 3 of the Clayton Act;[3] Count III dealt with an alleged violation of § 2 (a) of the Clayton Act as amended by the Robinson-Patman Act.[4] A protracted administrative proceeding followed. The Commission finally determined against respondent on all three counts, *208 and it issued a cease and desist order, in three parts, covering each of the three violations.
Respondent petitioned the Court of Appeals for the Seventh Circuit to review and set aside this order. The Commission sought enforcement of all parts of its order in a cross-petition.
Respondent abandoned completely its attack on Parts I and II of the order. In briefs and in oral argument, respondent made it clear that the legality of Part III was the only contested issue before the Court of Appeals. Neither party briefed or argued any question arising out of Parts I and II.
On July 5, 1951, the Court of Appeals announced its decision. The opinion stated that since respondent did not "challenge Parts I and II of the order based on the first two counts of the complaint we shall make no further reference to them." The court then went on to hold that Part III of petitioner's order could not be sustained by substantial evidence and should be reversed. 191 F.2d 786. On the same day, the court entered its judgment, the pertinent portion reading as follows:
". . . it is ordered and adjudged by this Court that Part III of the decision of the Federal Trade Commission entered in this cause on January 14, 1948, be, and the same is hereby, Reversed, and Count III of the complaint upon which it is based be, and the same is hereby Dismissed."
The Court of Appeals requires petitions for rehearing to be filed "within 15 days after entry of judgment." The Commission filed no such petition. On August 21, 1951, long after the expiration of this 15-day period, and after a certified copy of said judgment, in lieu of mandate, was issued, the Commission filed a memorandum with the court which reads in part as follows:
*209 "On July 5, 1951 the Court entered its opinion and judgment reversing Part III of the decision of the Federal Trade Commission dated January 14, 1948 and dismissing Count III of the complaint upon which it is based. No disposition has been made of the Cross-Petition filed by the Commission for affirmance and enforcement of the entire decision. The Commission takes the position that its Cross-Petition should be in part sustained, i. e., to the extent that the Court should make and enter herein a decree affirming Parts I and II of the Commission's order to cease and desist and commanding Minneapolis-Honeywell Regulator Company to obey the same and comply therewith. . . .
.....
"11. In its briefs filed herein the petitioner abandoned its attack upon Parts I and II of the order and challenged only the validity of Part III of the order (see page 1 of petitioner's brief dated March 15, 1951). Thus, petitioner concedes the validity of Parts I and II of the order and does not contest the prayer of the Commission's Cross-Petition and brief with respect to the affirmance and enforcement of Parts I and II of the order."
Clearly, by this memorandum the Commission sought no alteration of the judgment relative to Part III; in fact, it acknowledged the entry of judgment reversing Part III on July 5, 1951. It did not even claim it to be a petition for rehearing. It was submitted that Parts I and II of the order were uncontested, and "In conclusion. . . submitted that the Court should make and enter . . . a decree affirming and enforcing Parts I and II of the Commission's order to cease and desist."
On September 18, 1951, the Court of Appeals issued what it called its "Final Decree." Again the court *210 "ordered, adjudged and decreed" that Part III of the Commission's order "is hereby reversed and Count III of the complaint upon which it is based be and the same is hereby dismissed." The court then went on to affirm Parts I and II, and it entered a judgment providing for their enforcement, after reciting again that there was no contest over this phase of the order.
On December 14, 1951, the Commission filed its petition for certiorari. Obviously, the petition was out of time unless the ninety-day filing period began to run anew from the second judgment entered on September 18, 1951. In our order granting certiorari, 342 U.S. 940, we asked counsel to discuss the "timeliness of the application for the writ."
Petitioner refers us to cases which have held that when a court considers on its merits an untimely petition for a rehearing, or an untimely motion to amend matters of substance in a judgment, the time for appeal may begin to run anew from the date on which the court disposed of the untimely application.[5]
Petitioner apparently would equate its memorandum of August 21, 1951, with an untimely petition for a rehearing affecting Part III. But certainly its language and every inference therein is to the contrary. When petitioner filed its memorandum, the time for seeking a rehearing had long since expired.
Moreover, the memorandum was labeled neither as a petition for a rehearing nor as a motion to amend the previous judgment, and in no manner did it purport to seek such relief. On the contrary, the Commission indicated that it was quite content to let the Court of Appeals' decision of July 5 stand undisturbed. Since we cannot *211 treat the memorandum of August 21 as petitioner would have us treat it, we cannot hold that the time for filing a petition for certiorari was enlarged simply because this paper may have prompted the court below to take some further action which had no effect on the merits of the decision that we are now asked to review in the petition for certiorari.
Petitioner tells us that the application must be deemed to be in time because "when a court actually changes its judgment, the time to appeal or petition begins to run anew irrespective of whether a petition for rehearing has been filed."[6] We think petitioner's interpretation of our decisions is too liberal.
While it may be true that the Court of Appeals had the power to supersede the judgment of July 5 with a new one,[7] it is also true, as that court itself has recognized, that the time within which a losing party must seek review cannot be enlarged just because the lower court in its discretion thinks it should be enlarged.[8] Thus, the mere fact that a judgment previously entered has been reentered or revised in an immaterial way does not toll the time within which review must be sought.[9] Only when the lower court changes matters of substance,[10] or resolves a genuine ambiguity,[11] in a judgment previously rendered should the period within which an appeal must be taken or a petition for certiorari filed begin to run *212 anew. The test is a practical one. The question is whether the lower court, in its second order, has disturbed or revised legal rights and obligations which, by its prior judgment, had been plainly and properly settled with finality.[12]
The judgment of September 18, which petitioner now seeks to have us review, does not meet this test. It reiterated, without change, everything which had been decided on July 5. Since the one controversy between the parties related only to the matters which had been adjudicated on July 5, we cannot ascribe any significance, as far as timeliness is concerned, to the later judgment.[13]
Petitioner puts great emphasis on the fact that the judgment of September 18 was labeled a "Final Decree" by the Court of Appeals, whereas the word "Final" was missing from the judgment entered on July 5. But we think the question of whether the time for petitioning for certiorari was to be enlarged cannot turn on the adjective which the court below chose to use in the caption of its second judgment. Indeed, the judgment of July 5 *213 was for all purposes final. It put to rest the questions which the parties had litigated in the Court of Appeals. It was neither "tentative, informal nor incomplete."[14] Consequently, we cannot accept the Commission's view that a decision against it on the time question will constitute an invitation to other litigants to seek piecemeal review in this Court in the future.
Thus, while we do not mean to encourage applications for piecemeal review by today's decision, we do mean to encourage applicants to this Court to take heed of another principlethe principle that litigation must at some definite point be brought to an end.[15] It is a principle reflected in the statutes which limit our appellate jurisdiction to those cases where review is sought within a prescribed period. Those statutes are not to be applied so as to permit a tolling of their time limitations because some event occurred in the lower court after judgment was rendered which is of no import to the matters to be dealt with on review.
Accordingly, the writ of certiorari is
Dismissed.
MR. JUSTICE BLACK, dissenting.
The end result of what the Court does today is to leave standing a Court of Appeals decree which I think is so clearly wrong that it could well be reversed without argument. The decree set aside an order of the Federal Trade Commission directing Minneapolis-Honeywell to stop violating § 2 (a) of the Robinson-Patman Act by selling oil burner controls to some customers cheaper than to others. The Court of Appeals not only set aside the Commission's order as permitted under some circumstances. It went much further and ordered the Commission *214 to dismiss Count III of the complaint against Minneapolis-Honeywell. In doing so the Court of Appeals invaded an area which Congress has made the exclusive concern of the Federal Trade Commission. See Federal Trade Commission v. Morton Salt Co., 334 U.S. 37, 55; Federal Power Commission v. Idaho Power Co., 344 U.S. 17, 20; Federal Communications Commission v. Pottsville Broadcasting Co., 309 U.S. 134, 145-146.
Moreover, the Court of Appeals held that there was no evidence at all to substantiate the Commission finding that a quantity discount pricing system of Minneapolis-Honeywell resulted in price discriminations that violated § 2 (a) of the Robinson-Patman Act. But there was evidence before the Commission that some customers of Minneapolis-Honeywell were given substantially bigger discounts on purchases than those given their competitors. And the Commission found that these variations were not justified by any differences in costs of manufacture, sale or delivery. We have emphasized that such a showing amply supports a Commission cease and desist order. Federal Trade Commission v. Morton Salt Co., 334 U.S. 37, 47. The Court of Appeals here failed to follow our holding in the Morton Salt case. For this reason also it should be reversed.
I think the following facts show that the petition for certiorari here was filed in time. The Court of Appeals was petitioned by Minneapolis-Honeywell to review and set aside a Trade Commission order in its entirety. Later Minneapolis-Honeywell apparently conceded validity of part of the order and the court's first decree of July 5, 1951, failed to pass on all the provisions of the Commission's order.[1] The Commission had ninety days to ask *215 that we review that partial order if it was a "final" one. Within that ninety days, on August 21, 1951, the Commission asked the Court of Appeals to pass on the remainder of the order. In response a new and expanded decree of the Court of Appeals came down September 18, 1951, marked "Final Decree." December 14, 1951, within ninety days after rendition of this "Final Decree," the Commission filed here its petition for certiorari which the Court now dismisses.
I think that no statute, precedent or reason relied on by the Court requires dismissal of this cause. Of course appealability of a judgment depends on its being "final" in the legalistic sense. But there is no more ambiguous word in all the legal lexicon.[2] The Court of Appeals thought its second not its first decree was "final." Counsel for the Commission evidently believed the second judgment was the "final" one. I am confident many lawyers would have thought the same under this Court's former cases. So I would have viewed the second judgment before today's holding. Former cases would have *216 pointed strongly to rejection of appeal from the incomplete first decree as an attempted "piecemeal" review.[3]
The majority advances logical and rational grounds for its conclusion that the first judgment rather than the second one was "final." That the second judgment was "final," legalistically speaking, is equally supportable by logic, reason and precedent, if not more so.[4] But in arguing over "finality" we should not ignore the fact that Congress has declared that this type of proceeding should be reviewable both in the Court of Appeals and here. We frustrate that declaration when review is denied a *217 litigant because of his failure to guess right when confronted in August 1951 with a puzzle, the answer to which no one could know until today.
In prior cases cited in the Court's opinion this Court has found ways to grant review to litigants bedeviled and confused by the judicially created fog of "finality."[5] In those prior cases the Court recognized the vagueness of the finality rule and refused to throw out of court litigants who had acted bona fide. It is unfortunate that the Court today fails to utilize this same kind of judicial ingenuity to afford this litigant the review Congress saw fit to provide in the public interest.
The proceedings against Minneapolis-Honeywell began before the Commission nine years ago. Sixteen hundred pages of evidence were put on the record. It all goes to nought apparently because Commission counsel lacked sufficient clairvoyance to anticipate that this Court would hold that the July judgment rather than the one in September was final. Rules of practice and procedure should be used to promote the ends of justice, not to defeat them.[6]
MR. JUSTICE DOUGLAS, dissenting.
While I do not believe the merits of the case are as clear as MR. JUSTICE BLACK indicates, I join in the parts of his opinion which deal with the question whether the petition for certiorari was timely under 28 U.S. C. § 2101 (c).
NOTES
[1] 28 U.S. C. § 2101 (c).
[2] 38 Stat. 719, 15 U.S. C. § 45.
[3] 38 Stat. 731, 15 U.S. C. § 14.
[4] 38 Stat. 730, as amended, 49 Stat. 1526, 15 U.S. C. § 13 (a).
[5] Pfister v. Finance Corp., 317 U.S. 144, 149 (1942); Bowman v. Loperena, 311 U.S. 262, 266 (1940); Wayne United Gas Co. v. Owens-Illinois Co., 300 U.S. 131, 137-138 (1937).
[6] Brief for petitioner, p. 43.
[7] 28 U.S. C. § 452; see Zimmern v. United States, 298 U.S. 167 (1936).
[8] See Fine v. Paramount Pictures, 181 F.2d 300, 304 (1950).
[9] Department of Banking v. Pink, 317 U.S. 264 (1942); Toledo Scale Co. v. Computing Scale Co., 261 U.S. 399 (1923); Credit Co., Ltd. v. Arkansas Central R. Co., 128 U.S. 258 (1888).
[10] See Zimmern v. United States, 298 U.S. 167, 169 (1936); compare Department of Banking v. Pink, supra.
[11] Compare Federal Power Commission v. Idaho Power Co., 344 U.S. 17 (1952).
[12] Compare Rubber Co. v. Goodyear, 6 Wall. 153 (1868) (appeal allowed from a second decree, restating most provisions of the first because the first decree, at the time of entry, was only regarded by the parties and the court as tentative); Memphis v. Brown, 94 U.S. 715 (1877) (appeal allowed from second judgment on the ground that the second made material changes in the first). See United States v. Hark, 320 U.S. 531, 533-534 (1944); Hill v. Hawes, 320 U.S. 520, 523 (1944).
[13] The suggestion is made that the September 18 judgment injected a new controversy into the litigationthe question of whether the Court of Appeals had the power to affirm and enforce the Commission's order after it had cross-petitioned for such relief. Cf. Federal Trade Commission v. Ruberoid Co., 343 U.S. 470 (1952). But if the respondent had sought to contest that issue, it could have done so from the start, by raising objections to enforcement of all parts of the Commission's cross-petition. Instead, respondent refused to contest these parts of the Commission's order. Having done so, it removed the question involved in the Ruberoid case from this case.
[14] See Dickinson v. Petroleum Conversion Corp., 338 U.S. 507, 514 (1950).
[15] See Matton Steamboat Co. v. Murphy, 319 U.S. 412, 415 (1943).
[1] See, e. g., "Though the merits of the cause may have been substantially decided, while any thing, though merely formal, remains to be done, this Court cannot pass upon the subject. If from any intermediate stage in the proceedings an appeal might be taken to the Supreme Court, the appeal might be repeated to the great oppression of the parties." Mr. Chief Justice Marshall speaking for the Court in Life & Fire Ins. Co. of New York v. Adams, 9 Pet. 573, 602 (1835). "We think that the decree is not a final decree, and that this court has no jurisdiction of the appeal. The decree is not final, because it does not dispose of the entire controversy between the parties." Keystone Iron Co. v. Martin, 132 U.S. 91, 93 (1889). "It is the settled practice of this court, and the same in the King's Bench in England, that the writ will not lie until the whole of the matters in controversy in the suit below are disposed of. . . . The cause is not to be sent up in fragments." Holcombe v. McKusick, 20 How. 552, 554 (1858).
[2] "Probably no question of equity practice has been the subject of more frequent discussion in this court than the finality of decrees.. . . The cases, it must be conceded, are not altogether harmonious." McGourkey v. Toledo & Ohio R. Co., 146 U.S. 536, 544-545. Cf. Dickinson v. Petroleum Conversion Corp., 338 U.S. 507, 511.
[3] A multitude of cases would have supported such a belief on the part of Commission counsel. See, e. g., Note 1 and the following: "But piecemeal appeals have never been encouraged." Morgantown v. Royal Ins. Co., 337 U.S. 254, 258. "Congress from the very beginning has, by forbidding piecemeal disposition on appeal of what for practical purposes is a single controversy, set itself against enfeebling judicial administration." Cobbledick v. United States, 309 U.S. 323, 325. "The foundation of this policy is not in merely technical conceptions of `finality.' It is one against piecemeal litigation. The case is not to be sent up in fragments. . . .' Luxton v. North River Bridge Co., 147 U.S. 337, 341." Catlin v. United States, 324 U.S. 229, 233-234.
[4] "Upon these facts we cannot doubt that the entry of the 28th of November was intended as an order settling the terms of the decree to be entered thereafter; and that the entry made on the 5th of December was regarded both by the court and the counsel as the final decree in the cause.
"We do not question that the first entry had all the essential elements of a final decree, and if it had been followed by no other action of the court, might very properly have been treated as such. But we must be governed by the obvious intent of the Circuit Court, apparent on the face of the proceedings. We must hold, therefore, the decree of the 5th of December to be the final decree." Rubber Company v. Goodyear, 6 Wall. 153, 155-156 (1868). See also Federal Power Commission v. Idaho Power Co., 344 U.S. 17, 20-21; Hill v. Hawes, 320 U.S. 520; United States v. Hark, 320 U.S. 531; Zimmern v. United States, 298 U.S. 167; Memphis v. Brown, 94 U.S. 715.
[5] See cases cited in Note 4.
[6] Hormel v. Helvering, 312 U.S. 552, 557. See also Maty v. Grasselli Chemical Co., 303 U.S. 197, 200-201. Cf. Hazel-Atlas Co. v. Hartford-Empire Co., 322 U.S. 238. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/105062/ | 344 U.S. 293 (1953)
CITY OF NEW YORK
v.
NEW YORK, NEW HAVEN & HARTFORD RAILROAD CO.
No. 203.
Supreme Court of United States.
Argued December 19, 1952.
Decided January 12, 1953.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT.
Meyer Scheps and Seymour B. Quel argued the cause for petitioner. With them on the brief were Denis M. Hurley, Harry E. O'Donnell and Anthony Curreri.
Edward R. Brumley argued the cause for respondent. With him on the brief was Robert M. Peet.
*294 MR. JUSTICE BLACK delivered the opinion of the Court.
The question presented is whether under the circumstances of this case reorganization of the respondent railroad under § 77 of the Bankruptcy Act[1] destroyed and barred enforcement of liens which New York City had imposed on specific parcels of the railroad's real estate for street, sewer and other improvements. The improvements were made and the liens were all laid prior to 1931. Reorganization was begun in the District Court in 1935. Subsequently, acting pursuant to subdivision (c) (7) of § 77 the court issued an order directing "creditors" to file their claims by a prescribed date, after which unfiled claims would be denied participation except for "cause shown." The railroad was required to mail copies of the order to mortgage trustees or their counsel and to all creditors who had already appeared in court. Other creditors had to depend for their notice on two once-a-week publications of the order in five daily newspapers, one of which was the Wall Street Journal.[2] New York thus received no copy of the bar order. Its lien claims were never filed.
The court's final decree provided for transfer of the old railroad's properties to the newly organized company free from the city's liens.[3] Jurisdiction was reserved to consider and act on future applications for instructions concerning disputes over interpretation and execution of the decree. Pursuant to this reservation the railroad brought the present action alleging that the city in failing to file had forfeited its claims; the railroad prayed for a declaration that the liens were forever barred, void and unenforcible, *295 and that the real property was discharged and released therefrom. The District Court agreed with the railroad and enjoined enforcement of the liens. 105 F. Supp. 413. The Court of Appeals affirmed, Judge Frank dissenting. 197 F.2d 428. In both courts the city made several arguments only two of which we need consider here: (1) Since the lien claims were collectible only out of specified parcels of real estate, the city was not a "creditor" of the railroad and consequently was not required to file its claims in bankruptcy court; (2) in the absence of actual service of notice on the city, the court was without power to forfeit its liens because of its failure to appear as a claimant. To consider these questions we granted certiorari. 344 U.S. 809.
(1) We reject the city's contention that it was not a creditor within the meaning of § 77 of the Bankruptcy Act. Section 77(b) defines "creditors" as ". . . all holders of claims of whatever character against the debtor or its property . . ." and specifically defines "liens" as "claims."[4] We had reason to comment recently on the broad coverage of this section in Gardner v. New Jersey, 329 U.S. 565, where we held that state tax liens made states "creditors" for purposes of § 77. True, the state's liens there were general charges against all railroad assets while the liens here are not. New York can look only to each parcel of property on which its liens are laid. But the reasons for our Gardner holding are equally applicable *296 here. New York is a "creditor" in the statutory sense and consequently was required to file its claims in bankruptcy unless freed from that duty by lack of adequate notice.
(2) Section 77 (c) (8) of the Act states that "The judge shall cause reasonable notice of the period in which claims may be filed, . . .by publication or otherwise." 11 U.S. C. § 205 (c) (8). We hold that publication of the bar order in newspapers cannot be considered "reasonable notice" to New York under the circumstances of this case.
Notice by publication is a poor and sometimes a hopeless substitute for actual service of notice. Its justification is difficult at best. See Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306. But when the names, interests and addresses of persons are unknown, plain necessity may cause a resort to publication. See, e. g., Standard Oil Co. v. New Jersey, 341 U.S. 428. The case here is different. No such excuse existed to justify subjecting New York's claims to the hazard of forfeiture arising from "constructive notice" by newspaper. In the first place subdivision (c) (4) of § 77 is designed to enable the court to serve personal notices on creditors. It provides that "The judge shall require . . ." proper persons to file in the court a list of all known creditors, the amount and character of their claims and their last known post-office addresses. This was not done here. Had the judge complied with the statute's mandate, it is likely that notice would have been mailed to New York City. Moreover, the railroad and the bankruptcy trustees knew about New York's asserted liens. And there was at least as much reason to serve a mail notice on New York City as on representatives of the railroad's mortgagees. Their liens were subordinate to New York's. There was even more reason to mail notice to the non-appearing known creditor New York City than to the creditors who had actually filed appearances as claimants.
*297 Nor can the bar order against New York be sustained because of the city's knowledge that reorganization of the railroad was taking place in the court. The argument is that such knowledge puts a duty on creditors to inquire for themselves about possible court orders limiting the time for filing claims. But even creditors who have knowledge of a reorganization have a right to assume that the statutory "reasonable notice" will be given them before their claims are forever barred. When the judge ordered notice by mail to be given the appearing creditors, New York City acted reasonably in waiting to receive the same treatment.
The statutory command for notice embodies a basic principle of justicethat a reasonable opportunity to be heard must precede judicial denial of a party's claimed rights. New York City has not been accorded that kind of notice.
Reversed.
MR. JUSTICE FRANKFURTER and MR. JUSTICE JACKSON doubt that a city whose only claim is in rem and which has no standing to participate in the general estate is a creditor in the sense of § 77 (b). But whether New York is or is not such a creditor, they agree with the opinion that the notice in this case is not adequate support for an order destroying the liens.
NOTES
[1] 47 Stat. 1474, as amended, 49 Stat. 911, 11 U.S. C. § 205.
[2] The other newspapers were located in Connecticut, Massachusetts and Rhode Island.
[3] The city has contended strongly that the decree should not be so construed, but we find it unnecessary to discuss this question.
[4] ". . . The term `creditors' shall include, for all purposes of this section all holders of claims of whatever character against the debtor or its property, whether or not such claims would otherwise constitute provable claims under this title, including the holder of a claim under a contract executory in whole or in part including an unexpired lease.
"The term `claims' includes debts, whether liquidated or unliquidated, securities (other than stock and option warrants to subscribe to stock), liens, or other interests of whatever character." 11 U.S. C. § 205 (b). | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/105063/ | 344 U.S. 298 (1953)
AMERICAN TRUCKING ASSOCIATIONS, INC. ET AL.
v.
UNITED STATES ET AL.
No. 26.
Supreme Court of United States.
Argued November 17-18, 1952.
Decided January 12, 1953.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA.[*]*299 Harry E. Boot and Wilbur M. Brucker argued the cause for appellants in No. 26. On the brief were Mr. Boot and Peter T. Beardsley for the American Trucking Associations, Inc., George S. Dixon for the National Automobile Transporters Association et al., Herbert Baker and Noel F. George for the Association of Highway Steel Transporters, Inc., Joseph H. Blackshear for the Watkins Motor Lines, Inc. et al., James W. Wrape for the Gordons Transports, Inc. et al., and John S. Burchmore for the National Industrial Traffic League, appellants.
Howell Ellis argued the cause for appellants in No. 35. With him on the brief was Milton E. Diehl. With them on the Statement as to Jurisdiction was John S. Burchmore.
Neil Brooks argued the cause for appellant in No. 36. With him on the brief was W. Carroll Hunter.
Ralph S. Spritzer argued the cause for the United States and the Interstate Commerce Commission, appellees. With him on the brief were Acting Solicitor General Stern, Acting Assistant Attorney General Clapp and Edward M. *300 Reidy. Philip B. Perlman, then Solicitor General, Daniel W. Knowlton and Mr. Reidy filed motions to dismiss for the United States and the Interstate Commerce Commission in Nos. 26 and 35.
Burton K. Wheeler argued the cause for the Brotherhood of Teamsters-Chauffeurs-Warehousemen & Helpers of America, appellee. With him on the brief were Edward K. Wheeler, Robert G. Seaks and J. Albert Woll.
Carl Helmetag, Jr. argued the cause for the Intervening Railroads, appellees. With him on the brief were Charles Clark and Joseph F. Hays. With them on a motion to affirm were Frank W. Gwathmey and Joseph F. Johnson in No. 26.
Franklin R. Overmyer argued the cause and filed a brief for the Chicago Suburban Motor Carriers Association et al., appellees.
Robert N. Burchmore, Nuel D. Belnap and John S. Burchmore filed a brief for the National Industrial Traffic League, appellant in Nos. 26 and 35.
Briefs of amici curiae supporting appellants were filed by Edward R. Adams, Drew L. Carraway and Homer S. Carpenter for the Greyvan Lines, Inc.; and by Mr. Brucker and Harold J. Waples for the Movers Conference of America.
Smith Troy, Attorney General, filed a brief for the State of Washington, as amicus curiae, urging affirmance.
MR. JUSTICE REED delivered the opinion of the Court.
These appeals attack new Interstate Commerce Commission rules governing the use of equipment by authorized motor carriers when the equipment is not owned by the carrier but is leased from the owner or obtained by interchange with another authorized carrier. They *301 were prescribed by the Commission and reported Ex Parte No. MC-43, Lease and Interchange of Vehicles by Motor Carriers, 52 M. C. C. 675. As will be seen from the portions we have quoted in the Appendix, post, p. 323, they principally require carrier inspection; when the equipment is leased, control for a minimum of thirty days and a method of compensation other than division of revenues between lessor and lessee; and, in the case of use of another carrier's equipment, authorization to the exchange point and actual transfer of control. Thus the practice of using leased equipment and that obtained by interchange is brought into conformity with the regulation of carrier-owned equipment to avoid evils that had grown up in that practice.
Some six suits were instituted to test the validity of the rules in the district courts under 28 U.S. C. §§ 2321-2325. Three were stayed by orders and one was not moved pending disposition of the instant cases.[1] These came here on direct appeal from two separate judgments denying the injunctive relief prayed for; one in the Southern District of Indiana, Eastern Motor Express, Inc. v. United States, 103 F. Supp. 694, and the other in the Northern District of Alabama, American Trucking Associations, Inc. v. United States, 101 F. Supp. 710. The issues there considered and resolved against the applicants concerned the Commission's authority under the Motor Carrier Act of 1935, Interstate Commerce Act, Part II, 49 Stat. 543, as amended, 54 Stat. 919, 49 U.S. C. § 301 et seq.; the impact of the rules on agricultural trucking and on the guaranteed right of authorized carriers to augment their equipment; the application of the *302 Administrative Procedure Act, 60 Stat. 237, 5 U.S. C. § 1001 et seq.; and the right of the protestants to introduce additional evidence in the district courts. Since there were only minor differences in the content of the two cases appealed, they may be treated together.
I. Introduction.We consider at the outset the existing conditions of the motor truck industry and its regulation as developed during the Commission's hearings because only against such a background are the rules meaningful. Commission authorization in the form of permits or certificates of convenience and necessity is a precondition to interstate service by virtue of the Motor Carrier Act. Such authorization, except under the "grandfather" clause, is granted only after a showing of fitness and ability to perform and a public need for the proffered service. And it specifically limits the scope and business of the permitted operations in the case of a contract carrier, and the routes and termini which may be served by a certificated common carrier.[2]
The Act waives these conditions of agency authorization and service limitations for a sizable portion of the industry, however. Most important of the exempt operations are those involving equipment used in the transportation of agricultural products. By and large, the equipment in this category is owned and operated by the same person. It falls only within the Commission's jurisdiction over drivers' qualifications, hours of service and safety.[3] And so there is no mandate on these exempt owner-operators to provide adequate and nondiscriminatory *303 service, adhere to published rates, and comply with the strict insurance requirements imposed on carriers authorized for general carriage.[4]
Because of the limiting character of the regulatory system, authorized carriers have developed a wide practice of using nonowned equipment. They have moved in two directions. The first is interchange. This includes those arrangements whereby two or more certificated carriers provide for through travel of a load in order to merge the advantages of certification to serve different areas. In this fashion, a wholly or partially loaded trailer may be exchanged at the established interchange point, or even an entire truck travel the line without interruption, under the guise of a shift in control. The second is leasing. This relates to the use of exempt equipment in authorized operations. Carriers subject to Commission jurisdiction have increasingly turned to owner-operator truckers to satisfy their need for equipment as their service demands. By a variety of arrangements, the authorized carriers hire them to conduct operations under the former's permit or certificate. Such operators thus travel approved routes with nonexempt property, and in the great majority of instances sever connections with their lessee carrier at the end of the trip.[5]
The use of nonowned equipment by authorized carriers is not illegal, either under the Act or the rules under *304 consideration.[6] But evidence is overwhelming that a number of satellite practices directly affect the regulatory scheme of the Act, the public interest in necessary service and the economic stability of the industry, and it is on these that the rules focus. It appears, for instance, that while many arrangements are reduced to writing, oral leases are common; some were concluded after the trips were made and in several cases exempt operators solicited business themselves with blank authorized carrier forms or other evidence of agency. It is strongly urged that this very informality of the contractual relationship between carrier and exempt operator creates conditions in the industry inconsistent with those which the Act contemplates. Proof was proffered during the proceedings that the informal and tenuous relationships in lease and interchange permit evasions of the limitations on certificated or permitted authority. Since the driver of the exempt equipment is not an employee of the carrier, sanctions for violation of geographical restrictions are clearly difficult to impose, especially in the case of the single-trip lessor. Interchange may, as well, become a device to circumvent geographical restrictions in the certificate. The practice of authorized carriers conducting operations beyond the territory they are entitled to serve under cover of a lease from the local carrier was clearly shown in the evidence before the Commission. It appeared, in fact, that some of these operations are entirely fictional, being created ad hoc after the trip is madeand this at times in the wake of a specific denial by the Commission of an application to serve the area.
*305 It was also alleged, and shown by evidence of some incidents, that the Commission's safety requirements were not observed by exempt lessors. Because of the fact that the great bulk of the arrangements cover only one trip, leasing carriers have little opportunity or desire to inspect the equipment used, especially in cases where the agreement is made without the operator's appearance at the carrier's terminal. Enforcement sanctions by the carriers for violations would be clearly as difficult to impose as route standards. Hence, the carrier may not extend the supervision of rest periods, doctors' certificates, brakes, lights, tires, steering equipment and loading, normally accorded his own employees and vehicles, to equipment and drivers secured through lease. And the owner-operator himself is called upon to push himself and his truck because of the economic impact of time spent off the road and investment in repairs on his slim profit margin.[7] Further, the absence of written agreements has made the fixing of the lessee's responsibility for accidents highly difficult.
Consequences on the economic stability of the industry were also noted. The carrier engaged in leasing practice is at the mercy of the cost and supply of exempt equipment available to him. Hence, he may at times find himself unable to undertake shipping obligations because no trucks are available willing to make a relatively unprofitable trip or to assume the burdens of less-than-carload service. Certification is granted on a showing that a concern is fit and willing to provide nondiscriminatory service required by the public convenience. To sustain this obligation, the authorized integrated carrier who finds his *306 leasing competitor only willing to undertake the more profitable ventures may be obliged to rely on miscellaneous freight without compensating economic long carload hauls to sustain estimated profit margins.
Use of exempt equipment by authorized carriers also tends to obstruct normal rate regulation. Schedules are traditionally grounded in costs. But the cost picture of a carrier who depends largely on leased equipment is far different from that of a carrier owning his own trucks. Not only is the former able to undertake operations with relatively slight investment. As well, his current overhead involved in operating leased equipment is solely administrative, the owner of the exempt equipment bearing the expense of gas, oil, tires, wages and depreciation out of his share of the fee. And to refer to the exempt owner's own expenses as determinative of what is a "reasonable" rate would be manifestly impossible as long as the relationships between lessor and lessee are too tenuous, short-termed and informal and the compensation of each based on a division of revenue.
It is claimed that the practice in fact has had a demoralizing effect on the industry. Authorized carriers find it advantageous to expand their operations by leased equipment because of the fact that no investment is required, nor is the risk of empty return trips and other overhead incurred. Hence, carriers owning their own trucks face a fluid rate structure in competition with those specializing in use of exempt equipment, especially where such equipment is offered for a trip, as it often is, for expenses. There is thus a pressure on the certificated operator to enter the leasing field and hence expand the effect of these conditions and practices on efficient, safe and nondiscriminatory truck service which the Act is designed to promote.
II. Commission Proceedings.All before us admit the difficulties which have developed. In fact, the Commission has considered them for some years. As early as *307 1940, following complaints, the Bureau of Motor Carriers held hearings on the subject which culminated in a statistical report in 1943. The necessity of maximum use of transportation resources during the war postponed any action thereafter until 1947.[8] In that year, however, the Director of the Bureau reinstituted discussion, had suggested regulations drafted, and drew on his field staff for reports of the use of the exempt vehicles by authorized carriers. The present proceedings were instituted by the Commission on January 9, 1948, when it became apparent that carrier agreement regarding a proper solution was unlikely. Its order, published at 13 Fed. Reg. 369, declared all authorized carriers respondents and set forth the practices to be investigated, four possible schemes of regulation, and suggested rules. A qualified examiner thereafter heard some 80 witnesses in Washington and St. Louis, and issued a report and proposed rules. A full report by the Commission's Division 5 followed on June 26, 1950, confirming the examiner's findings and amending his proposals,[9] and, following petitions for reconsideration, the entire Commission reopened proceedings for oral argument. The Commission's report, dated May 8, 1951, in effect adopted the examiner's proposed rules, after affirming and reiterating the nature and effect of *308 leasing and interchange practices on the industry and regulation under the Act.
III. The Rules.In this final form, the rules establish as conditions to the use of nonowned equipment by authorized carriers the reduction of the contracts to writing. Rule § 207.4 (a) (2), 52 M. C. C. 744. It is required that such contracts vest exclusive possession of, and responsibility for, the equipment in the authorized carrier during the rental, Rule § 207.4 (a) (4), the life of which must exceed thirty days when the driver is the owner or his employee. Rule § 207.4 (a) (3). Finally, the contract must fix the compensation of the lessor, which may not be measured by a percentage of the gross revenue. Rule § 207.4 (a) (5). Interchange agreements between two authorized carriers must also be in writing and the equipment must be driven by an employee of the certificated carrier over whose authorized route it travels. Rule § 207.5 (a), (c).
The rules also require inspection of nonowned equipment when the lessee carrier takes possession, Rule § 207.4 (c), as well as the identification of the trucks as within its responsibility, Rule § 207.4 (d), and the testing of the driver's familiarity with Motor Carrier Safety Regulations. Rule § 207.4 (e). Records of the use of rented and interchanged equipment are mandatory. Rule § 207.4 (f).
IV. Commission Authority.Appellants focus their principal attack on the lease provisions requiring a thirty-day period of carrier control and a measure of compensation other than revenue splitting. All agree that the rules thus abolish trip-leasing. Unfortunate consequences are predicted for the public interest because the exempt owner-operator will no longer be able to hire himself out at willin sum, that the industry's ability to serve a fluctuating demand will suffer and transportation costs accordingly go up. It is the Commission's position that *309 the industry and the public will benefit directly because of the stabilization of conditions of competition and rate schedules, and that in fact the continued effectiveness of the Commission's functions under the Motor Carrier Act is dependent on regulation of leasing and interchange. Needless to say, we are ill equipped to weigh such predictions of the economic future. Nor is it our function to act as a super-commission. So we turn to the legal considerations so strongly urged on us.
Here, appellants have framed their position as a broadside attack on the Commission's asserted power. All urge upon us the fact that nowhere in the Act is there an express delegation of power to control, regulate or affect leasing practices,[10] and it is further insisted that in each separate provision of the Act granting regulatory authority there is no direct implication of such power. Our function, however, does not stop with a section-by-section search for the phrase "regulation of leasing practices" among the literal words of the statutory provisions. As a matter of principle, we might agree with appellants' contentions if we thought it a reasonable canon of interpretation that the draftsmen of acts delegating agency powers, as a practical and realistic matter, can or do include specific *310 consideration of every evil sought to be corrected. But no great acquaintance with practical affairs is required to know that such prescience, either in fact or in the minds of Congress, does not exist. National Broadcasting Co. v. United States, 319 U.S. 190, 219-220; Phelps Dodge Corp. v. Labor Board, 313 U.S. 177, 193-194. Its very absence, moreover, is precisely one of the reasons why regulatory agencies such as the Commission are created, for it is the fond hope of their authors that they bring to their work the expert's familiarity with industry conditions which members of the delegating legislatures cannot be expected to possess. United States v. Pennsylvania R. Co., 323 U.S. 612.
Moreover, we must reject at the outset any conclusion that the rules as a whole represent an attempt by the Commission to expand its power arbitrarily; there is clear and adequate evidence of evils attendant on trip-leasing. The purpose of the rules is to protect the industry from practices detrimental to the maintenance of sound transportation services consistent with the regulatory system. Sections 216 (b) and 218 (a) of the Act, for instance, require the filing of a just and reasonable rate schedule by each common carrier, and the violation of these rates and the demoralization of rate structures generally are a probable concomitant of current leasing practices. Section 204 (a) (2) requires the Commission to impose rules relating to safety of operation for vehicles and drivers. These are likewise threatened by the unrestricted use of nonowned equipment by the common carriers. And the requirements of continuous service in § 204 (a) (1), of observance of authorized routes and termini under §§ 208 (a) and 209 (b), and the prohibitions of rebates, §§ 216 (d), 217 (b), 218 (a) and 222 (c), also may be ignored through the very practices here proscribed.
*311 So the rules in question are aimed at conditions which may directly frustrate the success of the regulation undertaken by Congress. Included in the Act as a duty of the Commission is that "[t]o administer, execute, and enforce all provisions of this part, to make all necessary orders in connection therewith, and to prescribe rules, regulations, and procedure for such administration." § 204 (a) (6). And this necessary rule-making power, coterminous with the scope of agency regulation itself, must extend to the "transportation of passengers or property by motor carriers engaged in interstate or foreign commerce and to the procurement of and the provision of facilities for such transportation," regulation of which is vested in the Commission by § 202 (a). See also § 203 (a) (19).
We cannot agree with appellants' contention that the rule-making authority of § 204 (a) (6) merely concerns agency procedures and is solely administrative. It ignores the distinct reference in the section to enforcement. Furthermore, the power of the Commission to make rules applicable to transfers of certificates or permits is recognized by § 212 (b). That section permits transfers "pursuant to such rules and regulations as the Commission may prescribe." It does not strain logic or experience to look upon leasing of exempt equipment and interchange as a transfer, temporary in nature, of the carrier's authorized right to serve his specified area; in fact we think this interpretation is dramatically supported here by the evidence that owner-operators themselves take the initiative in securing cargoes, while the carriers accept only the administrative function of approving the use of the nonowned equipment over their authorized routes and under their names. It is an unnatural construction of the Act which would require the Commission to sit idly by and wink at practices that lead to violations of its provisions.
*312 We hold then that the promulgation of these rules for authorized carriers falls within the Commission's power, despite the absence of specific reference to leasing practices in the Act. See General Tank Car Corp. v. Terminal Co., 308 U.S. 422, 432. The grant of general rule-making power necessary for enforcement compels this result. It is foreshadowed, of course, by United States v. Pennsylvania R. Co., 323 U.S. 612. That case validated an order requiring railroads to lease cars to a competing carrier by sea, in spite of the inability of the Commission to ground its action on some specific provision of the Act. 323 U.S., at 616. This Court pointed to the fact that the "unquestioned power of the Commission to require establishment of [through] routes would be wholly fruitless, without the correlative power to abrogate the Association's rule which prohibits the interchange." 323 U.S., at 619. There is evidence here that convinces us that the regulation of leasing practices is likewise a necessary power; in fact, we think its exercise more crucial than in United States v. Pennsylvania R. Co. The enforcement of only one phase of the Act was there endangered; here, practically the entire regulatory scheme is affected by trip-leasing.
A fair analogy appears between the conditions which brought about the Motor Carrier Act and those sought to be corrected by the present rules, confirming our view of the Commission's jurisdiction. Then the industry was unstable economically, dominated by ease of competitive entry and a fluid rate picture. And as a result, it became overcrowded with small economic units which proved unable to satisfy even the most minimal standards of safety or financial responsibility.[11] So Congress felt *313 compelled to require authorization for all interstate operations to preserve the motor transportation system from over-competition, while at the same time protecting existing routes through the "grandfather" clause.[12] The Commission's rule-making here considered is based on conditions that similarly threaten, though perhaps to a lesser degree, the efficient operation of the industry today.
And as exercised, the power under § 204 (a) (6) is geared to and bounded by the limits of the regulatory system of the Act which it supplements. It is thus as clearly defined for constitutional purposes as the specified functions of the Commission, and so reliance on Schechter Poultry Corp. v. United States, 295 U.S. 495, 529, and Panama Refining Co. v. Ryan, 293 U.S. 388, 421, is misplaced. We reject for similar reasons the contention that Federal Power Commission v. Panhandle Eastern Pipe Line Co., 337 U.S. 498, is controlling here. Our holding that the Federal Power Commission's authority did not extend to production and gathering of natural gas was specifically grounded in a provision of the Natural Gas Act to that effect. 337 U.S., at 504-505.
V. The National Transportation Policy.What we have said above answers appellants' companion contention that the rules are invalid because they violate the National Transportation Policy as set out in 49 U.S. C., preceding § 1. Regulation under the Act is there declared to be in the interests of the preservation of the inherent advantages of all modes of transportation, and of an economically sound, safe, and efficient industry. See United States v. Rock Island Motor Transit Co., 340 U.S. 419, and United States v. Texas & Pacific Motor Transport Co., 340 U.S. 450. But no overly-nice distinction between law and policy is needed to support *314 the view that the question is hardly one for the courts; it is clear that the rules represent, at best, a compromise between stability and flexibility of industry conditions, each alleged to be in the national interest, and we can only look to see if the Commission has applied its familiarity with transportation problems to these conflicting considerations. The mere fact that a contrary position was taken during the war years when active interchange and leasing were required,[13] that the Commission has never before restricted trip-leasing and has in fact approved it from time to time,[14] does not change our function.
VI. Reasonableness of Rules and Exemptions Therefrom. The relationship of these rules to the regulatory scheme they are designed to protect forms a basis for the answer to the various allegations that certain rules are arbitrary. For our purposes, such an argument must mean that the Commission had no reasonable ground for the exercise of judgment. In the instant case, such is not the situation; the evidence marshalled before the Commission plainly supports the conclusion that the continued effectiveness of its regulation requires the rules prescribed.
We also affirm a reasonable relationship between the aims of the federal regulatory scheme and the exemptions in the rules. That as to interchange between carriers over routes which both are authorized to serve, Rule § 207.3 *315 (a), is founded on the proposition that unauthorized certificate extensions are here impossible. The exemption extended to trucking equipment used in railway express operations, Rule § 207.3(b), which are largely confined to municipalities and contiguous areas, and short trips, duplicates the similar exemption applicable to contract and common carriers in Rule § 207.3 (c). It is alleged that the exclusion of the substituted motor-for-rail transport equipment from the rules' coverage by Rule § 207.3(b) also is based on the fact that the evils of unauthorized service, lax observation of safety regulations, and demoralized competitive conditions are not present in such operations. As the Commission found, the leasing practices in the field are undertaken through long-term contracts with certain established lessors, and the equipment inspected and controlled by the railroads, and identified with its name. In such a context, the exemption is not unreasonable; certainly it is not required that the Commission extend its supervisory activities under the rules into fields where the evidence before it indicates no need, merely to satisfy some standard of paper equality. And this is especially so in the field of substituted motor-for-rail carriage which falls within the Commission's strict regulation by virtue of the restrictions which we approved in United States v. Rock Island Motor Transit Co., 340 U.S. 419, and United States v. Texas & Pacific Motor Transport Co., 340 U.S. 450. The exemption for plans of operations merged under § 5 of the Act, Rule § 207.3(d), is said to have been directed solely toward Allied Van Lines, whose § 5 proceeding, reported Evanston Fireproof WarehouseControlAllied Van Lines, 40 M. C. C. 557, involving a unique leasing arrangement by stockholding hauling agents under the company's name, has already been scrutinized by the Commission. Since Allied operates entirely with equipment supplied under this arrangement, *316 and since the Commission has specifically approved it, it seems to us that the exemption has a reasonable basis; the guarantees of insurance coverage, financial responsibility, lessee route control and equipment identification in Allied's operations, 40 M. C. C. 551, 563-566, promise protection against the evils the rules seek to correct.
VII. Preservation of the Right to Augment Equipment. Appellants further contend, however, that the rules in effect will violate the protections in §§ 208 (a) and 209 (b) of the Act of the carriers' right to augment their equipment.[15] We do not agree. The provisos in question are not to be read as blanket restrictions on the Commission's regulatory powers; they are aimed at the restrictions on the increase in volume of traffic through acquisition of additional vehicles. Clearly, a numerical limitation would be invalid, but the Commission's refusal to permit carriers to secure and use equipment which does not satisfy its safety, loading, and licensing rules would not. As we pointed out in Crescent Express Lines, Inc. v. United States, 320 U.S. 401, 408, in sustaining a certificate *317 limited to seven-passenger vehicles, since § 208 "requires the Commission to specify the service to be rendered, this could not be done without power also to specify the general type of vehicle to be used." We think it equally apparent that regulation of the conditions and circumstances of the use of nonowned vehicles is not a "limitation on the addition of more vehicles of the authorized type." 320 U.S., at 409.
VIII. Preservation of Agricultural Exemption.As indicated above, the Act also exempts from Commission jurisdiction "motor vehicles used in carrying property consisting of ordinary livestock, fish (including shell fish), or agricultural commodities (not including manufactured products thereof), if such motor vehicles are not used in carrying any other property, or passengers, for compensation," § 203 (b) (6),[16] and appellants, and particularly the intervening Secretary of Agriculture, urge that the rules will drastically reduce the significance of this section in violation of Congress' intent. All admit, of course, that the rules do not directly apply to agricultural equipment; it is merely required that authorized carriers using such trucks comply with certain provisions. But it is contended that the preconditions to such use imposed on those within Commission jurisdiction will wipe out much of the traffic which the agricultural carriers have heretofore engaged in. It appears, for instance, that a substantial leasing is built on agricultural haulers who would otherwise return empty to their place of departure, having unloaded the farm produce carried; the authorized carriers have found them prepared to accept a one-trip engagement for the return route. The thirty-day *318 lease provision will make such arrangements impossible.
We are unable, however, to conclude that the economic danger to the agricultural truckers from these rules constitutes a violation of § 203 (b) (6). The mere fact that commercial carriers of agricultural products will hereafter be required to establish their charges on the basis of an empty return trip is not the same as bringing them within Commission jurisdiction generally. The exemption extends, by its own words, to carriage of agricultural products, and not to operations where the equipment is used to carry other property. Needless to say, the statute is not designed to allow farm truckers to compete with authorized and certificated motor carriers in the carriage of non-agricultural products or manufactured products for off-the-farm use, merely because they have exemption when carrying only agricultural products. We can therefore find nothing in it which implies protection of agricultural truckers' right to haul other property, even though from an economic standpoint that right is important to protect profit margins. Regulated truckers must also receive protection upon their restricted routes and limited carriage. A balance between these competing factors, carried out in accordance with congressional purpose,[17] does not seem to us unreasonable or invalid.
IX. Agency Procedure.We need not pause long over certain procedural objections which appellants have interposed. They object that the rules were the product of proceedings fatally at variance with certain requirements of the Administrative Procedure Act. Appellants in No. 35 point to the requirement of § 7 (c), that "the *319 proponent of a rule or order shall have the burden of proof," and insist that the Commission, or its Motor Carriers Bureau which drew up suggested rules published as a supplement to the hearing order, 13 Fed. Reg. 369, did not satisfy this burden by preponderating evidence. But even assuming that the Commission was a statutory "proponent" of the regulation and that it did not actively introduce the requisite degree of proof in support of its position, we think it plain that the requirement is inapplicable to the instant proceedings. For § 7 of the Administrative Procedure Act is limited by its own terms to "hearings which section 4 or 5 requires to be conducted pursuant to this section." Turning to those sections, it is found that they invoke § 7 only when specified by statute: "Where rules are required by statute to be made on the record after opportunity for an agency hearing, the requirements of sections 7 and 8 shall apply in place of the provisions of this subsection."[18] In short, *320 § 7 applies only when hearings were required by the statute under which they were conducted to be made on the record and with opportunity for oral hearing. As we have pointed out, the rule-making authority in the instant case stems from § 204 (a) (6) of the Motor Carrier Act; nothing there requires record or hearing, in direct contrast with the rate-making procedure provisions of §§ 216 (e) and 218 (b). Hence, whatever our view of the substantiality of the evidence, we do not think that the rules must fall because the Commission failed to assume and satisfy a "burden of proof."
Similar reasoning supports our conclusion that § 8 (b) of the Administrative Procedure Act, which requires that decisions shall "include a statement of (1) findings and conclusions," invoked by appellants in No. 26, is likewise inapplicable. For it, in turn, is limited to a "hearing . . . required to be conducted in conformity with section 7."
X. Right to Introduce Evidence of Confiscation. Finally, appellants assign as error the refusal of the District Court in No. 35 to permit introduction of additional oral evidence there. Their offer of proof indicated that it would concern the "value of Plaintiffs' property and rights" and "the effect of the order on said property and rights." This Court has indicated many times, it is true, that those concerned with an order affecting their just compensation for transportation services must be heard; indeed, their right to introduce evidence to support the claim that the order in question will unconstitutionally confiscate their property may be enforced even in the District Court, if the Commission bars an opportunity to do so. Manufacturers R. Co. v. United States, 246 U.S. 457, 488-490; St. Joseph Stock Yards Co. v. United States, 298 U.S. 38, 53-54; Baltimore & Ohio R. Co. v. United States, 298 U.S. 349, 362-369; New York v. United States, 331 U.S. 284, 334-335.
*321 But the right is not to be construed as an avenue toward delay. The claim of confiscation must be substantial, the import of the proffered evidence clear, and the inability to test the question before the Commission patent, in order to justify an oral hearing on the question in the courts. In the case at bar, appellants seek in substance to show that the outlawing of trip-leasing will affect their business; perhaps they might even be able to prove that some concerns would fail if they were unable in the future to resort to nonowned equipment for short periods. In this context, however, we do not think that a right to trial de novo is automatically established merely because the Commission denied a petition for rehearing which invoked constitutional principles. In the first place, there was in truth a multitude of evidence before the Commission on the importance of trip-leasing to some concerns. Moreover, we are clear that appellants had an opportunity to introduce this very evidence in the agency proceedings, for it required no great prescience, in view of the notice of the hearings published by the Commission, to know that they would concern the importance and desirability of the very practices appellants seek to protect.
"Confiscatory" is not a magic word. Whether it should open the door to further proceedings depends on the nature of the order attacked. We think a claim of rate confiscation, which was the concern of the cases just cited, stands on a fundamentally different footing from that made in the instant case.[19] Rate-making represents an order affecting the volume of income; it is said to confiscate property when it prohibits a reasonable return on *322 investment beyond operating and initial costs. But the economic significance of the abolishment of trip-leasing is not nearly so direct. The Commission has merely determined by what method the carrier's income is to be produced, and not how much it may charge.
It is true that we have admonished the Commission and the courts to permit introduction of evidence on the economic impact of a rate order where the claim that it could not have been proffered during the original proceedings was genuine. But that was because the "constitutional right of compensation," St. Joseph Stock Yards Co. v. United States, 298 U.S. 38, 54, was drawn in question. Here, appellants can make no comparable claim. They attack an order which is valid even if its effect is to drive some operators out of business. As we have indicated, the rule-making power is rooted in and supplements Congress' regulatory scheme, which in turn derives from the commerce power. The fact that the value of some going concerns may be affected, therefore, does not support a claim under the Fifth Amendment, if the rules and the Act be related, as we have said they are, to evils in commerce which the federal power may reach.[20] This being the case, appellants had no constitutional *323 claim in support of which they are entitled to introduce evidence de novo, and the court did not err in sustaining the objection thereto.
Affirmed.
APPENDIX TO OPINION OF THE COURT.
Rules prescribed governing the practices of authorized carriers of property by motor vehicle in Interstate or Foreign Commerce in (1) augmenting equipment, (2) interchanging of equipment, and (3) renting vehicles or equipment to private carriers or shippers
.....
§ 207.3 Exemptions.Other than § 207.4 (c) and (d), relative to inspection and identification of equipment, these rules shall not apply
(a) To equipment leased by one authorized carrier operating over regular routes to another authorized carrier operating over regular routes and operated between points and over routes which both lessor and lessee are authorized to serve, and to equipment leased by one authorized carrier operating over irregular routes to another such carrier and operated between points and within territory which both the lessor and lessee are authorized to serve;
(b) To equipment utilized wholly or in part in the transportation of railway express traffic, or in substituted motor-for-rail transportation of railroad freight moving between points that are railroad stations on railroad billing;
(c) To equipment utilized in transportation performed solely and exclusively within any municipality, contiguous municipalities, or commercial zone, as defined by the Commission;
(d) To equipment utilized by an authorized carrier in transportation performed pursuant to any plan of operation *324 approved by the Commission in a proceeding arising under section 5 of the Interstate Commerce Act . . . .
.....
§ 207.4 Augmenting equipment.Other than equipment exchanged between motor common carriers in interchange service as defined in § 207.5 of these rules, authorized carriers may perform authorized transportation in or with equipment which they do not own only under the following conditions:
(a) The contract, lease, or other arrangement for the use of such equipment
(1) Shall be made between the authorized carrier and the owner of the equipment;
(2) Shall be in writing and signed by the parties thereto, or their regular employees or agents duly authorized to act for them in the execution of contracts, leases, or other arrangements;
(3) Shall specify the period for which it applies, which shall be not less than 30 days when the equipment is to be operated for the authorized carrier by the owner or employees of the owner; . . . .
.....
(4) Shall provide for the exclusive possession, control and use of the equipment, and for the complete assumption of responsibility in respect thereto, by the authorized carrier, . . . .
.....
(5) Shall specify the compensation to be paid by the lessee for the rental of the leased equipment; provided, however, that such compensation shall not be computed on the basis of any division or percentage of any applicable rate or rates on any commodity or commodities transported in said vehicle or on a division or percentage of any revenue earned by said vehicle during the period for which the lease is effective;
*325 (6) Shall specify the time and date or the circumstance on which the contract, lease, or other arrangement begins, and the time or the circumstance on which it ends. The duration of the contract, lease, or other arrangement shall coincide with the time for the giving of receipts for the equipment, as required by paragraph (b) of this section . . . .
.....
(c) Inspection of equipment.It shall be the duty of the authorized carrier, before taking possession of equipment, to inspect the same or to have the same inspected . . . .
.....
(d) Identification of equipment.The authorized carrier acquiring the use of equipment under this rule shall properly and correctly identify such equipment as operated by it . . . .
.....
(e) Driver of equipment.Before any person other than a regular employee of the authorized carrier is assigned to drive equipment operated under these rules, it shall be the duty of the authorized carrier to make certain that such driver is familiar with, and that his employment as a driver will not result in, violation of any provision of parts 192, 193, 195, and 196 of the Motor Carrier Safety Regulations (Rev.) pertaining to "Driving of Motor Vehicles," "Parts and Accessories Necessary for Safe Operation," "Hours of Service of Drivers," and "Inspection and Maintenance," and to require such driver to furnish a certificate of physical examination in accordance with part 191 of the Motor Carrier Safety Regulations (Rev.) pertaining to "Qualifications of Drivers," or, in lieu thereof, a photostatic copy of the original certificate of physical examination, which shall be retained in the authorized carrier's file.
*326 (f) Record of use of equipment.The authorized carrier utilizing equipment operated under these rules shall prepare and keep a manifest covering each trip for which the equipment is used in its service, containing the name and address of the owner of such equipment, the make, model, year, serial number, and the State registration number of the equipment, and the name and address of the driver operating the equipment, point of origin, the time and date of departure, the point of final destination, and the authorized carrier's serial number of any identification device affixed to the equipment. . . .
§ 207.5 Interchange of equipment.Common carriers of property may by contract, lease, or other arrangement, interchange any equipment defined in § 207.2 of these rules with one or more other common carriers of property, or one of such carriers may receive from another such carrier, any of such equipment, in connection with any through movement of traffic, under the following conditions:
(a) Agreement providing for interchange.The contract, lease, or other arrangement providing for interchange shall specifically describe the equipment to be interchanged; the specific points of interchange; the use to be made of the equipment and the consideration for such use; and shall be signed by the parties to the contract, lease, or other arrangement, or their regular employees or agents duly authorized to act for them, in the execution of such contracts, leases, or other arrangements.
(b) Authority of carriers participating in interchange. The certificates of public convenience and necessity held by the carriers participating in the interchange arrangement must authorize the transportation of the commodities proposed to be transported in the through movement, and service from and to the point where the physical interchange occurs.
*327 (c) Driver of interchanged equipment.Each carrier must assign its own driver to operate the equipment that is proposed to be operated from and to the point or points of interchange and over the route or routes or within the territory authorized in the participating carriers' respective certificates of public convenience and necessity.
(d) Through bills of lading.The traffic transported in interchange service must move on through bills of lading issued by the originating carrier, and the rates charged and revenues collected must be accounted for in the same manner as if there had been no interchange of equipment. Charges for the use of the equipment shall be kept separate and distinct from divisions of the joint rates or the proportions thereof accruing to the carriers by the application of local or proportional rates.
(e) Inspection of equipment.It shall be the duty of the carrier acquiring the use of equipment in interchange to inspect such equipment, or to have it inspected in the manner provided in § 207.4 (c) of these rules; and equipment which does not meet the requirements of the safety regulations shall not be operated in the respective services of the interchange carriers until the defects have been corrected.
(f) Identification of equipment.The authorized carriers operating equipment in interchange service under this section shall carry with each vehicle so operated a copy of the contract, lease, or other arrangement while the equipment is being operated in the interchange service.
.....
MR. JUSTICE BLACK, with whom MR. JUSTICE DOUGLAS concurs, dissenting.
I agree with the Court that the Interstate Commerce Act grants the Commission broad implied powers to carry out the general purposes outlined in the law. See United *328 States v. Pennsylvania R. Co., 323 U.S. 612, 616. But the Commission is without power to invoke vague implications to defeat the Act's purpose or to override its clearly expressed provisions. This, I think, is what the Commission has done in most of the Commission rules which the Court upholds. In my view the rules run counter to the Act in three important respects:
A. The congressionally granted right of motor carriers to choose for themselves whether they would use leased or purchased equipment is practically destroyed by the imposition of burdensome restrictions.
B. The exemption from regulation granted carriers of agricultural products by § 203 (b) of Part II of the Act is burdened by restrictive rules that substantially take away the advantages Congress intended to confer by the exemption.
C. Railroads that operate motor vehicles as a part of the business of common carriage are granted special advantages in violation of the express policy of the Act which requires each method of transportation to be left with its inherent advantages.
A. Motor vehicle common carriage had reached an advanced stage when Congress passed the Motor Carrier Act in 1935.[1] Early development of the business was along lines that the carriers found to be advantageous. Some carriers owned their vehicles, while others leased them. The Act did not try to disrupt this system, but left motor carriers free to continue to own or lease equipment in accordance with their best financial judgment. And Congress was content to regulate the common or contract carriers themselves; it made no effort whatever to regulate those who owned the vehicles that were leased to the regulated carriers. Congress was thus talking *329 about the acquisition of equipment by lease as well as by purchase when it provided that the Commission should be without power to restrict the right of carriers to add to their equipment or facilities as the development of their business and the demands of the public required.[2] While this provision is patently not designed to forbid the Commission from limiting the type of vehicles in the interest of safety,[3] the provision just as patently does deprive the Commission of power to forbid the lease and purchase of vehicles which meet the test of safety.
The new rules adopted by the full Commission put burdensome restrictions on the power to lease appropriate vehicles, restrictions which, in my view, go beyond the power of the Commission. These burdensome restrictions had been previously rejected by the Commission's Division V, composed of Commissioners particularly responsible for supervision of motor vehicle affairs as distinguished from supervision of railroad affairs. This record makes plain that enforcement of these burdensome rules will produce violent repercussions in the motor carrier industry; many motor carriers will suffer ruinous losses. The business of leasing vehicles for use by common carriers will be curtailed or perhaps even destroyed. The tendency of the rules is thus to eliminate many small business ventures. It may be, as the Commission seems to think, that the Nation's motor carrier business can be more efficiently accomplished by a few big companies that own all their equipment, than by a large number of small companies that obtain all or part of their equipment by lease. But if that governmental alteration in our business structure is to be ordained, Congress, not the Commission, should do the ordaining.
*330 B. The farmers of the Nation have for a long time been largely dependent upon reasonably priced motor transportation to get their produce to market.[4] When the Motor Carrier Act was under consideration, there was much apprehension expressed lest regulation deprive farmers of this advantage.[5] To meet this feeling, the bill was amended several times and finally was passed with the agricultural exemption set forth in § 203 (b). Except as to certain safety requirements § 203 (b) exempts from regulation motor vehicles of farmers and farm cooperatives *331 used for farm purposes; the same exemption is also granted to all motor vehicles while being used to carry agricultural commodities. There can be no doubt that the Commission's new rules will drive many of these carriers of farm products out of business and that many others will be compelled to increase their rates. Section 207.4 of the new rules is rather obviously designed to make this exemption much less valuable. It forbids authorized carriers to lease motor trucks except for terms of at least 30 days, if the trucks are to be operated by owners or employees of owners. The Commission reported that this rule would completely prohibit trip-leasing.[6] A very large part of all trip-leasing takes place between regulated carriers and truckers who are exempt because they carry farm products. An illustration can be found in the carriage of Florida citrus fruits. On delivering fruit in northern states the practice of these exempt truckers has been to lease their motor vehicles to regulated carriers for the transportation of goods to Florida. Unless vehicles that bring citrus fruits north can make such arrangements they must go back to Florida empty. "Empty or partially loaded trucks on return trips may well drive the enterprise to the wall." United States v. Carolina Carriers Corp., 315 U.S. 475, 488. The Commission's rules make it impossible for these exempt carriers of agricultural products to get the advantage of a lease for a return haul. The result is destruction for a large part of that business.
The reason the Commission has adopted a rule so destructive of the agricultural exemption Congress granted is apparent from a colloquy which took place in the District Court. The attorney for the Commission was asked *332 if it was wasteful for a truck to go back to Florida empty. With commendable candor he said: "It does seem uneconomical in requiring it to go back empty, but they can The difficulty comes, I think, in letting it come up in the first place." In other words the "difficulty comes" because Congress agreed to exempt these farm products. This congressionally created "difficulty" is being cleared up by the Commission. Its new rules against trip-leasing will force these agricultural carriers to raise their rates high enough to frustrate purposes underlying the agricultural exemption.[7]
C. The Commission has exempted railroads and express companies that carry goods for hire in motor vehicles from all of the regulations except the provisions of § 207.4 (c) and (d), which latter two provisions relate to inspection and identification of equipment. It is rather interesting that while the full Commission granted the railroads this amazing exemption, Division V, the Motor Carrier Division of the Commission, refused to allow it. The Commission at the same time refused to exempt from its new rules motor carriers whose operations were shown to be substantially identical with those performed by railroad and express carriers which the Commission left free from the burdens of the rules. Since the railroads and the independent motor carriers are in competition, it is not strange to find the railroads arguing here that while the railroads' exemption should be sustained, the new rules should be applied in all their vigor to the independent motor carriers. I know of no power which the Commission has to allow railroads which *333 engage in the motor carrier business exemptions and preferences which are denied completely motor carriers not owned by railroads.
The Commission's rules as a whole fashion broad new national transportation policies different from and in conflict with those Congress adopted after mature consideration. I would reverse the judgments of the District Courts and direct that the rules be set aside as beyond the Commission's authority.
NOTES
[*] Together with No. 35, Eastern Motor Express, Inc. et al. v. United States et al., and No. 36, Secretary of Agriculture v. United States et al., on appeals from the United States District Court for the Southern District of Indiana.
[1] Oklahoma-Louisiana Motor Freight Corp. v. United States (D. C. W. D. Okla.); Movers' Conference of America v. United States (D. C. E. D. Mich.); Greyvan Lines, Inc. v. United States (D. C. N. D. Ill.), and Apger v. United States (D. C. N. D. Ohio), respectively.
[2] Interstate Commerce Act, §§ 206-209, 49 Stat. 551-553.
[3] The Commission's safety regulations are published at 49 CFR, Parts 190-196. Section 203 (b) also exempts (1) school transportation, (2) taxicabs, (3) hotel service, (4) national park transportation, (4a) farmers, (5) cooperatives, (7) newspapers, (7a) airlines, (8) local service, and (9) "casual" transportation.
[4] See Interstate Commerce Act, §§ 209 (b), 216 (e), 217 (b), 49 Stat. 553, 558, 561, and 49 CFR, Part 174.
[5] It apparently is difficult to generalize about the economic significance of leasing and interchange. A survey made by the Bureau in 1947 disclosed only that about two-thirds of the carriers did not lease. The desirability to each carrier would be affected by many variables, of course, including the number of trucks he owned, the volume and stability of local demand and the extent of his carrying authority.
[6] It appears, however, that a number of states control the practice already. Washington, which has filed an intervenor brief here urging affirmance, is notable in limiting trip leases, and in requiring that the driver be an employee of the carrier and that the latter control the vehicle. The relevant provision is cited to us as "Leasing Rule 40" by the Brief of the Attorney General of that State.
[7] The conclusion that highway safety may be impaired rests admittedly on informed speculation rather than statistical certainty. A road check examination conducted by the Bureau did not indicate any significant difference in the number of safety violations between leased and owned vehicles.
[8] See General Order O. D. T. 3, Revised, §§ 501.5 (d), 501.9, 501.10, 501.13, July 14, 1942, 7 Fed. Reg. 5445 et seq., requiring full leasing, interchange and division of revenues; I. C. C. Emergency Order No. M-1, June 11, 1942, §§ 215.101, 215.105, 7 Fed. Reg. 4429; and I. C. C. Emergency Order M-6, November 1, 1945, § 176.10 (a), 10 Fed. Reg. 13595.
[9] Ex Parte No. MC-43, Lease and Interchange of Vehicles by Motor Carriers, 51 M. C. C. 461.
The change went to the heart of the problem. The examiner had suggested a requirement that the rental be of at least 30 days' duration and that compensation be on a basis other than a division of revenues. Division 5 rejected both provisions, recognizing that they would in effect abolish trip-leasing.
[10] The Act as originally drafted included, as a definition of carriers, all engaged in transportation "whether directly or by a lease." § 203 (a) (14), (15), 49 Stat. 544, 545. The "added language [was] intended to check evasion of the act by bringing within its terms such transportation operations as are performed through the leasing of motor vehicles or other similar arrangements which may constitute either common or contract carriage, according to the particular nature of the arrangements. The language inserted will enable the Commission to strike through such evasions where the facts warrant it." 79 Cong. Rec. 5651. The terminology was stricken by the Transportation Act of 1940, 54 Stat. 898, 920, which, however, introduced no qualification and which, as we have indicated, was merely "[f]or purposes of clarity." Thomson v. United States, 321 U.S. 19, 23. See 86 Cong. Rec. 11546.
[11] Regulation of Transportation Agencies, S. Doc. No. 152, 73d Cong., 2d Sess. 14-15, 22-35, 226; 79 Cong. Rec. 12196, 12209; Hearings, Senate Committee on Interstate Commerce, on S. 1629, S. 1632, and S. 1635, 74th Cong., 1st Sess., Part I, 78-80, 404-405, 410-411.
[12] 79 Cong. Rec. 12207-12211; 12222-12225.
[13] See footnote 8, supra.
[14] Dixie Ohio Express Co. Common Carrier Application, 17 M. C. C 735; Greyvan Lines, Inc., Common Carrier Application, 32 M. C. C. 719. See, however, I. C. C. Administrative Ruling No. 4, August 19, 1936, which represents an early effort on the part of the Commission to bring leased equipment under the control of the carriers for purposes of the Act. This was apparently abandoned after this Court's decisions in United States v. Rosenblum Truck Lines, Inc., 315 U.S. 50, and Thomson v. United States, 321 U.S. 19.
[15] "SEC. 208. (a) Any certificate issued under section 206 or 207 shall specify the service to be rendered . . . : Provided, however, That no terms, conditions, or limitations shall restrict the right of the carrier to add to his or its equipment and facilities over the routes, between the termini, or within the territory specified in the certificate, as the development of the business and the demands of the public shall require."
SEC. 209. "(b) . . . The Commission shall specify in the permit the business of the contract carrier covered thereby and the scope thereof . . . Provided, however, That no terms, conditions, or limitations shall restrict the right of the carrier to substitute or add contracts within the scope of the permit, or to add to his or its equipment and facilities, within the scope of the permit, as the development of the business and the demands of the public may require."
[16] Likewise exempted are "motor vehicles controlled and operated by any farmer when used in the transportation of his agricultural commodities and products thereof, or in the transportation of supplies to his farm." § 203 (b) (4a).
[17] The National Transportation Policy, 49 U.S. C., preceding § 1, specifically refers to "fair and impartial regulation of all modes of transportation subject to the provisions of this Act, so administered as to recognize and preserve the inherent advantages of each."
[18] Section 4 of the Administrative Procedure Act sets out only the following applicable requirements:
"(a) NOTICE.General notice of proposed rule making shall be published in the Federal Register (unless all persons subject thereto are named and either personally served or otherwise have actual notice thereof in accordance with law) and shall include (1) a statement of the time, place, and nature of public rule making proceedings; (2) reference to the authority under which the rule is proposed; and (3) either the terms or substance of the proposed rule or a description of the subjects and issues involved. . . .
"(b) PROCEDURES.After notice required by this section, the agency shall afford interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments with or without opportunity to present the same orally in any manner; and, after consideration of all relevant matter presented, the agency shall incorporate in any rules adopted a concise general statement of their basis and purpose." 60 Stat. 237, 239, 5 U.S. C. § 1003.
There is no question but that the Federal Register notice and participation requirements were satisfied. See p. 307, supra.
[19] We have already noted the Motor Carrier Act itself distinguishes between the scope of a hearing required in rate proceedings and those held in relation to general rule-making under § 204 (a) (6).
[20] Compare the principles applicable to rate-making with what we have said about the Fifth Amendment in the related field of wage and hour laws under the commerce power, United States v. Darby, 312 U.S. 100, 125. This Court has pointed out many times that the exercise of the federal commerce power is not dependent on its maintenance of the economic status quo; the Fifth Amendment is no protection against a congressional scheme of business regulation otherwise valid, merely because it disturbs the profitability or methods of the interstate concerns affected. Labor Board v. Jones & Laughlin S. Corp., 301 U.S. 1, 43-45; Currin v. Wallace, 306 U.S. 1, 13-15; United States v. Rock Royal Co-operative, Inc., 307 U.S. 533, 572-573; North American Co. v. Securities & Exchange Comm'n, 327 U.S. 686, 707-710; American Power & Light Co. v. Securities & Exchange Comm'n, 329 U.S. 90, 106-108.
[1] 49 Stat. 543, as amended, 54 Stat. 919, 49 U.S. C. § 301.
[2] This denial of power to the Commission appears in §§ 208 (a) and 209 (b) of Part II of the Act. 49 U.S. C. §§ 308 (a) and 309 (b).
[3] Crescent Express Lines v. United States, 320 U.S. 401, 408-409.
[4] For example, in 1950:
PERCENTAGES OF SELECTED FARM PRODUCTS TRANSPORTED TO PRINCIPAL MARKETS IN TRUCKS.
Percent Percent
Hogs ............... 79 Grapefruit ............. 43
Cattle ............. 76 Oranges ................ 33
Calves ............. 78 Apples ................. 64
Sheep and Lambs..... 44 Tomatoes ............... 60
Shell Eggs.......... 93 Potatoes ............... 37
Dressed Poultry..... 76 Lettuce ................ 41
Live Poultry........ 99 Milk ................... 79
Transportation of Selected Agricultural Commodities to Leading Markets by Rail and Motortruck, 1939-50, United States Department of Agriculture, Bureau of Agricultural Economics (June 1951). Table 1, p. 10.
[5] For illustration, Congressman Walter Pierce of Oregon said, "Mr. Chairman, I have watched the debate very closely. I wonder why this bill? I am a farmer, living 300 miles from tidewater. I raise wheat and stock. The only relief I have ever seen in my 40 years on that farm from the terrific confiscatory railroad freight rates was when the trucks came.
.....
"The camel is certainly getting his nose into the tent, and this means the death of the motor transportation which the farmer has had and which has been the only relief that has come to him from the previous excessive railroad rates." 79 Cong. Rec. 12216, 12217; see also 12197-12198.
[6] Trip leases can be made by motor carriers specifically exempted from the rules by the Commissionrailroad motor carriers, express company motor carriers, and the Allied Van Lines.
[7] This statutory agricultural exemption reflects a congressional belief that ". . . it would be better for the Congress to decide what should be exempted rather than to leave it in the hands of the Commission that might nullify the entire intentions of Congress . . . ." 79 Cong. Rec. 12225. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/105037/ | 344 U.S. 25 (1952)
NATHANSON, TRUSTEE IN BANKRUPTCY,
v.
NATIONAL LABOR RELATIONS BOARD.
No. 33.
Supreme Court of United States.
Argued October 23, 1952.
Decided November 10, 1952.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT.
*26 Joseph Kruger argued the cause for petitioner. With him on the brief were Alan J. Dimond and Henry Friedman.
Mozart G. Ratner argued the cause for respondent. With him on the brief were Acting Solicitor General Stern, George J. Bott, David P. Findling, Owsley Vose and Irving M. Herman.
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
Respondent, the National Labor Relations Board, issued a complaint against the present bankrupt company alleging unfair labor practices, and, after appropriate proceedings, ordered the bankrupt to pay certain employees back pay which they had lost on account of an unfair labor practice of the bankrupt. Before the order was enforced by the Court of Appeals an involuntary petition had been filed against the company. Thereafter the Court of Appeals entered its decree, enforcing the Board's order. In due course the Board filed a proof of claim for the back pay which was disallowed by the referee. The District Court set aside the disallowance. 100 F. Supp. 489. The Court of Appeals affirmed (194 F.2d 248) holding that the Board's order is a provable claim in bankruptcy, that the Board can liquidate the claim, and that it is entitled to priority as a debt owing to the United States under § 64 (a) (5) of the Act. The petition for certiorari was granted because of a conflict on the question of priority between that decision and Labor Board v. Killoren, 122 F.2d 609, decided by the Court of Appeals for the Eighth Circuit.
*27 We think the Board is a creditor as respects the back pay awards, within the meaning of the Bankruptcy Act.[1] The Board is the public agent chosen by Congress to enforce the National Labor Relations Act. Amalgamated Workers v. Edison Co., 309 U.S. 261, 269. A back pay order is a reparation order designed to vindicate the public policy of the statute by making the employees whole for losses suffered on account of an unfair labor practice. Phelps Dodge Corp. v. Labor Board, 313 U.S. 177, 197. Congress has made the Board the only party entitled to enforce the Act. A back pay order is a command to pay an amount owed the Board as agent for the injured employees. The Board is therefore a claimant in the amount of the back pay.
The claim is provable as a debt founded upon an "implied" contract within the meaning of § 63 (a) (4) of the Bankruptcy Act.[2] It is an indebtedness arising out of an obligation imposed by statutean incident fixed by law to the employer-employee relationship. A liability based on quasi-contract is one on an "implied" contract within the meaning of § 63 (a) (4) of the Bankruptcy Act. See Brown v. O'Keefe, 300 U.S. 598, 606-607.
We do not, however, agree with the lower court that this claim, enforceable by the Board, is a debt due to the United States within the meaning of R. S. § 3466, and therefore entitled to priority under § 64 (a) (5) of the Bankruptcy Act. It does not follow that because the Board is an agency of the United States, any debt owed it is a debt owing the United States within the meaning of R. S. § 3466. The priority granted by that statute *28 was designed "to secure an adequate revenue to sustain the public burthens and discharge the public debts." See United States v. State Bank, 6 Pet. 29, 35. There is no function here of assuring the public revenue. The beneficiaries of the claims are private persons as was the receiver in American Surety Co. v. Akron Savings Bank, 212 U.S. 557.
It is true that Bramwell v. U. S. Fidelity Co., 269 U.S. 483, extended the priority to a claim of the United States for Indian moneys. But that case rests on the status of the Indians as wards of the United States (see Bowling v. United States, 233 U.S. 528) and the continuing responsibility which it has for the protection of their interests. See United States v. Rickert, 188 U.S. 432, 444; Board of Commissioners v. Seber, 318 U.S. 705. We cannot extend that reasoning so as to give priority to a claim which the United States is collecting for the benefit of a private party. See American Surety Co. v. Akron Savings Bank, supra. The beneficiaries here are not wards of the Federal Government; they are wage claimants who were discriminated against by their employer. The Board has eliminated the discrimination by the back pay order; and enforcement of its order has been directed by the Court of Appeals. The full sanction of the National Labor Relations Act has therefore been placed behind the order. The Board argues that the interest of the United States in eradicating unfair labor practices is so great that the back pay order should be given the additional sanction of priority in payment. Whether that should be done is a legislative decision. The contest now is no longer between employees and management but between various classes of creditors. The policy of the National Labor Relations Act is fully served by recognizing the claim for back pay as one to be paid from the estate. The question whether it should be paid in preference to other creditors is a question to be answered from *29 the Bankruptcy Act. When Congress came to claims for unpaid wages it did not grant all of them priority. It limited the priority to $600 for each claimant and even then only allowed it as respects wages earned within three months before the date of the commencement of the proceedings. § 64 (a) (2). We would depart from that policy if we granted the priority to one class of wage claimants irrespective of the amount of the claim or the time of its accrual. The theme of the Bankruptcy Act is "equality of distribution" (Sampsell v. Imperial Paper Corp., 313 U.S. 215, 219); and if one claimant is to be preferred over others, the purpose should be clear from the statute. We can find in the Bankruptcy Act no warrant for giving these back pay awards any different treatment than other wage claims enjoy.
The trustee claims that the liquidation of the back pay award should not have been referred to the Board. Section 10 (c) of the National Labor Relations Act authorizes the Board, once an unfair labor practice has been found, to require, inter alia, the person who committed it to "take such affirmative action, including reinstatement of employees with or without back pay, as will effectuate the policies of this Act." The fixing of the back pay is one of the functions confided solely to the Board. At the time an order of the Board is enforced the amount of back pay is often not computed. Once an enforcement order issues the Board must work out the details of the back pay that is due and the reinstatement of employees that has been directed. This may be done by negotiation; or it may have to be done in a proceeding before the Board. The computation of the amount due may not be a simple matter. It may require, in addition to the projection of earnings which the employee would have enjoyed had he not been discharged and the computation of actual interim earnings, the determination whether the employee wilfully incurred *30 losses, whether the back pay period should be terminated because of offers of reinstatement or the withdrawal of the employee from the labor market, whether the employee received equivalent employment, and the like. See Phelps Dodge Corp. v. Labor Board, supra, 190 et seq. Congress made the relation of remedy to policy an administrative matter, subject to limited judicial review, and chose the Board as its agent for the purpose.
The bankruptcy court normally supervises the liquidation of claims. See Gardner v. New Jersey, 329 U.S. 565, 573. But the rule is not inexorable. A sound discretion may indicate that a particular controversy should be remitted to another tribunal for litigation. See Thompson v. Magnolia Co., 309 U.S. 478, 483. And where the matter in controversy has been entrusted by Congress to an administrative agency, the bankruptcy court normally should stay its hand pending an administrative decision. That was our ruling in Smith v. Hoboken R. Co., 328 U.S. 123, and Thompson v. Texas M. R. Co., 328 U.S. 134, where we directed the reorganization court to await administrative rulings by the Interstate Commerce Commission before adjudicating the controversies before it. Like considerations are relevant here. It is the Board, not the referee in bankruptcy nor the court, that has been entrusted by Congress with authority to determine what measures will remedy the unfair labor practices. We think wise administration therefore demands that the bankruptcy court accommodate itself to the administrative process and refer to the Board the liquidation of the claim, giving the Board a reasonable time for its administrative determination.
In summary, we agree with the Court of Appeals that the claim was provable by the Board and that the computation of the amount of the award was properly referred to the Board. But since we disagree with the ruling *31 on the priority of the claim we reverse the judgment and remand the cause for proceedings in conformity with this opinion.
It is so ordered.
MR. JUSTICE JACKSON, with whom MR. JUSTICE BLACK joins, dissenting.
I think we should affirm the judgment below. I agree that the claim is one which can be proved in bankruptcy by the United States. The same reasoning which enables the Government to assert the claim would seem to enable it to assert the priority.
The claims which the United States asserts herein are something more than merely private indebtedness. The debtor's liability, enforceable only by the Government, is one of the most important sanctions to effectuate the policy of the National Labor Relations Act. That is one, at least, of the reasons why Congress did not see fit to leave prosecution of these usually small claims to scattered and often impecunious individual wage earners in a multiplicity of actions.
I see nothing in the policy of the Bankruptcy Act which precludes these claims, allowed in the Government's right and in its name, from sharing in the Government's general priority. Title 11, § 104 (a) sets up five levels of priority: first is administration expenses; second, wages not to exceed $600 to each claimant which have been earned within three months before commencement of bankruptcy proceedings; third, certain costs and expenses not material here; fourth, taxes legally due and owing by the bankrupt to the United States, or any state or any subdivision thereof; fifth, debts owing to any person, including the United States, who under its laws is entitled to priority.
It can hardly be questioned that Labor Board awards constitute wages or their equivalent, but beneficiaries of *32 these awards rarely can comply with the three-months time limitation for wage priority because of the lag occasioned by Labor Board proceedings to establish the unlawfulness of their discharge by the employer. If they could do so, their claims would doubtless take the second priority and be paid in preference to everything except administration expenses.
The judgment below denies these claims second priority but admits them to the fifth class. Ahead of them, in the fourth class, are all taxes owing to the United States and to any state or subdivision, and this obviously is the priority intended to protect the federal revenues. Only after all revenue requirements are thus satisfied does the judgment below allow these claims to be paid. The Bankruptcy Act in this fifth category certainly contemplates a class of Government claims not arising out of taxation. It does not seem to me inappropriate to consider the relation of the Government to the wronged laborer established by the Labor Relations Act as analogous to the Government's wardship toward Indians, found to warrant invocation of its priority in Bramwell v. United States Fidelity Co., 269 U.S. 483. The slogan "equality of distribution" can have little meaning when we are considering a section of a statute designed to establish inequality by a series of priorities. To protect the bankrupt's estate against inequalities caused by the unlawful preferences attempted by the bankrupt is one thing; to invoke such a "theme" to level out priorities created by statute is another.
While the legislation is not as complete or clear as one would like, supplying the rule for conflicts unanticipated by Congress is a large part of our work and I think the courts below have arrived at a practical solution of this question that accomplishes the purposes both of the Bankruptcy Act and the National Labor Relations Act. I would therefore affirm.
NOTES
[1] " `Creditor' shall include anyone who owns a debt, demand, or claim provable in bankruptcy, and may include his duly authorized agent, attorney, or proxy." 11 U.S. C. § 1 (11).
[2] "Debts of the bankrupt may be proved and allowed against his estate which are founded upon . . . (4) an open account, or a contract express or implied." § 63 (a) (4); 11 U.S. C. § 103 (a) (4). | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/105041/ | 344 U.S. 66 (1952)
UNITED STATES
v.
HENNING ET AL.
No. 10.
Supreme Court of United States.
Argued April 1, 1952.
Reargued October 14, 1952.
Decided November 17, 1952.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT.
*67 Morton Liftin argued the cause for the United States. With him on the brief were Solicitor General Perlman, Assistant Attorney General Baldridge and Samuel D. Slade.
Richard H. Lee argued the cause for Kennedy, Administrator, respondent. With him on the brief was Arthur V. Getchell.
MR. JUSTICE CLARK delivered the opinion of the Court.
Conflicting claims to the proceeds of a policy of National Service Life Insurance frame the controversy before us. Disposition of the cause depends on our interpretation of the National Service Life Insurance Act of 1940, as amended, 38 U.S. C. § 801 et seq., which in pertinent part[1] provides:
§ 602 (g). "The insurance shall be payable only to a widow, widower, child . . ., parent, brother or sister of the insured. The insured shall have the right to designate the beneficiary or beneficiaries of the insurance, but only within the classes herein provided . . . ."
*68 § 601 (f). "The terms `parent', `father', and `mother' include a father, mother, father through adoption, mother through adoption [and] persons who have stood in loco parentis to a member of the military or naval forces at any time prior to entry into active service for a period of not less than one year . . . ."
§ 602 (i). "If no beneficiary is designated by the insured or if the designated beneficiary does not survive the insured, the beneficiary shall be determined in accordance with the order specified in subsection (h) (3) of this section and the insurance shall be payable in equal monthly installments in accordance with subsection (h) . . . . The right of any beneficiary to payment of any installments shall be conditioned upon his or her being alive to receive such payments. No person shall have a vested right to any installment or installments of any such insurance and any installments not paid to a beneficiary during such beneficiary's lifetime shall be paid to the beneficiary or beneficiaries within the permitted class next entitled to priority, as provided in subsection (h) . . . ."
§ 602 (h) (3). "Any installments certain of insurance remaining unpaid at the death of any beneficiary shall be paid in equal monthly installments in an amount equal to the monthly installments paid to the first beneficiary, to the person or persons then in being within the classes hereinafter specified and in the order named, unless designated by the insured in a different order
.....
"(C) if no widow, widower, or child, to the parent or parents of the insured who last bore that relationship, if living, in equal shares; . . . ."
*69 § 602 (j). "No installments of such insurance shall be paid to the heirs or legal representatives as such of the insured or of any beneficiary, and in the event that no person within the permitted class survives to receive the insurance or any part thereof no payment of the unpaid installments shall be made. . . ."
The material facts are not disputed. Eugene C. Henning, a Naval Reservist insured under a $10,000 term policy of National Service Life Insurance which named his father as sole beneficiary,[2] died on July 4, 1945, in his country's service. Otto F. Henning, the father, died five months later, without having received any part of the policy's proceeds. Bessie, his second wife and the insured's stepmother, and Clara Belle, his former wife and the insured's natural mother, survived. Both survivors subsequently filed claims to the proceeds of the serviceman's policy. On June 30, 1949, during the pendency of an interpleader action for a judicial determination of the proper taker, Bessie died, leaving the natural mother as sole surviving claimant. The Government thereupon asserted that Bessie had last borne the parental relationship to the insured; that consequently Clara Belle could not come within the statutory class of devolutionary takers; and that, in the absence of cognizable claims to the proceeds, they escheat to the National Service Life Insurance Fund.
The District Court's judgment, however, divided the proceeds, payable in installments, among three parties.[3] The court read the statute as imposing no bar to the *70 award of matured but unpaid installments to the estates of deceased beneficiaries. It therefore awarded to the father's estate the installments which had matured during his lifetime but remained unpaid. And, finding that Bessie, the stepmother, had stood in loco parentis to the insured for at least one year prior to his entry into active service, it concluded that both she and Clara Belle, the natural mother, were parents who "last bore that relationship" and thus qualified to take the remaining proceeds by devolution under § 602 (h) (3) (C) of the Act. The installments which had matured during the stepmother's lifetime were shared equally between her estate and Clara Belle; installments thereafter maturing were awarded to the latter alone.
The Court of Appeals agreed.[4] Conceding that the literal wording of the statute went "a long way" toward sustaining the Government's opposing contentions, the court, fearful of unfortunate consequences that might flow from strict adherence to the text of the Act, nevertheless ruled that estates of deceased beneficiaries might take. And, noting its disagreement with the Second Circuit's ruling in Baumet v. United States,[5] it further held that one in loco parentis who qualified as a beneficiary under § 602 (h) (3) (C) of the Act did not necessarily exclude from participation in policy proceeds a natural parent of the same sex who also "last bore" the parental relationship to the insured.
We granted certiorari to settle problems important in the administration of the National Service Life Insurance *71 Act and to resolve conflicting statutory interpretations by the Courts of Appeals. 342 U.S. 917.
Congress through war risk insurance legislation has long sought to protect from financial hardship the surviving families of those who had served under the nation's flag. Comprehensive insurance programs enacted in 1917, 1940, and 1951 reflect this consistent legislative concern in times of crisis. Since public funds were to meet a large part of the programs' cost,[6] the statutes closely circumscribed the class of permissible takers to preclude those not the object of congressional concern from draining the treasury when hazards of war service multiplied policy maturities. The War Risk Insurance Act of 1917 enumerated only the serviceman's spouse and immediate blood relatives as permissible beneficiaries of policy proceeds;[7] a beneficiary's interest was extinguished by death.[8] The National Service Life Insurance Act of 1940, again constricting the class of permissible takers,[9] restates the legislative purpose of the prior Act. In the Servicemen's Indemnity Act of 1951 the previous restrictions once more appear, reiterated in a flat proviso: "No payment shall be made to the estate of any deceased person."[10] Accenting these wartime limitations is the liberalizing legislation by which Congress after cessation of hostilities in World Wars I and II placed its insurance programs on more nearly a commercial basis. Amendments *72 to the War Risk Insurance Act in 1919 expanded the permitted beneficiary class to include more distant relatives of the insured, and, significantly, provided that installments payable but unpaid upon a beneficiary's death might go to his estate.[11] This broadening legislation was substantially reenacted in the World War Veterans' Act of 1924.[12] And after World War II, Congress in 1946 once more liberalized the benefits of the National Service Life Insurance Act. As to policies maturing after August 1946 it removed the restrictions on the insured's choice of beneficiary, and in certain instances permitted the payment of installment proceeds to deceased beneficiaries' estates.[13] From this course of legislation an unmistakable pattern of congressional policy emerges: Statutes enacted in time of war crisis narrow the range of beneficiaries; post-war legislation broadens it.[14]
Section 602 of the N. S. L. I. Act of 1940, governing the distribution of the policy proceeds here in controversy, must take meaning from its historical setting. Cf. United *73 States v. Zazove, 334 U.S. 602 (1948). Subsection (i) conditions the right of a beneficiary to the payment of any installments "upon his or her being alive to receive such payments"; it adds that "no person shall have a vested right to any installment . . . and any installments not paid to a beneficiary during such beneficiary's lifetime shall be paid to the beneficiary or beneficiaries within the permitted class next entitled to priority . . . ." And subsection (j), so as to disclaim any possible analogy to prior peacetime legislation which at one time had been construed to confer such rights,[15] emphasizes that "no installments of such insurance shall be paid to the heirs or legal representatives as such of the insured or of any beneficiary." On the contrary, the subsection directs "in the event that no person within the permitted class survives to receive the insurance or any part thereof no payment of the unpaid installments shall be made."
In the face of this clear statutory language we are nevertheless urged to distinguish installments neither accrued nor paid from accrued installments that an intended beneficiary for some reason has not received. Whereas *74 the former concededly may not pass to the estate of a deceased beneficiary, it is argued that the latter may. For to hold otherwise, the argument runs, might result in "amazing consequences"; the government, for example, by simply withholding payments until one beneficiary died might unjustly enrich another in a lower priority, or, if none survived, favor the public purse; moreover, a low-priority beneficiary by litigating a specious claim might profitably suspend payment until the higher-priority takers died.
We reject the conclusion and its premises. The asserted distinction assumes that when Congress in § 602 (i) conditioned payment to beneficiaries on their "being alive to receive such payments" it meant something else; that it exempted, without words or other indication, installments accrued but not yet paid. But to read such language into subsection (i) strips it of significance; if limited in application to unmatured installments the strictures of that subsection would be mere surplusage, forbidding what the priority ladder of § 602 (h) (3) in any event could not logically permit. We cannot so nullify the clear import of subsection (i). In drafting the 1940 statute, Congress must have been fully cognizant of insurance legislation of the prior war. The 1917 War Risk Insurance Act was well understood to prohibit payment of accrued installments to the estates of beneficiaries who did not live to take their intended shares;[16] the very contention made here today was then examined and rejected.[17] No peacetime amendments, as those which in *75 1919 and 1924 specifically altered the deliberate wartime result, can aid the contention presented today.[18] The conclusion is irresistible that when in 1940 the law conditioned payments on the beneficiary's being alive to receive them, Congress said what it meant and meant what it said. Were more needed, the consistent course of administrative practice under the Acts of 1917 and 1940 applied the statutes to bar payments to deceased beneficiaries' estates;[19] that factor, too, must be accorded weight. United States v. Zazove, supra; United States v. Citizens Loan & Trust Co., 316 U.S. 209 (1942); United States v. Madigan, 300 U.S. 500 (1937). We are not unmindful of the fact that unanticipated delay in the payment of policy proceeds may withhold from a beneficiary the funds that Congress intended him to get; seven years and three deaths have not yet brought this litigation to an end. But we cannot apportion the blame for this cruel delay. And we may surely not speculate that the officials entrusted with the administration of the Act would attempt to enrich other beneficiaries or the treasury itself by a sardonic waiting game.
We conclude that in this crisis legislation Congress, fully aware of the sometimes inevitable delays in payment, *76 preferred the occasionally harsh result to a course of action which would permit funds intended for living members of the narrow statutory class of permissible takers to seep down to an enlarged class of sub-beneficiaries created not by the Act itself but by intended beneficiaries' testamentary plans. Courts may not flout so unmistakable a legislative purpose, expressed in so clear a congressional command. United States v. Citizens Loan & Trust Co., supra; Wissner v. Wissner, 338 U.S. 655 (1950). We hold that the award of accrued installments to the estates of deceased beneficiaries cannot stand.
There remains the controversy between the natural mother and the United States. The Government contends that because Bessie, the stepmother, had stood in loco parentis to the insured at the time of his death, she was the maternal parent "who last bore that relationship" within the meaning of § 602 (h) (3) (C); consequently Clara Belle, the natural mother, despite a District Court finding that she, too, "last bore that relationship," was displaced and forever lost any right to take by devolution under the Act. In essence, the argument is that no more than one parent of each sex may contemporaneously meet the test imposed by the Act; the "last" parent takes all, to the exclusion of others. And since the "last" parent is now dead, no one may take.
We cannot agree. While the contention has the merit of simplicity, simplicity cannot supplant statutory interpretation. Section 602 (h) (3) (C), too, has a historical setting. The National Service Life Insurance Act as enacted in 1940 confined the class of devolutionary takers to the spouse and blood relatives of the insured.[20] So written *77 the legislation proved unsatisfactory in practice. As construed, that provision required payment of proceeds to an insured's natural parents though they had abandoned him to be raised and supported wholly by foster parents, the latter being excluded from participation by the Act.[21] Upon recommendation of the Veterans' Administrator, Congress in 1942 amended the Act to foreclose that result. Persons who stood in loco parentis to the insured for at least one year prior to his entry into active military service were included within the Act's definition of "parent." And they qualified as takers by devolution if they "last bore that relationship" to the insured,[22] an essential statutory condition to preclude the parceling out of proceeds among a series of transient hosts and to assure full benefits to those most likely to merit the insured's financial support. The thrust of the amendment thus was directed at the inclusion of worthy foster parents, not the exclusion of natural parents however deserving.
It may well be that ordinarily a foster relationship does not begin until natural parental ties, realistically viewed, are severed; if so, the foster parent bears the parental relationship when the natural parent has ceased to be such in truth and fact. And in that case, the clear intent of the 1942 amendments would demand the exclusion of the natural parent from participation in the proceeds. But since that determination, based on realities, not status, necessarily must depend on the facts of a particular case, it is peculiarly within the competence of others who are closer to the living facts. Here the District Court found that the parental relationship continued *78 until the insured's death, and the Court of Appeals observed that "there is no finding or evidence of any estrangement, to say nothing of abandonment, or even any lack of parental feeling, between [the insured] and his mother, Clara Belle."[23] Unable to freeze into formula the subtle family relations that may constitute a genuine parental bond, we must accept what the courts below deemed a continuing parental relationship between mother and son.
Since we hold that Clara Belle Henning, the insured's natural mother, is a surviving beneficiary entitled to take by devolution under § 602 (h) (3) (C), the Government may of course not invoke the provisions of § 602 (j) to withhold, for the benefit of the National Service Life Insurance Fund, payment of the installments accrued from the date of the insured's death. It equally follows that the method of distribution of installments to Clara Belle, as "the beneficiary to whom payment is first made," must depend on her age at the date of policy maturity, subject to her election of an optional settlement as provided by § 602 (h) (1) and (2) and applicable administrative regulations under the Act.[24]
Reversed.
MR. JUSTICE BURTON, with whom THE CHIEF JUSTICE joins, concurring in part and dissenting in part.
I agree with the opinion and the judgment of the Court insofar as it holds that no installments may be paid to the legal representatives of the estates of the respective deceased beneficiaries. However, I feel obliged to conclude that, within the meaning of the Act, only the natural father and the foster mother of the insured last *79 bore to him, at the time of his death, the relationship of parents. That last relationship was then to the exclusion of everyone, even to the exclusion of his natural mother. Consequently, upon the death of those two persons who last bore the relationship of parent to the insured, there remained no person entitled under the terms of the Act to receive any of the proceeds as a contingent beneficiary. Accordingly, the proceeds should be withheld for the benefit of the National Service Life Insurance Fund.
MR. JUSTICE JACKSON, whom MR. JUSTICE FRANKFURTER joins, dissenting.
Perhaps a halfhearted dissent, like an extemporaneous speech, is only worth the paper it is written upon. We do no more than point out that we would prefer a more benign construction of these complex statutes which would be equally reasonable.
The problem is of that recurring sort well described by Judge Learned Hand as follows:
"The issue involves the baffling question which comes up so often in the interpretation of all kinds of writings; how far is it proper to read the words out of their literal meaning in order to realize their overriding purpose? It is idle to add to the acres of paper and streams of ink that have been devoted to the discussion. When we ask what Congress `intended,' usually there can be no answer, if what we mean is what any person or group of persons actually had in mind. Flinch as we may, what we do, and must do, is to project ourselves, as best we can, into the position of those who uttered the words, and to impute to them how they would have dealt with the concrete occasion. He who supposes that he can be certain of the result, is the least fitted for the attempt." United States v. Klinger, 199 F.2d 645, 648.
*80 The literal language of Congress in 38 U.S. C. § 802 (i) we would read with emphasis as follows: "The right of any beneficiary to payment of any installments shall be conditioned upon his or her being alive to receive such payments." This, on our reading, says that a beneficiary's claim to an installment is matured and his right is perfected when the installment becomes due and he is alive to receive it whether or not he then actually reduces it to possession. Under the Court's construction, no "right" to an installment comes into existence until the claimant has actually received payment. On that event, we would think he would cease to have the "right." It is not clear what the Court would do about the case where a check was sent to pay the claim and the claimant died while it was in the mails or after he had received the check but before it was actually presented for payment. But to us this language means that installments accrue to a beneficiary when they fall due during his lifetime and thereupon become his of right.
We do not read § 802 (j) as taking away what § 802 (i) grants. It may be read with this emphasis: "No installments of such insurance shall be paid to the heirs or legal representatives as such of the insured or of any beneficiary. . . ." Just what "as such" adds or subtracts may be debated, but to us the phrase, if it is to have any significance in this context, means that payments cannot accrue to an administrator or executor, because a personal representative as such cannot become a beneficiary. But it does not mean that the personal representative cannot collect installments which had become the "right" of decedent during his lifetime.
This construction would avoid what the Court admits is a harsh and capricious result. It seems strange, in dealing with a bereaved beneficiary, if our Government makes a promise to the ear to be broken to the hope. Under the Court's view, though the beneficiary is alive *81 to receive the payment and therefore has the statutory "right" to it, any event that delays its actual payment may cancel his "right." By an adverse claim, however fictitious, or a litigation, however frivolous, a junior beneficiary may delay payments and gamble on winning them for himself through death of the senior beneficiary. Some period of waiting is inevitable in the settlement of claims in any event, and we all know the tendency of claim papers to shuffle back and forth between Washington desks while time, which means little to the administrative staff, means everything to the claimant. We would not put upon beneficiaries all risks caused by delay and thus make their statutory rights as contingent as lottery tickets. Beneficiaries of this class are often dependents, left in urgent need by death of the insured. When red tape or litigiousness delays the promised income, should not the beneficiary while waiting to hear from Washington have a firm right to accrued installments on which he or his estate could depend? The reasoning that would deny the asset to the estate may also deny the needy beneficiary credit.
We do not think that the Court's admittedly harsh result is the fairest permissible interpretation of this statute. We would allow the estate of a beneficiary to recover payments that fall due while the beneficiary is alive to receive them. On this point alone do we dissent.
NOTES
[1] In 1946, the Act was amended prospectively in several material respects. 60 Stat. 781 et seq. Since the policy before us matured in 1945, the 1946 amendments do not govern the distribution of the proceeds here in issue.
[2] The insured at one time had designated his wife as beneficiary and his father as contingent beneficiary. Subsequently he properly changed this designation and named his father as sole beneficiary. The marriage was dissolved prior to the insured's death. The earlier designation is thus not material here.
[3] 93 F. Supp. 380 (D. Mass. 1950).
[4] 191 F.2d 588 (1st Cir. 1951). The Court of Appeals reversed and remanded for proper computation of the installments which it found due the various parties. In view of our disposition of the case, we are not now concerned with that part of its holding.
[5] 191 F.2d 194 (1951), cert. granted, 343 U.S. 925, decided this day, post, p. 82.
[6] E. g., § 403, W. R. I. A. of 1917, 40 Stat. 410; § 602 et seq., N. S. L. I. Act of 1940, 38 U.S. C. § 802 et seq., see United States v. Zazove, 334 U.S. 602, 616 (1948); Servicemen's Indemnity Act of 1951, 38 U.S. C. (Supp. V) § 851 et seq.; S. Rep. No. 91, 82d Cong., 1st Sess.; H. R. Rep. No. 6, 82d Cong., 1st Sess.
[7] § 402; 40 Stat. 409.
[8] Cassarello v. United States, 271 F. 486; Salzer v. United States, 300 F. 764.
[9] § 602 (g); 38 U.S. C. § 802 (g).
[10] § 3; 38 U.S. C. (Supp. V) § 852.
[11] §§ 4, 13, 19; 41 Stat. 371, 375, 376.
[12] §§ 3, 26; 43 Stat. 607, 614; 38 U.S. C. §§ 424, 451.
[13] §§ 4, 9; 60 Stat. 782, 785; 38 U.S. C. §§ 802 (g), (u).
[14] As to the 1946 amendments, see testimony of Mr. Harold W. Breining, Assistant Administrator for Insurance, Veterans' Administration, Hearings before the Subcommittee on Insurance of the Committee on World War Veterans' Legislation, House of Representatives, 79th Cong., 2d Sess., on H. R. 5772 and H. R. 5773 (p. 1):
"The fundamental reasons for liberalization are that during the war the bulk of losses all came from the National Treasury. Through this method the Government assumed the losses due to the extra hazards of military and naval services. Since the Government during the war bore the major part of the losses it was not felt that the Government would want to pay, indirectly through this channel, large sums of money to persons who might be beneficiaries only because of some speculation, or because the insured might wish to give it to them as distinguished from persons who were likely to be dependent or to whom the insured might owe some semblance of a moral obligation. These restrictions originally were placed in the law with the clear intent that they would be eliminated when the period of the emergency was over."
For congressional attitudes in enacting the W. R. I. A. of 1917, see, e. g., 55 Cong. Rec. 6761, 7690, and H. R. Rep. No. 130, 65th Cong., 1st Sess., Pt. 3, p. 5. The legislative history of the 1940 Act contains little expression of congressional intent. The Act was presented while a controversial revenue measure was under consideration. The Committee reports accompanying the revenue bill of which the N. S. L. I. Act became part contain no reference to the insurance legislation. A Conference Committee Report devoted less than a page to the Insurance Act. See H. R. Rep. No. 2894, S. Rep. No. 2114, H. R. Rep. No. 3002, all of the 76th Cong., 3d Sess.
[15] McCullough v. Smith, 293 U.S. 228 (1934); cf. United States v. Citizens Loan & Trust Co., 316 U.S. 209 (1942), both cases involving the 1925 amendments to the World War Veterans' Act. 43 Stat. 1310, 38 U.S. C. § 514.
[16] Treasury Dept., Bureau of War Risk Insurance, Division of Military and Naval Insurance, Bulletin No. 1, p. 4 (1917); Cassarello v. United States, 271 F. 486 (1919).
[17] 24 Comp. Dec. 733 (1918). Cf. American National Bank & Trust Co. v. United States, 77 U. S. App. D. C. 243, 134 F.2d 674 (1943); United States v. Lee, 101 F.2d 472 (1939), which interpreted 38 U.S. C. § 516, providing for reinstatement of lapsed World War I policies, as forbidding the payment of installments to the estates of deceased beneficiaries. These holdings turned on the section's enumeration of a restricted class of permissible takers; estates of deceased persons were held not to fall within that class. The pertinent terms of that enactment are almost identical with portions of §§ 602 (g) and (h) of the National Service Life Insurance Act we must construe today.
[18] Since this policy matured in 1945, we are not here concerned with whatever effects the 1946 amendments to the National Service Life Insurance Act might have on this or similar cases.
[19] See 24 Comp. Dec. 733 (1918); Bulletin, note 16, supra; Communication to the Solicitor General of the United States from the Solicitor, Veterans' Administration, dated March 12, 1952, reprinted as Appendix B, Brief for the United States.
[20] §§ 602 (g) and (h) (3) (C), 54 Stat. 1010. The insured, however, was permitted to designate persons in loco parentis as beneficiaries.
[21] S. Rep. No. 1430, 77th Cong., 2d Sess., p. 2; H. R. Rep. No. 2312, 77th Cong., 2d Sess., p. 4. Cf. S. Rep. No. 91, 82d Cong., 1st Sess., p. 12; H. R. Rep. No. 6, 82d Cong., 1st Sess., p. 14.
[22] §§ 7 to 9, 56 Stat. 659; 38 U.S. C. §§ 801 (f), (g), and (h) (3) (C). Cf. § 3 of the Servicemen's Indemnity Act of 1951, 38 U.S. C. (Supp. V) § 852.
[23] 191 F.2d, at 593.
[24] 38 U.S. C. § 802 (h) (1) and (2); 38 CFR, 1944 Supp., § 10.3475 et seq., applicable to this policy which matured in 1945. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/110521/ | 452 U.S. 412 (1981)
JONES, WARDEN, STONE MOUNTAIN CORRECTIONAL INSTITUTION
v.
HELMS.
No. 80-850.
Supreme Court of United States.
Argued April 28, 1981.
Decided June 15, 1981.
APPEAL FROM THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT.
*413 Carol Atha Cosgrove, Assistant Attorney General of Georgia, argued the cause for appellant. With her on the briefs were Arthur K. Bolton, Attorney General, Robert S. Stubbs II, Executive Assistant Attorney General, Don A. Langham, First Assistant Attorney General, John C. Walden and Michael J. Bowers, Senior Assistant Attorneys General, and Nicholas G. Dumich, Assistant Attorney General.
James C. Bonner, Jr., argued the cause for the appellee. With him on the brief was Robert D. Peckham.
JUSTICE STEVENS delivered the opinion of the Court.
In Georgia, a parent who willfully and voluntarily abandons his or her dependent child is guilty of a misdemeanor. Those parents who commit that offense within Georgia and thereafter leave the State are guilty of a felony. The question presented by this appeal is whether this statutory classification violates the Equal Protection Clause of the Fourteenth Amendment.[1]
*414 As the case comes to us, the critical facts are not in dispute. In 1976, appellee pleaded guilty in Georgia to the felony of abandoning his child and leaving the State.[2] By that plea, appellee formally admitted that he had willfully and voluntarily abandoned his daughter, leaving her in a dependent condition, before he left the State of Georgia.[3] He received a 3-year prison sentence which he began to serve in 1978.[4]
*415 After exhausting his state remedies,[5] appellee filed a petition for a writ of habeas corpus in the United States District Court for the Middle District of Georgia. He claimed that § 74-9902, by providing for enhanced punishment of those parents who left Georgia after abandoning their children, violated the Equal Protection Clause and the Privileges and Immunities Clause of Art. IV, § 2. See App. 22-23. The District Court denied relief, see id., at 28-29, but the United States Court of Appeals for the Fifth Circuit reversed. See 621 F.2d 211 (1980).[6]
The Court of Appeals held that the statute should be subjected to strict scrutiny because it infringed the fundamental right to travel.[7] Applying strict-scrutiny analysis, the court *416 concluded that the state interests served by the statute, although legitimate, could be adequately protected by less drastic means; the statute therefore was invalid.[8] In the judgment of the Court of Appeals, the State's interest in extraditing offending parents, as well as its interest in requiring parents to support their children, was adequately served by the remedies provided in the Uniform Reciprocal Enforcement of Support Act (URESA), a version of which had been enacted in Georgia. See Ga. Code § 99-901a et seq. (1978 and Supp. 1980).[9] Moreover, because the Court of Appeals understood the statute not to require any proof of criminal intent, it considered this feature a further indication of the statute's unconstitutional overbreadth.[10]
*417 The Warden appealed, and we noted probable jurisdiction. 449 U.S. 1122. In an opinion issued several months prior to the Court of Appeals' decision, the Georgia Supreme Court had upheld the felony provision of § 74-9902 against an almost identical constitutional challenge. See Garren v. State, 245 Ga. 323, 264 S.E.2d 876 (1980). We now resolve this conflict between the Georgia Supreme Court and the Court of Appeals by reversing the judgment of the Court of Appeals.
I
The Court of Appeals' conclusion that § 74-9902 is constitutionally invalid rests entirely on the premise that the statute impairs the fundamental right of every Georgia resident to travel from Georgia to another State.[11] It is, of *418 course, well settled that the right of a United States citizen to travel from one State to another and to take up residence in the State of his choice is protected by the Federal Constitution. Although the textual source of this right has been the subject of debate, its fundamental nature has consistently been recognized by this Court. See Shapiro v. Thompson, 394 U.S. 618, 629-631; United States v. Guest, 383 U.S. 745, 757-759. The right to travel has been described as a privilege of national citizenship,[12] and as an aspect of liberty that is protected by the Due Process Clauses of the Fifth *419 and Fourteenth Amendments.[13] Whatever its source, a State may neither tax nor penalize a citizen for exercising his right to leave one State and enter another.
Despite the fundamental nature of this right, there nonetheless are situations in which a State may prevent a citizen from leaving. Most obvious is the case in which a person has been convicted of a crime within a State. He may be detained within that State, and returned to it if he is found in another State. Indeed, even before trial or conviction, probable cause may justify an arrest and subsequent temporary detention. Similarly, a person who commits a crime in a State and leaves the State before arrest or conviction may be extradited following "a summary and mandatory executive proceeding."[14] Manifestly, a person who has committed an offense against the laws of Georgia may be stopped at its borders and temporarily deprived of his freedom to travel elsewhere within or without the State.[15]
*420 In this case, appellee's guilty plea was an acknowledgment that he had committed a misdemeanor before he initially left Georgia for Alabama. Upon conviction of that misdemeanor, he was subject to imprisonment for a period of up to one year.[16] Therefore, although he was not convicted of abandonment until after his first trip to Alabama, appellee's own misconduct had qualified his right to travel interstate before he sought to exercise that right. We are aware of nothing in our prior cases or in the language of the Federal Constitution that suggests that a person who has committed an offense punishable by imprisonment has an unqualified federal right to leave the jurisdiction prior to arrest or conviction.
This case differs in a significant respect from prior cases involving the validity of state enactments that were said to penalize the exercise of the constitutional right to travel. In the first decision squarely to recognize the right to travel, Crandall v. Nevada, 6 Wall. 35, the Court held that a State may not impose a tax on residents who desire to leave the State, nor on nonresidents merely passing through. In Edwards v. California, 314 U.S. 160, the Court held that a State may not make it a crime to bring a nonresident indigent person into the State. In more recent decisions, the Court has examined state statutes imposing durational residence requirements that deprived new residents of rights or benefits available to old residents, to determine whether such requirements penalized citizens for exercising their constitutional *421 right to travel.[17] In all of those cases, the statute at issue imposed a burden on the exercise of the right to travel by citizens whose right to travel had not been qualified in any way. In contrast, in this case, appellee's criminal conduct within the State of Georgia necessarily qualified his right thereafter freely to travel interstate. Appellee's claim is therefore on a different footing from the claims at issue in Crandall, Edwards, and the durational residence requirement cases.[18]
*422 These precedents are inapposite for another reason as well. The question presented by this case is not whether Georgia can justify disparate treatment of residents and nonresidents,[19] or of new and old residents.[20] Rather, the question is whether the State may enhance the misdemeanor of child abandonment to a felony if a resident offender leaves the State after committing the offense. Presumably the commission of the misdemeanor of child abandonment would not justify a permanent restriction on the offender's freedom to leave the jurisdiction. But a restriction that is rationally related to the offense itselfeither to the procedure for ascertaining guilt or innocence, or to the imposition of a proper punishment or remedymust be within the State's power. Thus, although a simple penalty for leaving a State is plainly impermissible,[21] if departure aggravates the consequences of conduct that is otherwise punishable, the State may treat the *423 entire sequence of events, from the initial offense to departure from the State, as more serious than its separate components.
The Georgia Supreme Court has held that § 74-9902's enhancement provision serves the "legislative purpose of causing parents to support their children since the General Assembly could have concluded that the parental support obligation is more difficult to enforce if the parent charged with child abandonment leaves the state." Garren v. State, 245 Ga., at 325, 264 S.E.2d, at 878. There can be no question about the legitimacy of the purpose to cause parents to support their children.[22] And appellee has not provided us with any basis for questioning the validity of the legislative judgment that this purpose is served by making abandonment within the State followed by departure a more serious offense than mere abandonment within the State. We therefore are unwilling to accept the suggestion that this enhancement is an impermissible infringement of appellee's constitutional right to travel. Accordingly, we reject the premise on which the Court of Appeals' holding rests.
II
Having rejected the claim that the Georgia statute impermissibly infringes on the constitutionally protected right to travel, we find no support for the conclusion that the statute violates the Equal Protection Clause. That Clause "announces a fundamental principle: the State must govern impartially. General rules that apply evenhandedly to all persons within the jurisdiction unquestionably comply with this principle." New York City Transit Authority v. Beazer, 440 U.S. 568, 587.
The Equal Protection Clause provides a basis for challenging legislative classifications that treat one group of persons *424 as inferior or superior to others,[23] and for contending that general rules are being applied in an arbitrary or discriminatory way.[24] The portion of the Georgia statute at issue in this case applies equally to all parents residing in Georgia; nothing in appellee's argument or in the record suggests that the statute has been enforced against appellee any differently than it would be enforced against anyone else who engaged in the same conduct. By its terms, it does not subject "one caste of persons to a code not applicable to another," see n. 23, supra, nor has appellee shown that it has been arbitrarily or discriminatorily applied. Thus, neither on the face of § 74-9902, nor in its application to appellee, can we detect any violation of the constitutional requirement that the State's administration of its laws must be impartial and evenhanded. New York City Transit Authority, supra.
The characterization by the Court of Appeals and appellee of the Georgia statute as "overbroad" does not affect our conclusion. Appellee contends, and the Court of Appeals found, that Georgia has available less restrictive means to serve the legitimate purposes furthered by the felony provision *425 of § 74-9902. In particular, our attention is directed to the URESA, which is said to protect the State's interests in fiscal integrity, support of minor children, and extradition of abandoning parents.[25] The appellant argues at length that the URESA does not provide an adequate means of enforcing the support obligations of parents who abandon their children and leave the jurisdiction. Although, the appellant's argument is persuasive,[26] for purposes of deciding this case we need neither accept nor reject it. The Court of Appeals deemed the remedies available under the URESA significant because a legislative program that infringes upon fundamental rights in order to serve legitimate state ends must be the least restrictive means for achieving those ends.[27] However, because we have concluded that § 74-9902 does not infringe upon appellee's fundamental rights, this reasoning is inapplicable. In the context of this case, the State need not employ *426 the least restrictive, or even the most effective or wisest, means to achieve its legitimate ends.
Similarly, we need neither agree nor disagree with appellee's argument that the statute is unnecessarily severe because it does not require that the act of leaving the State as well as the act of abandonmentbe motivated by a wrongful intent.[28] Because of this feature, the statute may well be unnecessarily broad. This is a matter, however, that relates to the wisdom of the legislation. It raises no question with respect to the uniform and impartial character of the State's law. It therefore does not implicate the fundamental principle embodied in the Equal Protection Clause of the Fourteenth Amendment.
Because we conclude that § 74-9902 did not penalize the exercise of the constitutional right to travel and did not deny appellee the equal protection of the laws, the judgment of the Court of Appeals is reversed.
So ordered.
JUSTICE WHITE, concurring.
In Shapiro v. Thompson, 394 U.S. 618 (1969), the Court held that restricting welfare benefits to those who had resided in a State for at least one year penalized the exercise of the constitutional right to travel from State to State and that because it did so, the discrimination against newly arrived residents had to be justified by a compelling state interest to avoid violating the Equal Protection Clause. Such an interest was not found. It seemed to me at the time, and it seems to me now, that the same result would have obtained in that case without implicating the Equal Protection Clause at all, given the Court's view of the relationship between the restriction on travel and the State's justifying interests. As *427 JUSTICE STEWART said in concurrence, any purpose "offered in support of a law that so clearly impinges upon the constitutional right of interstate travel must be shown to reflect a compelling governmental interest." Id., at 643-644. In reaching its conclusion, the Court could as well have said that the proffered state interests did not justify the deterrent effect on the right to travel. Had it found those interests sufficient to warrant the residency requirement, however, the equal protection argument would also have been without force because the reason for insisting upon more than a rational basis for the requirement would have disappeared.
As I understand it, this is essentially the approach followed by the Court today: it first finds that whatever restriction on interstate travel is imposed by the challenged Georgia provision, the State's interest in enforcing its child support laws is sufficient to justify the restriction. The opinion then finds that the equal protection claim is without substance because there is at least a rational basis for the State's classification.
I join the Court's opinion and judgment.
JUSTICE BLACKMUN, concurring in the judgment.
No one disputes that the State of Georgia can designate the crime of willful child abandonment a felony. It instead has chosen to make the crime a misdemeanor if confined within state boundaries, but a felony once abandonment is accompanied by departure from the State. Thus, in effect, the State requires an abandoning and nonsupporting parent to remain in Georgia if he or she wishes to avoid more serious criminal penalties. This burden on interstate travel applies even if the parent has no criminal intent when crossing the state line.
Given the Georgia statutory scheme, § 74-9902 (a) clearly penalizes appellee's exercise of his constitutional right to travel. In my view, however, that penalty is justified by the State's special interest in law enforcement in this context. The challenged criminal statute is concerned primarily with *428 restitution rather than punishment, and the core criminal conduct, willful abandonment and continuing nonsupport, is markedly more difficult to redress once the offending parent leaves the jurisdiction. A restriction that reasonably discourages departure may therefore be justified as tailored to further the precise remedial objective of the criminal law. Significantly, however, the objective advanced here is not identical to the more general goal of improving the administration of criminal justice. The Court perhaps has this distinction in mind when it concludes, ante, at 422, that where departure "aggravates the consequences of conduct that is otherwise punishable," it may merit enhanced punishment. I doubt that a State constitutionally may impose greater penalties for all crimes simply because the accused leaves the jurisdiction. To hold otherwise ignores the availability of summary interstate transfer procedures under the Extradition Clause, and chills unacceptably the travel rights of the presumptively innocent citizen.
For me, it also is noteworthy that appellee pleaded guilty to the crime of willful abandonment and subsequent departure from the State. The record gives no indication that appellee was anything but aware that his crime would become more serious once he left Georgia. Thus, the Court today need not decide the constitutionality of this statute as applied to a person of ordinary intelligence who had no knowledge, or reason to know, that the protected act of interstate travel would convert him from a misdemeanant into a felon. Cf. Lambert v. California, 355 U.S. 225 (1957).
I concur in the judgment.
NOTES
[1] The Fourteenth Amendment provides, in part:
"No State shall . . . deny to any person within its jurisdiction the equal protection of the laws."
[2] Appellee pleaded guilty to a charge that he had violated Ga. Code § 74-9902 (Supp. 1980), the statute at issue in this case. Section 74-9902 (a) provides, in part:
"If any father or mother shall wilfully and voluntarily abandon his or her child, either legitimate or illegitimate, leaving it in a dependent condition, he or she, as the case may be, shall be guilty of a misdemeanor: Provided, however, if any father or mother shall wilfully and voluntarily abandon his or her child, either legitimate or illegitimate, leaving it in a dependent condition, and shall leave this State, or if any father or mother shall wilfully and voluntarily abandon his or her child, either legitimate or illegitimate, leaving it in a dependent condition, after leaving this State, he or she, as the case may be, shall be guilty of a felony. . . ."
[3] Appellee previously had separated from his wife and had been ordered to pay to her $150 a month for the support of their minor daughter. It was stipulated that without making any such payments, appellee, "who by then had lost his property in Georgia, left the State and moved back to his native State, Alabama." App. 16. Appellee went to Alabama to pursue certain vocational training opportunities not available to him in Georgia. He did not make child support payments while in Alabama. Appellee remained in Alabama until February 1976 when, while visiting his daughter in Georgia, he was arrested for his continuous failure to pay child support. Id., at 16-17. Shortly thereafter, appellee was formally charged by a Georgia grand jury with a felony violation of § 74-9902. App. 3-4.
[4] Initially, appellee received a 3-year suspended sentence conditioned upon his paying $200 per month as support for his child during her minority. Id., at 8. He again left the State without making any such payments, first residing in Alabama and thereafter in Florida. In 1977, his estranged wife was murdered, and appellee gained custody of his daughter in Florida for a brief period of time. Ultimately, appellee moved back to Georgia, and was rearrested for his failure to pay child support. Id., at 17-19. After a hearing, an order was entered enforcing his suspended sentence of imprisonment for a period of three years. Id., at 10.
[5] Appellee took no direct appeal from his initial felony conviction. However, in November 1978, after his suspended sentence had been revoked, he sought a writ of habeas corpus in the De Kalb Superior Court. Appellee claimed that the statute under which he had been convicted and sentenced violated both the Equal Protection Clause of the Fourteenth Amendment and the Privileges and Immunities Clause of Art. IV, § 2, of the United States Constitution because it authorized enhanced punishment based solely upon the exercise of the constitutional right to travel interstate and to reside outside the State of Georgia. After an evidentiary hearing, the state habeas court denied relief and ordered appellee remanded to custody. App. 11-15. The Supreme Court of Georgia denied appellee's application for a certificate of probable cause to appeal. Id., at 20.
[6] During the pendency of his appeal from the District Court's order, appellee was released from custody. As the Court of Appeals noted, 621 F.2d, at 212, n. 2, appellee's release did not moot his claim. See Carafas v. LaVallee, 391 U.S. 234, 237-240.
[7] The Court of Appeals analyzed the statutory classification, as follows: "The statute thus creates two classes of crimes, the first a misdemeanor for child abandonment within the State, the second a felony for leaving the State after abandonment or abandonment after leaving the State. Those outside Georgia, merely by their presence outside the State, are exposed to risk of a felony conviction while Georgia residents are exposed only to risk of a misdemeanor conviction for the same actions. We find the fundamental right to travel is infringed by this classification system." 621 F.2d, at 212 (footnote omitted).
[8] The Court of Appeals concluded that the statutory discrimination was not justified by a compelling state interest:
"We therefore find no sufficiently compelling state interest here which permits distinguishing between nonsupporting parents within or without the State of Georgia. There is no question that the statute violates equal protection. Further, even where a governmental purpose is legitimate, as here, the `purpose cannot be pursued by means that broadly stifle fundamental personal liberties when the end can be more narrowly achieved.'" Id., at 213 (footnote omitted).
[9] According to the Court of Appeals, the URESA adequately served the state interest § 74-9902 was designed to further:
"Georgia argues that the compelling state interests here are (1) the greater ease in extraditing persons accused of felonies than those accused of misdemeanors and (2) the protection of the State's fiscal integrity by the resulting enforcement of required parental child support. These arguments are unpersuasive since Georgia has in place, through its adoption of the Uniform Reciprocal Enforcement of Support Act (URESA), Ga. Code Ann. § 99-9A, et seq., an alternative means of enforcing child support obligations. Fiscal integrity of the State, support of minor children, and extradition of the nonpaying parent are all protected by this Act." 621 F.2d, at 212-213 (footnotes omitted).
[10] As the Court of Appeals read § 74-9902, a felony conviction could be secured without any showing by the State that the abandoning parent had acted with criminal intent:
"The failure of the statute to require criminal intent as an element necessary for conviction is further indication of its overbreadth. Under the provision a person leaving the State fully intending to support his or her children, but unable to do so, commits a felony. A series of noncriminal acts can thus become a crime under the statute, subjecting the nonresident to extradition and felony conviction." 621 F.2d, at 213 (footnote omitted).
Although the Court of Appeals' understanding of the statute was correct insofar as its comments concerned the mental state of the parent at the time of his or her departure from the State, the court appears to have overlooked the statutory requirement that the offending parent have "wilfully and voluntarily" abandoned his or her child. See n. 2, supra. As appellant points out, under Georgia law both desertioni. e., the willful forsaking and desertion of the duties of parenthoodand dependency i. e., leaving the child without necessariesare elements of the offense of child abandonment under § 74-9902. See Waites v. State, 138 Ga. App. 513, 514, 226 S.E.2d 621, 622 (1976). Because the State must establish that the desertion was willful, the Court of Appeals erred in suggesting that "[a] series of noncriminal acts can thus become a crime under the statute."
[11] It should be noted that this case involves only an abandonment by a resident parent within the State of Georgia, followed by the abandoning parent's departure from the State. Section 74-9902 also purports to define as a felony an abandonment by a parent who is not a resident of Georgia. See n. 2, supra. Although the Court of Appeals appears to have considered this aspect of the statute of some significance, see 621 F.2d, at 212, and appellee emphasizes it in his argument here, we express no opinion on the validity of such an application of § 74-9902. See In re King, 3 Cal. 3d 226, 474 P.2d 983 (1970).
[12] In Edwards v. California, 314 U.S. 160, the Court held that the Commerce Clause required the invalidation of state statutes designed to restrict interstate migration. Justice Douglas, joined by Justice Black and Justice Murphy, agreed with the Court's judgment, but preferred to rely upon the Privileges and Immunities Clause of the Fourteenth Amendment as the source of the right to travel:
"The right to move freely from State to State is an incident of national citizenship protected by the privileges and immunities clause of the Fourteenth Amendment against state interference. Mr. Justice Moody in Twining v. New Jersey, 211 U.S. 78, 97, stated, `Privileges and immunities of citizens of the United States . . . are only such as arise out of the nature and essential character of the National Government, or are specifically granted or secured to all citizens or persons by the Constitution of the United States.' And he went on to state that one of those rights of national citizenship was `the right to pass freely from State to State.' Id., at 97." Id., at 178 (Douglas, J., concurring) (emphasis and ellipsis in original).
Justice Jackson was of essentially the same view. See id., at 182-184 (concurring opinion).
It also should be noted that earlier decisions, beginning with Corfield v. Coryell, 6 F. Cas. 546 (No. 3,230) (CCED Pa. 1825) (Washington, J., Circuit Justice), suggested that the right to travel was a privilege and immunity of national citizenship protected by the Privileges and Immunities Clause of Art. IV. See United States v. Guest, 383 U.S. 745, 764-767 (opinion of Harlan, J.). In fact, appellee relied upon Art. IV in both his state and federal habeas corpus petitions. See n. 5, supra; supra, at 415.
[13] At the beginning of this century, Chief Justice Fuller, in dictum, identified the Fourteenth Amendment as a source of the right to travel:
"Undoubtedly the right of locomotion, the right to remove from one place to another according to inclination, is an attribute of personal liberty, and the right, ordinarily, of free transit from or through the territory of any State is a right secured by the Fourteenth Amendment and by other provisions of the Constitution." Williams v. Fears, 179 U.S. 270, 274.
In his dissenting opinion in Shapiro v. Thompson, 394 U.S. 618, 671, Justice Harlan concluded that "the right to travel interstate is a `fundamental' right which, for present purposes, should be regarded as having its source in the Due Process Clause of the Fifth Amendment." See also United States v. Guest, 383 U. S., at 757-759; id., at 769-770 (opinion of Harlan, J.).
[14] Michigan v. Doran, 439 U.S. 282, 288.
[15] In his concurring opinion in Edwards v. California, supra, Justice Jackson explained this limitation on the right to travel:
"The right of the citizen to migrate from state to state which, I agree with Mr. Justice Douglas, is shown by our precedents to be one of national citizenship, is not, however, an unlimited one. In addition to being subject to all constitutional limitations imposed by the federal government, such citizen is subject to some control by state governments. He may not, if a fugitive from justice, claim freedom to migrate unmolested, nor may he endanger others by carrying contagion about. These causes, and perhaps other that do not occur to me now, warrant any public authority in stopping a man where it finds him and arresting his progress across a state line quite as much as from place to place within the state." 314 U.S., at 184.
[16] See Ga. Code § 27-2506 (1978).
[17] In Dunn v. Blumstein, 405 U.S. 330, 334, we explained the problem presented by durational residence requirements:
"Durational residence laws penalize those persons who have traveled from one place to another to establish a new residence during the qualifying period. Such laws divide residents into two classes, old residents and new residents, and discriminate against the latter . . . ."
We have invalidated durational residence requirements that operated to deprive new residents of the right to vote, Dunn, supra, and of welfare and medical care benefits. See Shapiro v. Thompson, supra; Memorial Hospital v. Maricopa County, 415 U.S. 250. However, even though durational residence requirements necessarily impinge to some extent on the right to travel, they are not automatically invalid. Memorial Hospital, supra, at 256. See, e. g., Sosna v. Iowa, 419 U.S. 393; cf. Vlandis v. Kline, 412 U.S. 441, 452-453.
[18] In its decision sustaining the validity of § 74-9902, the Georgia Supreme Court recognized this distinction:
"There is an entirely obvious difference, on the one hand, between an attempt by a `receiving state' to preclude or discourage inward migration from `sending states' of persons deemed by the `receiving state' to be `undesirables,' `non-contributors' or `economically burdensome persons,' and efforts, as in the present case, by a `sending state' to bring persons accused of crimes back from `receiving states' to face criminal trial and punishment in the `sending state.' Persons, including indigents and other migrants, have a right of free travel. . . . On the other hand, persons charged with the commission of crimes shall be delivered up to the state having jurisdiction of the crime. . . . A person charged in Georgia with commission of a crime who has left Georgia and entered another state cannot be said to have a constitutionally protected right of free travel in interstate commerce that can be asserted to bar prosecution for the Georgia offense." Garren v. State, 245 Ga. 323, 324-325, 264 S.E.2d 876, 877-878 (1980) (citations omitted).
The California Supreme Court recognized the same distinction in an opinion upholding a statute that tolled the statute of limitations for criminal offenses during the time the defendant was outside the State: "[T]here is clearly a distinction between one who, like defendant, leaves the state after committing a crime, resulting in the tolling of the statute of limitations during his absence, and one who has committed no crime but is deprived of a government benefit merely because he exercises his right to travel to another state. In the former circumstance, the state has an interest in assuring that the defendant is available locally not only to enhance the possibility of detection but also to avoid the burdens of extradition proceedings, should he be charged, his whereabouts become known, and he refuses to return voluntarily." Scherling v. Superior Court of Santa Clara County, 22 Cal. 3d 493, 501, 585 P.2d 219, 223-224 (1978).
[19] See n. 11, supra.
[20] The latter variety of disparate treatment was primarily at issue in cases such as Shapiro v. Thompson, Dunn v. Blumstein, and Memorial Hospital v. Maricopa County, supra.
[21] Cf. Crandall v. Nevada, 6 Wall. 35; Edwards v. California, 314 U.S. 160.
[22] Indeed, the Court of Appeals and appellee both acknowledged the legitimacy of the statute's purposes. See 621 F.2d, at 213; Brief for Appellee 13-15.
[23] An effective expression of this point was made in the Senate debate preceding the adoption of the Fourteenth Amendment. Senator Howard stated:
"This abolishes all class legislation in the States and does away with the injustice of subjecting one caste of persons to a code not applicable to another.
.....
It establishes equality before the law, and it gives to the humblest, the poorest, the most despised of the race the same rights and the same protection before the law as it gives to the most powerful, the most wealthy, or the most haughty. That, sir, is republican government, as I understand it, and the only one which can claim the praise of a just Government." Cong. Globe, 39th Cong., 1st Sess., 2766 (1866).
Most frequently, claims of denial of equal protection of the laws are asserted by the members of a class of persons easily defined by a characteristic such as race, sex, alienage, illegitimacy, or religion.
[24] See, e. g., Yick Wo v. Hopkins, 118 U.S. 356.
[25] See n. 9, supra. Appellee also suggests that making all child abandonments felonies would serve Georgia's legitimate interests in a "less restrictive" fashion than § 74-9902. It is true that such a change would preclude appellee's claim that the statute is discriminatory, but it is not clear that such a statute would be less restrictive.
[26] A number of commentators have identified the same weaknesses in the enforcement mechanism established in the URESA as the appellant cites in his argument in this case. See, e. g., Note, Interstate Enforcement of Support Obligations Through Long Arm Statutes and URESA, 18 J. Fam. Law 537, 541 (1980); Comment, Enforcement of Support Obligations: A Solution and Continuing Problems, 61 Ky. L. J. 322, 328-329 (1972). Cf. Chambers, Men Who Know They Are Watched: Some Benefits and Costs of Jailing for Nonpayment of Support, 75 Mich. L. Rev. 900 (1977).
[27] The Court of Appeals relied upon Shelton v. Tucker, 364 U.S. 479, for this proposition:
"[E]ven though the government purpose be legitimate and substantial, that purpose cannot be pursued by means that broadly stifle fundamental personal liberties when the end can be more narrowly achieved. The breadth of legislative abridgment must be viewed in the light of less drastic means for achieving the same basic purpose." Id., at 488 (footnotes omitted).
[28] The Court of Appeals considered the statute's failure to require that the act of leaving the State be accompanied by criminal intent a significant defect. See supra, at 416, and n. 10. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/110525/ | 452 U.S. 458 (1981)
CONNECTICUT BOARD OF PARDONS ET AL.
v.
DUMSCHAT ET AL.
No. 79-1997.
Supreme Court of United States.
Argued February 24, 1981.
Decided June 17, 1981.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT.
*459 Stephen J. O'Neill, Assistant Attorney General of Connecticut, argued the cause for petitioners. With him on the brief was Carl R. Ajello, Attorney General.
Stephen Wizner argued the cause for respondents. With him on the brief were Dennis E. Curtis and John L. Pottenger, Jr.
CHIEF JUSTICE BURGER delivered the opinion of the Court.
The question presented is whether the fact that the Connecticut Board of Pardons has granted approximately three-fourths of the applications for commutation of life sentences creates a constitutional "liberty interest" or "entitlement" in life-term inmates so as to require that Board to explain its reasons for denial of an application for commutation.
*460 I
In 1964, respondent Dumschat was sentenced to life imprisonment for murder. Under state law, he was not eligible for parole until December 1983.[1] The Connecticut Board of Pardons is empowered to commute the sentences of life inmates by reducing the minimum prison term,[2] and such a commutation accelerates eligibility for parole.[3] The authority of the Board of Pardons derives from Conn. Gen. Stat. § 18-26 (1981), which provides in pertinent part:
"(a) Jurisdiction over the granting of, and the authority to grant, commutations of punishment or releases, conditioned or absolute, in the case of any person convicted of any offense against the state and commutations from the penalty of death shall be vested in the board of pardons.
"(b) Said board shall have authority to grant pardons, conditioned or absolute, for any offense against the state at any time after the imposition and before or after the service of any sentence."
*461 On several occasions prior to the filing of this suit in February 1976, Dumschat applied for a commutation of his sentence. The Board rejected each application without explanation. Dumschat then sued the Board under 42 U.S. C. § 1983, seeking a declaratory judgment that the Board's failure to provide him with a written statement of reasons for denying commutation violated his rights guaranteed by the Due Process Clause of the Fourteenth Amendment.
After hearing testimony from officials of the Board of Pardons and the Board of Parole, the District Court concluded (a) that Dumschat had a constitutionally protected liberty entitlement in the pardon process, and (b) that his due process rights had been violated when the Board of Pardons failed to give "a written statement of reasons and facts relied on" in denying commutation. 432 F. Supp. 1310, 1315 (1977). The court relied chiefly on a showing that "at least 75 percent of all lifers received some favorable action from the pardon board prior to completing their minimum sentences" and that virtually all of the pardoned inmates were promptly paroled.[4]Id., at 1314. In response to postjudgment motions, the District Court allowed other life inmates to intervene, certified the suit as a class action, and heard additional evidence.[5]*462 The court held that all prisoners serving life sentences in Connecticut state prisons have a constitutionally protected expectancy of commutation and therefore that they have a right to a statement of reasons when commutation is not granted. The Court of Appeals affirmed. 593 F.2d 165 (CA2 1979). A petition for a writ of certiorari was filed, and we vacated and remanded for reconsideration in light of Greenholtz v. Nebraska Penal Inmates, 442 U.S. 1 (1979). 442 U.S. 926 (1979).
On remand, the Court of Appeals reaffirmed its original decision, 618 F.2d 216 (CA2 1980), stating:
"In marked contrast [to the Nebraska statute considered in Greenholtz], Connecticut's pardons statute contains neither a presumption in favor of pardon nor a list of factors to be considered by the Board of Pardons. Instead, the statute grants the board unfettered discretion in the exercise of its power. The statute offers only the `mere hope' of pardon; it does not create a legitimate expectation of freedom and therefore does not implicate due process." Id., at 219 (citation omitted).
The Court of Appeals also noted that the District Court's holding that the mere possibility of a pardon creates a constitutionally cognizable liberty interest or entitlement was "no longer tenable" in light of Greenholtz. 618 F. 2d, at 221; see 442 U.S., at 8-11. However, the Court of Appeals then proceeded to conclude that "[t]he overwhelming likelihood that Connecticut life inmates will be pardoned and released before they complete their minimum terms gives them a constitutionally protected liberty interest in pardon proceedings." *463 618 F. 2d, at 220. The Court of Appeals also understood our opinion in Greenholtz to hold that under the Due Process Clause, a brief statement of reasons is "not only constitutionally sufficient but also constitutionally necessary."[6] 618 F. 2d, at 222. On that reading of Greenholtz, the case was remanded to the District Court for a determination of "how many years life inmates must serve before the probability of pardon becomes so significant as to give rise to a protected liberty interest."[7]
II
A
A state-created right can, in some circumstances, beget yet other rights to procedures essential to the realization of the parent right. See Meachum v. Fano, 427 U.S. 215, 226 (1976); Wolff v. McDonnell, 418 U.S. 539, 557 (1974). Plainly, however, the underlying right must have come into existence before it can trigger due process protection. See, e. g., Leis v. Flynt, 439 U.S. 438, 442-443 (1979).
In Greenholtz, far from spelling out any judicially divined "entitlement," we did no more than apply the unique Nebraska statute. We rejected the claim that a constitutional entitlement to release from a valid prison sentence exists independently *464 of a right explicitly conferred by the State. Our language in Greenholtz leaves no room for doubt:
"There is no constitutional or inherent right of a convicted person to be conditionally released before the expiration of a valid sentence. The natural desire of an individual to be released is indistinguishable from the initial resistance to being confined. But the conviction, with all its procedural safeguards, has extinguished that liberty right: `[G]iven a valid conviction, the criminal defendant has been constitutionally deprived of his liberty.'" 442 U.S., at 7 (emphasis supplied; citation omitted).
Greenholtz pointedly distinguished parole revocation and probation revocation cases,[8] noting that there is a "critical" difference between denial of a prisoner's request for initial release on parole and revocation of a parolee's conditional liberty. Id., at 9-11, quoting, inter alia, Friendly, "Some Kind of Hearing," 123 U. Pa. L. Rev. 1267, 1296 (1975). Unlike probation, pardon and commutation decisions have not traditionally been the business of courts; as such, they are rarely, if ever, appropriate subjects for judicial review.[9] Cf. Meachum v. Fano, supra, at 225.
A decision whether to commute a long-term sentence generally depends not simply on objective factfinding, but also on purely subjective evaluations and on predictions of future behavior by those entrusted with the decision. A commutation decision therefore shares some of the characteristics of a decision whether to grant parole. See Greenholtz, 442 U. S., at 9-10. Far from supporting an "entitlement," Greenholtz therefore compels the conclusion that an inmate has "no constitutional or inherent right" to commutation of his sentence.
*465 Respondents nevertheless contend that the Board's consistent practice of granting commutations to most life inmates is sufficient to create a protectible liberty interest. They argue:
"[T]he State Board has created an unwritten common law of sentence commutation and parole acceleration for Connecticut life inmates. . . . In effect, there is an unspoken understanding between the State Board and inmates. The terms are simple: If the inmate cooperates with the State, the State will exercise its parole power on the inmate's behalf. Both the State and the inmate recognize those terms. Each expects the other to abide by them." Brief for Respondents 17-18.
This case does not involve parole, and respondents' argument wholly misconceives the nature of a decision by a state to commute the sentence of a convicted felon. The petition in each case is nothing more than an appeal for clemency. See Schick v. Reed, 419 U.S. 256, 260-266 (1974). In terms of the Due Process Clause, a Connecticut felon's expectation that a lawfully imposed sentence will be commuted or that he will be pardoned is no more substantial than an inmate's expectation, for example, that he will not be transferred to another prison;[10] it is simply a unilateral hope. Greenholtz, supra, at 11; see Leis v. Flynt, 439 U. S., at 443-444. A constitutional entitlement cannot "be createdas if by estoppelmerely because a wholly and expressly discretionary state privilege has been granted generously in the past." Id., at 444, n. 5. No matter how frequently a particular form of clemency has been granted, the statistical probabilities standing alone generate no constitutional protections; a contrary conclusion would trivialize the Constitution. The ground for a constitutional claim, if any, must be found in statutes or other rules defining the obligations of the authority charged with exercising clemency.
*466 The Court of Appeals correctly recognized that Connecticut has conferred "unfettered discretion" on its Board of Pardons, butparadoxicallythen proceeded to fetter the Board with a halter of constitutional "entitlement." The statute imposes no limit on what procedure is to be followed, what evidence may be considered, or what criteria are to be applied by the Board. Respondents challenge the Board's procedure precisely because of "the absence of any apparent standards." Brief for Respondents 28. We agree that there are no explicit standards by way of statute, regulation, or otherwise.
This contrasts dramatically with the Nebraska statutory procedures in Greenholtz, which expressly mandated that the Nebraska Board of Parole "shall" order the inmate's release "unless" it decided that one of four specified reasons for denial was applicable. 442 U.S., at 11. The Connecticut commutation statute, having no definitions, no criteria, and no mandated "shalls," creates no analogous duty or constitutional entitlement.
It is clear that the requirement for articulating reasons for denial of parole in Greenholtz derived from unique mandates of the Nebraska statutes. Thus, although we noted that under the terms of the Nebraska statute, the inmates' expectancy of parole release "is entitled to some measure of constitutional protection," we emphasized that
"this statute has unique structure and language and thus whether any other state statute provides a protectible entitlement must be decided on a case-by-case basis." Id., at 12.
Moreover, from the standpoint of a reasons requirement, there is a vast difference between a denial of paroleparticularly on the facts of Greenholtzand a state's refusal to commute a lawful sentence. When Nebraska statutes directed that inmates who are eligible for parole "shall" be released "unless" *467 a certain finding has been made, the statutes created a right. By contrast, the mere existence of a power to commute a lawfully imposed sentence, and the granting of commutations to many petitioners, create no right or "entitlement." A state cannot be required to explain its reasons for a decision when it is not required to act on prescribed grounds.
We hold that the power vested in the Connecticut Board of Pardons to commute sentences conferred no rights on respondents beyond the right to seek commutation.
Reversed.
JUSTICE BRENNAN, concurring.
I join the Court's opinion. Although respondents have demonstrated a statistical likelihood of obtaining the relief they request, that is not enough to create a protectible liberty interest. Rather, respondents must also showby reference to statute, regulation, administrative practice, contractual arrangement or other mutual understandingthat particularized standards or criteria guide the State's decisionmakers. See Leis v. Flynt, 439 U.S. 438, 442 (1979); Perry v. Sindermann, 408 U.S. 593, 601 (1972); Board of Regents v. Roth, 408 U.S. 564, 577 (1972). The structure of the State's decisionmaking process is thus as significant as the likely result of that process. Respondents have not shown that the Board is required to base its decisions on objective and defined criteria. As in Meachum v. Fano, 427 U.S. 215, 228 (1976), the decisionmaker can deny the requested relief for any constitutionally permissible reason or for no reason at all. Accordingly, I agree that respondents have no protectible liberty interest in a pardon.
JUSTICE WHITE, concurring.
I join the Court's opinion and write separately only to observe that neither Wolff v. McDonnell, 418 U.S. 539 (1974), nor Meachum v. Fano, 427 U.S. 215 (1976), suggested that state law is the only source of a prisoner's liberty worthy of *468 federal constitutional protection. The opinion in Wolff v. McDonnell pointed out that although a prisoner's "rights may be diminished by the needs and exigencies of the institutional environment, [he] is not wholly stripped of constitutional protections when he is imprisoned for crime. . . . [He] may not be deprived of life, liberty or property without due process of law." 418 U.S., at 555-556. The issue in the case was the deprivation of the right to good-time credits, a right which was not guaranteed by the Federal Constitution but was a creation of state law. Wolff held that even such a liberty interest rooted in state law was entitled to constitutional protection.
Meachum v. Fano also pointed out that "the convicted felon does not forfeit all constitutional protections by reason of his conviction and confinement in prison. He retains a variety of important rights that the courts must be alert to protect." 427 U.S., at 225. The Court went on to hold that a state prisoner has no federal constitutional right protecting him against administrative transfers to another state prison. Neither did state law purport to create a liberty interest entitled to protection under the Fourteenth Amendment. Of course, JUSTICE STEVENS was in dissent in that case; but even there he recognized that the Court's opinion first addressed whether the right asserted was one of the liberty interests retained by convicted felons. We decided that it was not; he thought that it was. But neither Wolff nor Meachum is fairly characterized as suggesting that all liberty interests entitled to constitutional protection must be found in state law.
JUSTICE STEVENS, with whom JUSTICE MARSHALL joins, dissenting.
"Liberty from bodily restraint always has been recognized as the core of the liberty protected by the Due Process Clause from arbitrary governmental action." Greenholtz v. Nebraska Penal Inmates, 442 U.S. 1, 18 (opinion of POWELL, J.). *469 The liberty that is worthy of constitutional protection is not merely "a statutory creation of the State," Wolff v. McDonnell, 418 U.S. 539, 558. Surely the Court stumbles when it states that liberty "must be found in statutes or other rules defining the obligations of the authority charged with exercising clemency," ante, at 465, or when it implies that liberty has "its roots in state law," Meachum v. Fano, 427 U.S. 215, 226.
To some of us, it is "self-evident" that individual liberty has far deeper roots.[1] Moreover, the deprivation of liberty that follows conviction of a criminal offense is not total; the individual possesses a residuum of constitutionally protected liberty even while he is in the legal custody of the State.[2] The question this case presents is not whether these respondents are mere slaves, wholly divested of any constitutionally protected interest in liberty; rather, the question is whether the decision by the Connecticut Board of Pardons refusing to commute their life sentences constitutes a deprivation of liberty entitling respondents to the protection of the Due Process Clause.
*470 The facile answer to that question is that the distinction between a refusal to grant freedom on the one hand and the imposition of a sentence or the revocation of a parole on the other forms the basis for a determination whether due process is implicated. Only the imposition of sentence or revocation of parole is obviously a deprivation of liberty. But in practice, as JUSTICE POWELL has explained, that distinction is far less satisfactory than it first appears.[3] In my judgment, it provides an insufficient answer to the question presented by this case because the distinction does not correctly evaluate the character of the deprivation of liberty that occurs when a person is convicted of a crime.
If the conviction were effective to terminate the defendant's liberty, he would thereafter retain no constitutional right to procedural safeguards against arbitrary action. The process of sentencing, parole release, parole revocation, and ultimate discharge could all be totally arbitrary. But no State asserts such total control over the convicted offender, and this Court has unequivocally held that the Constitution affords protection at different stages of the postconviction *471 process.[4] The basic reason the constitutional protection applies at these stages is that liberty itself survives to some extent and its deprivation is a continuous process rather than an isolated event.
This case involves the State of Connecticut's process for determining when a relatively small group of serious offenders will be released from custody. Routinely that process includes three determinations: the judge imposes a life sentence; the Board of Pardons in due course commutes that sentence; and finally the Board of Parole discharges the prisoner from custody. Each of these three decisions is a regular and critical component of the decisionmaking process employed by the State of Connecticut to determine the magnitude of its deprivation of the prisoner's liberty.[5] In my opinion the Due Process Clause applies to each step and denies the State the power to act arbitrarily.[6]
*472 Whether the refusal to provide the inmates with a statement of reasons is a procedural shortcoming of constitutional magnitude is, admittedly, fairly debatable. Judges often decide difficult and important cases without explaining their reasons, and I would not suggest that they thereby commit constitutional error. But the ordinary litigant has other substantial procedural safeguards against arbitrary decision-making in the courtroom. The prison inmate has few such protections. Indeed, as in this case, often he is not even afforded the protection of written standards to govern the exercise of the powers of the Board of Pardons. His protection is somewhat analogous to that of the litigant in the earliest days of our common-law history. The judges then were guided by few written laws, but developed a meaningful set of rules by the process of case-by-case adjudication. Their explanations of why they decided cases as they did provided guideposts for future decisions and an assurance to litigants that like cases were being decided in a similar way. Many of us believe that those statements of reasons provided a better guarantee of justice than could possibly have been described in a code written in sufficient detail to be fit for Napoleon.
As JUSTICE MARSHALL has pointed out, "the obligation to justify a decision publicly would provide the assurance, critical to the appearance of fairness that the Board's decision is not capricious," see Greenholtz, 442 U. S., at 40 (dissenting opinion). I therefore believe the Court of Appeals correctly concluded that in this context a brief statement of reasons is an essential element of the process that is due these respondents.
Accordingly, I respectfully dissent.
NOTES
[1] A Connecticut inmate serving a life sentence, imposed before 1971, that does not have a specified minimum term must serve a minimum of 25 years in prison, less a maximum of 5 years' good-time credits, unless the Board of Pardons commutes the sentence. See Conn. Gen. Stat. § 54-125 (1981).
Effective in 1971, the sentencing judge must specify a minimum term, which may be as low as 10 years or as high as 25 years. Conn. Gen. Stat. § 53a-35 (c) (1) (1981).
[2] The Board of Pardons also has the power to grant immediate release in the form of an absolute pardon, but according to the District Court, that power has not been employed in recent history. 432 F. Supp. 1310, 1313 (Conn. 1977).
The District Court noted that by virtue of this statute, Connecticut "stands outside the traditional scheme of clemency through application to the state's chief executive." The Governor of Connecticut has only the power to grant temporary reprieves. Id., at 1312.
[3] Parole determinations are made by the Board of Parole, a separate body. This case does not involve parole procedure; it involves only denials of commutations.
[4] Of the inmates whose minimum sentences have been commuted by the Board of Pardons, the Board of Parole has paroled approximately 90% during the first year of eligibility, and all have been paroled within a few years. App. 33, 39. The Chairman of the Board of Parole testified that "no more than 10 or 15 per cent" of Connecticut's life inmates serve their 20-year minimum terms. Id., at 31.
[5] On the day that the District Court entered its declaratory judgment, the Board commuted Dumschat's sentence to time served and granted him immediate release. The Board then moved to dismiss the suit as moot. The District Court denied the Board's motion and permitted three other inmates to intervene. Those inmates were serving life terms for murder and had been denied commutation without statements of reasons. Two of them are still serving their sentences. According to respondents, there are approximately 35 persons in the certified class, which consists of all "inmates of the State of Connecticut who are currently serving sentences of life imprisonment [without court-imposed minimum terms] and who have been, or who will be, denied pardons during their current terms of incarceration" by the Board of Pardons. App. to Pet. for Cert 21a; Brief for Petitioners ii; Tr. of Oral Arg. 36; see n. 1, supra.
[6] In the cited passage of Greenholtz, we said: "The Nebraska [statutory] procedure affords an opportunity to be heard, and when parole is denied it informs the inmate in what respects he falls short of qualifying for parole; this affords the process that is due under these circumstances. The Constitution does not require more." 442 U.S., at 16.
[7] The Court of Appeals remarked that "[o]nly after this period has elapsed are lifers entitled to due process safeguards in the pardon process." 618 F.2d, at 221. Because it believed that every life inmate who is denied a pardon is constitutionally entitled to a statement of reasons, the District Court did not make such a determination prior to the decision of the Court of Appeals that is now before us. Id., at 220-221; see App. to Pet. for Cert. 25a.
[8] Gagnon v. Scarpelli, 411 U.S. 778 (1973); Morrissey v. Brewer, 408 U.S. 471 (1972).
[9] Respondents have not raised any equal protection claim.
[10] See Meachum v. Fano, 427 U.S. 215, 228 (1976).
[1] "It is self-evident that all individuals possess a liberty interest in being free from physical restraint." Greenholtz v. Nebraska Penal Inmates, 442 U.S. 1, 23 (MARSHALL, J., dissenting).
"If man were a creature of the State, the analysis would be correct. But neither the Bill of Rights nor the laws of sovereign States create the liberty which the Due Process Clause protects. The relevant constitutional provisions are limitations on the power of the sovereign to infringe on the liberty of the citizen. The relevant state laws either create property rights, or they curtail the freedom of the citizen who must live in an ordered society. Of course, law is essential to the exercise and enjoyment of individual liberty in a complex society. But it is not the source of liberty, and surely not the exclusive source.
"I had thought it self-evident that all men were endowed by their Creator with liberty as one of the cardinal unalienable rights. It is that basic freedom which the Due Process Clause protects, rather than the particular rights or privileges conferred by specific laws or regulations." Meachum v. Fano, 427 U.S. 215, 230 (STEVENS, J., dissenting).
[2] See Meachum v. Fano, supra, at 231-233.
[3] "The Court today, however, concludes that parole release and parole revocation `are quite different,' because `there is a. . . difference between losing what one has and not getting what one wants,' ante, at 9, 10. I am unpersuaded that this difference, if indeed it exists at all, is as significant as the Court implies. Release on parole marks the first time when the severe restrictions imposed on a prisoner's liberty by the prison regimen may be lifted, and his behavior in prison often is molded by his hope and expectation of securing parole at the earliest time permitted by law. Thus, the parole-release determination may be as important to the prisoner as some later, and generally unanticipated, parole-revocation decision. Moreover, whatever difference there may be in the subjective reactions of prisoners and parolees to release and revocation determinations is not dispositive. From the day that he is sentenced in a State with a parole system, a prisoner justifiably expects release on parole when he meets the standards of eligibility applicable within that system. This is true even if denial of release will be a less severe disappointment than revocation of parole once granted." Greenholtz v. Nebraska Penal Inmates, supra, at 19-20 (opinion of POWELL, J.).
[4] Thus the Court has held that the Due Process Clause protects the prisoner at the sentencing stage, Mempa v. Rhay, 389 U.S. 128, in probation revocation proceedings, Gagnon v. Scarpelli, 411 U.S. 778, and in parole revocation proceedings, Morrissey v. Brewer, 408 U.S. 471. Moreover, the Constitution has been applied to other issues affecting prisoners. See, e. g., Bounds v. Smith, 430 U.S. 817 (right to assistance in the filing of legal papers); Pell v. Procunier, 417 U.S. 817, 822 (First Amendment rights); Cruz v. Beto, 405 U.S. 319 (right to practice religious faith); Wilwording v. Swenson, 404 U.S. 249 (right to file petition for writ of habeas corpus); Cooper v. Pate, 378 U.S. 546; (Right to purchase religious materials); Ex parte Hull, 312 U.S. 546 (right to petition federal court for writ of habeas corpus). Cf. Weems v. United States, 217 U.S. 349 (sentence may violate Eighth Amendment).
[5] As the Court recognizes, ante, at 461, at least 75% of all life inmates receive some favorable action from the Board of Pardons. The Board of Parole paroles approximately 90% of these inmates during the first year after the Board of Pardons commutes their minimum sentences, and all are paroled within a few years. Ante, at 461, n. 4.
[6] The fact that the petitioner agency is given the title "Board of Pardons" does not, of course, make its work the equivalent of the exercise by a chief executive of the occasional totally discretionary power to grant pardons in isolated cases. As the record in this case makes clear, the petitioner commutes sentences with roughly the same frequency that parole boards make parole release determinations. | 01-03-2023 | 04-28-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/2140681/ | 97 N.Y.2d 436 (2002)
767 N.E.2d 666
741 N.Y.S.2d 175
In the Matter of the Estate of MAX SAKOW, Deceased.
WALTER SAKOW, as De Facto Executor of MAX SAKOW, Deceased, et al., Respondents;
DIANA SAKOW et al., Appellants.
Court of Appeals of the State of New York.
Argued February 13, 2002.
Decided March 21, 2002.
*437 Diana Sakow and Evelyn Breslaw, appellants pro se.
Robson, Ferber, Frost, Chan & Essner, LLP, New York City (Kenneth N. Miller of counsel), and Wolman Babitt & King, LLP (James N. Blair of counsel), for respondents.
*444 Chief Judge KAYE and Judges SMITH, LEVINE, CIPARICK, ROSENBLATT and GRAFFEO concur.
OPINION OF THE COURT
WESLEY, J.
The narrow issue presented on this appeal arises in the context of a long-standing sibling dispute over the assets of their father's estate. When Max Sakow died on January 30, 1956, he either owned outright or had interests in a number of parcels of real estate. He was survived by his wife, Rose, now deceased, and three childrenWalter Sakow, Diana Sakow and Evelyn Sakow Breslaw. At the time of their father's death Diana was 15 years old, Evelyn was 20 and Walter was 25. *438 Unbeknownst to his daughters, Max Sakow's will left one third of his estate to his wife and two thirds to the children, with the shares to his daughters to be held in trust until they reached the age of 23.
Rose Sakow received letters testamentary pursuant to a decree entered on March 5, 1956; however, the trusts were never formed and her daughters did not receive any distribution from the estate. According to Mrs. Sakow, she left all business decisions with respect to the estate to her son and signed any document he presented. Walter Sakow apparently enjoyed unfettered discretion in controlling the estate properties for the next several decades, arranging the sale of some parcels and gaining either an outright or partial ownership interest in others.
In the early 1980s Diana Sakow and Evelyn Breslaw learned of the will and its contents, and in 1984 instituted a compulsory accounting procedure against their mother and brother. The sisters claimed fraud, breach of fiduciary duty and unjust enrichment. Notices of pendency were filed in 1987, and renewed by court order dated February 26, 1990, against nine properties (16 lots) in Bronx County (Bronx properties) and several additional properties (additional properties) in other New York counties that were allegedly owned by Max Sakow at the time of his death and are presently held by either Walter Sakow or his nominees.
During the liability phase of the ensuing bifurcated trial the Surrogate on March 18, 1994 dismissed all of the sisters' claims relevant here and authorized the removal of the notices of pendency. The record indicates that the sisters did not renew the notices prior to their statutory expiration on February 26, 1993, nearly 13 months before the Surrogate's decision. The sisters appealed to the Appellate Division, which modified the Surrogate's order and held that their claims were not time barred and that Walter Sakow was responsible for an accounting as the de facto executor of the estate (219 AD2d 479). The Appellate Division made no reference to the effect of its order on the notices.
Shortly thereafter, the sisters moved to obtain notices of pendency or, in the alternative, orders of attachment against the Bronx properties and several additional properties. In 1996 the Surrogate granted the application to reinstate notices of pendency only as to the Bronx properties, and reserved on the additional properties. Despite this ruling favorable to the *439 sisters' interests they never entered an order (see 22 NYCRR 207.37 [b]) or filed notices of pendency.
In 1999 the sisters again moved for the appointment of a temporary receiver to operate and control the Bronx properties and permission to renew and/or file notices of pendency with regard to both the Bronx properties and 11 additional properties (16 lots). The Surrogate ordered the appointment of a temporary receiver for the Bronx properties, and granted the application to file notices of pendency as to the Bronx properties and additional properties. The Surrogate reasoned that the strict procedural requirements for extension of a notice of pendency beyond the three-year term granted by CPLR 6513 applied only to insuring continuous effect for a notice of pendency. In the court's view, nothing prevented it from entering an order permitting the filing of notices of pendency to take effect only from the date the new order is entered.
The Appellate Division agreed with the Surrogate's decision to appoint a temporary receiver for the Bronx properties, but modified the order by denying the motion to file notices of pendency on all of the properties.[1] The Court reasoned that because the notices had been vacated or expired without timely renewal, the sisters should not have been permitted to file new notices with respect to those properties.[2] The Appellate Division granted leave to this Court on a certified question.
Does CPLR 6513 permit a plaintiff to file a notice of pendency after a previously filed notice of pendency concerning the same causes of action or claims has expired without timely renewal? The statutory language of CPLR article 65, its legislative history and underlying policies all clearly indicate that the answer is no.
*440 Article 65 of the CPLR sets forth the authority and procedural requirements for securing a notice of pendency.[3] Once the notice has been properly filed with the county clerk where the property is situated (see CPLR 6511), it puts the "world on notice of the plaintiff's potential rights in the action and thereby warn[s] all comers that if they then buy the realty or lend on the strength of it or otherwise rely on the defendant's right, they do so subject to whatever the action may establish as the plaintiff's right" (Siegel, New York Practice § 334, at 509 [3d ed]; see also CPLR 6501). This provisional remedy authorized by the Legislature "evolved from the common-law doctrine of lis pendens" (5303 Realty Corp. v O & Y Equity Corp., 64 NY2d 313, 318 [1984]).
The lineage of the lis pendens dates back to rule 12 of Lord Chancellor Bacon's Ordinances for the Government of the Courts of Chancery in 1618, and includes its formal recognition in New York in 1815 (see 5303 Realty Corp., 64 NY2d, at 318 [citing Murray v Blatchford, 1 Wend 583, 594 (1828); Murray v Ballou, 1 Johns Ch 566 (1815)]). "The purpose of the doctrine was to assure that a court retained its ability to effect justice by preserving its power over the property, regardless of whether a purchaser had any notice of the pending suit" (5303 Realty Corp., 64 NY2d, at 319). At common law, the lis pendens attached immediately upon service of process, encumbering the property without any further action required by the plaintiff (see 13 Weinstein-Korn-Miller, NY Civ Prac ¶ 6501.01 [2000]). In effect, the lis pendens impaired the marketability of real property without regard to disclosure of the interest created by the litigation. Thus, a search of all court records was required to determine whether real property in which a purchaser or encumbrancer sought an interest was the subject of pending litigation. The cumbersome record search was "increasingly seen as an intolerable burden upon the transfer of real property" (id.). No showing of merit was necessary for the lis pendens to attach.
In light of this troubling restraint on alienation of real property, the common-law lis pendens doctrine was replaced in most states by statutes requiring the filing of a notice of pendency before a would-be purchaser or encumbrancer would be charged with notice of the prior interest (see id. at ¶ 6501.02). *441 This substantially reduced the harshness of the common-law rule because the "notice of pendency was filed with the records pertaining to the real property itself, and third persons were charged with knowledge only of what appeared in those records" (id.; see also 5303 Realty Corp., 64 NY2d, at 319). The statutory filing requirement first appeared in New York in 1823 (see L 1823, ch 182, § 11), and continues in its current statutory expression in CPLR article 65 (see CPLR 6501, 6511).
The statute was "designed with a view toward balancing the interests of the claimant in the preservation of the status quo against the equally legitimate interests of the property owner in the marketability of his title" (Da Silva v Musso, 76 NY2d 436, 442 [1990]). Indeed, we have referred to a litigant's ability to file a notice of pendency as an "extraordinary" privilege because of the relative ease by which it can be obtained and its powerful effect on the alienability of real property (see Israelson v Bradley, 308 NY 511, 516 [1955]). The notice of pendency is a unique provisional remedy, in that "the statutory scheme permits a party to effectively retard the alienability of real property without any prior judicial review" (5303 Realty Corp., 64 NY2d, at 320). Critically, the filing of a notice of pendency requires no showing of the likelihood of success on the merits of the cause of action. Thus, "a plaintiff can cloud a defendant's title merely by serving a summons and filing a proper complaint and notice of pendency stating the names of the parties, the object of the action, and a description of the property" (id. at 319).
"To counterbalance the ease with which a party may hinder another's right to transfer property, this court has required strict compliance with the statutory procedural requirements [of CPLR article 65]" (id. at 320). We have noted that "[p]roper administration of the law * * * requires promptness on the part of a litigant so favored and that he accept the shield which has been given him upon the terms imposed, and that he not be permitted to so use the privilege granted that it becomes a sword usable against the owner or possessor of realty. If the terms imposed are not met, the privilege is at an end" (Israelson, 308 NY, at 516).
The ability to file a notice of pendency is "a privilege that can be lost if abused" (Siegel, New York Practice § 336, at 512). Thus, in Israelson (308 NY 511), we held that a plaintiff who had filed a notice of pendency in a County Court action that was cancelled for want of summons service, could not file another notice of pendency for the same cause of action in *442 Supreme Court. Several other courts in New York have held that successive filings are not permitted after a notice of pendency has been cancelled (see Slutsky v Blooming Grove Inn, 147 AD2d 208, 212 [1989]; Holiday Invs. Corp. v Breger & Co., 112 AD2d 979 [1985]).[4] With these principles in hand, we turn to the effect of the expiration of the three-year "life" of a notice of pendency set forth in CPLR 6513.
A notice of pendency is valid for three years from the date of filing and may be extended for additional three-year periods upon a showing of good cause (see CPLR 6513).[5] The extension, however, must be requested prior to the expiration of the prior notice (see id.). This is an exacting rule; a "notice of pendency that has expired without extension is a nullity" (13 Weinstein-Korn-Miller, NY Civ Prac ¶ 6513.04 [2000]; see Polish Natl. Alliance of Brooklyn v White Eagle Hall Co., 98 AD2d 400, 405 [1983]; Robbins v Goldstein, 32 AD2d 1047 [1969]). For practical purposes, there is no distinction between the effect of an expired or cancelled notice of pendencyboth are void. Thus, the "no second chance" rule we established in Israelson for a cancelled notice of pendency applies with equal force to one that has expired. Because CPLR 6513 provides that a notice of pendency terminates automatically on the expiration of the three-year period unless extended, a lapsed notice of pendency may not be revived (see Robbins v Goldstein, 32 AD2d 1047; In re Kodo Props., 63 B.R. 588, 590 [1986]; Carvel-Dari Freeze Stores v Lukon, 219 NYS2d 716 [1961]).
The legislative history of the predecessor to CPLR 6513, section 121-a of the Civil Practice Act supports our view (see L 1957, ch 877, § 2). Section 121-a was enacted upon the recommendation that a three-year period should be established in the statute "in recognition of the desirability of minimizing the longevity of clouds on title and the desirability of transfers of *443 property free from unnecessary encumbrances" (Second Ann Rep of NY Jud Conference 114, 116 [1957]). Much like the filing requirements in CPLR article 65, the time limit was specifically designed to offset the harshness of the common-law lis pendens doctrine.
Filing another notice of pendency after the previous notice has expired or been cancelled renders the time limit in CPLR 6513 useless and undercuts an important incentive for diligent practice. We prefer the certainty of the "no second chance rule," as it preserves the delicate balance between "the interests of the claimant in the preservation of the status quo against the equally legitimate interests of the property owner in the marketability of his title" (Da Silva v Musso, 76 NY2d 436, 442). Thus, we hold that an expired or cancelled notice of pendency may not be refiled on the same cause of action or claim.
Here, the Appellate Division was correct in its determination that the sisters cannot file new notices of pendency as to the Bronx properties and additional properties. Filed in 1987, these notices of pendency were last renewed by court order dated February 26, 1990. Nothing in the record indicates a subsequent renewal of the notices of pendency. Thus, because the notices were not renewed within the three-year period established by CPLR 6513, the notices expired and could not be filed again as to this same action.
Although the sisters did not obtain a stay under CPLR 5519 of the Surrogate's March 18, 1994 decision striking the notices, we are hard pressed to see that the stay would have mandated a different result. The Appellate Division in modifying the Surrogate's order did not address the continued vitality of the notices nor does the record reflect that those notices had been renewed pursuant to CPLR 6513 prior to the Surrogate's decisionover four years after the notices had been last renewed.[6]
Accordingly, the order of the Appellate Division should be affirmed, without costs, and the certified question answered in the affirmative.
Order affirmed, etc.
NOTES
[1] At the Appellate Division, respondents Harriet Sillen, Baje Realty Corp. and 504-11th Street Corp. opposed the filing of notices of pendency as to four of the "additional properties" located in New York County and Kings County. According to these respondents and respondent Walter Sakow, a joint brief was submitted here on their behalf because the issues of law raised on this appeal apply with equal force to all respondents. Thus, our analysis makes no distinction between the interests of Walter Sakow and the additional respondents.
[2] There simply is no way to determine on this record if any of the "additional properties" had been the subject of earlier notices of pendency. The sisters do not contend on this appeal that they should have been allowed to file notices against those parcels because they had never been previously so encumbered. Our ruling should not be construed to prevent the sisters from filing notices of pendency on previously unencumbered properties.
[3] CPLR 6501 provides that "[a] notice of pendency may be filed in any action in a court of the state or of the United States in which the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property."
[4] This rule has been referred to by one California court as New York's "Doctrine of No Second Chance" (see Ranchito Ownership Co. v Superior Ct. of Los Angeles County, 130 Cal App 3d 764, 772, 182 Cal Rptr 54, 57-58 [1982] [citing Israelson, 308 NY 511]). The Supreme Court of Nevada has also noted that "New York * * * recognizes that once a notice of lis pendens is cancelled a new one cannot be filed upon the same property and same cause of action" (Coury v Tran, 111 Nev 652, 656, 895 P2d 650, 652 [1995]).
[5] Respondents do not contend that the statute permits only one extension (see Siegel, New York Practice § 334, at 510 [a notice of pendency "can be extended for like periods, but each extension must be applied for within the prior three-year period so that any extension order can be filed and indexed before the existing notice expires"]).
[6] We have no occasion to address the effects of the sisters' successful but abandoned 1996 motion (see 22 NYCRR 207.37 [b]) because the filing of previously expired or cancelled notices of pendency authorized by that order should not have been permitted. We also note that our ruling has no effect on the Surrogate's appointment of a temporary receiver for the Bronx properties, affirmed by the Appellate Division. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2573086/ | 356 F.Supp.2d 109 (2005)
Twanya PRESLEY and Sofia Tsharides, Plaintiffs,
v.
PEPPERIDGE FARM, INC., a subsidiary of The Campbell Soup Company, The Campbell Soup Company and Robert Arocho, individually Defendants.
No. 3:02 CV 2157 AVC.
United States District Court, D. Connecticut.
February 8, 2005.
*113 John Ivar Bolton, Bridgeport, CT, for Plaintiffs.
Elizabeth K. Andrews, Patricia E. Reilly, Tyler, Cooper & Alcorn, New Haven, CT, for Defendants.
RULING ON THE DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
COVELLO, District Judge.
This is an action for damages and equitable relief brought pursuant to Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e, as amended by the Civil Rights Act of 1991 ("Title VII"), and Conn. Gen. Stat. § 46a-60 et seq. The plaintiffs, Twanya Presley and Sofia Tsharides, allege that their former employer, Pepperidge Farm, Inc., and its supervisor, Robert Arocho, subjected them to a gender hostile working environment and sexual discrimination. In addition, Presley alleges that the defendants retaliated against her for complaining of sexual harassment in the workplace. Both plaintiffs also allege violations of common law precepts concerning negligent misrepresentation, civil conspiracy, intentional infliction of emotional distress, *114 and negligent infliction of emotional distress.
The defendants now move pursuant to Rule 56 of the Federal Rules of Civil Procedure for summary judgment, arguing that there are no genuine issues of material fact, and that they are entitled to judgment as a matter of law. The issues presented are: 1) whether the plaintiffs have raised a genuine issue of material fact that the defendants subjected them to a hostile work environment; 2) whether Presley has raised a genuine issue of material fact that the defendants retaliated against her for complaining of sexual harassment in the workplace; 3) whether the plaintiffs have raised a genuine issue of material fact that the defendants subjected them to gender based discrimination; 4) whether the plaintiffs have raised a genuine issue of material fact that Pepperidge Farm's company handbook or anti-harassment policy contained negligent misrepresentations; 5) whether the plaintiffs have raised a genuine issue of material fact that Pepperidge Farm's actions amount to a civil conspiracy; 6) whether the plaintiffs have raised a genuine issue of material fact that the defendants intentionally inflicted emotional distress on them; and 7) whether the plaintiffs have raised a genuine issue of material fact that the defendants negligently inflicted emotional distress on them.
For the reasons set forth herein, the court concludes that: 1)(a) Presley has raised a genuine issue of material fact that the defendants subjected her to a gender hostile work environment; (b) Tsharides has failed to raise a genuine issue of material fact that the defendants subjected her to a gender hostile work environment; 2) Presley has failed to raise a genuine issue of material fact that the defendants retaliated against her for complaining of sexual harassment in the workplace: 3)(a) Presley has raised a genuine issue of material fact that the defendants subjected her to gender based discrimination; 3)(b) Tsharides has failed to raise a genuine issue of material fact that the defendants subjected her to gender based discrimination; 4) the plaintiffs have failed to raise a genuine issue of material fact that Pepperidge Farm's company handbook or anti-harassment policy contained negligent misrepresentations; 5) the plaintiffs have failed to raise a genuine issue of material fact that Pepperidge Farm's actions amount to a civil conspiracy; 6) the plaintiffs have failed to raise a genuine issue of material fact that the defendants intentionally inflicted emotional distress on them; and 7) the plaintiffs have failed raise a genuine issue of material fact that the defendants negligently inflicted emotional distress on them. Accordingly, the defendants motion for summary judgment is granted in part and denied in part.
FACTS
Examination of the amended complaint, affidavits, pleadings, Local Rule 56(c) statements and exhibits accompanying the motion for summary judgment, and the responses thereto, disclose the following undisputed, material facts. The defendant, Campbell Soup Company, is a corporation authorized to transact business within the State of Connecticut through its subsidiary, the defendant, Pepperidge Farm, Inc. Pepperidge Farm employed the co-defendant, Roberto Arocho, since 1979 in its Norwalk plant. Arocho was a supervisor there for approximately ten years. At all relevant times, the plaintiffs, Twanya Presley and Sofia Tsharides, were residents of the state of Connecticut and worked at Pepperidge Farm's facility in Norwalk, Connecticut.
A. Pepperidge Farm's Anti-Harassment Policy
Throughout the time that Presley and Tsharides worked at Pepperidge Farm, *115 the company had an anti-harassment policy with complaint procedures. All versions of the policy prohibit any kind of sexual harassment, instruct employees to whom they can complain, assure the employees that the company will take prompt and appropriate action, promise confidentiality, and ensure that employees will not be penalized or retaliated against for filing a complaint. The company posted written copies of the policy in multiple locations in the plant where Presley and Tsharides worked. Human resource officials walked the floor of the plant to make themselves more accessible to employees. The company also informed newly hired employees of the policy during their orientation.
B. Presley's Claim
On August 28, 1996, Pepperidge Farm hired Presley. In February 1998, Presley resigned. In June 1999, Pepperidge Farm rehired Presley as a temporary employee in the bread department. In December 1999, Presley became a full-time employee as a production substitute in the bread department. In early 2000, Presley switched from the night shift to the day shift, and Arocho became her supervisor. From June 1999 to mid-July 2001, Arocho did not say or do anything to Presley that she considered inappropriate.
From mid-July 2001 to late August 2001, Presley alleges that Arocho committed the following acts which she argues amounts to sexual harassment. In mid-July 2001, Arocho touched Presley's hand and told her that she was attractive and that she had "pretty hair." At the time, however, Presley admits that she did not find this incident to be offensive. On August 2, 2001, Arocho told Presley that she had nice legs. Presley told Arocho that she was uncomfortable with that comment, and that she would pursue a complaint if this conduct persisted. Arocho responded by telling Presley that she was not in good standing with the company because she had previously filed worker's compensation claim. On August 3, 2001, Arocho told Presley that her friendship with several of the men at the plant could bring her financial gain due to her attractive physical attributes. Presley felt this statement insinuated that she was a prostitute of some sort. Later that same day, Arocho summoned Presley to his office, grabbed his crotch area, and asked Presley if she "wanted any of this." Between August 3, 2001 and August 15, 2001, Arocho would gaze at Presley in a leering manner. On August 15, 2001, Arocho warned her that fifty-three people could complain to human resources about him and nothing would ever happen to him. Later that same date, Arocho touched Presley on her shoulder and smiled.
There is a dispute between the parties as to whether Presley told Donald Miller, a supervisor, about Arocho's alleged sexual harassment. On August 3, 2001, Presley spoke with Miller. Presley contends that she told Miller about Arocho's alleged conduct that had occurred earlier that day. Specifically, Presley testified during a deposition to the following:
[Question]And then on the 3rd when this thing happened with Mr. Arocho grabbing his genitals, did you tell anybody else on August 3rd about what happened?
[Answer]I didn't tell no one that day except Donald Miller what was going on.
[Question]And then you went back to him later in the day, did you tell him what Mr. Arocho had done on the 3rd?
[Answer]That's correct, yes.
In contrast to Presley's contentions, Paul Macionus, Pepperidge Farm's human resources manager, testified during a deposition that when he interviewed Miller during the investigation, Miller stated that Presley told him only that she was "uncomfortable" around Arocho. Miller also *116 allegedly told him that Presley did not specify what made her uncomfortable, nor did she make any allegations of sexual harassment.
Despite the dispute as to details of this conversation, it is undisputed that Miller told Presley to report any harassment to the human resource department, and that Presley told Miller that she had handled the situation. It is also undisputed that Miller did not report Presley's statements to human resource officials.
It is not clear from the facts before the court what Miller's duty was if Presley did tell him about Arocho's alleged sexual harassment. Presley contends that Miller had an obligation to report inappropriate conduct to the human resources department in accordance with the company's anti-harassment policies. Pepperidge Farm's anti-harassment policies do state that employees can report allegations of harassment to a supervisor, but they do not state what a supervisor's duty is once he or she receives such a report.
C. Promotion Opportunity
In August 2001, there was an opening for a quality assurance technician position. All applicants were initially interviewed by Vanessa Diggs, a supervisor in quality assurance and friend to Presley. Diggs selected the top three candidates to interview with Steven White, a manager in the quality assurance department. The top candidates were Presley, Andy Saltourides, and Nick Savopoulos. Saltourides and Savopoulos also participated in a "day-in-the-life" exercise where they performed certain functions associated with the position, so that White could evaluate their performances. Presley did not engage in the "day-in-the-life" exercise because she had previously performed the same functions while on a modified/light duty assignment in the quality assurance department.
On or about August 31, 2001, Presley interviewed with White for the position. Prior to the interview, Presley spoke with Diggs. Diggs secretly provided Presley with the interview questions in advance and told Presley that she was a "shoe in" for the position. Despite Presley's advance knowledge of the questions, White chose Saltourides for the position. According to White, Saltourides had some college education and well developed technical computer skills. White testified during a deposition that he chose Saltourides because his level of motivation and overall performance in the quality assurance department far surpassed that of the other two candidates. Specifically, White testified that Saltourides entered data into the computers with much more efficiency and ease than the other candidates, and he also discussed ideas with White on how to improve the process to make it even more efficient for the company. White further testified that he was not confident that Presley would be able to perform all the duties that the position required because of her prior performance in the quality assurance department, as well as her lack of higher education, including a lack of math and computer skills.
Presley alleges that Arocho sent a negative recommendation to the quality assurance department that caused White to decline to hire her for the position. Specifically, Presley alleges that, after the interview with White, Diggs told her that her application to quality assurance contained a negative recommendation from Arocho. White gave deposition testimony, however, that he did not consult Arocho regarding any of the candidates, including Presley.
During the same conversation with Diggs, Presley told Diggs about Arocho's alleged harassment. Diggs then shared Presley's allegations with White. White *117 then called Macionus to discuss the allegations. That same day, August 31, 2001, White and Diggs met with Macionus, whereby Diggs recounted her conversation with Presley.
D. Internal Investigation
On Tuesday, September 4, 2001, the first day back at the plant after the Labor Day holiday weekend, Macionus and Maritza Allende, an employee relations manager, commenced an investigation of Presley's allegations. In connection with their investigation, Macionus and Allende interviewed Presley. During the interview, Macionus told Presley that Pepperidge Farm had no tolerance for sexual harassment, explained the anti-harassment policy to her, and assured her that Allende and he would conduct a full investigation and then inform her of their findings. The officials also removed Presley from Arocho's day-to-day supervision during the investigation. On September 5, 2001, Macionus and Allende interviewed Arocho. During that meeting, Macionus and Allende reviewed with Arocho the antiharassment policy, as well as the Equal Employment Opportunity policy and the violence in the workplace policy. They also reviewed each of Presley's allegations with Arocho and told him that under no circumstances would Pepperidge Farm tolerate any type of harassing behavior. They also informed Arocho that Pepperidge Farm would not tolerate any type of retaliation. Macionus told Arocho that if Pepperidge Farm found him to have violated any of these policies, the consequences would be severe, up to and including termination of his employment. According to the defendants, Arocho affirmatively and credibly denied all of Presley's allegations. Macionus and Allende also interviewed other witnesses that Presley identified, namely, Donald Miller, Juan Martinez, and Spencer Peeples. Based on the information from their investigation, Macionus and Allende were unable to corroborate any of Presley's allegations and arrived at an inconclusive result.
On Friday, September 7, 2001, Macionus and Allende reported the results of the investigation to Presley. When Macionus and Allende reported the results of the investigation to Presley, they told her that if she had any further concerns, she should contact them immediately. They also told her that Pepperidge Farm would not tolerate any kind of retaliation against her. While Presley alleges that Pepperidge Farm officials directed her to work with Arocho two weeks later, Presley admits that the officials intervened soon after and provided her with re-assignment elsewhere in the company's plant as she requested. On September 24, 2001, Macionus and Allende met with Presley again to discuss the results of the investigation. Presley admits that, after the investigation, Arocho did not do anything sexual towards her again.
E. Promptness of the Presley Investigation
The prompt nature of Pepperidge Farm's investigation is in dispute. Specifically, there is a dispute as to when Presley notified Macionus and Allende that two other employees, Sofia Tsharides and Maria Giannakova, were potential witnesses in her case. Initially, Presley testified at her deposition that she did not notify Allende about Tsharides and Giannakova until at least the week after one of the meetings where Macionus and Allende discussed the results of their investigation. It is unclear from the record whether Presley was referring to the meeting which took place on September 7, 2001 or September 24, 2001. Nevertheless, Presley has more recently submitted a transcript of a tape recording of Allende, stating that she received a voice mail from *118 Prresley on September 5, 2001 which notified her of Tsharides and Giannakova. When confronted with the tape recording during a deposition hearing, however, Allende testified that Presley did not tell her about Tsharides and Giannakova until September 25, 2001. It is also unclear when Macionus and Allende then interviewed Tsharides and Giannakova. Allende gave deposition testimony that she interviewed both Tsharides and Giannakova on September 25, 2001, which is the same day Allende alleges that Presley notified her. Tsharides testified during her deposition that Macionus and Allende interviewed her in early September 2001. It is undisputed that, however, when Macionus and Allende did interview Tsharides and Giannakova, neither employee offered any information regarding Presley's allegations. Instead, both employees had their own allegations against Arocho which the officials investigated and found to be unsubstantiated.
Presley alleges that the following incidents of harassment occurred after human resources conducted the investigation. On December 7, 2001, Arocho marked Presley tardy when Presley contends that she was not late. Arocho then told Presley that if she were marked tardy again, he would suspend her. As a result, Arocho required Presley to fill out a time sheet which accounted for her whereabouts in the company plant at all times for one week. Presley contends that this was unfair because no other employee was required to do so. Presley admits that when another employee informed an official that Arocho was requiring Presley to fill out a timesheet, the official immediately relieved her of that requirement. In March 2002, Presley received information that Arocho's wife, who was also an employee at the plant, was making physical threats towards her for pursuing a sexual harassment complaint. Presley did not report any of these incidents to any higher level official in the company. Instead, in March 2002, Presley resigned from her employment with Pepperidge Farm.
F. Tsharides' Claim
In May 1999, Pepperidge Farm hired Tsharides. From the end of July 2001 to late August 2001, Tsharides alleges that Arocho committed the following acts which she argues amounts to sexual harassment. In or about the end of July 2001, Tsharides visited Arocho's office one day. During this visit, Arocho rubbed both of her hands and told her that she "made him nervous." Proximate to this time period, Arocho attempted to touch her knees and told her that he had the authority to do so because he was her supervisor. In early August 2001, Arocho approached Tsharides from behind, rubbed his foot against her calf, and uttered unintelligible comments. In August 2001, Arocho asked Tsharides if she wanted "to mess around" with him. Lastly, in late August 2001, Arocho approached Tsharides and told her that he wanted to have a "threesome" with her and one of her co-workers.
G. Promptness of the Tsharides' Investigation
There is a dispute as to whether Pepperidge Farm investigated Tsharides allegations of sexual harassment in a prompt manner. Specifically, Presley has submitted a transcript of a tape recording of Allende, stating that she received a voice mail from Presley on September 5, 2001 which notified her of Tsharides. When confronted with the tape recording during a deposition hearing, however, Allende testified that Presley did not tell her about Tsharides until September 25, 2001. It is unclear when Macionus and Allende interviewed Tsharides. Allende gave deposition testimony that she interviewed both Tsharides on September 25, 2001, which is *119 the same day Presley notified her. Tsharides testified during her deposition that Macionus and Allende interviewed her in early September 2001.
It is undisputed that, however, when Macionus and Allende did conduct an investigation of Tsharides's allegations, Tsharides refused to name any witnesses to her allegations. As a result Macionus and Allende were able to interview only Tsharides and Arocho. During their interview with Arocho, Macionus and Allende reviewed the company's anti-harassment policy with Arocho and stressed that Pepperidge Farm would not tolerate sexual harassment of any kind. Ultimately, the officials found no corroborating evidence of Tsharides's allegations and arrived at an inconclusive result.
Allende then reported the results of the investigation to Tsharides. At that time, Allende explained to her that no retaliation would be taken against her for making the complaints. Allende also told Tsharides that she should come back if she had any further concerns. It is undisputed that Tsharides did not report any further alleged harassment or make any complaints of retaliation. Instead, in March 2003, Tsharides resigned from her employment with Pepperidge Farm.
STANDARD
Summary judgment is appropriately granted when the evidentiary record shows that there are no genuine issues of material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In determining whether the record presents genuine issues for trial, the court must view all inferences and ambiguities in a light most favorable the non-moving party. See Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir.1991), cert, denied, 502 U.S. 849, 112 S.Ct. 152, 116 L.Ed.2d 117 (1991). A plaintiff raises a genuine issue of material fact if "the jury could reasonably find for the plaintiff. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Rule 56 "provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there is not genuine issue of material fact." Id. at 247-8, 106 S.Ct. 2505.
In opposing a motion for summary judgment, the "adverse party may not rest upon the mere allegations or denials of [its] pleading," but must "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56; see D'Amico v. City of New York, 132 F.3d 145, 149 (2d Cir.1998). "If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party." Fed.R.Civ.P. 56(d). "The mere verification by affidavit of one's own conclusory allegations is not sufficient to oppose a motion for summary judgment." Zigmund v. Foster, 106 F.Supp.2d 352, 356 (D.Conn.2000). Furthermore, "the mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient [to avoid the entry of judgment against the non-moving party]; there must be evidence on which the jury could reasonably find for the [non-moving party]." Anderson, 477 U.S. at 248, 106 S.Ct. 2505.
DISCUSSION
1. Hostile Work Environment
A. Pervasive and Severe
The defendants argue that, "[i]n this circuit, ... courts have routinely held that conduct analogous to or more egregious than that alleged in this case was not sufficiently severe or pervasive to violate Title VII as a matter of law, even when engaged in by a supervisor." The plaintiffs *120 respond that [i]n viewing the allegations set forth in [the] complaint in their totality and in a light most favorable to them, coupled with the evidence as set forth in this objection, this [c]ourt cannot conclude as a matter of law that Arocho's conduct was not so severe and pervasive as to alter the terms and conditions of [the] plaintiffs' employment for the worse."
"The Supreme Court has held that Title VII is violated `[w]hen the workplace is permeated with discriminatory intimidation, ridicule, and insult, that is sufficiently severe or pervasive to alter the conditions of the victim's employment and create an abusive working environment." Mormol v. Costco Wholesale Corp., 364 F.3d 54, 58 (2d Cir.2004) (citing Harris v. Forklift Sys., Inc., 510 U.S. 17, 21, 114 S.Ct. 367, 126 L.Ed.2d 295 (1993)); Quinn v. Green Tree Credit Corp., 159 F.3d 759, 767 (2d Cir.1998) (same). "The test for 'hostile work environment' has both an objective and a subjective component: `A work environment will be considered hostile if a reasonable person would have found it to be so, and if the plaintiff subjectively so perceived it.'" Mormol 364 F.3d at 58. "Whether a reasonable person would find a given work environment to be hostile depends on the totality of the circumstances; '[considerations include: (1) the frequency of the conduct, (2) the severity of the conduct, (3) whether the conduct is physically threatening or humiliating, or a mere offensive utterance, and (4) whether the conduct unreasonably interferes with the employee's work performance." Id.
a. Pervasiveness
The Second Circuit has held that, "[a]s a general rule, incidents must be more than episodic; they must be sufficiently continuous and concerted in order to be deemed pervasive." Alfano v. Costello, 294 F.3d 365, 374 (2d Cir.2002); see also Mormol, 364 F.3d at 59 (relying on Alfano in deciding pervasiveness). In Mormol, the Second Circuit held that six incidents occurring within the timespan of one month were "far from being pervasive," stating that the incidents "were few and occurred within a short span of time." Id. at 59-60.
Similar to Mormol, the alleged harassment in the present case consists of several isolated incidents which took place over the timespan of about one month. Presley alleges that seven incidents occurred during August 2001, and two incidents occurred during the first week of December 2001. Tsharides alleges that five incidents occurred from the end of July 2001 to the end of August 2001. Furthermore, even though Presley worked for Pepperidge Farm from 1996 to 2002, and Tsharides worked for Pepperidge Farm from 1999 to 2003, both plaintiffs admit that Arocho did not harass them at any other time during their periods of employment. Consequently, because the alleged incidents in the present case are similar in frequency and duration to those in Mormol, the court concludes that neither plaintiffs' allegations of sexual harassment are pervasive.
b. Severity
Where there is a lack of pervasiveness, the allegations of sexual harassment must be "extraordinarily severe" for a plaintiff to prove a hostile work environment. Mormol, 364 F.3d at 59; see also Quinn, 159 F.3d 759, 768 (2d Cir.1998) (stating "where the conduct is sufficiently severe, it may alter the plaintiffs conditions of employment without repetition"). In Mormol, the plaintiff, Mormol, brought a hostile work environment claim against her supervisor, Ziermann, based on the following alleged incidents which occurred within the timespan of about one month. 364 F.3d at 56. On December 27, 1999, Ziermann told Mormol that he would not *121 approve her vacation request if she did not have sex with him. Id. at 55. On or about the same day, Ziermann also offered to pay her for hours that she had not worked if she agreed to have sex with him. Id. Mormol rebuffed all such advances from Ziermann. Id. Later in the month, Ziermann forced Mormol to return prematurely from her vacation for no apparent reason. Id. Specifically, Ziermann telephoned Mormol during her vacation, telling her that, if she did not return early from her vacation, she would be transferred or fired. Id. On January 22, 2000, the day she returned from work, Ziermann gave Mormol a note which stated that, if she agreed to have sex with him, he would give her money, make her a full-time employee while permitting her to work part-time and simply punch her card as if she were working full time, and take her on vacations and to a fitness club. Id. Mormol once again decline his offers. Id. The next week, Ziermann allowed Mormol to work only on three days when Mormol claimed that he previously promised that she could work on seven days. Id. On January 23, 2000, Ziermann also "wrote up" Mormol for being five minutes late from a break and added a hand written statement on the disciplinary notice which stated that the next "writeup" would result in suspension or termination. Id. at 55-56. On January 24, 2000, Mormol reported Ziermann's conduct to warehouse management and an investigation began. Id. at 56. On January 26, 2000, Costco suspended Ziermann and ultimately fired him on February 3, 2000. Id. The Second Circuit concluded that these incidents were "far from being pervasive" because the incidents "were few and occurred within a short span of time." Id. at 59. The court also concluded that the harassment alleged in this case was not sufficiently severe to overcome its lack of pervasiveness. Id. at 59-60. As a result, the Second Circuit affirmed summary judgment in favor of the defendants. id. at 60.
Likewise, in Quinn, the Second Circuit affirmed summary judgment in favor of the defendants based on similar reasoning to the court's decision in Mormol. See Quinn, 159 F.3d 759, 768 (2d Cir.1998). In Quinn, the plaintiffs hostile work environment claim rested on two allegations against her supervisor: "(1) that he told Quinn she had been voted the `sleekest ass' in the office and (2) that, on another occasion, he `deliberately touched [Quinn's] breasts with some papers that he was holding in his hand.'" Id. The Second Circuit held that "[t]hough the two incidents in question ... are obviously offensive and inappropriate, they are sufficiently isolated and discrete that a trier of fact could not reasonably conclude that they pervaded Quinn's work environment." Id. The court also held that "[n]or are these incidents, together or separately, of sufficient severity to alter the conditions of Quinn's employment without regard to frequency or regularity." Id.
i. Tsharides' claim
Tsharides's hostile work environment claim against Arocho consists of the following allegations. In July 2001, Arocho rubbed her hands and told her that she made him nervous. During this same period of time, Arocho attempted to touch her knee and told her that he had the authority to do so because he was her supervisor. In early August 2001, Arocho briefly rubbed his foot against her calf and made unintelligible comments. During the middle of August 2001, Arocho asked Tsharides if she wanted to "mess around." At the end of August 2001, Arocho told her that he wanted to "have a threesome" with her and one of her co-workers.
Arocho's statements of his desire to "mess around" and "have a threesome" *122 with Tsharides and his statements that she "made him nervous" and that he had the authority to attempt to touch her knee because he was her supervisor are not more severe than the sexual offers in Mormol. In Mormol, the supervisor made several direct sexual offers to the plaintiff and conditioned such offers with threats of negative employment actions if she refused and beneficial employment actions if she agreed. Mormol, 364 F.3d at 55. Arocho's sexual statements are not more severe than Ziermann's sexual offers because they were not conditioned with work-related threats or rewards.
Additionally, Arocho's actions of touching and attempting to touch Tsharides are not more severe than the touching alleged in Quinn. In Quinn, Quinn's supervisor, Fahey, deliberately touched Quinn's breasts with some papers that he was holding in his hand. Quinn, 159 F.3d at 762-763. In the present case, Arocho rubbed Tsharides's hands, attempted to touch her knee, and briefly rubbed his foot against her calf. A woman's breasts are a more private and intimate area than her hands, knee, or calf; consequently, an unwanted deliberate touching of that area is more offensive and, therefore, more severe.
Arocho's alleged conduct toward Tsharides is not more severe than the alleged conduct of the defendant-supervisors in Quinn and Mormol, where the Second Circuit affirmed summary judgment in favor of the defendants. Consequently, the court likewise grants summary judgment in favor of the defendants as to Tsharides's hostile work environment claim because Arocho's conduct is not sufficiently severe as a matter of law to overcome its lack of pervasiveness.
ii Presley's claim
Presley's hostile work environment claim against Arocho consists of the following allegations. In July 2001, Arocho touched Presley's hands and told her that she was attractive.[1] On August 2, 2001, Arocho summoned Presley to his office and told her that she had nice legs and other attractive attributes. At the time, Presley told Arocho that she was uncomfortable with those comments, and that she would file a complaint if this type of behavior persisted. Arocho responded by telling her that she was not in good standing with the human resources department or the company because of her previous worker's compensation claim. On August 3, 2001, Arocho told Presley that her friendship with men at the plant could get her money because she was pretty. Presley felt this statement insinuated that she was a prostitute of some sort. That same day, while Presley was in Arocho's office, Arocho grabbed his genital area and asked Presley if she wanted "any." On August 15, 2001, Arocho told Presley that fifty-three people could complain to the human resource department, and nothing would ever happen to him. Presley claims this comment made her feel humiliated and denigrated. Later that day, Arocho briefly put his hand on her shoulder and smiled, which Presley states she found taunting. On or about August 31, 2001, Presley learned from Diggs that Arocho had given a negative recommendation to the quality assurance department concerning Presley while she was applying for a position in that department. Steven White, the manager of the quality assurance department, however, testified that he made his hiring decision based on his own objective criteria *123 and did not consider Arocho's alleged negative recommendation. On December 7, 2001, Arocho marked Presley tardy when Presley contends that she was not late. Arocho then told Presley that if he marked her tardy again, he would suspend her. As a result, Arocho required Presley to fill out a time sheet which accounted for her whereabouts in the company plant at all times for one week. Presley contends that this was unfair because the company did not require other employees to do so. In March 2002, Presley received information that Arocho's wife, who was also an employee at the plant, was making physical threats towards her for pursuing a sexual harassment complaint.[2]
Presley's allegations of Arocho's conduct are arguably more severe than the plaintiffs allegations of her supervisor's conduct in Mormol. First, while the supervisor in Mormol made several work-related threats, Presley alleges that Arocho sent a negative recommendation to the quality assurance department while she was applying for a position there. Although White testified that he did not consider this recommendation when he chose another candidate for the position, Presley contends that Diggs, a supervisor in the quality assurance department, told her that Arocho's negative recommendation was in a file with the rest of the information for White to consider. Consequently, there are issues of fact that are either in dispute or unresolved as to Arocho's motivation and grounds for sending the negative recommendation, and as to the effect the negative recommendation had on Steven White's decision not to hire Presley for the position. Viewing the evidence in a light most favorable to Presley, the court holds that a reasonable juror could find, in light of Arocho's other conduct toward Presley, that Arocho sent a negative recommendation about Presley because of her gender, and not based on merit. A reasonable juror could further find that Arocho's negative recommendation caused White not to hire her for the position. If the jury were to make such findings, Arocho's negative recommendation would be arguably more severe than the work-related threats in Mormol because Arocho did more than threaten by taking action which may have cost Presley the position in the quality assurance department.
Presley's other allegations are also arguably more severe than the plaintiffs allegations in Mormol. Even though Ziermann's sexual offers in Mormol were conditioned with work-related threats and benefits, Arocho's sexual offer where he grabbed his crotch in front of Presley is more lewd and obscene and, consequently, is arguably more severe.
Arocho's responses to Presley that she was not in good standing with the company because she filed a worker's compensation claim and that fifty-three people could complain to human resources about his actions and nothing would happen to him are arguably more severe than Ziermann's actions of not allowing Mormol to work extra hours for one week. A reasonable juror could find that Arocho was lying when he made those statements in an attempt to discourage Presley from complaining about his behavior to the proper authorities within the company. Accordingly, Arocho's statements are arguably more severe than Ziermann's actions because they were directly intended to prevent *124 the remedy of the kind of behavior Title VII is designed to protect against in the employment context.
Both Presley and the plaintiff in Mormol complained about being marked tardy on one occasion. While Ziermann's subsequent actions of threatening to suspend or fire Mormol if he marked her tardy again may be more severe than Arocho's subsequent actions of requiring Presley to fill out a time sheet of her whereabouts in the plant for a week's time, Presley alleges that Arocho marked her tardy for no reason while Mormol admitted to being late. Consequently, Arocho's actions are more unjustified and arguably more severe than Ziermann's actions.
Because many of Presley's allegations are arguably more severe than the plaintiffs allegations in Mormol, a genuine issue of material fact exists as to whether Arocho's conduct toward Presley, taken together, was severe enough to overcome its lack of pervasiveness. As a result, the court denies the defendants' summary judgment motion as to Presley's hostile environment claim.
iii. Employer Liability
To succeed in her hostile work environment claim against Pepperidge Farm, Presley must show not only that she experienced severe and pervasive harassment, but also that "a specific basis exists for imputing the objectionable conduct to [Pepperidge Farm]." Alfano v. Costello, 294 F.3d 365, 373 (2d Cir.2002). Under Title VII, an employer is strictly liable for a supervisor's sexual harassment of an employee where the harassment culminates in a tangible employment action. Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, 761-763, 118 S.Ct. 2257, 141 L.Ed.2d 633 (1998); Faragher v. City of Boca Raton, 524 U.S. 775, 790, 807, 118 S.Ct. 2275, 141 L.Ed.2d 662 (1998).
B. PresleyTangible Employment Action
Pepperidge Farm argues that "[a]s a matter of law, none of [Presley's] allegations are sufficient to establish a tangible employment action." Presley responds that each of the following allegations can qualify as tangible employment actions: 1) Arocho's negative evaluation sent to the quality assurance department, which caused Steven White, the manager of the department, to deny her the promotion/reassignment; 2) Arocho marking her tardy without cause; 3) Arocho making her fill out a time sheet for one week; 4) Arocho threatening to suspend her if he marked her tardy again; and 5) Pepperidge Farm constructively discharging her.
"A tangible employment action constitutes a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits." Burlington Industries, Inc. v. Ellerth, 524 U.S. at 761, 118 S.Ct. 2257 (1998). "Tangible employment actions are the means by which the supervisor brings the official power of the enterprise to bear on subordinates." Id. at 762, 118 S.Ct. 2257. "A tangible employment decision requires an official act of the enterprise, a company act." Id. "The decision in most cases is documented in official company records and may be subject to review by higher level supervisors." Id. "A tangible employment action in most cases inflicts direct economic harm, but there is no requirement that it must always do so." Mormol v. Costco Wholesale Corp., 364 F.3d 54, 57 (2d Cir.2004) (internal quotations and citations omitted). "For these reasons, a tangible employment action taken by the supervisor becomes for Title VII purposes the act of the employer." Ellerth, 524 U.S. at 762, 118 S.Ct. 2257.
*125 Viewing the evidence in a light most favorable to Presley, the court concludes that there is a genuine issue of material fact as to whether Arocho's negative evaluation is a tangible employment action. Presley alleges that Arocho sent a negative written evaluation concerning her, which was untrue, to the quality assurance department while she was applying for a position in that department. Presley further alleges that Arocho's negative evaluation caused White, the manager of the department, not to hire her for the position. White testified, however, that he made his decision based on his own objective criteria and did not consider Arocho's alleged negative evaluation. In response, Presley contends that Diggs, a supervisor in the department, told her that she saw Arocho's negative evaluation in a file with the rest of the information to be reviewed by White before her interview.
The court holds that Arocho's negative recommendation can qualify, as a matter of law, as a tangible employment action because a reasonable juror could find that it satisfies all the criteria that the law requires. First, a reasonable juror could choose to believe the testimony of Diggs that Arocho's negative recommendation was in Presley's file for White to consider. Based on that finding, a reasonable juror could then infer that White did consider the recommendation and that it caused him to decline to hire Presley. If a reasonable juror found that Arocho's recommendation caused White to decline to hire Presley, it would constitute a significant change in Presley's employment status. Cf. Morris v. Oldham County Fiscal Court, 201 F.3d 784, 789 (6th Cir.2000) (holding that a supervisor's downgraded evaluation of the plaintiff did not constitute a tangible employment action because the plaintiff did not allege that her employer unfairly denied her a promotion as a result of the evaluation). Second, a reasonable juror could find that Arocho was using his supervisory power that Pepperidge Farm gave him in order to evaluate Presley, a subordinate, when he sent the negative recommendation. If a reasonable juror were to find make these findings then Arocho's negative recommendation would be an official act of Pepperidge Farm. Lastly, a reasonable juror could believe the testimony of Diggs that Arocho documented the negative recommendation and placed it into official company records. A reasonable juror could then draw the inference that White, a higher level official in the company, reviewed it. Because a reasonable juror could find that Arocho's alleged negative recommendation satisfied all these criteria, there is a genuine issue of material fact as to whether it is a tangible employment action.
Presley's other allegations, however, do not qualify as tangible employment actions. Specifically, Arocho's actions of marking Presley tardy and requiring her to fill out a time sheet for one week, by themselves, do not constitute a significant change in employment status, and, consequently, neither qualifies as a tangible employment action. See Mormol, 364 F.3d at 58 (holding that a supervisor's disciplinary notice did not constitute a significant change in employment status, in part, because it did not result in any further consequences to her). Additionally, Arocho's action of threatening to suspend Presley if he marked her tardy again is not a tangible employment action because the threat was not conditioned upon Presley submitting to further sexual harassment, and an unfulfilled threat, by itself, is not enough. See Jin v. Metropolitan Life Ins. Co., 310 F.3d 84, 93 (2d Cir.2002) (stating that a threat is not a tangible employment action if the plaintiff is not subjected to further sexual harassment and the supervisor does not follow through with his threat).
*126 Presley also alleges that Pepperidge Farm constructively discharged her. Constructive discharge can qualify as a tangible employment action, if the plaintiff can prove: 1) the elements of constructive discharge, and 2) that an "official act" of the employer underlies the constructive discharge. Pennsylvania State Police v. Suders, ___ U.S. ___, ___, 124 S.Ct. 2342, 2355, 159 L.Ed.2d 204 (2004). Presley's allegation that Pepperidge Farm constructively discharged her does not qualify as a tangible employment action because Presley cannot prove the requisite elements of constructive discharge as set forth infra.
Constructive Discharge
The defendants argue that Presley "has failed to establish any of the elements of a constructive discharge claim." Presley responds that the totality of the circumstances creates a genuine issue of material fact as to whether Pepperidge Farm constructively discharged her.
"Constructive discharge of an employee occurs when an employer, rather than directly discharging an individual, intentionally creates an intolerable work atmosphere that forces an employee to quit involuntarily." Whidbee v. Garzarelli Food Specialties, Inc., 223 F.3d 62, 73 (2000). "Working conditions are intolerable if they are so difficult or unpleasant that a reasonable person in the employee's shoes would have felt compelled to resign." Id. To prevail on a claim of constructive discharge, a plaintiff must also show "deliberate action on the part of the employer." Id. at 74.[S]omething beyond mere negligence or ineffectiveness is required. Id.
In Whidbee, the Second Circuit affirmed a district court order granting summary judgment for an employer on the issue of constructive discharge because the plaintiff-employees failed to prove a deliberate action on the part of their employer. Id. at 74. In this case, a co-worker, Richard Corliss, allegedly harassed two plaintiff employees on many occasions. Id. On June 8, 1998, the plaintiffs told their general manager, Patrick Grable, about the alleged harassment. Id. Grable responded by telling the plaintiffs that he would speak to Corliss, but the plaintiffs would have to handle the problem themselves. Id. at 67. Grable did not speak with Corliss that day. Id. The next day, June 9, Corliss allegedly harassed the plaintiffs again, and the plaintiffs immediately reported it to Grable. Id. Grable assured the plaintiffs that he would speak with Corliss, but, in fact, he did not speak with Corliss. Id. On June 11, Corliss continued to harass the plaintiffs, so they immediately reported the incident to their supervisor, Tina Hanley. Id. On June 12, Hanley reported the incident to Grable. Id. That day, one of the plaintiffs asked Grable to meet with her, but Grable denied her request, stating that he was too busy. Id. Later that day, Grable did meet with Corliss and gave him a verbal warning. Id. On June 16, the plaintiffs had a meeting with Grable to report additional harassment. Id. Grable responded by telling the plaintiffs that "he can't control Corliss's mouth," the plaintiffs should approach Corliss themselves, "he does not know how to deal with the problem and does not want to deal with it because it is too much for him", and if talking to Corliss does not solve the problem, then the plaintiffs have to leave. Id. (internal quotations omitted). During the meeting, however, Grable also said that he and the plaintiffs should meet with Corliss, and that Corliss either has to stop the harassment or he has to quit. Id. Grable also stated that he needed to do some research to find out how to stop this. Id. After the meeting, Grable issued Corliss a written warning which stated that any further offensive conduct would result *127 in disciplinary measures, up to and including termination. Id. at 68. Despite the warning, Corliss continued to harass the plaintiffs. Id. On June 26, one of the plaintiffs met with Grable, Corliss, and another member of management. Id. Corliss apologized to the plaintiff. Id. Grable told Corliss that if he continued to harass the plaintiffs, Grable would fire him. Id. On June 26, 1998, both of the plaintiffs resigned.
In affirming summary judgment for the defendant-employer, the Second Circuit held that even if "[c]ertain statements by Grable ... might be seen as evincing a lack of concern about the plaintiffs' situation[,]" the "evidence did not support an inference that her employer intended to create intolerable working conditions." Id. at 74. Further, the court explained that an employer's "demonstrated interest in retaining the plaintiffs" militated against a finding of constructive discharge. Id.
Following the logic of the Second Circuit's decision in Whidbee, the court concludes that there is no evidence to support an inference that Pepperidge Farm intended to create intolerable working conditions for Presley. It is undisputed that Pepperidge Farm: 1) investigated Presley's allegations; 2) conferred with Arocho concerning the anti-harassment policies; 3) admonished Arocho that if he was found to have engaged in harassment, he could be punished with job termination; 4) removed Presley from Arocho's day to day supervision; and 5) based on Presley's request, transferred her to a different work site in the plant. There is no evidence that Pepperidge Farm intended to create intolerable working conditions for Presley and, quite to the contrary, the above cited evidence points to a finding that Pepperidge Farm exhibited an interest in retaining her. See Whidbee v. Garzarelli Food Specialties, Inc., 223 F.3d 62, 74 (2000);[3]see also Mack v. Otis Elevator Co., 326 F.3d 116, 128 (2d Cir.2003) (concluding that the plaintiff failed to provide evidence of deliberate action by her employer because her employer immediately began investigating the plaintiffs allegations of her supervisor's harassment once the plaintiff notified them, and her employer offered to transfer the plaintiff to a position beyond the defendant-supervisor's power).
To summarize, the court concludes that there is a genuine issue of material fact as to whether Arocho's negative recommendation is a tangible employment action, however, Presley's other allegations do not qualify, as a matter of law, as tangible employment actions.
C. Affirmative Defense
Employers are presumptively liable for a supervisor's harassment of an employee. Ellerth, 524 U.S. at 765, 118 S.Ct. 2257. In the absence of a tangible employment action, however, an employer can avoid liability for a supervisor's alleged harassment of a subordinate if it can prove, as an affirmative defense, "(a) that the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior, and (b) that the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm other wise." Id.
*128 Pepperidge Farm and Reasonable Care
Pepperidge Farm argues that they have satisfied the first prong of the affirmative defense because "no reasonable trier of fact could find that Pepperidge Farm failed to exercise reasonable care to prevent and correct sexually harassing behavior." In support of this argument, Pepperidge Farm contends that "Pepperidge Farm not only had an anti-sexual harassment policy in place at all times during [Presley's] employment, but [that] Pepperidge Farm fully complied with that policy by conducting a prompt and thorough investigation of [Presley's] complaints, after which [Presley] conceded that the alleged harassment ceased."
Presley responds that the following allegations prove that Pepperidge Farm failed to exercise reasonable care to prevent and correct Arocho's sexually harassing behavior: 1) Pepperidge Farm's anti-harassment policy was unclear to employees because there were multiple versions of the policy in circulation at the time of Arocho's conduct; 2) Donald Miller, a supervisor, failed to report Presley's sexual harassment allegations to the human resource department which shows that Pepperidge Farm's response was inadequate; and 3) Pepperidge Farm's investigation was not done promptly because Macionus and Allende did not interview Tsaharides and Giannakova until twenty days after Presley notified Allende that they were potential witnesses.
In order to satisfy the first prong the affirmative defense, Pepperidge Farm must prove that it "exercised reasonable care to prevent and correct promptly any sexually harassing behavior." Ellerth, 524 U.S. at 765, 118 S.Ct. 2257. Under this analysis, the court will first consider whether Pepperidge Farm had an anti-harassment policy with complaint procedures in existence at the time of the alleged harassment. Caridad v. Metro-North Commuter R.R., 191 F.3d 283, 295 (2d Cir.1999). It is undisputed that, throughout the time that Presley worked at Pepperidge Farm, the company had an anti-harassment policy with complaint procedures in existence. Pepperidge Farm posted written copies of the policy in multiple locations in the plant where Presley worked. The company also informed newly hired employees of the policy during their orientation. Additionally, human resource officials walked around the floor of the plant to make themselves more accessible to employees.
Presley argues that Pepperidge Farm's anti-harassment policy was unclear to employees because there were multiple versions of the policy in circulation at the time of Arocho's conduct. The court is not persuaded by this argument because all versions of the policy before the court prohibit any kind of sexual harassment, instruct employees to whom they can complain, assure that the company will take prompt and appropriate action, promise confidentiality, and ensure that employees will not be penalized or retaliated against for filing a complaint. In fact, Presley testified at a deposition hearing that she knew she could report allegations of sexual harassment to officials in the human resource department.
The court will also examine the actions the company took in response to the complaints that its employees reported. Id. at 295; Distasio v. Perkin Elmer Corp., 157 F.3d 55, 64-65 (2d Cir.1998).
The Second Circuit has held that a supervisor's failure to comply with the company's reporting requirements is evidence tending to show that the company's response was inadequate. Id. at 65. In Distasio, the plaintiff informed her supervisor on several occasions that one of her co-workers was sexually harassing her. Id. at 59. The company's policy directed supervisors who receive a harassment *129 complaint to: "inform the Human Resources Department of allegation of sexual harassment by employees or non-employees within 24 hours or reporting of the incident, and assist, as requested, with investigation of such allegations." Id. at 64. The supervisor refused to inform company management of her allegations. Id. at 60. Consequently, the Second Circuit held that there was a genuine issue of material fact as whether the employer's response was reasonable. Id.
In the present case, there is a dispute between parties as to whether Presley told Donald Miller, a supervisor, about Arocho's alleged sexual harassment. On August 3, 2001, it is undisputed Presley spoke with Miller about Arocho. Presley contends that she told Miller about Arocho's alleged sexual harassment. Specifically, Presley testified during a deposition to the following:
[Question]And then on the 3rd when this thing happened with Mr. Arocho grabbing his genitals, did you tell anybody else on August 3rd about what happened?
[Answer]I didn't tell no one that day except Donald Miller what was going on.
[Question]And then you went back to him later in the day, did you tell him what Mr. Arocho had done on the 3rd?
[Answer]That's correct, yes.
In contrast to Presley's contentions, Paul Macionus, Pepperidge Farm's human resources manager, testified during a deposition that when he interviewed Miller during the investigation, Miller stated that Presley told him only that she was "uncomfortable" around Arocho. Miller also allegedly told him that Presley did not specify what made her uncomfortable, nor did she make any allegations of sexual harassment.
Despite the dispute as to details of this conversation, it is undisputed that Miller told Presley to report any harassment to the human resource department, and that Presley told Miller that she had handled the situation. It is also undisputed, however, that Miller did not report Presley's statements to human resource officials.
It is not clear from the facts before the court what Miller's duty was if Presley did tell him about Arocho's alleged sexual harassment. Presley contends that Miller had an obligation to report inappropriate conduct to the human resources department in accordance with the company's anti-harassment policies. Pepperidge Farm's anti-harassment policies do state that employees can report allegations of harassment to a supervisor, but they do not state what a supervisor's duty is once he or she receives a report.
Viewing the evidence in a light most favorable to Presley, the court holds that a reasonable juror could find that Presley did tell Miller about Arocho's sexual harassment, and that Miller, as a supervisor, had a duty to relay those allegations to the human resource department. Following the Second Circuit's decision in Distasio, the court concludes that Miller's failure to comply with the company's reporting requirements is evidence tending to show that the company's response was inadequate.
The prompt nature of Pepperidge Farm's investigation is also in dispute. The following facts are not in dispute. On Friday, August 31, 2001, Diggs and White notified Macionus and Allende of Presley's sexual harassment allegations. On Tuesday, September 4, 2001, the first day back at the plant after the Labor Day holiday weekend, Macionus and Allende commenced an investigation of Presley's allegations. On September 4, 2001, Macionus and Allende interviewed Presley. The officials also removed Presley from Arocho's day-to-day supervision during the investigation. On September 5, 2001, Macionus *130 and Allende interviewed Arocho. During that week, Macionus and Allende also interviewed other witnesses that Presley identified, namely, Donald Miller, Juan Martinez, and Spencer Peeples. Based on the information from their investigation, Macionus and Allende were unable to corroborate any of Presley's allegations and arrived at an inconclusive, result. On Friday, September 7, 2001, Macionus and Allende reported the results of the investigation thus far to Presley. On September 24, 2001, Macionus and Allende met with Presley again to discuss the results of the investigation.
There is a dispute as to when Presley notified Macionus and Allende that two other employees, Tsharides and Giannakova, were potential witnesses in her case. Presley has submitted a transcript of a tape recording of Allende, stating that Allende received a voice mail from Presley on September 5, 2001 which notified Allende of Tsharides and Giannakova. When confronted with the tape recording during a deposition hearing, however, Allende testified that Presley did not tell her about Tsharides and Giannakova until September 25, 2001.
It is also unclear when Macionus and Allende interviewed Tsharides and Giannakova. Allende gave deposition testimony that she interviewed both Tsharides and Giannakova on September 25, 2001, the same day she claims that Presley notified her. Tsharides testified during her deposition that Macionus and Allende interviewed her in early September 2001.
It is undisputed, however, that When the officials did interview Tsharides and Giannakova, they questioned them about Presley, and neither employee offered any information regarding Presley's allegations. Instead, both employees had their own allegations against Arocho which the officials investigated and found to be unsubstantiated.
Viewing the evidence in a light most favorable to Presley, the court concludes that a reasonable juror could find that Presley notified Allende about Tsharides and Giannakova on September 5, 2001, and that Macionus and Allende did not interview them until September 25, 2001. Whether a twenty day delay in interviewing these witnesses means that Pepperidge Farm's investigation was no longer prompt is a question for the jury. In sum, the court concludes that Miller's failure to comply with the company's reporting requirements and Pepperidge Farm officials' delayed investigation create a genuine issue of material fact as to whether Pepperidge Farm exercised reasonable care to prevent and correct promptly any sexually harassing behavior.
Presley and Preventive/Corrective Opportunities
Under the second prong of the affirmative defense, Pepperidge Farm must prove that Presley "unreasonably failed to take advantage of any preventive or corrective opportunities provided by [Pepperidge Farm] or to avoid harm other wise." Ellerth, 524 U.S. at 765, 118 S.Ct. 2257; Mack, 326 F.3d at 127-128.
In Mack, the plaintiffs supervisor, Connolly, was allegedly harassing her at work. Id. at 120-121. The company's antiharassment policy provided employees with several avenues to make a complaint. Id. at 121. As one option, the policy instructed employees to report any allegations of harassment to a supervisor, unless the supervisor was the alleged harasser. Id. The plaintiff testified at her deposition that she reported Connolly's alleged harassment to Gallina, Connolly's supervisor, and that she asked Gallina to transfer her to another department. Id. at 128. The plaintiff conceded that she knew there were other avenues available for her to complain. Id. at 121. Even though she *131 did not take advantage of the other avenues that the company provided, the Second Circuit held there was "evidence in the record from which a reasonable trier of fact could conclude that [the plaintiff] did not fail to take advantage of [the company's] harassment complaint procedures." Id. at 128 (internal quotations omitted).
In the present case, there is a dispute between the parties as to whether Presley told Donald Miller, a supervisor, about Arocho's alleged sexual harassment. Presley contends that she told Miller about Arocho's alleged sexual harassment. Specifically, Presley testified during a deposition to the following:
[Question]And then on the 3rd when this thing happened with Mr. Arocho grabbing his genitals, did you tell anybody else on August 3rd about what happened?
[Answer]I didn't tell no one that day except Donald Miller what was going on.
[Question]And then you went back to him later in the day, did you tell him what Mr. Arocho had done on the 3rd?
[Answer]That's correct, yes.
In contrast to Presley's contentions, Paul Macionus, Pepperidge Farm's human resources manager, testified during a deposition that when he interviewed Miller during the investigation, Miller stated that Presley told him only that she was "uncomfortable" around Arocho. Miller also allegedly told him that Presley did not specify what made her uncomfortable, nor did she make any allegations of sexual harassment.
Viewing the evidence in a light most favorable to Presley, the court concludes that a reasonable juror could find that Presley, like the plaintiff in Mack, did tell a supervisor about Arocho's sexual harassment. Additionally, it is undisputed Pepperidge Farm's anti-harassment policies, like the policy in Mack, instructed employees to report allegations of harassment to a supervisor. Consequently, as was the case in Mack, there is evidence in the present case from which a reasonable trier of fact could conclude that Presley did not fail to take advantage of Pepperidge Farm's harassment complaint procedures.
For all the above reasons, the court concludes that a genuine issue of material fact exists as to whether Pepperidge Farm is entitled to claim the affirmative defense.
2. Retaliation
Title VII provides that
[i]t shall be an unlawful employment practice for an employer to discriminate against any of his employees ... because [she] has opposed any practice made an unlawful employment practice... or because [she] has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding or hearing under Title VII.
42 U.S.C. § 2000e-3(a), Title VII § 704(a). Retaliation claims under Title VII are analyzed under the McDonnell Douglas threestep burden shifting analysis. Quinn v. Green Tree Credit Corp., 159 F.3d 759, 768 (2d Cir.1998). "First, the plaintiff must make out a prima facie case of retaliation." Id. "Second, the defendant then has the burden of articulating a legitimate, nonretaliatory reason for the complained of action." Id. "Third, if the defendant meets its burden, [the] plaintiff must adduce evidence sufficient to raise a fact issue as to whether the employer's reason was merely a pretext for retaliation." Id. (internal quotations omitted).
A. The Prima Facie Case
To establish a prima facie case of retaliation, an employee must show: 1) participation in a protected activity known to the defendant; 2) an adverse employment action; and 3) a causal connection between *132 the protected activity and the adverse employment action. Id. at 769.
1. Adverse Employment Action
Pepperidge Farm argues that Presley has failed to establish a prima facie claim of retaliation because she cannot prove that Pepperidge Farm took any adverse employment action against her.
Presley responds that Pepperidge Farm took adverse employment action against her when: 1) Arocho marked Presley tardy when Presley contends that she was not late, and 2) Arocho required Presley to fill out a time sheet which accounted for her whereabouts in the company plant at all times for one week.
The Second Circuit has defined "adverse employment action" as a "materially adverse change in the terms and conditions of employment." Weeks v. New York State (Div. of Parole), 273 F.3d 76, 85 (2d Cir.2001), abrogated on other grounds by Nat'I R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 108-114, 122 S.Ct. 2061, 153 L.Ed.2d 106 (2002). "To be materially adverse, a change in working conditions must be `more disruptive than a mere inconvenience or an alteration of job responsibilities.' " Id. "Examples of such a change include `termination of employment, a demotion evidenced by a decrease in wage or salary, a less distinguished title, a material loss of benefits, significantly diminished material responsibilities, or other indices ... unique to a particular situation.'" Id.
In Weeks, the plaintiff argued that a "notice of discipline" she received was an adverse employment action because nonminority, non-female officers did not receive such a notice under similar circumstances. Id. at 86. The Second Circuit held that the notice of discipline was not an adverse employment action because the plaintiff alleged "no facts from which one could infer that it created a materially adverse change in her working conditions." Id. The court noted that "she [did] not describe its effect or ramifications, how or why the effect would be serious, whether it went into any file, or even whether it was in writing."
Presley argues that Pepperidge Farm took adverse employment action against her when: 1) Arocho marked Presley tardy when Presley contends that she was not late; and 2) Arocho required Presley to fill out a time sheet which accounted for her whereabouts in the company plant at all times for one week. Like the plaintiff in Weeks, Presley has not described the effect or ramifications of either incident, how or why the effect would be serious, whether either incident was noted in her file, or even whether they were put in writing. Without this information, the court is unable to determine how marking her tardy and requiring her to fill out a time sheet for one week could cause an adverse change in her working conditions. In the absence of this information, the court concludes that Presley's allegations do not qualify as adverse employment actions. As a result, Presley's retaliation claim fails.
3. Gender Based Discrimination
Pepperidge Farm argues that the plaintiffs claim of gender discrimination is nothing more than a reiteration of their hostile work environment claim, and that the court should grant summary judgment on these claims for the same reasons as their hostile work environment claim. The plaintiffs respond that Pepperidge Farm subjected them to "sex discrimination by virtue of a hostile work environment."
Title VII prohibits employers from "discriminating] against any individual with respect to [her] compensation, terms, conditions, or privileges of employment, because of such individual's ... *133 sex." 42 U.S.C. § 2000e-2(a)(1). The Supreme Court has held that the phrase "terms, conditions, or privileges of employment" is broad enough to encompass the definition of a hostile work environment. Harris v. Forklift Systems, 510 U.S. 17, 21, 114 S.Ct. 367, 126 L.Ed.2d 295 (1993). Consequently, to prove sex discrimination by virtue of a hostile work environment, the plaintiffs must show: 1) that the alleged conduct amounts to a hostile work environment; and 2) that the alleged conduct created such an environment because of their sex. Gregory v. Daly, 243 F.3d 687, 691 (2d Cir.2001).
A. Tsharides's claim
Because the court has already held that a genuine issue of material fact does not exist with respect to Tsharides's hostile work environment claim, her claim of sexual discrimination by virtue of a hostile work environment fails as a matter of law.
B. Presley's claim
Because the court has already held that a genuine issue of material fact does exist with respect to Presley's hostile work environment claim, the court will now analyze whether the alleged conduct created such an environment because of her sex.
"In determining whether an employee has been discriminated against because of [her] ... sex, courts have consistently emphasized that the ultimate issue is the reasons for the individual plaintiffs treatment, not the relative treatment of different groups within the workplace." Brown v. Henderson, 257 F.3d 246, 252 (2d Cir. 2001) (internal citations and quotations omitted).
The Second Circuit "has found workplace situations discriminatory under a hostile work environment theory where the conduct at issue, though lacking any sexual component or any reference to the victim's sex, could, in context, reasonably be interpreted as having been taken on the basis of the plaintiffs sex." Gregory, 243 F.3d at 695. In Gregory, a female plaintiff, Gregory, alleged that her supervisor, Daly, subjected her to a hostile work environment because of her sex. Id at 689. In support of her claim, Gregory alleged that Daly made "demeaning comments of a sexual nature, engaged in behavioral displays of a sexual nature, and made unwelcome physical contact ... of a sexual nature with Gregory." Id. at 690 (internal quotations omitted). Gregory's claim also contained other allegations of Daly's discrimination. Specifically, after Gregory complained about Daly's behavior, "Gregory's new supervisor, acting on Daly's instructions, imposed novel restrictions on her work activities, including the requirement that she, unlike other employees, provide a `minute by minute' record of her movements." Id. Daly also allegedly "made hostile comments concerning the lawsuit Gregory had filed, started to threaten her job, and subjected her to baseless disciplinary actions." Id. The defendant argued that the court "must exclude from consideration ... Gregory's allegations that do not, on their face, contain any connection to sexual behavior or to a person's sex." Id. at 694. The court responded, holding that "the sex-based character of much of Daly's behavior permits the inference that the remainder of his harassing conduct was also due to Gregory's sex." Id. at 695. The court further held that "this remains so even though the discriminatory character of some individual incidents might not be evident were they considered in isolation only." Id. As a result, the court concluded that "[b]ecause Gregory's allegations support the notion that she was subjected to abusive working conditions because of her sex, we vacate the district court's judgment dismissing *134 plaintiffs claim of hostile work environment discrimination." Id.
The court considered the following allegations in deciding Presley's hostile work environment claim. On August 2, 2001, Arocho told Presley that she had nice legs. Presley told Arocho that she was uncomfortable with that comment, and that she would pursue a complaint if this conduct persisted. Arocho responded by telling Presley that she was not in good standing with the company because she had previously filed a worker's compensation claim. On August 3, 2001, Arocho told Presley that her friendship with several of the men at the plant could bring her financial gain due to her attractive physical attributes. Later that same day, Arocho summoned Presley to his office, grabbed his crotch area, and asked Presley if she "wanted any of this." On August 15, 2001, Presley contends that Arocho warned her that fifty-three people could complain to human resources about him and nothing would ever happen to him. Later that same date, Arocho allegedly touched Presley on her shoulder and smiled. On August 31, 2001, Presley learned from Diggs that Arocho sent a negative recommendation to quality assurance while she was applying for a position in the department. Presley alleges that the negative recommendation was untrue and that it caused White to decline to hire her for the position. On December 7, 2001, Arocho marked Presley tardy when Presley contends that she was not late. Arocho then told Presley that, if she were marked tardy again, she would be suspended from her employment. As a result, Arocho required Presley to fill out a time sheet which accounted for her whereabouts in the company plant at all times for one week.
Several of Presley's allegations show that her sex played a substantial role in Arocho's behavior. Specifically, a reasonable juror could find that Arocho's comment that Presley's friendship with several of the men at the plant could bring her financial gain due to her attractive physical attributes insinuated that Presley was a prostitute of some sort, which is a demeaning activity primarily associated with women. Additionally, a reasonable juror could also find that Arocho's action of grabbing his crotch in front of Presley and asking her if she "wanted any of this" is a behavioral display of a sexual nature or some type of vulgar sexual offering. By making such a display or offering, a reasonable juror could find that Arocho has demonstrated a sexual interest toward Presley as a woman. These inferences are also supported by the Supreme Court's observation that "[c]ourts and juries have found the inference of discrimination easy to draw in most male-female sexual harassment situation, because the challenged conduct typically involves explicit or implicit proposals of sexual activity; it is reasonable to assume those proposals would not have been made to someone of the same sex." Oncale v. Sundowner Offshore Services, Inc., 523 U.S. 75, 80, 118 S.Ct. 998, 140 L.Ed.2d 201 (1998) (discussing different forms of evidence that can show sex discrimination).
The remainder of Arocho's conduct is factually similar to the remainder of Daly's conduct in Gregory v. Daly, 243 F.3d 687 (2d Cir.2001). For instance, both Daly and Arocho required the plaintiffs to fill out a time sheet accounting for their whereabouts at all times. Both Daly and Arocho subjected the plaintiffs to baseless disciplinary actions and threatened their jobs. Because this factual similarity exists, it is no great stretch for the court similarly to hold that the sex-based character of some of Arocho's conduct permits the inference that the remainder of his conduct was also due to Presley's sex. Consequently, the court concludes that a genuine issue of material fact exists as to whether Arocho's *135 alleged conduct created a hostile work environment because of her sex.
In sum, Presley has raised a genuine issue of material facts as to both elements of her gender discrimination claim, which are: 1) that the alleged conduct amounts to a hostile work environment, and 2) that the alleged conduct created such an environment because of her sex.
C. Employer Liability
The court may not hold individual supervisory employees liable under Title VII. Tomka v. Seiler Corp., 66 F.3d 1295, 1314 (2d Cir.1995), abrogated on other grounds by Burlington Indus., Lie. v. Ellerth, 524 U.S. 742, 118 S.Ct. 2257, 141 L.Ed.2d 633 (1998). "For liability to attach [under Title VII], the employer must also be responsible for the conduct at issue." Gregory, 243 F.3d at 692 fn. 3. Pepperidge Farm's liability for Arocho's alleged sexual discrimination is determined by the same standards as their liability for a hostile work environment. Id. Furthermore, because Presley's claim of sexual discrimination is based on the same conduct as her hostile work environment claim, the court's earlier ruling as to Pepperidge Farm's vicarious liability applies here. Consequently, there are genuine issues of material fact as to whether Pepperidge Farm is liable for Arocho's alleged sexual discrimination.
4. Negligent Misrepresentation
The defendants move for judgment as a matter of law on the plaintiffs' claim of negligent misrepresentation, arguing that the plaintiffs have failed to raise a genuine issue of material fact with respect to two essential elements of that claim. Specifically, the defendants argue that the "[p]laintiffs cannot ... adduce any evidence that Pepperidge Farm made any false statement with regard to the sexual harassment prevention policy nor that they reasonably relied on any such statement."
The plaintiffs respond that Pepperidge Farm knew or should have reasonably known that some of the representations that they made in their company handbook or their anti-harassment policy were false. The plaintiffs further respond that they justifiably relied on those representations by working for the defendants and participating in the company's complaint procedures. Finally, the plaintiffs respond that the inadequacy of Pepperidge Farm's complaint procedures exposed them to further harassment by Arocho.
The governing principles of negligent misrepresentation are set forth in § 552 of the Restatement Second of Torts (1979), which states:
One who, in the course of business, profession or employment ... supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
Barry v. Posi-Seal Intern., Inc., 36 Conn. App. 1, 20, 647 A.2d 1031 (1994) (alterations in original) (emphasis added).
In Barry, the plaintiff claimed that his employer, Posi-Seal, negligently misrepresented the terms and conditions of his employment. Id. at 3, 647 A.2d 1031. Specifically, Posi-Seal distributed a personnel policy manual to its employees describing company policy on disciplinary procedures. Id. at 4, 647 A.2d 1031. It states that "[i]t is the policy of the [c]ompany that any employee who violates any of the rules or procedures of the [c]ompany shall be subject to disciplinary action as set forth below." Id. The manual then sets forth procedures to respond to first, second and third violations by employees of the company rules and regulations. Id. Additionally, *136 on one occasion, the plaintiff asked Eugene Bisbee, the vice president and general manager of Posi-Seal, about the plaintiffs job security. Id. Bisbee responded that "if you do your job, you do your work, you're going to have a job here. If we can make this place run and minimize the money lossI mean, you do your job, you're going to have a job here." Id. On August 4, 1988, the plaintiff made a disparaging remark about a company made valve in the presence of a customer representative. Id. at 3, 647 A.2d 1031. The next day, Posi-Seal terminated his employment because of the comment. Id. Posi-Seal did not give the plaintiff prior notice of his termination and did not afford him any other disciplinary measures in accordance with their personnel manual. Id On appeal, the plaintiff contended that the defendant failed to exercise reasonable care and thus supplied false information to the plaintiff which the plaintiff justifiably relied on to his detriment. Id. at 21, 647 A.2d 1031. The court rejected the plaintiffs argument, stating that "the plaintiff... has failed to apprise us of anything in the record, and our search of the record has revealed nothing to support his contention." Id. The court held that there was no evidence from which the jury reasonably could have found that the defendant's representations were untrue when made or that the defendant should have known to be untrue when made. Id. As a result, the court affirmed the trial court's decision to grant the defendant's motion to set aside the verdict as to the plaintiffs negligent misrepresentation claim. Id.
In the present case, neither plaintiff has alleged any facts indicating that Pepperidge Farm failed to exercise reasonable care or competence in obtaining or communicating any information in their company handbook or anti-harassment policy. Specifically, like the plaintiff in Barry, neither plaintiff has introduced any evidence from which a reasonable juror could find that Pepperidge Farm's representations in their company handbook or anti-harassment policy were untrue when they made them or that they should have known they were untrue at that time. Consequently, the court concludes that the claim of negligent misrepresentation fails as a matter of law.
5. Civil Conspiracy
The defendants argue that they are entitled to summary judgment on the plaintiffs' claims of civil conspiracy. Specifically, the defendants argue that "[a]n essential element of a civil action for conspiracy is that the alleged conspirators have combined `to do a criminal act or an unlawful act or a lawful act by criminal or unlawful means.'" The defendants further argue that the plaintiffs cannot raise a genuine issue of material fact that the defendants have committed such an act. The plaintiffs respond that their civil conspiracy claim is based upon their earlier claim of negligent misrepresentation.
"An essential element of a civil action for conspiracy is that the alleged conspirators have combined `to do a criminal act or an unlawful act or a lawful act by criminal or unlawful means.' " Jones v. O'Connell, 189 Conn. 648, 662, 458 A.2d 355 (1983).
In Jones, the court stated that "[t]he illegal act upon which the plaintiffs rely to establish a civil conspiracy are the very acts which we have already found not to be improper." Id. Consequently, the court held that "[i]n the absence of any independent basis for this claim, our discussion of the merits of the underlying claims is dispositive of this claim as well." Id.
In the present case, the plaintiffs rely on their earlier claim of negligent misrepresentation to establish a civil conspiracy. Because the court has already granted summary judgment in favor of the defendants *137 on the plaintiffs' underlying claim of negligent misrepresentation, the plaintiffs' claim of civil conspiracy also fails as a matter of law.
6. Intentional Infliction of Emotional Distress
The defendants argue that a genuine issue of material fact does not exist as to the plaintiffs claims of intentional infliction of emotional distress against Arocho or Pepperidge Farm. Specifically, the defendants argue that the plaintiffs have not alleged that Arocho or Pepperidge Farm engaged in any conduct that a reasonable juror could find to be "extreme and outrageous."
The plaintiffs respond that the question of whether the conduct of Arocho or Pepperidge Farm was sufficiently extreme and outrageous should be decided by a jury because, at this stage, reasonable minds could differ.
In order for the plaintiff to establish a claim of intentional infliction of emotional distress, the plaintiff must prove
1) that the actor intended to inflict emotional distress or that he knew or should have known that emotional distress was the likely result of his conduct; 2) that the conduct was extreme and outrageous; 3) that the defendant's conduct was the cause of the plaintiffs distress; and 4) that the emotional distress suffered by the plaintiff was severe.
Appleton v. Bd. of Educ. of Town of Stonington, 254 Conn. 205, 210, 757 A.2d 1059 (2000). "Whether a defendant's conduct is sufficient to satisfy the requirement that it be extreme and outrageous is initially a question for the court to determine." Id. "Only where reasonable minds disagree does it become an issue for the jury." Id.
A. Extreme and Outrageous
"Liability for intentional infliction of emotional distress requires conduct that exceeds all bounds usually tolerated by society ...." Id. (internal quotations omitted). Courts have found liability "only where the conduct has been so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community." Id. at 211, 757 A.2d 1059. "Generally, the case is one in which the recitation of facts to an average member of the community would arose his resentment against the actor, and lead him to exclaim, `Outrageous!.' " Id. (quoting the Restatement (Second), Torts § 46, comment (d), p. 73 (1965)). "Conduct on the part of the defendant that is merely insulting or displays bad manners or results in hurt feelings is insufficient to form the basis for an action based upon intentional infliction of emotional distress." Id.; Kilduff v. Cosential, Inc., 289 F.Supp.2d 12, 21 (D.Conn.2003).
In Appleton v. Bd. of Educ. of Town of Stonington, 254 Conn. 205, 757 A.2d 1059 (2000), the plaintiff, a teacher, claimed that the principal, assistant principal, and board of education intentionally inflicted emotional distress on her. Id. Specifically, Appleton complained that the principal "made condescending comments to her in front of her fellow colleagues questioning her vision and ability read; telephoned the plaintiffs daughter, representing that the plaintiff had been acting differently and should take a few days off from work; and telephoned the police, who came to the school and escorted the plaintiff out of the building to her car." Id. at 211, 757 A.2d 1059 (internal quotations omitted). "The plaintiff also asserted in her affidavit that she was subjected to two psychiatric examinations at the request of the board, and that she was forced to take a suspension and a leave of absence and, ultimately, forced to resign." Id. The court held that while these occurrences may have been distressing and hurtful to the plaintiff, *138 they did not constitute extreme and outrageous conduct. Id. As a result, the court held that the defendants' conduct was insufficient to form the basis of an action for intentional infliction of emotional distress. Id. at 212, 757 A.2d 1059.
Further, in Kilduff v. Cosential, Inc., 289 F.Supp.2d 12 (D.Conn.2003), the plaintiff alleged that her supervisor used sexual analogies to describe her employment duties for the duration of her employment, which lasted five months, subjected her to sexist language over an extended period of time, engaged in inappropriate touching. Id. at 22. The plaintiff also alleged that her supervisors harassing conduct increased in intensity in retaliation for her complaining of his conduct. Id. Finally, the plaintiff alleged that her supervisor threatened to fire her if she cut her hair. Id. The court held that her supervisor's conduct was "sufficiently objectionable that the response of reasonable people may differ thus precluding dismissal of [this claim]." Id. The court stated that the retaliatory nature of the supervisor's conduct was entitled to some weight. Id.
a. Presley's Claim Against Arocho
Presley's claim of intentional infliction of emotional distress against Arocho includes the following allegations. On August 2, 2001, Arocho told Presley that she had nice legs. Presley told Arocho that she was uncomfortable with that comment, and that she would pursue a complaint if this conduct persisted. Arocho responded by telling Presley that she was not in good standing with the company because she had previously filed a worker's compensation claim. On August 3, 2001, Arocho told Presley that her friendship with several of the men at the plant could bring her financial gain due to her attractive physical attributes. Presley felt this statement insinuated that she was a prostitute of some sort. Later that same day, Arocho summoned Presley to his office, grabbed his crotch area, and asked Presley if she "wanted any of this." On August 15, 2001, Arocho warned her that fifty-three people could complain to human resources about him and nothing would ever happen to him. On December 7, 2001, Arocho marked Presley tardy when Presley contends that she was not late. Arocho then told Presley that if she were marked tardy again, she would be suspended from her employment. As a result, Arocho required Presley to fill out a time sheet which accounted for her whereabouts in the company plant at all times for one week. Presley also alleges that Arocho sent a negative recommendation to the quality assurance department that caused White to decline to hire her for the position.
Accepting Presley's allegations as true, they are not more extreme and outrageous than the plaintiffs allegations in Appleton. While the principal in Appleton made condescending remarks towards Appleton, Arocho made comments that were insulting and intimidating. The principal's comments in Appleton were more outrageous than Arocho's comments, however, because he made them in front of several of the Appleton's colleagues while Arocho said them only to Presley. Insulting an employee in front of her colleagues is more outrageous because it could pervade the employee's entire working environment and ruin the employee's credibility and reputation.
Additionally, while Arocho marked Presley tardy and required her to fill out a time sheet, Appleton's employer forced her to take two psychiatric examinations. Forcing an employee to submit to two psychiatric examinations is more extreme than marking them tardy or requiring them to fill out a time sheet because it is much more burdensome and objectionable for an employee.
*139 Furthermore, Arocho's negative recommendation is not more outrageous than the school official's actions of calling the police to escort Appleton out of the building and calling Appleton's daughter to tell her that Appleton was behaving differently and needed to stay home. While Presley may have lost a promotion as a result of Arocho's negative recommendation, being escorted away from your job by the police is extremely embarrassing and involving someone's close family members is extremely violative. Cf. Bombalacki v. Pastore, 71 Conn.App. 835, 841-841, 804 A.2d 856 (2002) (holding that a police chiefs action of failing to recommend the plaintiff for a promotion that he deserved was not extreme and outrageous). Finally, Arocho only threatened to suspend Presley, while Appleton's employer did suspend her and forced her to take a leave of absence.
Because Presley's allegations are not more extreme and outrageous than the plaintiffs allegations in Appleton, where the court granted summary judgment against the plaintiff, Presley's claim of intentional infliction of emotional distress against Arocho also fails as a matter of law.
b. Tsharides's claim against Arocho
Tsharides's claim of intentional infliction of emotional distress against Arocho includes the following allegations. In or about the end of July 2001, Arocho rubbed Tsharides hands and told her that she "made him nervous." Proximate to this time period, Arocho attempted to touch her knees and told her that he had the authority to do so because he was her supervisor. In early August 2001, Arocho approached Tsharides from behind, rubbed his foot against her calf, and uttered unintelligible comments. In August 2001, Arocho asked Tsharides if she wanted "to mess around" with him. Finally, in late August 2001, Arocho approached Tsharides and told her that he wanted to have a "threesome" with her and one of her coworkers.
Tsharides's allegations are far less severe than the plaintiffs allegations in Kilduff. First, unlike the plaintiffs supervisor in Kilduff, Arocho never threatened to fire Tsharides. Second, any inappropriate or sexual comments in the present case occurred far less frequently and over a shorter period of time than in Kilduff. Specifically, in Kilduff, the plaintiff alleged that her supervisor made sexual comments to her for the duration of employment which lasted five months. By contrast, Tsharides worked at Pepperidge Farm for almost four years and alleges that, during that time, Arocho made only three sexual comments to her over a period of one month. Third, while the supervisor's harassment in Kilduff intensified in retaliation for the plaintiff complaining about his conduct, Tsharides testified at deposition that Arocho's inappropriate conduct ceased even before Tsharides participated in Pepperidge Farm's complaint procedure. Because the court in Kilduff indicated that it would give some weight on the retaliatory nature the supervisor's conduct in making its decision, this court will also weight the lack any retaliation in the present case. Consequently, because Tsharides's allegations are far less severe than the plaintiffs allegations in Kilduff, Tsharides's claim of intentional infliction of emotional distress against Arocho fails as a matter of law.
B. Both Plaintiffs claims against Pepperidge Farm
In Morrissey v. Yale University, 268 Conn. 426, 427-428, 844 A.2d 853 (2004) the plaintiff alleged that her employer intentionally inflicted emotional distress on her by failing to take any action in response to the plaintiffs complaints of harassment. In response, the Connecticut Supreme Court held that "no reasonable jury could conclude that an average member *140 of the community would find the defendant's conduct to have been extreme and outrageous." Id. at 428, 844 A.2d 853; accord Pascal v. Storage Technology Corp., 152 F.Supp.2d 191, 214 (D.Conn. 2001) (holding that an employer's failure to adequately protect the plaintiff from an arguably hostile work environment was not extreme and outrageous); Miner v. Town of Cheshire, 126 F.Supp.2d 184, 195 (D.Conn.2000) (holding that an employer's refusal to protect the plaintiff from sexual harassment was not sufficiently extreme or outrageous to state a claim for intentional infliction of emotional distress); Dobrich v. General Dynamics Corp., Elec. Boat Div., 40 F.Supp.2d 90, 105 (D.Conn.1999) (holding that an employer's negligent failure to prevent sexual harassment of female employee was not extreme and outrageous).
In the present case, both plaintiffs claim that Pepperidge Farm intentionally inflicted emotional harm on them by providing an inadequate response to the plaintiffs' allegations of sexual harassment. Even accepting the plaintiffs' allegations as true, the court concludes that after Morrissey, Pascal, Miner, and Dobrich, no reasonably jury could conclude that an employer's inadequate response to an employees's allegations of sexual harassment, even it was negligent, is extreme and outrageous. Consequently, the plaintiffs' claims of intentional infliction of emotional distress against Pepperidge Farm fails as a matter of law.
7. Negligent Infliction of Emotional Distress
The defendants next argue that the plaintiffs have failed to raise a genuine issue of material fact on the claim of negligent infliction of emotional distress. Specifically, the defendants argue that the plaintiffs have failed to alleged any unreasonable conduct of the defendant that occurred during their resignation processes.
The plaintiffs do not offer any response.
To establish a claim of negligent infliction of emotional distress, "the plaintiff must prove that the defendant should have realized that its conduct involved an unreasonable risk of causing emotional distress and that the distress, if it were caused, might result in illness or bodily harm." Carrol v. Allstate Ins. Co., 262 Conn. 433, 446, 815 A.2d 119 (2003). The Connecticut Supreme Court has held, however, that "an individual ... employee may not be found liable for negligent infliction of emotional distress arising out conduct occurring within a continuing employment context, as distinguished from conduct occurring in the termination of employment." Perodeau v. City of Hartford, 259 Conn. 729, 763, 792 A.2d 752 (2002). Although Perodeau concerned the liability of an individual defendant, the courts have repeatedly held that the reasoning applies equally to corporate defendants. See Branson v. Bayer Corp., 237 F.Supp.2d 192, 208 (D.Conn.2002) (citing cases). Courts have also held that allegations of constructive discharge may qualify as termination under Perodeau. Pecoraro v. New Haven Register, 344 F.Supp.2d 840, 846 (D.Conn.2004); Grey v. City of Norwalk Bd. of Ed., 304 F.Supp.2d 314, 332 (D.Conn.2004). In a case of constructive discharge, courts will consider only the incidents which occurred during the plaintiffs resignation process or thereafter in evaluating a negligent infliction of emotional distress claim. Pecoraro, 344 F.Supp.2d at 846-847.
In the present case, it is undisputed that Pepperidge Farm did not terminate either plaintiffs employment. To the extent that either plaintiff claims constructive discharge, the court will consider only allegations of inappropriate conduct by Arocho or Pepperidge Farm which occurred during the plaintiffs' resignation processes or thereafter.
*141 Tsharides's claim
It is undisputed that neither Arocho nor Pepperidge Farm engaged in any inappropriate conduct during Tsharides's resignation process or thereafter. Specifically, in March 2003, Tsharides resigned from her employment, and she has made no allegations of inappropriate conduct by either defendant occurring during that process or thereafter. In fact, Tsharides testified in a deposition hearing that any alleged inappropriate conduct by the defendants had stopped in 2001. Consequently, because the defendants did not engage in any inappropriate conduct during Tsharides's resignation process or thereafter, Tsharides's claim of negligent infliction of emotional distress fails as a matter of law.
Presley's claim
It is also undisputed that neither defendant engaged in any inappropriate conduct during Presley's resignation process or thereafter. At some point in March 2002, Presley resigned. Presley does not allege that either defendant engaged in any inappropriate conduct during her resignation or thereafter. Earlier that same month, Presley does allege, however, that she received information that Arocho's wife, who was also an employee at the plant, was making physical threats towards her for pursuing a sexual harassment complaint. Even if the court were to strain in order to consider this incident in deciding Presley's claim, any allegation that Pepperidge Farm failed to take adequate remedial measures is insufficient, as a matter of law, to state a claim of negligent infliction of emotional distress. See Miner v. Town of Cheshire, 126 F.Supp.2d 184, 199 (D.Conn.2000) (holding that the plaintiffs allegations did not rise to the required level of unreasonableness to state a claim of negligent infliction of emotional distress where the "employer was well aware of [the] harassment, but failed to take adequate remedial measures or provide adequate training; and failed to provide an appropriate mechanism for the reporting incidents of sexual harassment in the workplace.") All other allegations by Presley took place in 2001, which are far too remote in time from Presley's resignation for the court to consider. Consequently, because it is undisputed that neither defendant engaged in any inappropriate conduct during Presley's resignation process or thereafter, Presley's claim of negligent infliction of emotional distress fails as a matter of law.
CONCLUSION
For the foregoing reasons, the defendants' motion for summary judgment is granted in part and denied in part.
NOTES
[1] The court will not consider this incident in its analysis because Presley admits that, at the time, she did not subjectively perceive this incident to be offensive. See Mormol v. Costco Wholesale Corp., 364 F.3d 54, 58 (2d Cir.2004) (stating that a plaintiff must subjectively perceive the conduct as hostile in order to prove a hostile work environment claim).
[2] The court will not consider this incident in its analysis because Presley has not introduced any facts from which a reasonable juror could infer that these threats were made because of Presley's gender. See Alfano v. Costello, 294 F.3d 365, 374 (2d Cir.2002) (stating that "it is `axiomatic' that in order to establish a sex-based hostile work environment under Title VII, a plaintiff must demonstrate that the conduct occurred because of her sex.").
[3] Accepting Presley's allegations as true, the court concludes that Pepperidge Farm, through its actions, demonstrated a greater interest in retaining Presley as an employee, than Grable demonstrated towards the plaintiffs in Whidbee. Specifically, Macionus and Allende conducted an investigation, removed Presley from Arocho's day-to-day supervision during the investigation, and later provided her with a transfer to another department when she requested one, while the employer in Whidbee took no such actions. Whidbee v. Garzarelli Food Specialties, Inc., 223 F.3d 62, 74 (2000). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2626093/ | 230 P.3d 1061 (2010)
STATE
v.
SANDRU.
No. 84009-1.
Supreme Court of Washington, Department II.
April 28, 2010.
Disposition of Petition for Review Denied. | 01-03-2023 | 11-01-2013 |
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